Student's Book - ITChannel

The International Conference on 

Administration and Business 

ICEA - FAA 2010 

4 – 5 JUNE 2010 

http://conference.faa.ro 

organized by 

The Faculty of Business and Administration 

University of Bucharest 

Bucureşti, 2010

“Student’s Book” Publishing House 

Phone: 004.031-402.95.90. 

Phone/Fax: 004.021.322.74.93. 

Matei Basarab Street No 106, Bl. 73, et. 8, 

sect. 3, Bucharest, Romania 

E-mail: cartea.studenteasca@rotex.ro 

http://www.rotex.ro 

CNCSIS Accredited Publishing House 

Cover:: Dragoş George SPĂTARU 

Make up: Dragoş George SPĂTARU 

ISBN: 978-606-501-070-3

CUPRINS: 

Preliminary Program .......................................................................................................11 

EMPLOYEES AND COMPUTER CRIMES DURING ECONOMIC CRISIS ...........33 

ANDRISESCU Dana Ramona 

LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA 

ANGELESCU Coralia........................................................................................................40 

ACELEANU Mirela Ionela 

CREȚU Alina Ștefania 

THE ROLE AND IMPLICATIONS OF MEDIATION IN PUBLIC 

MARKETING ......................................................................................................................52 

ARDELEANU Anca Monica 

AN OVERVIEW OF EUROPEAN MONEY MARKET INTEGRATION UNDER 

THE ECONOMIC AND MONETARY UNION ...............................................................59 

AVADANEI Andreea 

BUDGET EXPENDITURE STRUCTURE IN KOSOVO..............................................67 

MYRVETE- Badivuku-Pantina 

SKENDER Ahmeti 

MIXHAIT Reçi 

DRITA-Kaçandolli-Gjonbalaj 

CREATIVE MOTIVATION AND PERSONALITY AT THE ROMANIANS PUBLIC 

FUNCTIONARIES .............................................................................................................78 

BALGIU Beatrice Adriana 

SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK 

FUNCTIONS .......................................................................................................................91 

BÂRSAN-PIPU Nicolae 

MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE.......................95 

BONCIU Cătălina 

SIMA Cristian 

POPA Gabriel 

ROMANIAN HIGHLY SKILLED MIGRATION POST-1990. DIMENSIONS AND 

CAUSAL FACTORS .........................................................................................................103 

BONCIU Cătălina 

BLIDARU Horaţiu 

THEORETICAL APPROACHES OF THE IMPLEMENTATION SYSTEM OF 

EUROPEAN COHESION POLICY................................................................................110 

BOUROSU Alina

THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF 

DECISIONS.......................................................................................................................126 

BRATU Anca 

CORNESCU Viorel 

GRIGORE Maria 

GLOBALIZATION AND ECONOMIC GOVERNANCE.............................................134 

BUCUR Ion 

INTERCULTURAL COMPETENCE AND MANAGEMENT ....................................138 

BUDRINA Irina 

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

CARAGANCIU Anatolie 

CHIRIAC Mirela 

QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF EXTERNAL 

LABOR MIGRATION BY APPLICATION OF COST-BENEFIT ANALYSIS ........146 

CARAGANCIU Anatol 

DISTORTION OF COMPETITION: THEORETICAL APPROACHES AND 

PRACTICAL CONSEQUENCES ...................................................................................156 

CĂRARE Viorica 

MAXIM Ion 

HUMAN OBSOLESCENCE – A PERSONAL AND ORGANIZATIONAL 

CHALLENGE ....................................................................................................................160 

COMAN Adela 

TOADER Rita 

IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE 

LEARNING? ......................................................................................................................174 

CONSTANTIN Ionut 

DUMITRASCU Raluca-Bogdana 

THE ROLE OF THE STATE IN OBTAINING NATIONAL COMPETITIVE 

ADVANTAGE IN ROMANIAN ECONOMY .................................................................178 

DASCALU Adina Gabriela 

THE HISTORICAL APPROACH TO COMPETITION AND THE COMPARATIVE 

ANALISYS OF COMPETITIVE MARKET VERSUS MONOPOLISTIC 

MARKET............................................................................................................................184 

DASCALU Adina Gabriela 

CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH...........................194 

DAVID Oana 

MIHAI Valia Maria 

KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES........................198 

DIANA Dorus

GLOBAL ECONOMICS AS A COMPLEX SELF-REGULATED SYSTEM: 

THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES..............................202 

DREIMANIS Andrejs 

KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD ....................204 

DUMITRU Paula 

JOIA Radu-Marcel 

BABONEA Alina-Mihaela 

DESIGN AND IMPLEMENTATION OF THE SHORT-TERM DEMAND 

FORECASTING PROCESS ............................................................................................211 

EISENSTAT Eric 

INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF GLOBALIZATION, 

GLOBAL TRADE AND GLOBAL FINANCE ..............................................................212 

ENEA Constanţa 

ENEA Constantin 

A BRIEFLY ANALYSE OF “NON-STATE ACTORS”- NGOs IMPACT ON 

MULTINATIONAL COMPANIES: CONFLICT OR COOPERATION? ..................219 

LAURA Florescu 

THE RIGHT OF CONSUMPTION : THE DECLINE OF WILL 

AUTONOMY ?........................................................................................................230 

GHEORGHE Anca Nicoleta 

ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN THE SOCIO- 

ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION ..........................235 

GHEORGHE Carmen Adriana 

RATULEA Gabriela 

OFFSHORE COMPANIES .............................................................................................239 

GHEORGHE Cristina 

THE BALANCE OF PAYMENTS AND THE EXTERNAL DEBT. SPECIFIC 

PROBLEMS IN ROMANIA ............................................................................................248 

GIURGIU Adriana 

HAŢEGAN D.B. Anca 

NEGREA Adrian 

INFLATION TARGETING, LONG-RUN INFLATION EXPECTATIONS AND THE 

EFFECTIVENESS OF MONETARY POLICY.............................................................257 

GULYAS Erika I. 

UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT 

TECHNOLOGICAL REGIMES......................................................................................258 

HERMAN Radu 

ECONOMIC GROWTH, LABOR PRODUCTIVITY AND TECHNICAL 

PROGRESS: THE HISTORICAL LIMITS OF BAUMOL´S UNBALANCED 

GROWTH MODELS.........................................................................................................267 

ALAIN Herscovici

COMPETITIVENESS - CONCEPT and METODOLOGY ....................................278 

HORNIANSCHI Nicoleta 

ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT COMPANIES 

IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT THE GLOBAL 

LEVEL ................................................................................................................................285 

IAMANDI Irina-Eugenia 

CONSTANTIN Laura-Gabriela 

CERNAT-GRUICI Bogdan 

REPUTATION RISK: DETERMINANTS AND IMPLICATIONS............................294 

IANOLE Rodica 

SANDU Mihaela 

AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF ECONOMY 

ON ROMANIAN THEATRE PRODUCTION...............................................................297 

IANOLE Rodica 

CARAIMAN Carmen 

MODELING ONLINE CONSUMER BEHAVIOR THROUGH ONLINE SHOPPING 

EXPERIENCE: THEORETICAL ISSUES....................................................................306 

ICONARU Claudia 

MACOVEI Octav-Ionut 

THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD 

GOVERNANCE AT LOCAL LEVEL? ...........................................................................312 

IFTENE Cristi 

IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE ECONOMY........318 

JOIA Radu-Marcel 

DUMITRU Paula 

BABONEA Alina-Mihaela 

MONETARY POLICY AND THE FINANCING OF ROMANIAN COMPANIES 

IN THE CURRENT CRISIS............................................................................................324 

VALENTIN Leoveanu 

“WIKIHEALTH” FOR PUBLIC HEALTH MAPPING ...............................................333 

LITAN Daniela 

MOCANU (VIRGOLICI) Aura-Mihaela 

SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE 

RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS..................................341 

LUCA Oana 

MARINESCU M.A. Desiree 

THE ANALISIS OF THE SITUATION LOOKING THE ENVIRONMENT 

PROTECTION IN ROMANIA THROUGH THE POS ENVIRONMENT 

REFERENTIAL CHALLENGES AND THREATS......................................................350 

MARDIROS Daniela 

BORZA Mioara

THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT IN ROMANIA. 

A REGIONAL APPROACH ............................................................................................360 

MĂRGINEAN Silvia 

MODERN STRATEGIES OF TRANSNATIONAL COMPANIES FROM 

EMERGING COUNTRIES..............................................................................................363 

MĂRGULESCU Serghei 

MĂRGULESCU Elena 

ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE ...................370 

MATEI (NIŢOIU) Mădălina 

RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0 ...................375 

MIHAILESCU Marius Iulian 

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

MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE DISPUTES........................380 

MINA Simona 

THE IMPORTANCE OF INNOVATION IN DEVELOPING AND ORIENTING 

COMPANIES IN THE GLOBAL ECONOMIC CRISIS..............................................388 

MITITEL Elena 

THE MICE TOURISM – A RECOVERY STRATEGY FOR 

ROMANIAN TOURISM...................................................................................................394 

MIHAELA-CARMEN Muntean 

COSTEL Nistor 

REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK ..........................403 

NEGOTIU Calin 

UNCONVENTIONAL ADVERTISING – AN IMPORTANT OBJECTIVE IN THE 

DEVELOPMENT OF THE COMPANY IN TIMES OF CRISIS................................410 

MARINESCU Paul 

NICULAE Sabin Mihai 

TOMA Sorin 

CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT COMPONENT 

IN CRISIS SITUATIONS ................................................................................................420 

NICULAE Tudorel 

MARINESCU Paul 

TOMA Sorin 

NICULAE Sabin Mihai 

THE SELECTION OF METHOD OF DISTRIBUTIONWITH MODELING 

PROCESS APPLIED ON AN NATIONAL MANUFACTURING COMPANY BY 

MEANS OF DECISION TREE METHOD ....................................................................427 

COSTEL Nistor 

ROZALIA Nistor 

CIPRIAN GEORGE Ticu

THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND SIMULATION 

OF THE ECONOMIC PROCESSES..............................................................................435 

ROZALIA Nistor 

ALEXANDRU Capatina 

THE ROLE OF STRATEGIC LEADERSHIP IN THE EXECUTION OF 

CORPORATE STRATEGIES .........................................................................................440 

OLU Ojo 

COMPETENCY LEVEL OF CONSTRUCTION PROJECT MANAGER IN 

PENANG STATE, MALAYSIA .......................................................................................448 

OMRAN Abdelnaser 

MAHMOOD Abdullah 

MANAGEMENT OF SAFETY IN CONSTRUCTION SITES IN MALAYSIA: 

PERSPECTIVES ON THE ELEMENTS OF POOR ...................................................458 


OMRAN Abdelwahab 

RAMLI Mayhuddin 

PAKIR Abdul Hamid Kadir 

CRITICAL SUCCESS FACTORS IN CONSTRUCTION INDUSTRY IN LIBYA .....468 




IDENTIFYING THE KEY FACTORS THAT INFLUENCE DELIVERY OF 

PROJECTS UNDERTAKEN BY LOCAL CONTRACTORS IN MALAYSIA: A CASE 

STUDY................................................................................................................................473 




MANAGING CONSTRUCTION CONFLICT: A CASE STUDY OF PAN PALACE 

PLAZA COMMERCIAL COMPLEX IN PENANG STATE, MALAYSIA .................481 

YEW Yeoh Keat 



MAHMOOD Abdullah 

ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER 

GOVERNMENTAL POLICY-MAKING.........................................................................495 

OPREA Radu Adrian 

SARPE Ancuta Daniela 

GROUP DECISIONS and IMPLICATION of GROUP DECISION SUPPORT 

SYSTEMS IN TURKEY ...................................................................................................502 

SAHİN Mehmet 

PASAOGLU HAMSIOGLU Didem

THE IMPORTANCE OF COMMUNICATION IN PROJECT MANAGEMENT ....508 

PISTOL Luminita 

UNGUREANU Adrian 

COMPETITIVE STRATEGIES IN THE GLOBALISATION’S CONTEXT.............515 

PLATIS Magdalena 

BABAN Eleonora Gabriela 

A WORLD OF CHALLENGES: THE ACCELERATION OF FINANCIAL FLOWS 

AND OF FOREIGN DIRECT INVESTMENTS ...........................................................522 

POPESCU N. Gheorghe 

POPESCU Veronica Adriana 

POPESCU Cristina Raluca 

NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING 

COMPETITIVENESS ......................................................................................................529 

POPESCU Veronica Adriana 

POPESCU N. Gheorghe 

POPESCU Cristina Raluca 

CENTRAL BANK MONETARISM TO KEYNESIAN GOVERNING 

IMPULSES ........................................................................................................................536 

RĂDOI Mădălina-Antoaneta 

OLTEANU Alexandru 

FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS ..................541 

RADU Liviu 

RADU Carmen 

DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION SYSTEM - A NEW 

INSTITUTION CONSTRUCTION WHICH ENTAILS EFFICIENCY AND 

EQUITY? ............................................................................................................................554 

ROMAN Mihaela 

CHALLENGES FOE A GLOBAL ACADEMIC RANKING........................................556 

ROTARIU Ilie 

REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN THE 

EDUCATIONAL SYSTEM ..............................................................................................560 

ROVENTA IRINA 

THE MACROECONOMIC EFFECTS OF EUROPEAN FINANCIAL 

INTEGRATION.................................................................................................................565 

ŞARGU Alina Camelia 

CHIRLEŞAN Dan 

IMPROVING THE MANAGEMENT OF A COMPANY USING BI 

INSTRUMENTS................................................................................................................572 

ŞERBANESCU Luminiţa 

RĂDULESCU Magdalena

SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA 

FOLLOWING THE COUNTRY’S ACCESSION 

TO THE EUROPEAN UNION........................................................................................577 

SÎRGHI Nicoleta 

HOHAN Dumitru 

LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL 

MEANS...................................................................................................................586 

STĂNCIULESCU Camelia 

THE NECESSITY TO HARMONIZE THE MECHANISMS CHARACTERISTIC TO 

’THE CONTRACT OF CONSUMPTION’ TO GENERAL RULES ...........................591 

STĂNCIULESCU Liviu 

IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN THE 

INTEREST RATES AND THE STOCK PRICES IN ROMANIA ..............................595 

STEFANESCU Razvan 

DUMITRIU Ramona 

FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND DEVELOPING 

COUNTRIES .....................................................................................................................608 

STOICA Emilia Cornelia 

HUMAN BEHAVIOUR BETWEEN THE HOLISTIC TRIAD AND THE TRAGIC 

TRIAD ................................................................................................................................614 

POPESCU Constantin 

TAŞNADI Alexandru 

OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY: A CASE 

STUDY ON THE TRANSACTION PATTERNS IN A TURKISH ASSEMBLY 

PLANT................................................................................................................................615 

YENİDOĞAN Gürçaylilar ................................................................................................... 

SARVAN Fulya 

PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS: 

THE CASE OF SECURITY STUDIES ..........................................................................622 

ZULEAN Marian

The International Conference on 

Administration and Business 


4 – 5 JUNE 2010 

http://conference@faa.ro 

organized by 

The Faculty of Business and Administration 

University of Bucharest

Organizing Committee 

Conference Manager: 

Professor Dr. Elena Druica, University of Bucharest 

Email: druica_e@faa.ro or elenadruica@yahoo.com 

Romanian Organizing Committee 

� Professor Dr. Viorel Cornescu, founder of the Faculty of Business and 

Administration 

� Professor Dr. Magdalena Platis, Dean of the Faculty of Business and 


� Assoc. Professor Dr. Cornelia Nistor, Vice Dean of the Faculty of Business and 


� Assoc. Professor Dr. Razvan Papuc, Scientific Secretary of the Faculty of Business 

and Administration 

� Lecturer Dr. Siviu Cojocaru, Faculty of Business and Administration 

� Lecturer Dr. Anca Bratu, Faculty of Business and Administration 

� Teaching Assistant Dr. Cristina Popescu, Faculty of Business and Administration 

� Dr. Student Ionut Constantin, Faculty of Business and Administration 

� Dr Student Radu Herman, Faculty of Business and Administration 

� Dr Student Ioana Josan, Faculty of Business and Administration 

� Dr. Student Mihaela Sandu, Faculty of Business and Administration 

� Economist Carmen Gheorghita, Financial Manager, Faculty of Business and 


� Economist Andreea Stroe, external collaborator of the Faculty of Business and 


Scientific Advisory Board 

The organizers thank to the scientific advisory board of the Economic and 

Administrative Sciences Series of the Annals of the University of Bucharest, as 

well as to some of the members of the editorial board of the International Journal of 

Innovation in the Digital Economy for their effort in reviewing the submissions. 

Independent reviewers have also contributed to raising the scientific level of the registered 

papers.

� Azlan Bin Amran, Universiti Sains Malaysia, Malaysia 

� Adewale Aregbeshola, University of South Africa, South Africa 

� Ibrahim Arslan, Gaziantrep University, Turkey 

� Nimalathasan Balasundaram, University of Chittagong, Bangladesh 

� Bidit Lal Dey, American International Universtiy, Bangladesh 

� Subhajit Basu, Queen’s University of Belfast, UK 

� Trond-Arne Borgersen, Department of Business, Social Sciences and Languages, 

� Ion Bucur, University of Bucharest, Romania 

� Trond Borgenstern, Østfold University College, Norway 

� Anatolie Caraganciu, “Lucian Blaga” University from Sibiu, Romania 

� Kaushik Chaudhuri, Reitaku University, Japan 

� Viorel Cornescu, University of Bucharest, Romania 

� Bidit Lal Dey, American International Universtiy, Bangladesh 

� Ion Ignat, “Al. I. Cuza” University from Iasi, Romania 

� Ryu Keikoh, Waseda University, Japan 

� Oliver Krone, University of Lapland, Finland 

� Bhekuzulu Kumalo, Toronto, Canada 

� Jacky Mathonnat, University Auberge, France 

� Stephen Mutula, University of Botswana, Botswana 

� Shinji Naruo, Japan 

� Olu Ojo, Covenant University, Nigeria 

� Abdelnaser Omran, Universiti Sains Malaysia, Malaysia 

� Abang Ekhsan Abang Othman, Universiti Malaysia Sarawak, Malaysia 

� Didem Pasaoglu Hamsioglu, Anadolu University, Turkey 

� Rajesh K Pillania, Management Development Institute, India 

� Magdalena Platis, University of Bucharest, Romania 

� Rauno Rusko, University of Lapland, Finland 

� Miha Saloheimo, University of Lapland, Finland 

� Azadeh Shafaei, Universiti Sains Malaysia, Malaysia 

� Ryu Keikoh, Waseda University, Japan 

� Mehran Nejati, Universiti Sains Malaysia, Malaysia 

� Mostafa Nejati, Universiti Sains Malaysia, Malaysia 

� Razvan Papuc, University of Bucharest, Romania 

� Dan Popescu, “Lucian Blaga” University from Sibiu, Romania 

� Ali Pourezzat, University of Tehran, Iran 

� Andrei Stanoiu, “Nicolae Titulescu” University, Bucharest, Romania 

� Alexandru Tasnadi, The Academy of Economic Studies, Bucharest, Romania

The International Conference in Economics and Administration 

June 4 th 


9,00 a.m. Registration of the participants, in the hall of the “Rectorate” Building of 

the University of Bucharest, Kogalniceanu Avenue 36 - 46, Sector 5. 

9,30: Welcome to the participants: Professor Dr. Magdalena Platis, Dean of the 

Faculty of Business and Administration, “Stoicescu” Hall, First Floor 

Plenary Session 

10,00 – 10,25: Speaker: Professor Shinji Naruo, Japan, Visiting professor, University of 

Bucharest, Romania: 

A DRASTIC REORGANIZATION OF INDUSTRY IN THE WORLD. WHAT IS THE 

DRIVING FORCE FOR REORGANIZATION? 

10,25 – 10,50: Speaker: Professor Dr. Fabio Musso, Department of Business Studies and 

Law, University of Urbino “Carlo Bo”, Italy; Co – Author: Dr. Student Barbara Francioni, 

Department of Business Studies and Law, University of Urbino “Carlo Bo”, Italy 

INTERNATIONAL STRATEGY FOR SMES: CRITERIA FOR FOREIGN 

MARKETS SELECTION 

10,50 – 11,15: Speaker: Professor Dr. Viorica Cărare, Director of the National Agency of 

Competition in Republic of Moldova ; Co–Author: Maxim Ion; Cooperative Trade 

University of Moldova 

COMPETITION DISTORSION. THEORETICAL APPROACHES AND 

PRACTICAL CONSEQUENCES 

11,15 – 11,45 Coffee Break. Discussions. 

11,45 – 12,10: Speaker: Professor Dr. Hiroyuki Oba, Reitaku University, Japan 

GAKUMON - RYOKU AND JAPANESE STYLE OF MANAGEMENT - DOES OUR 

MANAGEMENT STYLE MATTER? 

12,10 – 12,35: Speaker: Dr. Abdelnaser Omran, School of Housing, Building and 

Planning, Universiti Sains Malaysia, Malaysia 

ENVIRONMENTAL CRIME: A THREAT TO OUR FUTURE

12,30 – 13,00: Speaker: Professor Dr. Gabriela Stanciulescu, the Academy of Economic 

Studies from Bucharest, Romania 

YELD MANAGEMENT 

13,00 – 13,25: Speaker: Professor Dr. Christina Suciu, the Academy of Economic 

Studies from Bucharest, Romania 

CONSUMER BEHAVIOUR AND NEW ECONOMICS 

13, 45: Lunch Break. Discussions. 

Place: The Students’ Restaurant of the University of Bucharest, Kogalniceanu 

Avenue 36 - 46, Sector 5 

15, 00: Sections Work 

The halls and their places are mentioned in the remained pages of the 

conference program. 

19,00: Dinner 


Avenue 36 - 46, Sector 5

Section 1: Economics: 

Hall: Amphitheatre 1, Ground Floor 

Chairs: 

� Professor Dr. Ion Bucur, Faculty of Business and Administration, University from 

Bucharest 

� Alain Herscovici, Universidade Federal do do Espírito Santo, Brazil 

� Teaching Assistant. Cristina Popescu, Faculty of Business and Administration, 

University from Bucharest 

15,00 – 15,10: FREE TRADE – A PRIORITY ISSUE OF G-20 SUMMITS AFTER 

THE WORLD ECONOMY WENT INTO RECESSION; Author: Haller Alina - 

Petronela; ICES ,,Gh. Zane” – Iasi Branch of the Romanian Academy; 

15,10 – 15,20: FOUNDING A NEW COMPANY IN THE PEOPLE’S REPUBLIC OF 

CHINA: CASE STUDY; Author: Boštjan Polajžer, M. Sc., Faculty of Management 

Koper, Slovenia 

15,20 – 15,30: COMPETITIVENESS - CONCEPT AND METODOLOGY; Author: CPI 

Dr. Nicoleta Hornianschi, Romanian Academy 

15,30 – 15,40: ECONOMIC GROWTH, TECHNICAL PROGRESS AND LABOR 

PRODUCTIVITY: KNOWLEDGE ECONOMICS AND NEW FORMS OF 

TECHNICAL PROGRESS; Author: Alain Herscovici, Universidade Federal do do 

Espírito Santo, Brazil 

15,40 – 15,50: GLOBAL ECONOMICS AS A COMPLEX SELF - REGULATED 

SYSTEM: THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES; Author: 

Dreimanis Andrejs; Radiation safety centre of the State Environmental Service, Latvia; 

15,50 – 16,00: SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA 

FOLLOWING THE COUNTRY’S ACCESSION TO THE EUROPEAN UNION; 

Authors: Associate Professor Dr. Sîrghi Nicoleta, West University of Timisoara, Faculty 

of Economics and Business Administration; Dr. Student Hohan Dumitru, CNSLR Fratia, 

Bucuresti 

16,10 – 16,20: AN EMPIRICAL ANALYSIS OF THE EXCHANGE RATE CHANNEL 

IN TURKEY; Author: Assistant Professor Bengül Gülümser Arslan, Faculty of 

Economics &Adm. Science/Department of economics, Turkey 

16,20 – 16,30: NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING 

COMPETITIVENESS; Authors: Professor Dr. Popescu Veronica Adriana; Professor Dr. 

Popescu N. Gheorghe; Academy of Economic Studies; Teaching Assistant Dr. Popescu 

Cristina Raluca, University of Bucharest 

16,30 – 16,40: THE DYNAMIC OF INTERNATIONAL COMMERCIAL EXCHANGE 

UNDER GLOBALIZATION. COMPARATIVE ANALYSIS; Author: Dr. Ion Gr. 

Ionescu, “Dimitrie Cantemir” Christian University, Constanta, Romania

16,40 – 16,50: THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD 

GOVERNANCE AT LOCAL LEVEL?; Author: Res. Dr. Cristi Iftene, Ovidius 

University of Constanta, Romania 

16,50 – 17,00: A BRIEFLY ANALYSE OF “NON-STATE ACTORS”- NGOs IMPACT 

ON MULTINATIONAL COMPANIES: CONFLICT OR COOPERATION?; Author: 

Laura Florescu; University “Alexandru Ioan Cuza” of Iasi, Romania; 

17,00 – 17,30: Coffee break. Discussions. 

17,30 – 17,40: COMPETITIVE STRATEGIES IN THE CONTEXT OF 

GLOBALISATION; Authors: Professor Dr. Platis Magdalena, Teaching assistant Baban 

Eleonora Gabriela, Faculty of Business and Administration, University of Bucharest, 

Romania 

17,40 – 17,50: GLOBALIZATION AND ECONOMIC GOVERNANCE; Author: 

Professor Dr. Ion Bucur, Faculty of Business and Administration, University from 

Bucharest 

17,50 – 18,00:. IRANIAN STONE EXPORT TO UKRAINE: PROBLEMS AND 

BARRIERS; Author: Farhad Parand, National Technical University of Ukraine “Kyiv 

Polytechnic Institute” 

18,00 – 18,10: ECOENTERPRISE, Author: Cornel Vintila, Edata, Bucharest 

18,10 – 18,20: ROMANIAN HIGHLY SKILLED MIGRATION POST-1990. 

DIMENSIONS AND CAUSAL FACTORS; Authors: Bonciu Cătălina, Faculty of 

Administration and Business, University of Bucharest, Romania; Blidaru, Horaţiu, 

Faculty of Political Sciences, „Dimitrie Cantemir” Christian University, Bucharest, 

Romania 

18,20 – 18,30: OFFSHORE COMPANIES; Author: Teaching Assistant Dr. Student 

Cristina Gheorghe, Faculty of Business and Administration, University of Bucharest, 

Romania 

16,30 – 18,40: GROUP DECISIONS and IMPLICATION of GROUP DECISION 

SUPPORT SYSTEMS IN TURKEY; Authors: Prof. Dr. Mehmet Sahin, Dr. Didem 

Pasaoglu Hamsioglu; Turkey

Section 2: Applied Economics: 

Hall: Amphitheatre 5, First Floor, next to “Stoicescu” Hall 

Chairs: 

� Professor Dr. Anatolie Caraganciu, “Lucian Blaga” University from Sibiu, 

Romania 

� Professor Dr. Coralia Angelescu, Academy of Economic Studies, Bucharest, 

Romania 

� Assistant Professor Herman Radu, Faculty of Administration and Business, 

University of Bucharest, Romania 

15,00 – 15,10: QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF 

EXTERNAL LABOR MIGRATION BY APPLICATION OF COST-BENEFIT 

ANALYSIS; Authors: Profesor Dr. Anatolie Caraganciu, "Lucian Blaga" University, 

Sibiu; Dr. Student Belobrov Angela, Faculty of Finance, Academy of Economic Studies of 

Moldova, 

15,10 – 15,20: THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND 

SIMULATION OF THE ECONOMIC PROCESSES; Authors: Rozalia Nistor; 

Alexandru Capatina; University “Dunarea de Jos” of Galati; 

15,20 – 15,30: INFORMATION SYSTEMS USAGE IN BUSINESS AND 

MANAGEMENT; Author: Associate Professor Dr. Mihane Berisha - Namani, Faculty of 

Economics, University of Pristina, Kosova 

15,30 – 15,40: THE SELECTION OF METHOD OF DISTRIBUTION WITH 

MODELING PROCESS APPLIED ON A NATIONAL MANUFACTURING 

COMPANY BY MEANS OF DECISION TREE METHOD; Authors: Costel Nistor; 

Rozalia Nistor; Ciprian George Ticu, “Dunarea de Jos” University; 

15,40 – 15,50: REPUTATION RISK: DETERMINANTS AND IMPLICATIONS; 

Authors: Ianole Rodica, Faculty of Social and Administrative Sciences, “Nicolae 

Titulescu” University, Romania, Sandu Mihaela, Faculty of Business and 

Administration, University of Bucharest, Romania 

15,50 – 16,00: RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0; 

Author: Eng. Marius Iulian Mihailescu, Department of Computer Science, “Titu 

Maiorescu” University from Bucharest, Romania 

16,00 – 16,10: TAKING ACTION IN GREEN THROUGH BROWN; Author: Sevilay 

Atlama, Faculty of Economics & Adm. Science/ Department of Economics, Anadolu 

University, Turkey 

16,10 – 16,20: IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE 

ECONOMY; Authors: Joia Radu-Marcel; Dumitru Paula; Babonea Alina-Mihaela; 

“Nicolae Titulescu” University, Bucharest;

16,20 – 16,30: SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE 

RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS; Authors: Associate 

Professor Dr. Luca Oana , Technical University of Civil Engineering Bucharest, 

Romania; Dr Student Marinescu M.A. Desiree, Academy of Economic Studies, Bucharest, 

Romania; Associate Professor Dr. Gaman Florian, Technical University of Civil 

Engineering Bucharest, Romania 

16,30 – 16,40: THE IMPORTANCE OF INNOVATION IN DEVELOPING AND 

ORIENTING COMPANIES IN THE GLOBAL ECONOMIC CRISIS; Author: Dr. 

Student Mititel Elena, Academy of Economic Studies, Bucharest, Romania 

16,40 – 16,50: STATE AID THROUGH THE GOOD GOVERNANCE CONCEPT; 

Authors: Profesor, Dr. Anatolie Caraganciu, Dr. Student Mirela Chiriac, "Lucian Blaga" 

University, Sibiu 

16,50 – 17,00: CONSIDERATIONS REGARDING FINANCING SOURCES FOR 

ENERGY ACTIONS IN ROMANIA; Authors: Associate Professor Dr Luca Oana, 

Associate Professor Dr Gaman Florian, Technical University of Civil Engineering 

Bucharest, Romania; Dr Student Marinescu M.A. Desiree, Academy of Economic Studies, 

Bucharest, Romania; Dr Stanescu Andrei, Technical University of Civil Engineering 

Bucharest, Romania 

17,00 – 17,30: Coffee break. Discusssions. 

17,30 – 17,40: DESIGN AND IMPLEMENTATION OF THE SHORT-TERM 

DEMAND FORECASTING PROCESS; Author: Dr. Eisenstat Eric; University of 

California, Irvine; 

17,40 – 17,50: LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA; 

Authors: Angelescu Coralia, Aceleanu Mirela Ionela, Creţu Alina Ștefania, Faculty of 

Economics/Department of Economics and Economic Policies/Academy of Economic 

Studies, Bucharest, Romania 

17,50 – 18,00: SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK 

FUNCTIONS; Author: Professor Dr. Bârsan-Pipu Nicolae, Faculty of Finance, Banking 

and Accounting, “Dimitrie Cantemir” Christian University, Braşov, Romania 

18,00 – 18,10: IT SECURITY POLICY MANAGEMENT INTO THE BUSINESS 

PROCESSES; Author: Associate Professor Dr. Barnoschi Adriana, University “Nicolae 

Titulescu” Bucharest, Romania 

18,10 – 18,20: ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE; 

Author: Dr. Student Mădălina Matei (Niţoiu), The Academy of Economic Studies, 


18,20 – 18,30: CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH; 

Authors: Lecturer Dr. David Oana; “Politehnica” University of Bucharest; Mihai Valia 

Maria; Petroleum-Gas University of Ploiesti; 

18,30 – 18,40: REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK, 

Author: Dr. Student Negotiu Calin, “Lucian Blaga” University from Sibiu, Romania

18,40 – 18,50: AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF 

ECONOMY ON ROMANIAN THEATRE PRODUCTION; Authors: Ianole Rodica, 

Caraiman Carmen, Faculty of Social and Administrative Sciences, “Nicolae Titulescu” 

University, Romania 

18,50 – 19,00: UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT 

TECHNOLOGICAL REGIMES; Author: Dr Student Herman Radu; Faculty of Business 

and Administration, University of Bucharest; Romania

Section 3: Management and Marketing: 

Hall: “Stoicescu” Hall, First floor 

Chairs: 

� Professor Dr. Paul Marinescu, Faculty of Bussines and Administration, University 

of Bucharest, Romania 

� Professor Dr. Sorin Toma, Faculty of Bussines and Administration, University of 


� Teaching Assistant Joia Radu Marcel, Faculty of Economic Sciences, “Nicolae 

Titulescu” University from Bucharest, Romania 

15,00 – 15,10: MODELING ONLINE CONSUMER BEHAVIOR THROUGH 

ONLINE SHOPPING EXPERIENCE: THEORETICAL ISSUES; Authors: Dr 

Attendant Iconaru Claudia; Dr Attendant Macovei Octav-Ionut; The Academy of 

Economic Studies, Bucharest, Romania 

15,10 – 15,20: PERSPECTIVE ON THE PERSONAL AND PROFESSIONAL 

NEEDS OF THE PROJECT LEADER IN CONSTRUCTION INDUSTRY IN LIBYA: 

A CASE STUDY; Authors: Salahaldein Alsadey, Abdelnaser Omran, Abdul Hamid 

Kadir Pakir, Universiti Sains Malaysia, Malaysia 

15,20 – 15,30: INTERCULTURAL COMPETENCE AND MANAGEMENT; Author: Dr 

Atendant Irina Budrina (Russia), The Academy of Economic Studies Bucharest, Romania 

15,30 – 15,40: THE MICE TOURISM – A RECOVERY STRATEGY FOR 

ROMANIAN TOURISM; Authors: Mihaela-Carmen Muntean, Costel Nistor, “Dunarea 

de Jos” University, Galati, Romania 

15,40 – 15,50: THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF 

DECISIONS; Authors: Bratu Anca; Cornescu Viorel, University of Bucharest; Grigore 

Maria; “Nicolae Titulescu” University, Bucharest 

15,50 – 16,00: HUMAN OBSOLESCENCE - A PERSONAL AND 

ORGANIZATIONAL CHALLENGE; Authors: Associate Professor Dr. Adela Coman, 

University of Bucharest; Associate Professor Dr. Rita Toader, The North University of 

Baia Mare 

16,00 – 16,30: ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT 

COMPANIES IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT THE 

GLOBAL LEVEL; Authors : Iamandi Irina - Eugenia; Constantin Laura - Gabriela; 

Cernat - Gruici Bogdan; Faculty of International Business and Economics; the Academy 

of Economic Studies Bucharest; Romania 

16,30 – 16,40: THE IMPORTANCE OF COMMUNICATION IN PROJECT 

MANAGEMENT; Authors: Pistol Luminita, Ungureanu Adrian, Spiru Haret University; 

Romania 

16,40 – 16,50: KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES; 

Author: Diana Dorus, University of Bucharest

16,50 – 17,00: NEW PUBLIC MANAGEMENT AS A SOLUTION TO STATE’S 

INCAPACITY OF MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE 

DISPUTES; Authors: Simona Mina, Ana Rodica Stăiculescu, Cornel Grigoruţ, Faculty of 

Law and Public Administration, Ovidius University of Constanţa Romania, 


17,30 – 17,40: THE SUSTAINABLE ENTERPRISE AT THE BEGINNING OF THE 

21ST CENTURY; Authors: Associate Professor Dr. Vladimir-Codrin Ionescu, Professor 

Dr. Viorel Cornescu, University of Bucharest, Romania 

17,40 – 17,50: THE AFFIRMATION AND DEVELOPMENT DIRECTIONS OF THE 

KNOWLEDGE - BASED SOCIETY, Professor Dr. Viorel Cornescu, Associate Professor 

Dr. Vladimir-Codrin Ionescu, University of Bucharest, Romania 

17,50 – 18,00: MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE; 

Authors: Professor Dr. Cătălina Bonciu, Faculty of Business and Administration, 

University of Bucharest; Lecturer Dr. Cristian Sima, Centre for Industrial Economics 

and Services, National Institute of Economic Research; Lecturer Dr. Gabriel Popa, 

Polytechnic Institute of Bucharest, Faculty of Transports 

18,00 – 18,10: MARKET RESEARCH ON BOTTLED WATER INDUSRTY AND 

CONSUMPTION TRENDS IN EUROPE; Author: Irena Mnatsakanyan, BSC 

BUSINESS SUPPORT CENTER LLC, Armenia 

18,00 – 18,10: KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD; 

Author: Dumitru Paula; Joia Radu-Marcel; Babonea Alina-Mihaela; “Nicolae Titulescu” 

University, Bucharest; 

18,10 – 18,20: CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT 

COMPONENT IN CRISIS SITUATIONS; Authors: Niculae Tudorel, ISOP, Bucharest; 

Paul Marinescu, University of Bucharest, Faculty of Business and Administration; Sorin 

Toma, University of Bucharest, Faculty of Business and Administration; Niculae Sabin 

Mihai, Academy of Economic Studies, Bucharest 

Faculty of Marketing 

18,20 – 18,30: UNCONVENTIONAL ADVERTISING – AN IMPORTANT 

OBJECTIVE IN THE DEVELOPMENT OF THE COMPANY IN TIMES OF 

CRISIS; Authors: Paul Marinescu, University of Bucharest, Faculty of Business and 

Administration; Niculae Sabin Mihai, Academy of Economic Studies, Bucharest, Faculty 

of Marketing, Sorin Toma, University of Bucharest, Faculty of Business and 

Administration

Section 4: Finance and Accounting: 

Hall No: 120, Ground Floor 

Chairs: 

� Erika I. Gulyas, Trinity University, San Antonio TX 

� Teaching Assistant Dr. Student Valentin Mihai Leoveanu, Faculty of Business 

and Administration, University of Bucharest, Romania 

15,00 – 15,10: INFLATION TARGETING, LONG-RUN INFLATION 

EXPECTATIONS AND THE EFFECTIVENESS OF MONETARY POLICY; Author: 

Erika I. Gulyas, Trinity University, San Antonio TX 

15,10 – 15,20: THE FINANCIAL RELATED ANALYSIS ON SALES MANAGEMENT 

AND HUMAN RESOURCES BY MEANS OF BI TYPE SOLUTIONS (Accepted to 

be published in the International Journal of Innovation in the Digital Economy, 

SUA); Authors: Lecturer Dr. Şerbanescu Luminiţa, University of Piteşti, Romania; 

Associate Professor Dr. Rădulescu Magdalena, University of Piteşti, Romania, 

15,20 – 15,30: A WORLD OF CHALLENGES: THE ACCELERATION OF 

FINANCIAL FLOWS AND OF FOREIGN DIRECT INVESTMENTS; Authors: 

Professor Dr. Popescu N. Gheorghe; Professor Dr. Popescu Veronica Adriana, Academy of 

Economic Studies; Teaching Assistant Dr. Popescu Cristina Raluca, University of 

Bucharest 

15,30 – 15,40: THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT 

IN ROMANIA. A REGIONAL APPROACH; Author: Associate Professor Dr. 

Mărginean Silvia; ”Lucian Blaga” University of Sibiu, Romania; 

15,40 – 15,50: MONETARY POLICY AND THE FINANCING OF ROMANIAN 

COMPANIES IN THE CURRENT CRISIS; Author: Teaching Assistant Valentin 

Leoveanu, University of Bucharest, Romania 

15,50 – 16,00: THE MACROECONOMIC EFFECTS OF EUROPEAN FINANCIAL 

INTEGRATION; Author: Șargu Alina Camelia, Chirlean Dan; “Alexandru Ioan Cuza 

University”, Iași; Romania 

16,00 – 16,10: IDENTIFICATION, CLUSTERING AND COMPARING EFFECTIVE 

INDUSTRIES AT TEHRAN STOCK EXCHANGE BEFORE AND AFTER ITS 

LEGAL STRUCTURE CHANGE BY MINIMUM SPANNING TREE OF DISTANCE 

ULTRA METRIC; Authors: M. Ashhar, D. Damoori, H. Anvar, Department of Financial 

Management, College of Management, University of Yazd, Iran 

16,10 – 16,20: FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS, 

Authors: Lecturer Dr. Liviu Radu, Lecturer Dr. Carmen Radu, “Nicolae Titulescu” 

University from Bucharest, Romania 

16,20 – 16,30: OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY: 

A CASE STUDY ON THE TRANSACTION PATTERNS IN A TURKISH

ASSEMBLY PLANT; Authors: Tuğba Gürçaylilar Yenidoğan, Fulya Sarvan, Akdeniz 

University, Antalya, Turkey 

16,30 – 16,40: INVESTMENT ENVIRONMENT AND FOREIGN DIRECT 

INVESTMENTS IN THE UNDERLYING TRENDS OF THE TURKISH ECONOMY; 

Authors: Research Assistant Sevilay Atlama, Professor Dr. S. Ridvan Karluk, Fac. Of 

Economics & Adm. Science/ Department of Economics, Anadolu University, Turkey 

16,40 – 16,50: CHANGES IN THE DOW EFFECTS IN THE ROMANIAN FOREIGN 

EXCHANGE MARKET; Authors: Dumitriu Ramona, Stefanescu Razvan, “Dunarea de 

Jos” University from Galati, Romania 

16,50 – 17,00. INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF 

GLOBALIZATION, GLOBAL TRADE AND GLOBAL FINANCE; Authors: Enea 

Constanţa, Economics Faculty and Business Administration, „Constantin Brancusi” 

University, Targu-Jiu, România, Enea Constantin, Economics Faculty of Law, 

„Constantin Brancusi” University, Targu-Jiu, România 


Place: Hall 114, Ground Floor 

17,30 – 17,40: IMPROVING THE MANAGEMENT OF A COMPANY USING BI 

INSTRUMENTS; Authors: Lecturer Dr. Şerbanescu Luminiţa, University of Piteşti, 

Romania; Associate Professor Dr. Rădulescu Magdalena, University of Piteşti, Romania, 

17,40 – 17,50: BUDGET EXPENDITURE STRUCTURE IN KOSOVO; Authors: 

Associate Professor Myrvete Badivuku-Pantina, Associate Professor Skender Ahmeti, 

University of Prishtina, Faculty of Economics, Kosovo; Associate Professor Mixhait Reçi, 

University “Iliria”, Kosovo; Drita Kaçandolli-Gjonbalaj, Privatization Agency of Kosova, 

Kosovo 

17,50 – 18,00: IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN 

THE INTEREST RATES AND THE STOCK PRICES IN ROMANIA 

Authors: Stefanescu Razvan, Dumitriu Ramona; Faculty of Economics, University 

“Dunarea de Jos” Galati, Romania 

18,00 – 18,10: FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND 

DEVELOPING COUNTRIES; Author: Associate Professor Dr. Stoica Emilia Cornelia, 

“Nicolae Titulescu” University, Romania

Section 5: Education, Administration and Law: 

Hall No: 124, Ground Floor 

Chairs: 

� Associate Professor Dr. Anca Monica Ardeleanu, Faculty of Business and 

Administration, University of Bucharest 

� Dr. Krone Oliver; University of Lapland, Faculty of Social Sciences; 

� Dr. Student Ioana Josan, Faculty of Business and Administration, University of 

Bucharest 

15,00 – 15,10: CHALLENGES OF A GLOBAL ACADEMIC RANKING; Author: 

Professor Dr. Rotariu Ilie; “Lucian Blaga” University of Sibiu; Romania 

15,10 – 15,20: ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER 

GOVERNMENTAL POLICY-MAKING; Authors: Dr. Student Oprea Radu Adrian; Dr 

Ancuta Daniela Sarpe, Dunarea de Jos University, Galati, Romania 

15,30 – 15,40: DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION 

SYSTEM – A NEW INSTITUTION CONSTRUCTION WHICH ENTAILS 

EFFICIENCY AND EQUITY?; Author: Roman Mihaela, Dr. Student at the National 

School of Political Studies and Public Administration, Romania 

15,40 – 15,50: THE RELATIONSHIP BETWEEN VOCATIONAL EDUCATION AND 

ECONOMIC DEVELOPMENT IN TURKEY: AN EMPIRICAL ANALYSIS; Author: 

Dr. Ceyda Özsoy, Anadolu University, Turkey 

15, 50 – 16,00: BUSINESS EXCELLENCE WITH MANAGEMENT SYSTEMS AND 

THE RELATION TO INFORMATION SYSTEMS; Author: Dr. Krone Oliver; 

University of Lapland, Faculty of Social Sciences; 

16,00 – 16,10: HORUS AND ERP ORIENTED PROCESS DESIGN – 

OVERCOMING COMMUNICATION LAPSES OF PROCESSES; Author: Dr. Krone 

Oliver; University of Lapland, Faculty of Social Sciences; 

16,10 – 16,20: ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN 

THE SOCIO-ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION; 

Authors: Gheorghe Carmen Adriana; Ratulea Gabriela, Transilvania University; Brasov, 

Romania 

16,20 – 16,30: E-DEMOCRACY PLATFORMS FOR GOVERNMENTAL DECISION 

MAKING. CASE STUDY ON “SMART METHOD OF PUBLIC POLICY”; Authors: 

Dr Student Radu Adrian Oprea; “Dunarea de Jos” University, Dr Ancuta Daniela Sarpe; 

Dunarea de Jos University; 

16,30 – 16,40: THE ANALISIS OF THE SITUATION LOOKING THE 

ENVIRONMENT PROTECTION IN ROMANIA THROUGH THE POS 

ENVIRONMENT REFERENTIAL CHALLENGES AND THREATS; Authors: 

Mardiros Daniela, Borza Mioara, University "Alexandru Ioan Cuza" of Iasi, Romania

16,40 – 16,50: THEORETICAL APPROACHES OF THE IMPLEMENTATION 

SYSTEM OF EUROPEAN COHESION POLICY; Author: Dr. Student Alina Bourosu, 

National School of Political Science; Bucharest, Romania 

16,50 – 17,00: THE ROLE AND IMPLICATIONS OF MEDIATION IN PUBLIC 

MARKETING, Author: Associate Professor Dr. Ardeleanu Anca Monica, Faculty of 

Business and Administration, University of Bucharest, Romania 


17,30 – 17,40: IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE 

LEARNING?; Authors: Constantin Ionut, Dumitrascu Raluca-Bogdana, Faculty of 

Business and Administration, University of Bucharest, Romania 

17,40 – 17,50: REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN 

THE EDUCATIONAL SYSTEM; Author: Roventa Irina, University of Bucharest, 

Romania 

17,50 – 18,00: STRATEGIES AND TECHNIQUES OF COMMUNICATION AND 

PUBLIC RELATIONS APPLIED TO NON-PROFIT SECTOR; Author: Ioana – 

Julieta Josan; Faculty of Business and Administration, University of Bucharest, 

Romania 

18,00 – 18,10: “WIKIHEALTH” FOR PUBLIC HEALTH MAPPING; Authors: Litan 

Daniela, Mocanu (Virgolici) Aura-Mihaela; Academy of Economic Studies, Faculty of 

Cybernetics, Statistics and Informatics Economics, Bucharest, Romania; 

18,10 – 18,20: CREATIVE MOTIVATION AND PERSONALITY AT THE 

ROMANIAN PUBLIC FUNCTIONARIES; Author: Balgiu Beatrice Adriana, 

University POLITEHNICA of Bucharest, Romania 

18,20 – 18,30: LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL 

MEANS; Author: Teaching Assistant Dr. Camelia Stănciulescu, Faculty of Business and 


18,30 – 18,40: THE NECESSITY TO HARMONIZE THE MECHANISMS 

CHARACTERISTIC TO ’THE CONTRACT OF CONSUMPTION’ TO GENERAL 

RULES; Author: Professor Dr. Liviu Stănciulescu, Faculty of Law, „Nicolae Titulescu” 

University from Bucharest, Romania 

18,40 – 18,50: PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS: THE 

CASE OF SECURITY STUDIES; Author: Associate Professor Dr. Zulean Marian, 

Faculty of Business and Administration, University of Bucharest; 

18,50 – 19,00: THE RIGHT OF CONSUMPTION: THE DECLINE OF WILL 

AUTONOMY?; Author: Teaching Assistant Anca Nicoleta Gheorghe, Faculty of Law, 

„Nicolae Titulescu” University, Romania

June 5 th 

Workshop: 

“Inter and Transdisciplinary Issues of Economic Behavior” 

Place: Stoicescu” Hall, First Floor of the “Rectorat” Building of the University of 

Bucharest, Kogalniceanu Avenue 36 - 46, Sector 5, 

9,30 - 10,00 Professor Dr. Elena Druica, University of Bucharest 

Associate Professor Dr. Mircea Nita, the National School for Political and 

Administrative Sciences, Bucharest, Romania 

About the event 

SPECIAL GUESTS: 

10,00 – 10,30: Speakers: Professor Dr. Alexandru Tasnadi, Professor Dr. Cosntantin 

Popescu, The Academy of Economic Studies, Bucharest, Romania 

HUMAN BEHAVIOR BETWEEN THE HOLISTIC TRIAD AND THE TRAGIC 

TRIAD 

10,30 – 11,00: Speaker: Associate Professor Dr. Mircea Aurel Nita, the National School 

for Political and Administrative Sciences, Bucharest, Romania 

JUMPING IN KNOWLEDGE BY REINTEGRATION OF SPIRITUALITY WITHIN 

SCIENCES 

11,00 – 11,30: Speaker: Dr. Oliver Krone, University of Lapland, Finland 

ENTERING THE LABOUR MARKET – REFLECTIONS TO MAINTAIN SANITY 

11,30 – 12,00: Speaker: Professor Dr. Fabio Musso, Department of Business Studies 

and Law, University of Urbino “Carlo Bo”, Italy; Co – author: Dr Student Domenico 

Consoli, Department of Business Studies and Law, University of Urbino “Carlo Bo”, Italy 

TECHNOLOGY IN MARKETING CHANNELS: PRESENT AND FUTURE 

DRIVERS OF INNOVATION 

12,00 – 12,30: Coffee Break. Discussions. 

Place: In front of “Stoicescu” Hall 

Papers presentation: 

12,30 – 13,00 INTERFEROGRAM - A NEW METHOD OF INTERCELLULAR 

COMMUNICATION; Authors: Associate Professor Dr. T. Trandafir, Dr. M. Gheorghiu, 

Associate Professor Dr. Mircea Nita, B.s. Biol. Katrina Alecsandru

13,00 – 13,30: OPTIMIZING OF HUMAN BEHAVIOUR BY BIOINFORMATIONAL 

MEDCINE; Associate Professor Dr. Liana Marginean, UMF Iuliu Hateganu, Cluj, 

Romania 

13,30 – 14,00: LOZANOV METHOD - UPDATING EDUCATIONAL PYRAMID, 

Lecturer Dr. Simona Malescu, The National Military University Bucharest, Romania 

14,00 - Lunch Break. Discussions. 


Avenue 36 - 46, Sector 5 

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

CONSCIOUSNESS, Lecturer Dr. Simona Malescu, The National Military University 


15,30 – 16,00: ENERGETICAL AND VIBRATIONAL APPROACH AND THE 

CHANGE OF KNOWLEDGE; Author: Associate Professor Dr. Mircea Aurel Nita, the 

National School for Political and Administrative Sciences, Bucharest, Romania 

16,00 – 16,30: ELEONA - ABOUT THE DIVINE ORDER FOR HUMAN 

EVOLUTION IN OUR DAYS; Author: Andrea COSTAN - specialist in 

Communications, Tg. Mures, Romania 

16,30 – 17,00: SCIENTIFICAL APPROACH UPON TRINITY PRINCIPLE AS A 

COMMON ELEMENT OF WORLD RELIGIES, Author: Crina POP - manager 

assistent, specialist in Human Resuorces, Tg. Mures, Romania 

17,00 – 17,30: SPIRITUAL CAPITAL, Autor: Associate Professor Dr. Ana-Maria 

Grigore, Hyperion University, Bucharest 

17,30: Coffee Break. Informal closing of the event

OTHER ICEA 2010 REGISTERED PAPERS 

1. NOT ATTENDING AUTHORS: COMPETENCY LEVEL OF 

CONSTRUCTION PROJECT MANAGER IN PENANG STATE, MALAYSIA; 

Authors: Abdelnaser Omran, School of Housing, Building and Planning, Universiti 

Sains Malaysia, Malaysia; Abdullah Mahmood, Department of Architecture and 

Building Science, College of Architecture and Planning, Kind Saud University, 

Kingdom of Saudi Arabia 

2. NOT ATTENDING AUTHORS: MANAGEMENT OF SAFETY IN 

CONSTRUCTION SITES IN MALAYSIA: PERSPECTIVES ON THE 

ELEMENTS OF POOR, Authors: Abdelnaser Omran, Abdelwahab Omran, 

Mayhuddin Ramli & Abdul Hamid Kadir Pakir, School of Housing, Building and 

Planning, Universiti Sains Malaysia, Malaysia 

3. NOT ATTENDING AUTHORS: IDENTIFYING THE KEY FACTORS THAT 

INFLUENCE DELIVERY OF PROJECTS UNDERTAKEN BY LOCAL 

CONTRACTORS IN MALAYSIA: A CASE STUDY; Authors: Abdelwahab 

Omran, Abdelnaser Omran, Abdul Hamid Kadir Pakir & Mayhuddin Ramli, 

Universiti Sains Malaysia, Malaysia; Abdullah Mahmood, College of Architecture 

and Planning, Kind Saud University, Kingdom of Saudi Arabia 

4. NOT ATTENDING AUTHORS: CRITICAL SUCCESS FACTORS IN 

CONSTRUCTION INDUSTRY IN LIBYA; Authors: Abdelwahab Omran, Abdul 

Hamid Kadir Pakir, Abdelnaser Omran & Mayhuddin Ramli, Universiti Sains 

Malaysia, Malaysia 

5. NOT ATTENDING AUTHORS: MANAGING CONSTRUCTION CONFLICT: 

A CASE STUDY OF PAN PALACE PLAZA COMMERCIAL COMPLEX; 

Authors: Yeoh Keat Yew, Abdelnaser Omran, Universiti Sains Malaysia, 

Malaysia; Abdullah Mahmood, College of Architecture and Planning, Kind Saud 

University, Kingdom of Saudi Arabia 

6. NOT ATTENDING AUTHOR: FACTORS AFFECTING THE CHOICE OF 

MARKET ENTRY MODES IN THE AFRICAN TELEPHONY INDUSTRY; 

Author: Maxwell Chanakira, Harare Institute of Technology, Zimbabwe 

7. NOT ATTENDING AUTHOR: EXPLAINING THE FORMATION OF 

NETWORK INNOVATIONS BY SMALL AGRICULTURAL FIRMS: THE 

CASE OF THE EX-SUGAR BEET FARMERS OF THE UK; Authors: Daniel E. 

May, Graham J. Tatey, Leslie Worrall, Business School, University of 

Wolverhampton, UK 

8. NOT ATTENDING AUTHOR: EMPLOYEES AND COMPUTER CRIMES 

DURING ECONOMIC CRISIS; Author: Andrisescu Dana Ramona, Doctoral 

School of Economics, “Alexandru Ioan Cuza” University Iasi, Romania 

9. NOT ATTENDING AUTHOR: AN OVERVIEW OF EUROPEAN MONEY 

MARKET INTEGRATION UNDER THE ECONOMIC AND MONETARY 

UNION; Author: Avadanei Andreea, Doctoral School of Economics, “Alexandru 

Ioan Cuza” University - Iasi, Romania 

10. NOT ATTENDING AUTHOR: THE ROLE OF STRATEGIC LEADERSHIP 

IN THE EXECUTION OF CORPORATE STRATEGIES; Author: Dr. Student 

Olu Ojo, Department of Business Administration, Osun State University, Nigeria 

11. NOT ATTENDING AUTHOR: THE HISTORICAL APPROACH TO 

COMPETITION AND THE COMPARATIVE ANALYSIS OF COMPETITIVE

MARKET VERSUS MONOPOLISTIC MARKET; Author: Dr. Student Adina 

Gabriela Dascalu; University of Craiova; 

12. NOT ATTENDING AUTHOR: THE ROLE OF THE STATE IN OBTAINING 

NATIONAL COMPETITIVE ADVANTAGE IN ROMANIAN ECONOMY; 

Author: Dr. Student Adina Gabriela Dascalu; University of Craiova 

13. NOT ATTENDING AUTHORS: IDENTIFICATION AND CLASSIFICATION 

OF IRAN AND INTERNATIONAL STOCK MARKETS ' VOLATILE 

BEHAVIOR USING ARCH& GARCH METHOD. EVIDENCE: DAILY INDEX 

RETURNS FOR IRAN AND INTERNATIONAL STOCK MARKETS; Authors: 

M. Ashhar, D. Damoori, H. Anvar, Department of Financial Management, College 

of Management, University of Yazd, Iran 

14. NOT ATTENDING AUTHOR: INTRAPRENEURSHIP. APPROACH TO 

EMPLOYING THE APPLIED EDUCATION’S STUDENTS; Author: Seyed 

Reza Ghazanfari, Institute of Scientific – Applied Higher Education of Jihad-of- 

Agriculture, Iran 

15. NOT ATTENDING AUTHORS: CENTRAL BANK MONETARISM TO 

KEYNESIAN GOVERNING IMPULSES; Authors: Rădoi Mădălina-Antoaneta; 

Olteanu Alexandru; University Nicolae Titulescu, Bucharest; 

16. NOT ATTENDING AUTHORS: MODERN STRATEGIES OF 

TRANSNATIONAL COMPANIES FROM EMERGING COUNTRIES; Authors: 

Mărgulescu Serghei; Mărgulescu Elena; “Nicolae Titulescu” University from 

Bucharest; Romania 

17. NOT ATTENDING AUTHORS: THE BALANCE OF PAYMENTS AND THE 

EXTERNAL DEBT. SPECIFIC PROBLEMS IN ROMANIA; Authors: Giurgiu 

Adriana; Haţegan D.B. Anca; Negrea Adrian; University of Oradea, Faculty of 

Economic Sciences, Dept. of International Business, Romania 

18. NOT ATTENDING AUTHORS: HOW CAN BE REACHED AND BE STAYED 

ON BLUE OCEAN? CASE STUDY PARSIAN BANK OF IRAN; Authors: 

Ahmad Ayatinia; MBA Department, Graduate Studies Faculty, University of 

Science and Culture, Tehran, Iran; Mohammadreza Zarei; MBA Department, 

Graduate Studies Faculty, University of Science and Culture, Tehran, Iran

Closing remarks 

The organizers want to thank all the participants for their effort and 

willingness to cooperate with the organizing committee of ICEA 2010. As 

members of ICEA team, you will benefit from some special conditions once you 

decide to participate in the next ICEA edition, which will he held in June 2011. 

Important deadlines: 

� Full Paper Submission (electronic registration): May 1st 2011. 

� Fee Payment: May 5th 2011 

Registration Fees 

I. Early registration: Before February 1 st , 2011 

� 75 euro per paper (no more than 3 authors) 

� For any additional paper: 50 euro per paper (no more than 3 authors) 

� The participants to the previous ICEAs will pay the regular fee for the first 

paper and will register every second paper FOR FREE. 

II. Later registration: After February 1 st 2011 but no later than May 1 st 2011 

� 100 euro per paper (no more than 3 authors) 

� For any additional paper: 75 euro per paper (no more than 3 authors) 

� The participants to the previous ICEAs will pay the regular fee for the first 

paper and will register every second paper FOR FREE. 

There is no fee for undergraduate students. 

III. Not attending authors: 

For authors not attending the fee there is charge of 50 euro for the first paper, and 25 for 

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ICEA 2010 Team

The International Conference on Economics and Administration, Faculty of Business and 


ICEA – FAA Bucharest, 4-5 th June 2010 

EMPLOYEES AND COMPUTER CRIMES DURING ECONOMIC CRISIS 

ANDRISESCU Dana Ramona 

Doctoral School of Economics, “Alexandru Ioan Cuza” University Iasi, Romania 

dana.andrisescu@yahoo.com 

Abstract 

During hardships for organizations like 

economic crisis affecting their results, 

employees “add more gas on fire” by 

conducting activities in order to get some 

benefits. Their main target during these 

times became money as life becomes difficult 

from day to day. Computer crime seems a 

very good solution for getting to the target 

fast and easy. We are going to see in this 

paper how the economic crisis affects the 

organizations through their employees. 

Key words: computer crime, crisis, 

employee, threat 

1. Introduction 

From what we can see around us, regarding 

the economic crisis affecting people’s life and 

organizations’ well-fare, computer crimes 

became a fast solution to get some money 

even with the price of going to jail. People 

have financial problems like credits that 

have to be paid off, children to go to school, 

daily needs and so on, problems that cannot 

be solved when businesses go down, people 

are laid off and the number of jobs decreases 

every day. Employees become willing to take 

some risks in order to provide goods for their 

families. These risks become computer 

crimes if they use computers to steal 

information, identities, alter recordings and 

papers. 

We will be discussing in this paper about 

computer crimes that can be done by 

employees in organizations, reasons behind 

them and security solutions. We want also to 

underline the importance of the insider 

threat represented by the employees and 

solutions to protect against it. 

This study is important as it is a perspective 

on what employees are willing to do from the 

breaking the information security point of 

33 

view. It has been proven that fraud 

committed by managers, employees and 

customers tripled compared to 2007 [1] and 

we are going to see why. This matter will be 

answered by presenting the reasons why the 

employees do that, the losses they cause 

intentional or unintentional, assets 

important for an organization and have to be 

protected, some security measures, as the 

papers we have seen and studied for this 

paper do not reveal the reasons behind, they 

only state that cybercrime or computer crime 

has risen thanks to the economic crisis. It is 

true this is the main cause, but let us broad 

our perspective and say that it is not only 

one reason but a mix of old desires, new 

feelings and new needs. Most of the 

economic or computer science writers state 

that economic crisis will be considered an 

important reason for computer crime but 

coming from outsiders. We are going to 

underline the fact that even the employee 

seen as a person with a job during this type 

of crisis can be a real menace for the 

organizations when threatened by financial 

problems and job loss. 

2. Insider threat and computer crimes 

Nowadays, organizations depend on 

technology, no matter their activities. Many 

of them rely on the Internet to sell more 

products and to offer services or information 

to the customers, partners and so on. 

Historically, IT and security managers have 

focused on protecting the company network, 

and the information on it, from outside 

attackers or outsiders. Over the last several 

years, though, an increasing amount of 

attention has fallen on the risk associated 

with an organization’s own employees - the 

insider. Organizations have to assure that 

information security is both for external and

internal threats. External threats come from 

hackers, customers, suppliers, former 

employees. But, internal threats are the 

most risking ones as they come from the 

employees, which have full access to 

organizations’ resources. 

Information and computer security has 

become an important issue for any 

organization that wants to preserve clients, 

suppliers, employees, resources and have a 

fruitful activity. We know that many 

consider this as an easy thing to do, but in 

reality, due to employees or other people and 

their wrongdoings, information and physical 

security becomes vital. Knowing how to deal 

with people and use the appropriate 

technologies for protection means the 

survival of the organization especially when 

economies are threaten both from inside and 

outside. 

Computer crimes coming from employees 

prove to be the second threat after viruses 

according to CSI Computer Crime & 

Security Survey [2], followed by laptop theft 

or fraud. 

Cyber crime or computer crime proved to be 

very profitable as recent studies show. Making 

a comparison on several years from Computer 

Security Institute’s studies done every year; in 

2009 the losses have decreased as shown in 

the table and graphic below. 

Table 1. Losses 

Year 

Losses in 

million dollars 

2005 $204,000 

2006 $168,000 

2007 $345,000 

2008 $289,000 

2009 $234,000 

Graphic 1. 2005-2009 Losses 

34 

Even though we can see that for 2009 the 

losses have decreased, in fact the companies 

that answered the survey didn’t state their 

losses as they fear their reputation will be 

damaged or they didn’t make any estimation 

regarding this fact. But still, we consider 

losses are important and must be prevented. 

Attacks automatically involve some type of 

loss. We have identified organizations’ losses 

from electronic attacks coming from 

employees but of course available for the 

outsiders’ attacks as well. We have 

categorized them according to attacks’ 

intensity and their objective as: 

− Financial coming from: 

o money theft, as the main objective 

of most of the attacks; 

o electronic fraud; 

o reputation damage; 

o loss of business opportunities 

from lack of trust from partners; 

o security measure costs to be taken 

in the future and employees to be 

hired; 

o damaged assets to be restored; 

o projects, software that have to be 

done again; 

o lawsuits; 

o computer forensic investigations; 

o loss of clients; 

o interruption of activities and 

services; 

o interventions to re-establish 

everything to normal; 

o business recovery and marketing 

expenditures; 

o loss of trustworthy employees; 

o lost time due to malfunctioning of 

systems and activities’ 

interruptions and re-establish 

their normal functions; 

− Materials coming from damage of 

assets; 

− Data coming from: 

o databases modification, blocking, 

theft; 

o theft, destruction, vandalism of 

hardware and other physical 

devices; 

o damaged documents and reports; 

o damage of backups and storage 

devices; 

o intellectual property loss and 

theft;

o theft of both employees’ and 

organizations’ data, physical and 

electronic documents destruction. 

Losses coming from internal attacks can be 

reflected in the depth, quantity and value of 

informational assets, reputation and 

organization’s image. Most of the time, 

attacks from inside stay inside in order not 

to affect the image and to lose clients. 

Regarding the insider threat, it is divided in 

two categories, malicious insider threat and 

non-malicious, and the situation is reflected 

in the next graphics. 

Graphic 2. Malicious threats from employees 

and their losses 

Graphic 3. Non-malicious threat from 

employees 

As we can see insider threat coming mostly 

from employees are malicious, those done 

with intent like using viruses and other 

malware to steal something or do some 

damage, and non-malicious like mistakes or 

sending malware without intent. But 

comparing figures 2 and 3 we state that 

most damages are done unintentionally and 

non-malicious. By mistake or without proper 

training, employees could delete records, 

35 

data, documents. People, forced by the 

economic situation try to get money fast, and 

this is why cybercrime became cash from 

cool. People don’t find electronic attacks 

interesting but dangerous no matter how 

they are done. 

Employees are the first suspects in computer 

investigation and the reasons they go bad 

are: money gain, revenge, pride, competition, 

fun, harassment, terrorism and any other 

combined reason of those just mentioned. 

Some organizations do not have strong 

access control or security policies and that is 

why employees take advantage of their 

rights in computer networks and access data 

and files. 

An insider is anyone in an organization with 

approved access, privilege, or knowledge of 

information systems, information services, 

and missions [3]. By default, insiders are 

trusted; they are already on organization’s 

systems and usually within or behind most 

of technical security controls. They usually 

have some type of authority on the systems 

they plan to attack. In some cases, this 

authority is highly privileged (e.g. systems 

administration) allowing the insider either 

to abuse that privilege or gain higher 

privileges through some means (e.g., social 

engineering, shoulder surfing, sniffers, and 

so on) [4]. 

Taylor (cited by Reyes, O’Shea) also notes 

the problematic nature of attempting to 

define computer crime and presents four 

categories of computer crime or cybercrime 

[5]: 

- The computer as a target. The attack 

seeks to deny the legitimate users or 

owners of the system access to their 

data or computers. A Denial-of- 

Service (DOS) attack or a virus that 

renders the computer inoperable 

would be examples of this category. 

- The computer as an instrument of 

the crime. The computer is used to 

gain some other criminal objective. 

For example, a thief may use a 

computer to steal personal 

information. 

- The computer as incidental to a 

crime. The computer is not the 

primary instrument of the crime; it 

simply facilitates it. Money 

laundering and the trading of child 

pornography would be examples of 

this category.

- Crimes associated with the 

prevalence of computers. This 

includes crimes against the 

computer industry, such as 

intellectual property theft and 

software piracy. 

Every author might state his or her own 

opinion on computer crimes. Every country 

has its own point of view stated in legislation 

made according to what has happened and 

the international collaboration. For more 

definitions for computer crimes we could 

look in every country’s legislation but we 

have to state our own opinion on this 

subject. 

We consider computer crimes to be 

traditional and new crimes committed using 

information and communication technology 

which have as result some type of loss for 

the victim either an organization or an 

individual. It could also be any crime that 

uses electronic means and has as way of 

getting to the target computers’ and 

networks’ security surpass. It involves 

people, technology, information and 

knowledge. 

In times of economic difficulties, computer 

crimes seem a comfortable and easy way to 

get somebody else’s money. But in order to 

become a computer crime, first it has to be a 

threat that materializes in a crime through 

electronic attacks as we can see in the figure 

below. 

Electronic 

Threats Computer crimes 

attacks 

Figure 1. From threats to computer crimes 

Abrahams states that periods of falling 

employment and increased personal 

financial pressure inevitably result in a 

commensurate upward swing in criminal 

activity. As individuals’ finances are 

squeezed, they will revert to the lowest cost 

purchasing route available – the internet [6]. 

As we can see, Abrahams limits only to the 

internet but let us ask ourselves what is 

happening inside an organization as 

employees could do business in their work 

schedule and we say that it is the same, no 

matter in which physical locations they are, 

using of course the internet. It is true that 

they have used and still use employers’ 

resources for their own benefits. On Internet 

they can spend time conducting own 

36 

businesses, surfing for fun, find new things, 

play games, buy things in their or somebody 

else’s name, download malicious software, 

talking to other people, finding new ways to 

commit electronic attacks. 

But let us see what is valuable and 

important to others, including the employer 

and could cause rule breaking, electronic 

attacks launching and risks assuming in 

order for organizations to know what they 

have to protect: 

- information on other employees, 

identities, bank accounts, cards’ 

PINs for personal use like buying 

goods in others’ name, revenge, 

curiosity, fun, etc.; 

- information on transactions made by 

organizations, clients lists, projects, 

innovations which will be sold to 

competitors for important sums of 

money or for other political or 

personal interests; 

- payments, acquisitions, sells, 

expenses, incomes in industrial or 

economic spying; 

- databases as they have intangible 

assets like passwords, accounts, 

research projects, financial reports, 

software, formulas and other 

intellectual properties; 

- discussions among managers, 

images, video images, employees’ 

errors for blackmailing or revenge. 

As we can see everything in an organization, 

every asset whether tangible or intangible is 

valuable if sold to other organizations. 

Insider threat becomes real when electronic 

attacks are launched and losses rise in 

different forms. 

Current recession is increasing the security 

risk for organizations. The greatest danger 

that poses as threat to sensitive information 

of the network is the former workers. They 

still have access to their accounts until the 

employees with the job to disable the 

accounts do their job. Until this is done if it 

is really done, former employees surf the 

network and steal important information. 

Afterwards they use it to blackmail the 

organization or sell it to competition. The 

longer the economic crisis the more damages 

to organizations and countries rise. 

IT specialists tend to use their skills to do 

illegal actions like stealing databases, 

accounts and sensitive information both for 

organizations and employees. Governments

and organizations focused since the 

beginning of the global crisis to overcome the 

economic difficulties leaving other activities 

such as information security on second place. 

Police enforcements are busy with 

traditional crimes which have risen from the 

same reason, lack of jobs, money, future 

perspectives and computer crimes are placed 

on second place even though they multiply. 

Now more than ever, forces must be joined to 

overcome the electronic threats. Many might 

think that first the economic problems 

should be solved but in fact, no problem 

should be overlooked and postponed. 

Halbheer says that today (cyber) attacks are 

not about vandalism any more, today it’s 

about cash [7]. 

Organizations must learn how to protect 

their cyber property as it becomes more and 

more valuable. In order to protect 

information users have to be monitored and 

be limited in their actions. Only those 

activities that have to be done to fulfill 

workplace’s duty must be allowed to the 

computer user. Even administrators should 

be supervised by the managers and even the 

managers should have limited privileges as 

they tend to spy their employees, find 

confidential information and take advantage 

in order to get revenge or have fun. 

Guerra says that economic theory predicts 

that the global recession will probably 

increase the amount of cyber crime as the 

recession deepens. This could result from a 

variety of causes: an increase in attacks on 

more vulnerable and desperate people from 

those with cyber skills joining the cyber 

criminal ranks for needed income; and a 

decreased focus on and investment in 

computer security as a result of fewer 

resources [8]. We have to sustain Guerra’s 

statement as we already said that 

organizations and law enforcements deal 

more and more with traditional crimes, 

organizations spend fewer money on security 

measures and personnel as their financial 

resources decrease. 

According to Michael, the role of physical 

security is to protect the physical expression 

of information [9]. It just does this in two 

distinct ways. The first goal is to sustain the 

data by protecting its entire physical support 

structure, specifically: 

- hardware, in the broadest sense - 

storage and transmission media and 

information processing machines; 

37 

- environmental infrastructure - 

electrical power, communication 

services, buildings, and 

environmental controls; and 

- humans and the information they 

possess to run the system. 

To guard information assets, organizations 

must guard all of these resources. This very 

broad view of physical security encompasses 

topics sometimes classified as 

environmental, personnel, and 

administrative security. The second goal is 

to prevent the misuse of information. Misuse 

can be accidental or intentional, malicious or 

well meaning. It may come in the form of 

vandalism, theft, theft by copying, or theft of 

services. These two goals, sustaining 

information and preventing its misuse, can 

only be achieved by an appropriate 

combination of devices and policies. 

In order to protect information and its loss, 

we have to assure all types of security. 

Without power and humans, electronic 

devices cannot work; data cannot be 

inserted, processed and used. For example, 

the loss of power could lead to loss of data 

and money according to nonworking period 

of time and data’s importance. The 

intervention team must be prompt and fix 

the problems right away so that the losses 

are diminished. As long as people use the 

devices, data can be processed and used. As 

we can see, no resource can be used without 

the others; they are dependent one on each 

other. 

Another security objective is to avoid 

incorrect use of information which can be 

accidental or intentional. This can manifest 

as vandalism, physical theft and also as 

copying data and documents and services 

theft. Security assurance is done through 

adequate devices and politics use. A sure 

way for security of an electronic device 

compromising is to modify some settings in 

order to create some access ways for the ones 

that want to obtain data or to block devices 

that assure security. 

The human part of physical security is the 

establishment, implementation, periodical 

politics review and employees training. 

Organizations have to be sure that 

employees know all the policies there are not 

only those concerning security but also the 

others (for example general rules, 

responsibilities and of course consequences 

of illegal actions).

Some of the physical security measures are: 

special rooms for devices, activities 

surveillance, employee monitoring, access 

control, cameras surveillance, shredding of 

documents that are no more needed and 

destroying devices that could contain data 

and are used no more. 

Hardware security involves system integrity 

assurance, as the IT team should keep up 

with the operations done using hardware 

and respond immediately when some 

problem occurs somewhere. Proper 

configuration of hardware is vital for the 

good ongoing of the operations. Whenever 

needed, the documentation should be 

complete and available. If hardware has very 

good performances and are bought form 

trustworthy producers which assure rapid 

services for any malfunction then the 

organizations have nothing to fear about. 

Hardware security is about keeping the 

hardware functioning at its optimal 

parameters and right away intervene in case 

of malfunctioning with all the 

documentation, knowledge and tools needed 

to fix the problem in a very short time. 

Software is used every day for data 

collecting, processing and displaying and 

that is why it faces both internal and 

external threats along its lifecycle, from its 

distribution and install to the phase when it 

is gotten out of use. Threat exposure is 

grater if software is used both inside and 

outside the organizations by employees, 

customers, and partners and so on. When 

implementing new software, the 

organizations have to be sure that along the 

development process their demands are 

respected as well as the security measures 

required by the protection of information. 

Producers have seen the demands of their 

clients regarding security software and they 

have developed all types of software, from 

antivirus to full solutions containing 

antivirus, firewall, and intrusion detection 

and so on. Unfortunately, no matter how 

much effort, time and money the producers 

put into software development, there will 

always be somebody or something (like a 

virus, a Trojan or other malicious code) to 

surpass it. 

38 

4. Conclusions 

The lack of dedicated and ongoing training, 

sufficient remuneration, or even a clear 

career path, perspective of job loss is causing 

cyber crime specialists to be lured into 

underground economies. 

Perhaps one of the most illegal action done 

by employees is computer fraud as they gain 

some money (we have already specified that 

this is the main reason for crime either 

traditional or electronic). Having access to 

the organization’s resources, employees steal 

data or just modify it in order to cover their 

theft. 

There are cases in which an employee stole 

some money, altered the incomes, the 

recordings in accounting, deleted the log files 

on servers, so that nobody found out and still 

they were discovered as either they made a 

mistake, they told somebody else of their 

“great” deeds or were discovered by 

computer specialists which deal with 

computer crimes and know what to look for. 

Sometimes, stealing 1 cent a day or a weak, 

in a long period of time it gathers a large 

sum of money and a big loss for an 

organization. 

We have seen in this paper that employees 

do represent a real threat and must not be 

ignored and they have to be monitored. 

Training is very important as employees 

should be told what to do, what are their 

responsibilities, what they have to do 

regarding information security, 

consequences of their actions, 

responsibilities after something has 

happened like an unwanted event. We get to 

the conclusion that the main reason for 

doing cybercrimes is mainly the money as 

there are hardships during economic crisis. 

Before this hardship the reasons were 

money, together with fame, revenge, fun and 

spending time. 

In order to prevent cybercrime or computer 

crimes, organizations have to know their 

employees and especially their IT specialists 

as they have access to most of the resources, 

monitor their employees and train them. 

This paper’s main objective was to underline 

the situation of cybercrimes during economic 

crisis and to suggest that organizations 

should not place information security on 

second place and should allocate the 

necessary funds in order to prevent 

unwanted incidents such as electronic 

attacks.

Future research could be focused on security 

measures, ethics, training methods, 

technologies for monitoring and surveillance, 

human resource management, business 

opportunities and any research related to 

the subject of economic crisis, computer 

crimes and employees. 

References 

[1] The 7th Annual e-Crime Congress, 

KPMG. 2009. “E-Crime Survey 2009”. 

[2] Richardson, Robert. 2008. 2009. “CSI 

Computer Crime & Security Survey”, 

Computer Security Institute. 

http://www.gocsi.com/forms/csi_survey.jhtml; 

jsessionid=NJBL3SYTS0X1FQE1GHPCKH4 

ATMY32JVN 

[3] Maybury, M., Chase, P., Cheikes, B., 

Brackney, D., Matzner, S., Hetherington, T., 

“Analysis and Detection of Malicious 

Insiders”, Submitted to 2005 International 

Conference on Intelligence Analysis, 

McLean, VA, USA, 

https://analysis.mitre.org/proceedings/Final_ 

Papers_Files/280_Camera_Ready_Paper.pdf, 

Accessed November 2009 

[4] Rogers, Marcus, “Internal Security 

Threats” in Bigdoli, H. (ed.), “Handbook of 

Information Security. Threats, 

Vulnerabilities, Prevention, Detection, and 

Management”, 3 rd Volume, Wiley Publishing, 

2006 

[5] Reyes, Anthony. O’Shea, Kevin. Steele, 

Jim. Hansen, Jon. Jean, Benjamin. Ralph, 

Thomas. 2007. “Cyber Crime Investigations”, 

Syngress Publishing 

[6] Abrahams, Charlie. 2010. “Comment: 

Cybercrime - Still a growth industry?”. 

Infosecurity Magazine. 

http://www.infosecuritymagazine.com/view/6169/commentcybercrime-still-a-growth-industry/ 

[7] Barnetson, Denholm. 2009. “Economic 

crisis’ to boost cyber crime’: Microsoft”. 

http://news.theage.com.au/breaking-newstechnology/economic-crisis-to-boost-cybercrime-microsoft-20090417-a92m.html 

[8] Guerra, Peter. 2009. “How Economics 

and Information Security Affects Cyber 

Crime and What It Means in the Context of 

a Global Recession”. 

http://www.blackhat.com/presentations/bhusa-09/GUERRA/BHUSA09-Guerra- 

EconomicsCyberCrime-PAPER.pdf 

39 

[9] Michael, Mark. 2006. “Physical Security 

Measures”, in Bidgoli, Husein (ed). 

“Information Security Handbook. Threats, 

Vulnerabilities, Prevention, Detection, and 

Management”, 3 rd Volume, Wiley Publishing




LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA * 

ANGELESCU CORALIA 

Faculty of Economics/Department of Economics and Economic Policies/Academy of 

Economic Studies, Bucharest 

coralia.angelescu@economie.ase.ro 

ACELEANU Mirela Ionela 



aceleanu_mirela@yahoo.com 

CREȚU Alina Ștefania 



chenicalina@yahoo.com 

Abstract 

It is often noted, with reason, that the 

labour market situation of young people 

depends to a large extent on economic and 

employment trends affecting the economy as a 

whole. 

This paper presents the general 

context of labor and youth employment 

problem in the labor market in Romania. In 

this respect it is shown the situation of 

inserting the youth into the labor market in 

Introduction 

The paper The Insertion of youth into 

the labor market in Romania is based on 

presenting the characteristics of the labor 

market in Romania, caused by the human 

specificity of the object that it operates with 

and presents the analysis of some aspects 

regarding the inclusion of youth, in relation to 

the situation registered in other European 

states in the current economic context. 

Labor market was formed and 

operates in conjunction with the role of labor 

in economic and social development and with 

the general requirements of markets and price 

theory. 

Man is more than merchandise, so 

that the labor market has a special place in 

the economic theory and practice, being a 

secondary market and the most regulated one. 

It is heterogeneous, comprising several 

segments on gender by activities, on economic 

areas, on professions or occupations, on 

40 

terms of the current economic climate, of the 

training of youth, of the improvement of 

inclusion through education, by linking the 

education programs with the labor market 

requirements, through the flexibility of labor 

market. 

Key words: labor market, insertion, 

employment, education, flexibility 

categories and skill levels, on sex and age etc. 

As a secondary market, it receives the 

influences of the other markets and also 

generates effects that occur in all the socioeconomic 

sectors. 

The labor market is behaving, on the 

one hand, as any market and on the other 

hand, has its own characteristics, determined 

by the human specificity of the object with 

which it operates and of the services 

generated by it and that the entrepreneurs 

buy. 

The specificity of the labor market 

intertwines with the secondary one. As a 

secondary market, it is intended to ensure the 

social-economic activities with the necessary 

work resources. If the produced goods with a 

certain labor find no buyers, then neither the 

work resource used to produce that commodity 

will find demand.

The historical experience shows that 

the labor market always involves establishing 

relationships between the carriers of the 

demand and the labor offers. This raises some 

specifics about the adjustment of supply and 

demand, about the formation of the price of 

work, about the existence of a system of norms 

and social values. 

The labor market characteristics, in 

terms of its specificity, can be realized as it 

follows: 

� the labor market is a market 

with high rigidity and 

sensitivity, it is conditioned by 

the general economic 

equilibrium and social politic 

one; 

� the labor market reflects 

interrelations between 

demographic realities that 

determine the offer of 

employment and socio-economic 

development that generates the 

demand for labor; 

� the labor market is highly 

regulated and records the most 

influences by many factors; 

� the labor market records during 

time a specific segmentation; 

� the labor market mechanisms 

have a high degree of 

imperfection, for example, 

salary is not the only one and, 

often, neither the main lever for 

regulating the employment and 

use of labor resource; 

� the labor market reflects the 

way in which there are provided 

the employment resources on 

departments, on sectors, on 

professions and on skill levels. 

The international labor market is 

constantly changing because of the new 

emerging technologies and therefore because 

of the role of increasing importance of the 

human capital in an economy increasingly 

based on knowledge. On the other hand, we 

live in an era in which most of the social and 

economic life is determined by global 

processes, where the cultures, economies and 

national boundaries have begun to disappear. 

The economic and financial developments in a 

country influence and are influenced by 

developments in other countries, along with 

the globalization. The current crisis has once 

again confirmed that economies are 

interconnected and no region of the world can 

41 

be independent in a globalized world economy. 

More so, the problem of insertion/reinsertion 

of young people on the current labor market is 

very important in the current economic 

environment, who knows both increases in 

unemployment on a general and youth level. 

On this economic background there are 

intensifying the efforts to search for solutions 

everywhere, appearing a consensus of 

economically advanced countries, meaning 

that getting out of the crisis and resuming a 

healthy growth can be achieved by 

stimulating both the investment in 

infrastructure, and especially by developing 

the human capital through education, 

research and innovation. 

It is widely accepted the idea that 

young people into the labor market play a 

decisive role in determining the economic and 

social welfare in their further development. 

Thus, the labor market insertion of young 

people is influenced by several factors, such as 

restructuring and economic developments, the 

proliferation of new forms of employment, 

unemployment among young people, 

extending the period of education, migration 

and increased geographical mobility. 

In Romania, as in most countries of 

the UE, youth unemployment remains a social 

issue with important implications for the 

whole society, thus facilitating the transition 

from school to work which must become a 

national priority. 

Our paper responds to these problems 

by analyzing the influencing factors of the 

inclusion of youth into the labor market in 

Romania, providing solutions on its 

improvement through education and training, 

by improving the labor market flexibility. For 

this, we rely on specialized studies in the field, 

using sources such as Eurostat, INCSMPS, 

INS, and the results of some researches of the 

National Institute of Scientific Research on 

the Labor and Welfare (INCSMPS) and of the 

Institute of Projects for Innovation and 

Development (IPID). 

Literature review 

The challenges that aim at the labor 

market in Romania are related to reaching the 

employment targets set in the Lisbon 

European Council, to achieve an employment 

structure based on the increasing 

productivity, reducing the youth 

unemployment, by adopting a model of

economic growth based on the increasing 

employment. 

This paper points out the research 

findings in the Project PN-CDII, No. 91-020, 

Determinants of labor market insertion of 

graduates of higher education in Romania, 

Development period 2007-2010, Coordinator 

INCSMPS Bucharest, ASE Bucharest partner. 

Among the important papers in this field we 

mention: Alves, M. G.: Perspective educative 

sur l’insertion professionnelle des diplomes de 

l’enseignement superieur, Neagu, Gabriela: 

Education, employability and occupational 

mobility, www.iccv.ro, Niall O’Higgins: Young 

People in the Labor Market in South East 

Europe, Salas, M: Estimating the 

determinants of the transition from higher 

education to work of European University 

Graduates. 

Noteworthy is the fact that the 

flexibility in recent years has been in the 

spotlight in terms of the specific labor market 

policies. Thus, by flexibility it takes place a 

better adaptation to new, to change. This 

involves, among other things, a certain 

structure of the educational system, a 

structure of training systems at work, a strong 

law, a labor market flexibility and mobility. In 

this regard there are noted these publications: 

Elke Viebrock, Jochen Clasen: Flexicurity and 

welfare reform, www.oxfordjournals.org, 

Maria Poenaru: Flexicurity versus labor 

market rigidity, www.ier.ro. 

European 

Union (27 

countries) 

Unemployment rate by age < 25 years (%) 

2000 2005 2009 

17.3 18.4 19.6 

Italy 27 23.9 25.3 

Germany 7.5 14.2 10.3 

France 19.6 21.1 23.3 

Poland 35.1 36.9 20.6 

Hungary 12.4 19.4 26.5 

Slovakia 36.9 30.1 27.3 

Bulgaria 33.7 22.3 16.2 

Romania 20 20.2 20.8 

Source: http://epp.eurostat.ec.europa.eu 

Romania has a youth unemployment 

rate by 1.2 percentage point higher than the 

one recorded in the EU 27 level (in 2009). A 

higher level of this indicator is recorded in 

42 

In the current economic crisis, 

exacerbated by the organizational and 

macroeconomic failure, Romania must pursue 

the modernization of the labor market, to 

adapt the educational system to the market 

requirements, to revive the scientific research 

and innovation, with emphasis on the 

relevance of the economic practice, to pursue 

the flexibility of labor market and assuring 

the conditions necessary for the development 

of an optimal competitive climate. (Yifu Lin 

Justin - Senior Vice President and Chief 

Economist of The World Bank: The impact of 

the financial crisis on the developing countries, 

2010, http://siteresources.worldbank.org). 

Paper Content 

At EU level, the knowledge of labor 

market entry process of young graduates and 

the characteristics of this process have become 

a priority both in formulating employment 

policies, as well as in the educational ones. By 

evaluating the employability of young 

graduates we obtain on the one hand an image 

of youth transition from school to work, of the 

degree of consistency between the existing 

supply and demand at a time in the labor 

market, and on the other hand, the essential 

information on the effectiveness of the 

educational act. 

In the EU, the unemployment rate 

among young people remains high in all 

countries, especially amid the current crisis. 

Spain (37.8%), Lithuania (33.6%), Estonia 

(27.5%) and Slovakia (27.3%). A youth 

unemployment rate below 10% is recorded in 

Norway (8.9%) and Netherlands (6.6%). The

table above shows the evolution of 

unemployment among young people under the 

age of 25 years, during 2000-2009. If during 

2000-2008, some countries have experienced a 

decrease in this indicator, after the financial 

and economic crisis started (early 2008) there 

was an increasing trend of this indicator in all 

EU countries. 

A survey of the National Institute of 

Statistics in 2009 shows that one year after 

the end of their studies, 60.9% of the 

university graduates had a job, and among 

people with low education there were 

employed only 14.6%. The projections for the 

job creation show a polarization of highly 

skilled jobs. At the same time, there is little 

prospect of creating jobs for skilled 

professions, but also a significant creation of 

skilled jobs, particularly in services. 

In the current economic crisis, the 

major foreign investors in Romania have 

gradually restricted their activity, passing to 

the application of restrictive economic 

measures, with direct impact on the 

employment situation. 

According to the National Institute of 

Statistics, the number of employees in August 

2009 was 4537.7 thousand persons, 40.5 

thousand persons less than in the previous 

months. The decreasing trend continued as 

the number of employees in January 2010 

reached 4333.8 thousand people. Compared to 

August 2008, the number of employees 

decreased in most areas of activity, the biggest 

reductions occurring in the manufacturing 

and construction area. Also significant 

reductions occurred in the fields of wholesale 

and retail, agriculture, mining, transport and 

storage, real estate. 

Therefore, the issue of employment in 

current conditions is a major one. As 

investments go down, creating new jobs is an 

unattainable goal, and this leads to increased 

unemployment, and also affects the graduates. 

In the context of the growing importance of 

education, young people with low education or 

no education face a higher risk of 

unemployment and labor market exclusion. 

Analyzing the influencing factors 

insertion of the youth labor market in 

Romania, we believe that they are related to 

the training of young people for their socioeconomic 

status, such as technological change 

within firms, the effects of the current 

economic and financial crisis, which requires a 

continuing need to adapt quickly to the 

changing economic environment, in an 

increasingly competitive environment. 

According to some INCSMPS studies, 

the young people in Romania consider school a 

success factor, but they believe that formal 

education does not provide the necessary 

information to access the labor market. 

Moreover, the labor market experience before 

graduation has an important role, allowing an 

easy access to the labor market. It is noticed 

the tendency to increase the number of 

students who work before graduation, which 

enhances their integration. 

The average period between the graduation and the first "significantly" job occupation on 

promotions and profiles (in months) 

Profile The 

average 

period 

(months) 

Technical 4 

Agricultural 4.5 

Economic 4.9 

Medical 5.3 

University 4.9 

Juridical 6.3 

Artistic 4.6 

Source: INCSMPS 

The average period between the 

graduation and the first "significantly" job 

occupation, on promotions and profiles (in 

months) shows that the graduates from the 

43 

medical and legal profiles have expected more, 

the shorter period to fill a job registering for 

the graduates from a technical profile.

As solutions to the improve labor 

market insertion of young people, we suggest, 

on the one hand the improvement of training, 

taking into account the labor market 

requirements and on the other hand the 

improvement of labor market flexibility. 

� The instructive and educational 

training - a premise of insertion 

and professional reintegration 

The role of education institutions is 

changing in a world where information is 

accessible through modern informational and 

communicational systems. Education becomes 

an integral part of globalization and a base 

economic resource that can sustain a longterm 

competitive advantage. 

Today, the economic analysis of 

education is increasingly highlighting the link 

between the investments in educational 

human capital and in economic growth. “The 

human capital is the value of the potential 

that people hold in order to bring income. It 

includes native capabilities and talent, as well 

as education and acquired skills. The 

education is the slowest, but strongest growth 

factor.” (Dornbusch, R; Fischer, S: 1978) 

Education has long been perceived as 

a system where young people came in order to 

be formed and return to society after a decade 

or two of theoretical assimilation of 

information necessary for the productive 

work. Regardless of how much we claim to 

humanize the educational process by 

assigning several emotional, moral or 

aesthetic dimensions, the reality is that the 

changes are difficult to be managed and that 

is due to the fact that education remains a 

system with an input and an output, 

effectively as far as the used statistics, costs, 

infrastructure and personnel show this fact. 

(Matei Ani, Iancu Diana: 2002) 

In the modern society, the role and 

functions of the education form the subject of 

some intense debates. Each time, however, 

experience has shown that the highly 

educational communities, with a high level of 

44 

professional training outline faster and more 

clearly both the future requirements and the 

possibilities of making them. 

In this respect, some authors consider 

that: "regarding the investment to be made in 

education and training people, the future 

reward is so great that, in balance with the 

effort, it highlights the highest economic and 

also social and human efficiency, that exist in 

our world.” (Popescu C.:1999) 

From the J. K. Galbraith's perfect 

society perspective, education serves primarily 

"to broadening the perspective on life and live 

it to increase satisfaction. It opens the person 

new horizons in the language, literature, art, 

music and diversity towards the world. Those 

who have benefited over the years of a solid 

education, there were no doubts for a moment 

the fact that they receive, they would receive a 

greater reward, the opportunity to receive a 

solid education generalizes and expands this 

reward.” (Galbraith, J. K.: 1997) 

Education is essential for any 

economy, on the one hand because, through 

education, they diversify the relations 

between man and society, the individual 

having the ability to contribute as a member 

of society with something to counterbalance 

what he receives as a result of the coexistence 

with the others. 

Moreover, the current economy needs 

well-trained workforce, in terms of 

globalization and technological revolution, 

which requires the development of skills, 

creativity, solid knowledge, a greater sense of 

responsibility. “In a world like ours, subjected 

to permanent change, to stagnate in terms of 

preparation is a loss or even harmful behavior 

for the contemporary man.” (Angelescu C.: 

2003) 

The economic performance of a 

country increasingly dependents on more than 

the access to new technologies and their 

adoption of new requirements, that are 

imposed to the labor market in terms of 

training.

European Union 

(27 countries) 

Percentage 

of the 

population 

having 

completed at 

most lower 

secondary 

education 

(aged 24 to 

64) 

The differences in living standards 

between countries are assigned according to 

the International Labor Office specialists 

especially the disparities between the levels of 

training and the quality employment. Thus, 

the countries with high levels of education are 

serious competitors for the others, by 

increasing their ability to adapt better to new 

technologies, to the challenges of 

globalization. People are, in this view, a vital 

resource of any organization that ensures the 

survival, the development and its competitive 

success, in other words, the competitive 

advantage of a company lies in its people. 

(Manolescu A.:2003) 

Thus, the investment in human 

resources is the most important investment of 

the organizations and of the society, whose 

results become more evident over time 

because, the ideas, the known facts, knowledge 

in general can be used and reused 

indefinitely, it is assessed on the extent of use, 

thus helping to propel the growth process. 

Employment rate by highest level of 

education attained % (aged 24 to 64) 

Pre-primary, Upper Tertiary 

primary and secondary education 

lower and post 

secondary secondary 

education non tertiary 

education 

28.5 46.2 69.1 82.9 

Italy 46.7 44.5 66.5 77 

Germany 14.7 45.6 74.6 87 

France 30.4 46 68.3 80 

Poland 12.9 24.6 62.7 83.7 

Hungary 20.3 25.7 61.6 78.1 

Slovakia 10.1 14.3 67.1 80.3 

Bulgaria 22.5 32.3 70 85.5 

Romania 24.7 42 62.2 84.1 

Maxim value Malta – 72.5 Iceland – 

71.2 

Minim value Lithuania – 

9.4 

Slovakia – 

14.3 

45 

Switzerland, 

Norway – 

80.3 

Greece, 

Croatia – 60.4 

Norway -89.9 

Italy – 77 

There may be more general social 

benefits for a less educated population, 

because there is a productivity growth, and, 

the more time is allocated to educate a person, 

the more adaptable to new challenges that 

person becomes. 

The investing in human capital can 

bring to people not only the best technological 

knowledge, but by educating potential 

innovators, it leads to advanced knowledge 

and contributes to the economic growth. 

Another reason in supporting the 

increasing of education is the gain of a greater 

stability in the labor market, which reduces 

the default risk of unemployment and allows a 

"soft" insertion on the labor market. 

The educated people have a higher 

participation rate on the labor 

market and their period of active life 

is generally greater than those with lower 

education. This is seen in the table below. The 

employment is the highest in people with 

higher education and lowest in those with 

primary education.

Persons with low educational attainment 

and employment rate by highest level of 

educational attained (% of age group 24- 

64 years) in 2009 

Source: http://epp.eurostat.ec.europa.eu 

Romania has an employment rate of 

people with higher education of 84.1%, 62.2% 

persons with secondary education and 42% 

people with primary education. The highest 

level of employment of persons with higher 

education is recorded in Norway (89.9%) and 

the lowest in Italy (77%). Among the rate of 

employment of people with primary education, 

it is noticed, in respect to the average rate in 

the European Union, the lowest level is 

recorded in Slovakia (14.3%) and the highest 

in Iceland (71.2%). A high proportion of people 

with primary education in the examined 

countries is recorded in Italy (46.7%) and 

France (30.4%), Romania reaching 24.7%, 

below the EU average level. 

To actively contribute to improving the 

adaptability of workers on the long term, an 

important role is occupied by the improvement 

of access to education. This area of 

intervention is to prevent and combat the 

marginalization and social exclusion by 

improving the participation rates in education 

with emphasis on the access to education for 

the disadvantaged groups and children living 

in poverty. Furthermore, an important role in 

adjusting the employment to labor market 

needs it also has improving the quality and 

affordability of services of initial training. 

These will address both to the professional 

educational institutions and to the 

beneficiaries of subsidized training courses 

combining training, training schemes for 

trainers and investment to improve the 

existing facilities. This type of intervention is 

expected to cut the number of unemployed high 

school graduates or qualified professional. 

The analysis of supply and demand for 

university education in Romania highlights 

both achievements, and also some distortions 

that occur, especially in linking the supply 

with demand for education, making difficult 

the labor market insertion of young graduates. 

On the other hand, the educational offer must 

take into account the rapid pace of change 

that makes each sector needing constant 

updating of skills, in addition to acquiring the 

knowledge and skills. 

Given the fact that it is necessary for 

the economic activity to support both the 

education and training activities and also to 

46 

absorb the new jobs created through these 

programs, there is a need in Romania to draw 

strategies for a better development of the 

educational and economic activities. It is 

known that a certain preparation is often 

sufficient to find a job due to the lack of 

capacity to absorb the labor market. Thus, it 

is needed a better definition for the economic 

and educational objectives, a coordination of 

the assistance from local and external sources 

and improving the monitoring and evaluation 

activities. 

Currently, all studies of developed 

countries but also of the international 

societies indicate that the technology becomes 

an increasingly important part in the lives of 

young people. This development has profound 

implications for the allocation of time between 

different activities, how to interact with each 

other. 

It takes place the development of a 

virtual market work for finding a job and 

recruiting the staff, via the Internet at a lower 

cost and in a much shorter period of time. The 

contemporary labor market becomes more 

flexible, that is why there must be a 

connection between the labor market and the 

e-learning market, including schools, 

universities, training conducted within firms. 

In the European strategy for 

employment, the European Commission and 

Member States pay a particular attention to 

young people as a key target group in their 

joint efforts to reduce and prevent 

unemployment. Especially in conditions of the 

new economy, young people will have to 

prepare more and more and develop their 

native skills to compete in the labor market. 

The guidelines regarding the unemployment 

have always referred to the Member States 

aim to give all young unemployed people "a 

new point of departure" before reaching six 

months unemployment. Firstly, the young 

graduates will compete for jobs with people 

who already have a position in the labor 

market and, secondly, that their preparation 

may not correspond to the existing labor. 

Developing a new economy requires a 

growing number of completely new and 

evolving professions. This development puts 

pressure on a new paradigm in the learning 

systems, focusing on e-education, on lifelong 

learning, on forms of non-formal and nonconventional 

education. Thus, after the Lisbon 

conference, the educational and training 

components included in the guidelines were 

strengthened to emphasize the need for that

the Member States, together with the social 

partners to develop and implement a coherent 

and comprehensive lifetime education and 

training. There are made references regarding 

the need to "equip young people with basic 

skills relevant to employment", to "reduce the 

illiteracy among young people", to "reduce 

substantially the number of young people who 

leave the school”. If in the education systems 

in Western Europe learning is increasingly 

becoming an industry, the Romanian one did 

not show a similar trend. What you see 

instead is a marked imbalance between the 

curriculum of secondary and higher education 

and the structure of professions "required" by 

the New Economy. There is not a sufficient 

suitable institutional framework and the 

training is devoted almost exclusively to 

under-qualified workers. No fiscal or any 

other incentive is offered for the training 

activities, and the concerns for the continuing 

professional training are not sufficient. 

(Jinaru, A; Caragea, A; Turlea, G; Feldman, 

J.F.: 2002) 

Since the performance of the 

Romanian economy and its ability to cope with 

the competitive pressure and market forces 

within the EU are directly linked to the 

quality of the human factor and the structural 

adjustment of labor, an important place in the 

measures of the government programs must 

have the actions aimed at the increasing 

employment training, in the same time with 

its retraining and reorientation according to 

the current and foreseeable demand in the 

labor market. The global environment 

requires the need for Romania to adapt to the 

new knowledge economy conditions, where the 

competitive advantage is achieved through 

innovation and highly skilled workforce. The 

powerful companies, the future ones are those 

who can produce, own and control 

information. 

Intensifying the international 

competition requires the workers to prepare 

better and to adapt to change. The global 

economic competitiveness is increasingly 

based on knowledge and skills. Thus, the 

education and lifelong "learning by doing" 

method lead to a greater labor productivity, 

which corresponds to an increase in the 

human capital stock. 

� The flexibility of labor market - a 

way to improve youth labor 

market insertion 

The increasing adaptability of workers 

and enterprises to current conditions is a 

47 

necessity, given the process of structural 

change in the labor market in Romania. By 

providing an increased adaptability of the 

labor market it will increase the capacity to 

anticipate and absorb the economic and social 

changes. The goal of developing a modern and 

flexible labor market is in line with EU 

priority to improve the quality and 

productivity, by developing and upgrading the 

skills according to the modern technologies 

and to the value added sectors. The workforce 

and businesses will have to adapt to the new 

technologies, being in the necessary position 

for a permanent new approach. 

Flexibility is the socio-economic and 

demographic process that means improving 

the economic, educational and demographic 

conditions in terms of reducing the stiffness of 

labor supply and demand. This concept 

describes on the one hand the changes carried 

out in the nature of the work, targeting 

diverse forms of employment, on the other 

hand, the changes made in the technology 

used. It should be considered the difference 

between the concept of “flexibilization” and 

flexibility, the latter accounting for the 

process and product “flexibilization”. This 

refers to acquiring and growing the capacity of 

labor market to adapt to the conjuncture and 

to the national and international 

environment, for a better functioning. 

The “flexibilization” of the labor market 

imposed itself to the general concern, in all 

countries and key institutions of the labor 

market, employers, unions, governments. It 

can be seen as "the capacity to adapt to 

change, without prejudicing the financial or 

human resources means”. It is considered that 

the flexibility is essential in the current 

period, because it gives the labor market the 

ability to adapt to the conjuncture and to the 

national and international environment, and 

ability to contribute decisively to the 

conciliation of the economic efficiency with the 

social equity, the profitability with the social 

protection, a better functioning of labor 

market with a better combat on 

unemployment and social insecurity, 

preventing the negative effects of 

technological change. 

One of the problems that Romania has is 

the low labor market flexibility. The main 

reasons are the reduced flexibility of the 

educational system, the high level of its 

contributions, the wage rigidities of the Labor 

Code, the lack of effectiveness and diversity of 

services regarding the quality of employment.

All these influence the integration of young 

people in the labor market, which can be 

improved by: qualification programs and 

retraining of unemployed people, information 

and counseling to individuals seeking 

employment, labor mediation through active 

involvement of the ANOFM concerning the 

placement of labor, improving the labor code. 

In other countries with a more flexible 

labor market, the students must not decide on 

their future profession at the age of 18 years, 

but at 20-21 years. Furthermore, the students 

should not decide on a profession without 

knowing anything about it, but after 

participating in several courses in this area. 

This is because the universities are organized 

differently: students participate in the first 

two years at basic courses and courses in the 

areas selected by them. Only then do they 

elect an area which they would like to study 

more. If the choice turns out to be wrong, they 

can change it quite easily because they 

already have the base courses. In general, in 

order to change their field of activity it is 

necessary another year of study, but they can 

Chart no. 1. Do you still practice the job 

aquirred in school? On age groups, 2007(%) 

48 

participate to it even after many years after 

they graduated. 

The years preceding the economic crisis 

are characterized by economic growth, but not 

by the ability of the economy to generate jobs 

adequate for the higher and higher 

employment levels of training. It is noted that 

the educational system does not keep pace 

with the development in the labor market, but 

it offers generations of increasingly large 

university graduates. 

The occupational mobility decreases with 

age, however, maintaining high levels. The 

INCSMPS studies show a higher propensity of 

young people to occupational and territorial 

mobility than to the external mobility. On the 

other hand, surprisingly, graduates rather 

prefer a job`s security and a lower pay than an 

unsafe workplace and a higher salary. In the 

chart below it is highlighted the very high 

incidence of initial job change among young 

people: about 70%. On educational profile, the 

lowest occupational mobility is in medical 

graduates and the highest one in the arts and 

agriculture graduates.

The main reasons for the job change 

obtained by initial training, on age group is as 

it follows: young people aged 15-34 years 

changed job because they found employment 

The Labor Code contains provisions that have 

induced certain rigidity in the labor market 

performance, mainly by: 

� the disproportionate regulation of the 

obligations of the parties of the 

employment relationship, 

� introducing some bureaucratic dismissal 

procedures and restrictive conditions to 

end individual contracts of employment 

for a fixed period. 

Therefore, in 2006, there were completed 

the provisions of Labor Code (OUG no. 

55/2006 published in MO no. 788/18.06.2006) 

regarding the flexibility on procedures for 

collective dismissals, on the development of 

Pre- dismissal services, on the administrative 

simplification, to support training and 

obtaining the management qualifications. 

The flexibility of the collective 

dismissal procedures make the companies to 

be able to resize their activity according to 

need, ensuring the protection of the workers 

who are to be fired. 

In the regional agencies for 

employment (AJOFM) there will be developed 

pre - dismissal services, for those who will be 

dismissed following the restructuring 

operations carried out by employers. These 

services consist of information, recruitment 

and retraining. 

Regarding the labor direction to the 

conducting independent economic activities, 

as individuals (self-employed persons) or as 

family associations there were initiated a 

series of measures for the administrative 

simplification and to cover the effective 

operationalization of the company, which 

consist of advice on the idea of business 

49 

in the initial training and those aged 35 years 

changed the workplace for other better jobs. 

Chart no. 2. Reasons for job change by 

initial training, on age groups, 2007 (%) 

Source: INCSMPS, Comprehensive surveys of 

labor dem 

including the pre-establishment stage of the 

company. 

Another component of the labor 

market flexibilization refers to supporting the 

training and obtaining the management 

support, that can make from the 

entrepreneurship a career option, this action 

having allocations in the European Social 

Funds in 2007-2013. It aims to encourage the 

corporate responsibility by providing 

incentives for the employees, to develop 

companies and careers, but also for the 

awareness of employers and employees on the 

need for continuous training. 

From this point of view, the Public 

Employment Service (SPO) will provide grants 

of financial benefits for the employers to 

organize training programs for employees. 

Simultaneously with the increase of 

labor market flexibility, it is necessary to 

improve the level of protection of employees, 

including by individual responsibility about 

their efforts to find a job. From this 

perspective an important role has the Public 

Employment Service (SPO) who will refocus 

their active measures on groups of 

unemployed people who are reluctant in 

engaging in programs of activation or who go 

through difficulties in finding a job by: 

� increase the attractiveness of jobs; 

� the development of customized 

support services for the unemployed persons, 

especially for the long-term unemployed 

persons, youth and vulnerable groups; 

� improvement of training services 

for older workers seeking employment; 

� increase the quality of services 

provided by the Public Employment Service.

Regarding the social security, by 

modifying the law on unemployment 

insurance system, the calculation of 

unemployment benefits was changed, so that 

the allowance has currently a higher degree of 

replacement of lost wages for workers. Thus, 

taking into account the number of years and 

the contribution to the unemployment 

insurance system it is expected for this 

calculation method to bring in the future a 

closer evaluation of the relationship between 

the cost and benefit of a job search and a high 

presence on the labor market. 

Conclusions 

Experts consider that the young 

people transition from school to work has 

become longer and more difficult now than in 

the past few decades (OECD). Today few of 

the young people leaving the education system 

manage to integrate quickly into the labor 

market and to secure the newly gained 

position. The high rates of youth 

unemployment and the significant incidence of 

underemployment among them indicates 

important difficulties which young people 

experience in the transition from school to 

work. This phenomenon occurs not only in the 

developing countries but also in the advanced 

economies where the active measures and 

support programs are well developed. The 

prolongation of the transition period from 

school to work is explained by several factors, 

most important of which are the restructuring 

and economic developments, the proliferation 

of new forms of employment, unemployment 

among youth, changes in social protection 

systems, the extension of the educational 

period. 

Youth unemployment is a very serious 

problem. The problem of young people’s entry 

into working life concerns not just the 

quantity but the quality of work. The key to 

any effective response lies in the reform of the 

education system. One major way in which 

this may be achieved is through strengthening 

formal and informal links between schools and 

the major labour market actors. 

The education and training systems 

are put in front of the challenge to generate 

new skills to meet the new job`s requirments 

which will be created under the new economy 

and to improve the youth labor market 

integration and adaptability capacity. 

50 

It will also be encouraged the 

improvement of the system of wage 

negotiation in the collective and individual 

employment contracts so as to reflect the 

training and work experience of the employee. 

The requirement to include in the collective 

agreements the clauses on training, and 

compensation in case of dissolution of the 

individual employment contract, are measures 

that ensure a certain level of employee safety, 

but at the same time and a better opportunity 

to reintegrate on the labor market. 

The national labor market problems in 

Romania are generally caused by a reciprocal 

relationship with economic growth level – the 

new jobs created are insufficient, the 

adaptability and mobility of the workforce are 

maintained at low levels, which require 

strategic approaches to reduce the 

discrepancies between supply and demand for 

professional qualifications of the labor market. 

The labor productivity growth is one of 

the most important solutions in developing a 

healthy economy; it depends very much on the 

quality of labor. Therefore, the employment 

policies and strategies should follow the 

increase of investment in human resources, 

investment in training of young / adult at the 

company level, providing the access to all the 

relevant information on education and 

training opportunities. 

It must be also imposed the increase 

on long-term adaptability of the workforce 

according to the market demand - which can 

be achieved by investing in human resources 

development, according to some strategies 

based on continuous learning, as well as 

flexible labor market. 

References: 

* This paper certifies the research findings in the 

Project PN-CDII, No. 91-020, Determinants of the 

labor market insertion of graduates of higher 

education in Romania, during the period 2007- 

2010, Coordinator INCSMPS Bucharest, partner 

ASE Bucharest 

Aceleanu Mirela, Creţu Alina: “Employment and 

policy strategies within the context of the current 

labor market”, ASE Publishing House, Bucharest 

2010

Alves, M. G.: “Perspective éducative sur l’insertion 

professionnelle des diplômés de l’enseignement 

supérieur”, Revue Européenne, Formation 

professionnelle, no. 34/2003 

Angelescu Coralia, Socol Cristian, Socol Aura: 

“Economic Policy”, Economic Publishing House, 

Bucharest, 2009 

Angelescu, Coralia: “Current economic education in 

economic education. Current news and future 

views”, Economic Publishing House, Bucharest, 

2003 

Ciobanu, Olga: “The economic education in 

Romania. Present and future views”, ASE 

Publishing House, Bucharest, 2003 

Dornbusch, R.; Fischer, S.: “Macroeconomics”, 

McGraw-Hill, 1978 

Galbraith, John Kenneth: “The perfect society”, 

Eurosong & Book Publishing House, 1997 

Jinaru, Aron; Caragea, Alexandru; Turlea, 

Geomina; Feldman, Jean Francois: “The new 

economy in terms of Romania's EU accession”, The 

European Institute of Romania, 2002 

Manolescu, Aurel: “Human Resources 

Management”, the Fourth Edition, Economic 


Matei, Ani; Iancu, Diana: “New paradigms for 

education and training”, Research Report, 


Neagu Gabriela: “Education, employability and 

occupational mobility”, www.iccv.ro 

Niall O’Higgins, “Young People in the Labor 

Market in South East Europe”, Seminar on Youth 

Employment in South East European Countries, 

Belgrade 10-12 November 2003 

Popescu, Constantin: “Price of Joy of living”, 

Eurosong & Book Publishing House, 1999 

Salas, M: “Estimating the determinants of the 

transition from higer education to work of 

European university graduates”, The 25 th Arne 

Ryde Symposium 2-3 November, Lund, Sweden, 

2006 

*** “Romania's chance–People”, Report of the 

Institute for Innovation and Development Projects, 

2009 

***www. cnipmmr.ro 

***www.insse.ro 

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

51




THE ROLE AND IMPLICATIONS OF MEDIATION 

IN PUBLIC MARKETING 

Abstract 

Marketing strategies enables public 

organizations to go about their business in a 

customer orientated fashion, since setting 

priorities is helpful in giving the public what 

they want. It could encompass providing 

residents with a full range of leisure, 

education, recreation, economic and social 

services, and making them aware that their 

local authority does that efficiently and 

quickly. But, because ‘the customer is always 

right’ principle is sometimes compromised, 

the stakeholders become unsatisfied and this, 

inevitably, leads to conflict. Seldom these 

conflicts are settled through justice, but most 

times this attitude does not lead to a 

favorable outcome for neither of the parties 

involved in the conflict. This is where the 

mediation can ‘fix’ the relationship between 

public services and their beneficiaries. 

Key Words: Marketing, Public marketing, 

Mediation, Mediator, Conflict management 

1. Introduction – What is public 

marketing 

Many people think of marketing as just 

advertising and/or selling of goods and 

services despite the argument put forward in 

the marketing literature that these are just 

two of the many marketing activities carried 

out by organizations. 

Marketing activities are those associated 

with identifying the particular wants and 

needs of a target market of customers, and 

then going about satisfying them at least as 

well as or better than competitors. This view 

is consistent with the definition by Boone 

and Kurtz (1998): ‘Marketing is the process of 

planning and executing the conception, 

pricing, promotion, and distribution of ideas, 

goods, services, organizations, and events to 

ARDELEANU Anca Monica 


Faculty of Business and Administration 

monica_ardeleanu@yahoo.com 

52 

create and maintain relationships that will 

satisfy individual and organizational 

objectives.’ 

In the public sector much of the marketing 

related activity is concerned with the 

satisfaction of customers despite the fact 

that frequently there is no direct or even 

indirect form of competition. Having a 

monopoly in terms of supply does not in 

itself kill off the need for marketing. In the 

case of the public sector a poor customer 

image does not enhance the organization’s 

image in the eyes of its other stakeholders. 

Indeed, in the context of such organizations, 

marketing may have a broader role to play 

by having to satisfy the needs of different 

and sometimes conflicting interests. 

We might consider replacing the term 

‘customers’ with stakeholders in any 

definition of the role and scope of marketing 

since these include customers as well as the 

many other individuals, groups and 

organizations that deal with or are even 

employed by an organization. A definition of 

marketing that best suits the purpose here 

is: ‘Marketing is the management process 

responsible for identifying, anticipating and 

satisfying stakeholder requirements and in so 

doing serves to facilitate the achievement of 

the organization’s objectives.’ 

In the 1990s, the public sector in various 

European countries started to see its 

clientele as customers and perceived the 

benefits of applying marketing tools and 

strategic marketing planning, in order to 

‘sell’ policies to citizens. 

Public organizations employ four types of 

marketing, which differ from each other in 

the objectives underlying them: 

- first, ‘marketisation’ means that 

certain aspects of public sector 

activities become akin to commercial 

marketing in the private sector by

subjecting products and services to the 

competitive forces of the commercial 

marketplace. The aim is to bring down 

the price level and to bring the 

standard of quality more into line with 

customer demands; 

- second, all organizations use 

marketing for promoting their selfinterest. 

For instance, Burton suggests 

that public organizations use 

stakeholder marketing to secure their 

continued existence by support from 

the market and society; 

- third, in the case of local authorities, 

marketing is used to promote the area 

under the responsibility of the public 

organization, such as city marketing; 

- finally, marketing may be 

instrumental in promoting key 

political objectives, i.e. the realization 

of social effects. 

The possession of a marketing strategy 

enables public organizations to go about 

their business in a customer orientated 

fashion, since setting priorities is helpful in 

giving the public what they want. It could 

encompass providing residents with a full 

range of leisure, education, recreation, 

economic and social services, and making 

them aware that their local authority does 

that efficiently and quickly. Yet another 

important priority for local authorities is 

concerned with speaking on behalf of the 

people they serve. People expect the local 

authority to speak on their behalf and even 

protest on their behalf, particularly when 

there may be a threat such as plans to build 

a new motorway in the area or some other 

new development which impinges on their 

lives. 

It has been suggested that the public and 

non-profit sectors are badly in need of 

improved marketing practices. However, 

given the many political and economic 

complexities of the public sector, marketing 

within this environment is more problematic 

than within the private sector. 

In the past, public sector organizations have 

concentrated more on the way in which 

services are delivered rather than on putting 

emphasis on the end user. Arguably this has 

developed because an organization has had 

an idea of what the customer wanted, or 

considered that it knew what the customer 

needed from a professional perspective. 

53 

Stakeholders interact and participate in the 

organization at all levels. Indeed the very 

functioning of an organization may be 

thought of as the outcome of interactions 

between different stakeholder groups in the 

organization. A behavioral theory of 

organizations would see the decisions and 

policies that are set as being produced by a 

coalition of people representing the ideas 

and wishes that they are pursuing. 

Outcomes may well be related to the power 

possessed by individual groups of 

stakeholders or coalitions between subgroupings. 

With any decision that is taken or policy 

that is set there may be parties that are 

satisfied or dissatisfied with the outcome of 

the interaction that has taken place and 

what it has produced in the way of policies 

or decisions. Marketing has a dual role: to 

help promote the view that the most 

satisfactory outcome has been achieved and 

to persuade all parties that there interests 

have been taken into account in achieving 

the outcome. 

Large public sector organizations, such as 

municipal councils, often have several layers 

of management coordinating the work of a 

large number of employees. All levels of 

management therefore have to take account 

of employees as stakeholders and take into 

account employees’ interests when setting 

policies or making decisions. Individuals in 

such organizations who deal with the 

organization’s customers or other groups 

such as government departments have got 

external stakeholders whose interests must 

also be taken into account. In all these 

instances marketing has relevance to the 

cross-boundary interactions that have to 

take place. In the past the public sector may 

have been lacking in possessing a marketing 

orientation, but as shown before, this may 

still be the case. 

The public sector is constrained in terms of 

the services it is obliged to provide and 

hence may be unable to implement a 

customer-led approach even if this is 

desired. 

Constraints may include: 

- legislative restrictions, 

- political philosophies, 

- lack of physical resources, 

- lack of financial resources. 

Another problem has been to do with 

something which is fundamental to the

marketing concept – respecting the 

customer’s wishes at all times. Marketers 

maintain ‘the customer is always right’, but 

in the public sector this principle is 

sometimes compromised. The customer can 

sometimes be wrong and the public sector 

organization always has to adopt the best 

professional practice whether the customer 

agrees or not. Many public sector 

organizations provide services for the public 

good which are often restrictive and 

controlling in nature. In such cases the user 

is far from happy with the service. Unlike 

the private sector, the public sector does not 

depend on individual users for its survival: 

many organizations are in place due to 

legislation, government policies, and so on. 

Because ‘the customer is always right’ 

principle is sometimes compromised, due to 

the facts presented above, the stakeholders 

become unsatisfied and this, inevitably leads 

to conflict. Seldom these conflicts are settled 

through justice, but most times this attitude 

does not lead to a favorable outcome for 

neither of the parties involved in the conflict. 

This is where the mediation can ‘fix’ the 

relationship between public services and 

their beneficiaries. 

2. What is mediation 

Mediation is a non-adversarial, out-of-court 

alternative for resolving disputes between 

two or more parties in conflict. It is a process 

in which the parties to a dispute, with the 

assistance of an independent and impartial 

third person (the Mediator), identify the 

issues, develop and explore options, consider 

alternatives and endeavor to reach a 

mutually beneficial solution to their conflict. 

As the costs of pursuing legal avenues to 

resolve disputes continue to rise, more 

people are turning to Mediation as a more 

cost effective, efficient, quicker, friendlier 

and less stressful alternative to litigating. 

With a high success rate, all parties benefit 

from this co-operative, voluntary approach to 

resolving conflict. It can preserve or restore 

important relationships and may avoid the 

need for expensive, stressful and lengthy 

legal action. 

Mediation looks to the future. The objective 

for all parties is to work out a resolution 

they can live with and trust. The focus is on 

solving problems, not necessarily uncovering 

the truth or imposing legal rules, as in a 

court case where a judge reviews the past to 

54 

determine who was right and who was 

wrong. Based on their decision, either a 

penalty or award is imposed. 

The mediator however, does not have 

authority to impose a decision or force an 

outcome, so nothing is decided unless all 

parties agree to it. This greatly reduces their 

tension and the likelihood of parties’ clinging 

to an extreme position. The parties are 

empowered to decide on their own ‘win-win’ 

outcome and if mediation is successful, 

usually enter into a written agreement, 

which sets out the terms of settlement. 

3. Mediator’s role 

The Mediator is trained to facilitate the 

communication process between the parties 

by skillfully navigating through difficult and 

highly emotional issues, bringing an 

independent perspective to the table in a 

safe, supportive and confidential 

environment. The mediator acts impartially, 

assisting the parties both jointly and 

separately to reach consensus. One of the 

mediator’s strengths is the ability to create a 

more productive discussion than the parties 

could have had by themselves. Using a 

variety of communication strategies and 

facilitation techniques, the mediator helps 

the parties determine facts; keep focused 

and generate options to assist them in 

finding a solution. Often the mediator has a 

lot of background knowledge of the issues 

and type of dispute. 

The mediator’s role includes: 

- facilitating structured communication 

between the parties; 

- assisting the parties to work out what 

the dispute is about by isolating the 

issues involved; 

- encouraging co-operative problemsolving 

and discouraging the parties 

from taking entrenched positions; 

- helping to determine where the parties 

have common, compatible and 

conflicting interests and where 

appropriate, selectively sharing such 

information with the other parties; 

- systematically exploring issues and 

mutually beneficial solutions by 

focusing on the interests and personal 

needs of all parties; 

- generating options that meet the needs 

and interests of all parties in an effort 

to resolve the dispute;

- managing and making decisions about 

the process to achieve a ‘win-win’ 

outcome for all parties. 

The mediator principally acts as a "process 

person", and helps the parties set an agenda, 

identify and reframe the issues, 

communicate more effectively, find areas of 

common ground, negotiate fairly, and 

hopefully, reach an agreement. A successful 

mediation effort has an outcome that is 

agreed to, and ‘owned’ by the parties 

themselves. 

The Mediator does not decide the outcome of 

the dispute or impose any binding decisions. 

Most agreements are compromises and 

parties do not always get everything they 

would ideally like. A successful outcome will 

be an agreement that all parties can live 

with and abide by. The mediator will not 

advise on the solution or encourage or coerce 

a party to accept a particular solution; 

provide legal advice or advice on legal 

avenues available to the parties or on the 

prospects of success. 

4. The role of mediation process 

Early mediation enables the disputing 

parties to evaluate the issues in their 

conflict and encourages the early resolution 

of the matter before undue time, money and 

effort are expended or litigation takes on a 

life of its own. 

Mediation is usually the most effective way 

to resolve disputes but as it is a voluntary 

process, a successful result relies on the 

genuine commitment of all the parties 

involved. Each disputant should participate 

with good faith and the intention of 

resolving the dispute respectfully and 

peacefully. 

Mediation should be the first choice, 

not the last resort! Guided by the 

mediator, the parties craft their own 

solutions which effectively meet their needs 

and interests. Understanding the benefits 

and process of mediation is an important 

step before the parties commit themselves to 

it. 

Fast and efficient: If one party feels that 

negotiating a settlement of the dispute 

directly with the other party is no longer an 

option, mediation may be the most painless 

and successful way to resolve it. Compared 

to a lawsuit, mediation is quick, impartial, 

private, and inexpensive. Mediation sessions 

55 

are more often than not scheduled within a 

few days or weeks from the time of initial 

contact. Depending on the type of case, the 

majority of sessions last only a few hours or 

a day. In contrast, lawsuits often take many 

months, or sometimes years, to resolve. 

Preserve Relationships: If the dispute 

involves another person or organisation with 

whom (either by choice or circumstance) one 

party wants to remain on good terms, then 

mediation is an exceptionally valuable 

option to consider. Taking an adversarial 

legal alternative can ultimately ruin these 

relationships by polarizing the other party 

whilst mediation provides the process and 

environment for resolving a dispute without 

destroying a relationship. 

Confidential: With very few exceptions, 

mediation provides a confidential 

environment where what is said cannot be 

legally revealed outside the mediation 

proceedings or used later in a court of law. 

However, during court proceedings, by and 

large everything said or submitted in 

connection with a lawsuit becomes available 

to the public. This can be potentially 

extremely damaging to personal reputations 

or a business’ image and brand. Only by a 

special order of a judge can information be 

"sealed" from public exposure. If it is 

important to protect the public, the privacy 

will be substantially greater with mediation 

than with litigation. 

Provides an opportunity for parties to 

exit an existing lawsuit: If the parties are 

already involved in a lawsuit, mediation 

offers a way to resolve the dispute and leave 

the court system behind. Mediation is often 

effective even if the parties have hired 

lawyers and the dispute has progressed to 

all-out litigation warfare. Since parties can 

speak for themselves during mediation, they 

can suggest creative ideas, discuss personal 

feelings, and raise practical solutions that 

litigation might discourage. The mediation 

process allows parties to escape the full force 

of the lawyers' approach to the lawsuit. 

There is the risk that when lawyers are so 

focused on winning a case they can lose sight 

of opportunities for resolution including 

restoring the parties' relationship. The 

mediator is in a position to identify the 

strengths and weaknesses of each side's 

position in non-adversarial terms, promoting 

an increased likelihood for resolution. This 

may beneficially alter each party's view of 

the prospects of winning (or losing) at trial,

and open the door to a mutually acceptable 

settlement. In any case, it provides the 

opportunity to exhaust all other options 

rather than taking expensive (financially 

and emotionally) court action. 

Greater chance of ongoing resolution: 

Agreements reached through mediation are 

more likely to be carried out than those 

imposed by a court. In court proceedings, the 

‘losing’ party is most often angry and may 

try to find ways of breaching the letter or 

spirit of any imposed judgment. However, 

studies have shown that people who have 

freely arrived at their own solutions through 

mediation are significantly more likely to be 

committed and follow through on them 

resulting in a prolonged success rate. 

5. Benefits of mediation 

Cost-effective, affordable solution – 

Saves time, financial, social and emotional 

costs. In commercial or workplace disputes, 

significant savings can be made by avoiding 

costs associated with productivity, staff 

turnover and opportunity loss. Emotional 

and financial costs of being in the legal 

system and costs of settlement are reduced 

significantly. Costs are established and 

agreed upon before proceeding. All parties 

share the fee for mediation services, which 

are considerably less than litigation. 

Flexible and informal process – 

Mediation can often be arranged on short 

notice and be terminated or suspended at 

any time. Mediation can occur prior to or 

during litigation, or after judgment is 

rendered. 

Fast and efficient – Disputes are often 

settled within a few hours and most 

mediations generally settle within weeks 

from commencing the mediation process 

rather than months and years that can occur 

with expensive litigation. Mediation often 

results in clarification of the issues and 

promotes continued negotiation, even if 

agreement is not reached initially. 

Certainty – Decision-making power 

remains with the parties, allowing 

consensual problem solving. This provides 

the parties with the certainty of a negotiated 

outcome rather than the indeterminate 

‘lottery’ type of outcome associated with 

litigation. 

56 

Empowering & Fair – Parties have a 

greater degree of control over the outcome by 

being directly involved in the resolution of 

the dispute and negotiating their own 

settlement. Mediation offers the highest 

level of participation for the parties 

concerned of any alternative dispute 

resolution process. Each party has the 

opportunity to have their ‘say’ and have 

their concerns/needs addressed and retains 

the right to withdraw at any time. The 

Mediator provides a fair and objective 

process in a controlled, supportive 

environment for negotiations. 

Confidential – The process maintains 

privacy and confidentiality, which means 

personal and corporate/public authorities 

reputations can be preserved. Public 

knowledge of a dispute can cause even more 

damage especially if the media or high 

profile parties are involved. Mediation 

provides the opportunity to work issues out 

in private. Important relationships with 

customers, employees, creditors, suppliers, 

family or neighbors often become strained if 

a dispute becomes public. Discussions 

between the mediator and each party are 

confidential, increasing the prospect of 

resolving the dispute. 

Improves communication & preserves 

relationships between the parties and 

enhances the likelihood of continuing their 

relationships. Can assist in avoiding 

grandstanding, power-plays and deadlocks 

by providing a level playing field. Mediation 

assists in reducing hostility and increasing 

understanding whereas litigation is an 

adversarial process likely to exacerbate illfeeling, 

heighten conflict and mistaken 

assumptions between the parties. Mediation 

allows the parties to work collaboratively 

towards a mutually beneficial solution. 

Prevents negotiations from getting 

bogged down by moving the parties from 

taking adversarial positions to focusing on 

interests, mutual understanding and finding 

common ground. Unlike litigation where the 

goal is to ‘win’ against the opposing party, 

mediators assist the parties to restore cooperation 

and relations by focusing on the 

present and future, not the past. 

Positive Outcomes – Provides for the 

exploration of an increased range of options

and ‘win-win’ solutions by focusing on what 

can be changed now to resolve the dispute 

and what can be done in the future to 

prevent a reoccurrence. Parties are free to 

formulate how they wish to proceed for the 

future and express the ground rules for this 

in an appropriate agreement. Mediation 

facilitates the identification and exploration 

of all the issues in the dispute, including 

those that may not be revealed in litigation 

or arbitration due to the application of rules 

of evidence. 

Not required to go to court or pay for 

legal representation. Mediation works 

with or without lawyers. Parties are not 

bound by legal rules, which assists in 

developing and reaching agreement. 

Concludes with a written agreement 

that is signed by all parties. An agreement 

that is detailed and committed to writing 

ensures all parties involved clearly 

understand what was decided in mediation. 

This relieves the parties of relying on their 

memories of how things were resolved and 

enables them to refer back to their written 

agreement for any clarification needed in the 

future. 

High success rate and satisfaction with 

the agreed solutions – Mediation has a 

very high success rate and agreements are 

generally enduring because the parties 

themselves have formulated the agreement. 

There is an increased likelihood of voluntary 

compliance with the terms of any settlement 

agreement reached between the parties as 

the outcome has not been imposed on them. 

Convenient – Time and location 

arrangements suit the parties. 

Nothing to lose – Even if the parties are 

not able to settle a dispute completely, the 

key issues involved most likely have been 

clearly identified. If however the mediation 

is unsuccessful, the parties are still able to 

take other measures, including legal action 

to resolve the dispute. In this case, the 

parties will likely benefit from refined 

discovery, early witness evaluation and 

simplified preparation for trial, significantly 

reducing litigation costs. 


57 

All the benefits of mediation, analyzed 

above, can occur in a conflict between a 

public authority and beneficiaries of the 

public service. Although the mediation is not 

well known by the parties involved in the 

conflict, it seems that it is just beginning to 

show positive results. 

Further on, there are a lot of other issues to 

be examined, such as: in which public 

sectors does mediation work?; which cases 

are appropriate to mediation?; why 

mediation cannot be ignored? 

We contend that mediation can only be truly 

facilitative, if it is structured against the 

backdrop of an accessible legal system. It 

should not be mediation or law. It should be 

mediation and law. 

References 

� Journal articles 

Chapman, D. and Cowdell, T. (1998), 

New Public Sector Marketing, London: 

Financial Times/Pitman 

Cousins, L. (1990), ‘Marketing planning 

in the public and non-profit sectors’, 

European Journal of Marketing, Vol. 24, 

No. 7, pp. 15–30. 

Jagtenberg R & De Roo A, 

The New Mediation: Flower of the East in 

a Harvard Bouquet (2001) Asia Pacific 

Law Review Vol 9 No No 1. 

Kotler P. and Zaltman, G. (1971) ‘Social 

marketing: an approach to planned social 

change’, Journal of Marketing, Vol. 35, 

pp. 3–12. 

� Books 

Bean, J. and Hussey, L. (1997), 

Marketing Public Sector Services, 

London: HB Publications 

Boone, L. E. and Kurtz, D. L (1998), 

Contemporary Marketing, Cincinnati: 

Southwestern/Thomson Learning. 

Burton, S. (1999) ‘Marketing for Public 

Organizations: new ways, new methods’, 

Public Management, Vol. 1. No. 3, pp. 

373–385 

Simkin William E. & Fidandis Nicholas 

A., "Mediation and the Dynamics of 

Collective Bargaining," 43 (1986) 

� Online documents 

MOTI (Marketing on the internet) (2005), 

What is Marketing? Retrieved 2 June

2005 from 

http://iws.ohiolink.edu/moti/homedefiniti 

on.html 

http://www.collaborateaustralia.com.au 

accessed March 12, 2010 

58




AN OVERVIEW OF EUROPEAN MONEY MARKET 

INTEGRATION UNDER THE ECONOMIC AND MONETARY 

UNION 

Abstract 

The first ten years of the Economic and 

Monetary Union have generated a remarkable 

increase in financial integration, even if the 

extent of convergence varies across different 

sectors within the overall European financial 

system. The scope of this article is to illustrate 

the general issues relevant for understanding 

European financial integration by focusing on 

the money market. The link between the money 

market and the framework for implementing 

the single monetary policy makes it the natural 

starting point when trying to point out the 

impact of the introduction of the common 

currency on European financial market 

integration. Among the various segments of the 

euro money market, the inter-bank unsecured 

deposit market has achieved the highest degree 

of integration and, since the start of Stage 

Three of EMU, has performed an important 

role in ensuring the smooth redistribution of 

liquidity among euro area credit institutions 

irrespective of their geographical location. The 

2007/2008 turmoil has led to increased 

segmentation in the euro area money market. 

The assessment of the state of financial 

integration for the last period is made very 

difficult by the effects of the financial 

dislocations on rates and spreads across the 

different instruments and maturities of the 

money market. However, the integration and 

standardization of the money market are not 

yet complete, and further evolution can be 

expected. 

AVADANEI Andreea 

Doctoral School of Economics, 

“Alexandru Ioan Cuza” University-Iasi 

andreea_avadanei@yahoo.com 

59 

Key words: money market, monetary policy, 

financial turmoil, EONIA, common currency. 


The elimination of multiple currencies, 

represented by the creation of the European 

Monetary Union, marks the fall of an 

important barrier against financial 

integration. Money and bond market 

integration was an immediate consequence 

EMU. The introduction of the euro and the 

intercept of the single monetary policy on 

January 1, 1999, accelerated the pace of 

change. Before Monetary Union, much 

curiosity and different points of view 

surrounded the effect of euro adoption on the 

financial markets. As regards the money 

market, attention focused, in particular, on 

questions such as how smoothly the money 

market would integrate after the start of 

Stage Three of EMU, whether money markets 

would perform their role efficiently in the 

monetary policy transmission process, and to 

what extent EMU would affect the efficiency 

of this market compared with that of the 

predecessor money markets. 

At the start of EMU in 1999, the condition of 

the various money market segments differed 

greatly with regard to their potential 

integration, owing to the different nature of 

the instruments exchanged, as well as the 

peculiarities regarding market participants 

and other institutional factors.

The gains in terms of integration, efficiency 

and liquidity achieved in each of the market 

segments following the introduction of the 

euro depended on a number of factors such as: 

the degree of proximity of each market to 

monetary policy implementation; the 

structure of the market(i.e. mainly inter-bank 

versus a customer-orientated structure, 

centralized versus an over-the –counter or 

non-centralized structure); its relative 

complexity(i.e. the number and nature of 

instruments traded and market participants); 

infrastructural developments and a number of 

regulatory, institutional and historical 

features. 

a) The aim of this paper is to present an 

overview of the European money market 

integration since the introduction of the 

common currency in January 1999 until the 

present financial turmoil, in term of evolution 

and achievements. 

In examining developments and integration in 

the most important segments of the euro-zone 

money market, we focused on three commonly 

distinguished markets: the market for 

unsecured deposits where credit institutions 

exchange short-term liquidity without the 

guarantee of collateral, the repo market in 

which market participants exchange shortterm 

liquidity against collateral, and the 

foreign currency swap market. We will also 

look at the derivatives market and the 

markets for short-term securities. 

b) Monitoring the integration of euro area 

money markets is important for a number of 

reasons. First, this market is central to the 

implementation of the single monetary policy 

of the euro area, since it constitutes the first 

step in the transmission mechanism of the 

monetary policy. The monetary market is 

regularly used by the Eurosystem to 

distribute liquidity to the market. For 

example, repo transactions are one of the 

main instruments used for the Eurosystem’s 

regular refinancing operations. The 

integration of these markets is therefore 

essential to allow a smooth flow of liquidity 

between markets and across country borders 

so that liquidity is distributed evenly within 

the money market. Beyond these 

considerations, money market integration is 

important for the efficient allocation of 

60 

resources in the euro area and for promoting a 

more efficient pricing of short-term debt in the 

euro area. 

c) The article is structured to answer three 

research questions: 

� What is the importance of European 

money market integration for monetary 

policy? 

� Which was the evolution of the euromoney 

market integration and which is 

the actual stage, considering its main 

segments? 

� What are the possible implications of the 

crisis on the integration of money market? 

d) In order to develop hypotheses on the effect 

of the EMU on the money markets, the 

existing literature on the integration of these 

markets is being reviewed. 

2. Literature review 

An immediate consequence of the adoption of 

the common currency was an integration of 

the euro-zone money and bond markets 

(Adjaouté and Danthine, 2003; Hartmann et 

al., 2003). A number of studies analyze the 

degree of European money market integration 

from various angles. 

Santillan et al. (2000) investigate the effects of 

the introduction of the euro in 1999 on euro 

area bond and money markets; their study 

concluded that while the unsecured money 

market segment very quickly became highly 

integrated, the repo market lagged in this 

respect. 

Hartmann et al. (2001) examine intra-day 

data for unsecured euro area lending rates 

during a 5-month period and find cross-border 

rate differentials to be very small. Therefore, 

they concluded that the unsecured segment of 

the money market became very highly 

integrated almost immediately after the 

introduction of the common currency. 

Gaspar, Perez-Quiros and Sicilia (2001) 

document the story of what they called the 

“learning period” in the money market. The 

period is identified with the three weeks after 

the introduction of the euro. They argue that 

the introduction of the new operational 

framework proceeded remarkably smoothly. If 

one focuses on volatility or cross-bank 

dispersion in overnight interest rates, the

effects found are much smaller that the effects 

associated with recurring events such as the 

end of a reserve maintenance period. 

This finding is all the more surprising because 

national money markets, before the start of 

the single monetary policy, displayed 

important distinctive features. They also look 

at the dispersion of interest rates across 

banks. For this purpose, they use the interest 

rate obtained by the major European banks 

when they lend funds in the overnight market. 

In particular, each data point represents the 

average interest rate charged in that day by 

each lending bank. The dataset was provided 

by the European Banking Federation (EBF) 

and is the one used to compute the time series 

for Euro Overnight Index Average (EONIA), 

which is based on data from a panel of more 

than 50 banks. It is important to emphasize 

that observations in the EBF database 

correspond to actual trends. They show that at 

the very beginning of the single monetary 

policy, that is, during the first business week 

of 1999, some banks reporting to the EONIA 

panel lent at rates above the marginal lending 

facility. 

Galati and Tsatsaronis (2001) and Gaspar et 

al. (2003) reported that the percentage of 

cross-border inter-bank lending increased 

considerably around the time of euro’s 

introduction, indicating a strengthening of the 

degree of integration in this segment. 

Focusing on inter-country differences, Baele et 

al. (2004) document the integration of money 

markets in the euro area, using the crosssectional 

standard deviation of unsecured 

lending rates, among 12 average country rates 

and confirm the existence of a well integrated 

market across countries. 

Gaspar, Perez-Quiros and Rodriguez- 

Mendzibal (2004) also look at the cross 

sectional dispersion of the EONIA overnight 

rate. They characterize the distribution of 

rates across contributing banks and study how 

it evolves over time. 

As with the money markets, the level of 

general integration in the longer-term debt 

securities markets has been impressive. 

Although spreads are reasonably low in the 

government bond market, the efficiency and 

liquidity of that market is constrained by 

differences in the issuance practices of the 

61 

member states (Dune et al. (2006), European 

Commission (2008)). For corporate debt, 

spreads can be related to sector and firm-level 

characteristics, with no important role for 

country-level factors (Baele at al. (2004). In 

relation to liquidity, Biais et al. (2006), show 

that the liquidity of euro-denominated bonds 

is superior to sterling or dollar denominated 

bonds, which can be attributed to an open and 

competitive area wide market in which a large 

number of banks offer dealership services to a 

wide array of prospective buyers. 

As is emphasized by Pagano and Von Thadden 

(2004), the growth in the volume of corporate 

bond issues can be in part attributed in the 

euro, in relation to the contribution of the 

single currency to the increase in competition 

among underwriters, which led to a 

substantial reduction in issuance costs and 

improved access for smaller and higher-risk 

firms. 

Still, caution is advised when trying to 

attribute the progress in integration to the 

EMU alone. It seems that some significant 

integration has already taken place prior to 

EMU, as Hardouvelis, Malliaropulos and 

Priestly (1999) document. 

The 2007/2008 financial market turmoil has 

been discussed extensively in the specialized 

press (i.e. Financial Times, Wall Street 

Journal, the Economist), and in social 

publications (Financial Stability Reviews 

published by central banks, the IMF and BIS). 

The academic literature is still in the process 

of analyzing the ongoing events (Ferguson et 

al. (2007), the articles in Banque de France 

(2008)). Several dimensions are being explored 

such as flaws in the pricing models and 

understanding of credit risk transfer products; 

the role of securitization, SIVs and offbalance-sheet 

exposures of banks and their 

committed credit lines; the role of rating 

agencies (Ashcraft and Schuermann (2007), 

Crouhy and Turnbull, (2008), Brunnermeier 

(2008)); central bank operations and their 

impact (of lack of) money spreads and 

volatility (Taylor and Williams, 2008); the role 

of collateral in open market operations 

(Ewerhart and Tapking, 2008); and the 

potential moral hazard implications of recent 

interventions and innovations in central bank 

operating procedures (i.e. US Fed and Bank of

England’s securities swap facilities) (Buiter, 

2008). 

3. The importance of European money 

market integration for monetary policy 

By definition, the start of the Third Stage of 

EMU had a significant impact on the money 

market’s daily business. The shift in 

responsibility for monetary policy from the 

national central banks to the ECB had a clear 

impact given the banks’ crucial role in the 

money market regarding the distribution of 

liquidity and determining the level of shortterm 

interest rate. 

The Eurosystem implements monetary policy 

through the money market. Its operational 

framework is predicated on a well-functioning 

monetary market, requiring only a limited 

presence of the monetary authority. The 

Eurosystem’s operational framework is based 

on three key elements. First, reserve 

requirements, with an averaging provision 

other than reserve maintenance period, allow 

banks to spread out the impact of liquidity 

shocks over time and thereby help to contain 

volatility in overnight interest rates. Required 

reserves also create a structural liquidity 

shortage for the banking system as a whole, 

ensuring that the central bank will be 

regularly required to supply liquidity to the 

system. 

The second key element is standing facilities. 

The Eurosystem provides two such facilities, a 

marginal lending facility and a deposit 

facility. Both are used on the initiative of 

commercial banks. The two standing facilities 

define a corridor (or band) for overnight rates 

(Posen, 2005). The third key element, open 

market operations, is used to control liquidity 

conditions in the market. In its regular main 

refinancing operations, the Eurosystem uses 

repos, supplying liquidity by buying assets 

under a repo or granting loans against 

adequate collateral. Money market integration 

is therefore crucial for the implementation of 

the single monetary policy because it provides 

the locus for the first step in the monetary 

policy transmission mechanism. 

During the period from January 4 to 21, 1999 

the corridor defined by the two standing 

62 

facilities was temporarily narrowed to 50 

basis points, which limited the volatility that 

might have been associated with the 

transition to the new regime. When the 

corridor was widened to its normal size, the 

market rate (measured by EONIA rate) 

remained stable and close to the Eurosystem’ 

main refinancing operations rate of 3%. The 

dispersion of rates across banks was also 

already much lower on January 22. However, 

Gaspar, Perez-Quiros and Sicilia (2001) 

provide evidence showing that the transition 

was not, strictly speaking, instantaneous and 

that learning did take place. They identify a 

number of inefficiencies and other forms of 

abnormal behavior during the first day of the 

month- for example, the above mentioned 

trading at rates significantly higher than the 

marginal lending facility on January 5. 

However, they also show that banks have 

adapted quickly and easily to the new 

environment. 

3. Evolution and achievements pf the 

European money market integration 

The most immediate and extensive impact of 

EMU has been felt on the euro-area money 

markets for unsecured money and derivatives. 

Almost from the outset of EMU, interest rate 

on inter-bank deposits and derivative 

contracts across euro area converged fully to 

on the benchmark EURIBOR and EONIA 

rates. This rapid convergence reflected early 

acceptance of the single monetary policy 

among market participants and was 

facilitated by the availability of interconnected 

systems for real-time settlement of large- 

value payments in the form of TARGET, 

which was recently been replaced with a more 

integrated platform, TARGET2. The 

successful integration of these unsecured 

markets was crucial to establishing ECB 

credibility in the very early period of EMU 

and has provided the basis for a smoothfunctioning 

single monetary policy thereafter. 

In this context, the unsecured market became 

highly liquid and deep, with very big deal 

sizes, tight bid-ask spreads and equal interest 

rates at different locations, with the exception 

of minimal differences, normally well within 

the bid-ask spreads.

The growth of the unsecured segment of the 

market was concentrated at the shorter 

maturities, indeed in overnight transactions, 

which represented by far the largest share of 

unsecured operations. While the available 

information for the euro area money markets 

is scarce on the price side, the EONIA 

provides a clear indication for overnight 

developments. The dispersion of the EONIA 

prevailing among euro area countries has 

been very small since 1999. 

This is a key development because a common 

short-term interest rate represents the first 

step in the transmission mechanism of 

monetary policy. 

Between 1999 and 2007, the unsecured 

segment was highly integrated, with the 

creation of the euro area lending to a nearcomplete 

convergence in key indicators, such 

as the overnight lending rate. Over the second 

half of 2007 and the first quarter of 2008, a 

sharp widening of the dispersion in EONIA 

lending rates was seen in response to the 

financial turbulence. This could have been the 

result of two joint factors-an increase in the 

variability of counterparty risk and a 

temporarily higher home bias for unsecured 

transactions (European Commission, 2008). 

This conclusion is supported by the positive 

trend in the geographical counterparty 

breakdown for 2006-2008. It appears that over 

2007 and the first quarter of 2008 the secured 

segment has been less influenced by the 

financial turbulence. Nevertheless some 

impact has been seen both in terms of reduced 

cross-border business and increased 

variability of rates between countries. Outside 

the euro area, unsecured money market 

interest rates were also converging up until 

the emergence of the market turmoil in the 

latter part of 2007. 

Integration has been less complete in secured 

money markets within the euro area, such as 

the market for T-bills, commercial paper and 

certificates of deposit, as well as the private 

repo market. 

The creation of EUREPO index by the 

European Repo Council and the European 

Banking Federation in March 2002 was an 

important recent initiative for promoting the 

repo market’s integration. EUREPO, which 

was introduced as the benchmark for secured 

63 

money market transactions in the euro area, 

is the rate at which one prime bank offers 

funds in euro to another prime bank in 

exchange for EUREPO general collateral 

(GC). The fact that EUREPO GC is clearly 

and uniquely defined for all market 

participants facilitates cross-border trades 

and therefore promotes repo market 

integration. 

As far as the integration of these markets is 

still hindered by the differences in national 

legal and tax frameworks and by the 

persistent fragmentation in national clearing 

and settlement infrastructures that make 

difficult the cross-border movement of the 

collateral. However, the implementation of the 

Financial Collateral Directive (FCD) has 

reduced the national legal differences and has 

contributed to the grater usage of cross-border 

collateral. Although a source of inefficiency, 

segmentation in these markets was not 

considered to be a major opportunity cost for 

the euro area economy so long as the interbank 

market functioned smoothly. However, 

the liquidity problems experienced in the euro 

area inter-bank market since august 2007 

amid the ongoing international financial 

turmoil have highlighted the importance of 

access to efficient collateralized money 

markets and suggested a need for further 

effort in integrating these markets. 

Given the high fragmentation that has 

characterized the commercial paper market 

since the introduction of the euro; the 

harmonization of market standards promoted 

by the STEP initiative may significantly 

contribute to the integration of this market 

segment. 

Unlike the unsecured and secured segments, 

the market for short-term securities has 

shown only limited signs of integration since 

the introduction of the common currency, 

mainly because of differences in market 

practice and standards. An efficient 

commercial paper (CP) market is needed to 

ensure the efficient financing for firms and a 

smooth and timely transmission of monetary 

policy. Furthermore, the absence of a 

sufficiently developed CP market may result 

in elevated and uneven costs of capital in the 

euro area.

Since June 2006, the STEP initiative aims at 

fostering the integration of this market by 

promoting convergence of market standards. 

In 2007, more than half of the outstanding 

euro-denominated commercial paper has been 

assigned the STEP label and its share 

substantially expanded, even in a period of 

contraction of the entire market (European 

Commission, 2008). The segment has 

therefore the potential to become a truly 

integrated euro area market, of a dimension 

comparable to that of the US market. 

Meanwhile, the markets for euro-denominated 

derivatives have expanded significantly 

beyond the size implied by legacy currencies, 

partly reflecting an explosive growth trend in 

such instruments on a global level, but also 

the absence of liquidity in underlying cash 

securities. Interestingly, the vast bulk of 

activity in euro-denominated derivatives 

markets takes place outside the euro area in 

London. 

Like the unsecured lending market, the euro 

area interest rate swap rapidly became highly 

integrated following the introduction of the 

euro in 1999. Price-based measures of 

integration in the euro area interest rate swap 

market confirm that this segment indeed 

already enjoyed a very high degree of 

integration shortly after the euro’s 

introduction. On the whole, all evidence 

suggests that the euro area interest rate swap 

market is not only extremely large and liquid, 

but also one of the most integrated in the euro 

area financial landscape. 

The integration of swaps and future markets 

is significantly higher than the cash-based 

markets, reflecting the greater concentration 

in the derivatives markets among larger, more 

sophisticated institutions. However, the shortterm 

securities markets are the least 

integrated component of the money markets: a 

basic obstacle to a unified short-term 

securities market has been the diversity in 

norms and definitions in the design of shortterm 

securities contracts. 

In respect with the longer-term debt 

securities, the integration of this market has 

been impressive. For sovereign debt, spreads 

across member governments are small 

relative to the pre-EMU patterns and can be 

64 

related to differences in liquidity properties 

and credit risk. 

4. Main features of the money market in 

the light of the financial crisis 

The European money market has been 

particularly hit by the turmoil. In our view, 

asymmetric information on credit risk played 

a crucial role in the transmission of the US 

sub-prime mortgage market credit shock to 

this market. Transactions volumes, especially 

for longer maturities, have declined, and 

unsecured rates have been characterized by 

unusually high elevated spreads. As the 

financial turmoil unfolded, the dispersion of 

inter-bank lending rates across countries 

reached unprecedented levels compared with 

those observed before the crisis began and 

even in the initial stages of the turmoil in the 

summer of 2007. Moreover, there are 

indications of emerging differences between 

domestic and cross-border rates in the 

unsecured money market. In particular, the 

volumes of cross-border trades declined 

somewhat compared with domestic 

transactions. At first glance, this finding 

seems to indicate a breakdown of the crossborder 

market with a possible segmentation of 

money markets across the euro area. The 

price for these transactions lowered in 

comparison with domestic trades. Thus, a 

more likely interpretation seems to be that, as 

a result of the turmoil, cross-border inter-bank 

trades are now conducted mainly by banks 

with a relative high credit standing, who act 

as money centers in the different countries of 

the euro area. The higher average quality of 

cross-country borrowers is reflected in the 

lower interest rates. Other, most likely 

smaller or less known banks are mainly 

trading in domestic markets, where interest 

are higher, because the average credit risk is 

perceived to be higher. Thus, in the crossborder 

context, the events seem to have 

enforced a two-tier system of the money 

market, in which smaller banks rely on 

liquidity provision by internationally active 

money center banks. 

During the financial turmoil, the 

increase in perceived liquidity and credit risks 

generated a sharp increase of volatility and a

decline in trading activity in the euro area 

market not only for inter-bank unsecured 

loans but also in segments of the secured nongovernment 

repurchase agreements (repo) 

markets. Many banks no longer accept certain 

asset types (i.e. ABSs and CDOs) as 

underlying collateral in repo transactions. 

Even in those secured money market 

segments with high quality collateral, 

turnover has decreased. The reduction in 

turnover in these markets has two causes. 

First, because market participants are 

uncertain about counterparty risk, they have 

cut their credit lines and reduced their loan 

volumes markedly. Second, increased 

uncertainty about their own liquidity needs 

has led to liquidity hoarding. The dramatic 

increase in perceived liquidity and credit risks 

had a major impact on the rates, the volatility 

and spreads prevailing in the euro area money 

markets. 

The cross-sectional standard deviation 

of the EONIA lending rates across euro area 

countries clearly signals tensions in the 

money market. After having reached its 

lowest level of 1 basis point in 2006, the 

standard deviation suddenly increased to 4 

basis points in mid-2007 before reaching a 

peak of more than 15 basis points in October 

2008 (Lane, 2008) . These developments 

closely followed the different stages of the 

financial crisis. 

Increased concerns about the 

creditworthiness of counterparties and 

uncertainty about their own liquidity 

positions prompted banks to hoard liquidity 

and to lend funds only for the shortest 

maturities or only against higher-grade 

collateral in secured markets. In the 

unsecured segment, liquidity became very 

scarce at maturities beyond one week, even 

disappearing at longer maturities. Most interbank 

unsecured lending concentrated on the 

overnight maturity, but even overnight 

liquidity remained scarce. 

The 2007/2008 turmoil has led to increased 

segmentation in the euro area money market 

(Cassola, 2008). 

Asymmetric information problems have been 

a central feature of the malfunctioning of the 

money markets. This has led to a two-tier 

market structure, with the larger banks 

65 

possessing the highest credit standing active 

in the cross-border money markets whereas 

smaller banks are confined to trading with 

domestic counter-parties. The segmentation is 

reflected in pricing data, with interest rates 

on cross-border inter-bank lending lower than 

on domestic inter-bank lending. As the money 

markets return to more normal conditions, we 

may expect the degree of segmentation to 

decline even if it does not fully return to the 

pre-turmoil levels. 

5. Conclusion 

Responding to the introduction of the euro and 

the monetary framework, the money market 

has undergone a process of deep integration 

and standardization throughout the euro area. 

Nevertheless, the degree of integration 

achieved o date differs among the various 

market segments. Those which are more 

integrated are the unsecured deposit market, 

in which banks exchange short-term liquidity 

without the guarantee of collateral, and the 

derivatives markets. Relatively less integrated 

segments of the market include the repo 

market, in which participants exchange shortterm 

liquidity against collateral, and the 

short-term securities markets (Treasury bills, 

commercial paper and certificates of deposit). 

Recent developments suggest that the turmoil 

is having a significant impact on euro area 

financial integration in certain sectors: most 

notably, in the unsecured inter-bank market 

and in the government bond markets. Crossborder 

inter-bank activity started to decline in 

certain areas in autumn 2008. We believe that 

this reversal in trend can be linked to 

transitional factors, including increased credit 

risk variance amongst intermediaries and a 

temporarily higher home bias for financial 

transactions. As such, this change in direction 

should not be seen as a clear signal of a 

permanent worsening in the level of market 

integration. It is clear that further 

information and time is needed to shed 

sufficient light on these developments so that 

we can be in a position to accurate judge the 

situation.

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“The 2007/2008 turmoil: a challenge for 

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ECB monetary policy strategy and the 

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Bank Working Paper No. 44, 2001; 

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“ Interest rate determination in the interbank 

market”, UFAE and IAE Working 

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l’Analisi Economica (UAB) and Institute d’ 

Analisi Economica (CSIC), 2004; 

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Commission Staff Working Document, 

Brussels, 2008.




BUDGET EXPENDITURE STRUCTURE IN KOSOVO 

MYRVETE- Badivuku-Pantina, Associate Professor, University of Prishtina, 

Faculty of Economics, Kosovo 

myrvetebadivuku@yahoo.com 

SKENDER Ahmeti, Associate Professor, University of Prishtina, Faculty of 

Economics, Kosovo 

Skender.ahmeti@yahoo.com 

MIXHAIT Reçi, Associate Professor, University “Iliria”, Kosovo 

mixhait@hotmail.com 

Abstract 

Development of the budget enables a direct 

link between policy priorities, as stated in 

the country’s sectorial strategies, and the 

priorities in expenditures with the aim of 

an effective distribution of the country’s 

available resources. A proper budget 

forecast, supported with clear objectives 

and set mid-term priorities for all 

expenditure programs, s a prerequisite for 

an effective and efficient management in 

the realization of public expenses. This 

approach helps us further in the fiscal 

discipline by enabling us to plan public 

expenditures realistically, within the 

macroeconomic and fiscal parameters. We 

have to add that Kosovo has shown 

continuous improvements of systematic 

and political mechanisms and instruments 

in developing, reviewing and adopting the 

budgetary plan. Low levels of budgetary 

revenues and sensible increases of public 

expenditures have exercised pressures thus, 

influencing a continuous reduction of 

government expenditures. Equal to 

budgetary revenues, government 

expenditures in Kosovo appear at a 

medium level of the transitional 

economies. The purpose of this paper, 

therefore, is to present an overview of the 

budgetary expenditures in Kosovo during 

2006-2008 and to show that by fighting the 

negative phenomena, such as the informal 

DRITA-Kaçandolli-Gjonbalaj, 

Privatization Agency of Kosova, Kosovo 

dritakgj@hotmail.com 

67 

economy, the budget can increase and the 

entire country could benefit from it. 

Key words: budget, Kosovo, government 

expenditures, informal economy. 


Despite showing an economic growth, 

Kosovo is still one of the most undeveloped 

countries in Europe. Kosovo’s economy 

remains fragile. Also thanks to donors, 

during the last three years satisfactory 

results have been recorded. The real GDP 

increase in 2007 and 2008 was 5%, which 

is near the average level with the regional 

countries. The investments share in the 

GDP in 2008 was 22.7 percent, and their 

share in the total investments (private 

and public) 32.9%. 

Development trends in the trading 

balance have worsened significantly 

during this period, largely due to the fact 

that the imports have shown a faster 

growth than the GDP. Kosovo’s economy 

continues to have a large dependency level 

from imports, which comprises around 

50% of the GDP, while exports are very 

low and cover a very small part of the 

imports (less than 10%). This happens 

because the production capacity is low 

noncompetitive compared with the 

regional one. Hence, the local prices for

many years depended on the import 

prices. As a result of the fast opening of 

Kosovo economy (as there was no other 

alternative), the inflation has been 

transferred in the Kosovo’s economy and 

households. In 2008 inflation has shown 

an increase, compared to that of 2007. 

Prices, measured with the Customer Price 

Index (CPI) have increased for 9.4% in 

2008 compared to an increase of 4.2% in 

2007. During the period 2007-2008, the 

exchange rate moved from 1€, which was 

1.21 US $, and now, in 2009, the exchange 

rate was between 1.25 and 1.6 US $. 

Kosovo is a relatively rich country with 

natural resources: lignite/coal, nickel and 

other metals. However, for their longterm 

and efficient exploitation issues such 

as prioritization and property, financial, 

technical, and technological matters have 

to be resolved, in order to attract the 

necessary investments. Stabilization and 

development of the electricity sector is of 

critical importance to attract foreign 

investors, to support the new industry of 

Kosovo, the times when the world 

economy is facing with notable problems. 

The large level of unemployment and 

poverty are serious problems of Kosovo. 

Despite improvements in revenues per 

capita, the material situation of Kosovars 

remains fragile. Official assessments of 

the employment level are around 50%, and 

thousands of young people (including 

those with university degrees) enter the 

labor market. Poverty, particularly 

extreme poverty, has showed an increase 

in the recent years which is a very 

worrying fact. This is a serious problem 

that needs to be tackled seriously by the 

Kosovo government, and it requires 

urgent solutions, within the development 

policies. 

The table no. 1 provides a summary of 

some of the main macroeconomic 

indicators of Kosovo for 2007 and 2008. 1 


A number of authors, ranging from 

Aschauer (1989), have theoretically and 

1 See table no.1 in Annex) 

68 

empirically researched the consequences 

of productive public expenditure. 

Literature produced includes works of 

authors like Baxter-Kink (1993), Gramlich 

(1994), Glomm and Ravikumar (1997), 

Rioja (1999, 2003), Faltenstein & Morris 

(1990), Kalaitzidakis & Kalyvitis (2004), 

Coto-Martinez (2006), Duggal, Saltzman 

& Klesin (2007) and many others. These 

authors explicitly focus on the 

compromises / ratio between productive 

infrastructural expenditure and positive 

effects of public consumption. Exceptional 

to this are the views of Barro (1990), 

which incorporates taxes to fund 

governmental services that have an 

impact on production and services, within 

a model of endogenous economic growth; 

and Tumovski and Fisher (1995) that use 

a neoclassical framework but in a manner 

that is rather similar with the Barro’s 

analysis. Therefore, according to Ganelli 

and Tervala, shifts in the public 

expenditure content have significant 

positive implications and create welfare 

inside and out. In special, an interim 

growth on internal public capital reserves 

is detrimental for internal welfare if 

public capital productivity is small. If 

shifts in public expenditure content are 

consistent, then local services are 

improved, if governmental expenditure 

productivity is not too low the importance 

of public consumption (in rapport with 

private consumption) in private services is 

not too high. 

According to National Account Statistics 

(NAS) – public investments are defined as 

expenses in fixed assets - tangible and 

untouchable assets - that are used in the 

production process for more than one year, 

roads, buildings, computer software, etc. 

Based on World Bank data, public 

investments have disproportionally failed 

in certain time periods, due to regulation 

in fiscal policies, e.g. the 1998 World Bank 

Report shows that shortages in public 

investments were in average three times 

higher than the average current 

expenditure. Fiscal regulation also had 

distinguished impacts on public

investments, especially in Latin American 

countries (see Serven & Salimano, 1992 

and Calderon, Easteriz and Serven, 2003). 

It is assumed that half of fiscal 

regulations undertaken during the 90s in 

Argentina, Bolivia, Brazil, Chile and Peru, 

have reflected on infrastructural 

investments (Calderon, Easterly) and 

Serven 2003. 

3. Theoretical Background 

Budget study needs to be approached in a 

complex manner, from its two main 

segments, budgetary revenues and 

expenditures. To this end, however, our 

analysis will be focused in the budgetary 

expenditures segment. 

From the postwar period up to this day, 

budget revenues were initially mainly 

based on donations, grants and foreign 

assistance. Under these circumstances, 

there was no budget planning, as it was 

almost impossible. Kosovo’s budget was 

administered by UNMIK for several years. 

As an international organization, UNMIK 

played the role of Kosovo’s government. 

For its staff and experts, UNMIK strived 

to bring about best experiences of 

developed countries and build a functional 

and efficient budget system. Positive 

changes occurred in 2004, when Kosovo’s 

budgetary revenues were based on owned 

source revenues, and the budgetary 

processes are managed by the Ministry of 

Economy and Finance (MEF), in line with 

best practices developed economies. 

Customs continue to play an important 

part in that all hold revenues in Kosovo, 

compared to other countries: In end 2008, 

custom revenues compared to the barge to 

revenues of several regional countries are 

as follows: Kosovo 15,0%, Albania 9,0%, 

Macedonia 10.2%, Rumania 3.5%, 

Bulgaria 2.0%, etc. Their share in the 

budgetary revenues in the country’s GDP 

has continuously increased from 2002. 

It is currently around 28.5%. In 2007 and 

2008, this percentage was lower (around 

27.0%, CBAK, Annual Report 2008). 

From the data in the table below we see 

that indirect taxes (VAT, excise, and 

69 

custom duties) in the last three years 

make up the vast majority of the tax 

revenues in Kosovo, compared to direct 

taxes. Municipal tax and no tax revenues 

comprise around 13,0% of the overall 

budgetary revenues. The differences in the 

ratios between taxes in the central and 

the municipal level, in the analyzed years, 

are insignificant (estimates). 2. 

The greatest contribution is VAT followed 

by excise. It is important to mention that 

the VAT and excise are predominantly 

collected at borders. With regard to the 

expenditures, the ratio expenditures – 

GDP has increased from 19.3% in 2007, to 

26.8% in 2008. In 2006 and 2007 there 

was a budgetary surplus. 

In previous years Kosovo budget was 

mainly associated with a surplus. The 

government’s lack of ability to acquire 

public loans (internal and external) due to 

a lack of legislation on public loans, and 

the non determination of the political 

status as of February 2008, forced a rather 

conservative approach of the government 

in fiscal policies. Therefore, the available 

means to fund the possible budgetary 

deficit comprised only from accumulated 

surpluses from the previous years. 

Nevertheless, Kosovo’s membership to 

IMF and the World Bank and the future 

memberships to other financial 

institutions and organizations and the 

cooperation in different international 

areas, will open way for Kosovo to other 

funding sources, in order to address its 

possible budgetary needs. Compared to 

2004 and 2005, the years of a budgetary 

surplus, in 2006, 2007 and 2008, Kosovo’s 

Budget was almost balanced with a 

surplus of around 2.05 respectively 7.0% 

( MEF, 2009). 

2 See Table no.2 in Annex

4. Paper Content 

The public expenditure structure is 

comprised of the public consumption of 

goods (including no only goods and 

services, but also public sector employees’ 

salaries, infrastructure maintenance, etc.) 

and the transferred consumption 

(different expenditures and taxes, such as 

regress, premiums and possible subsidies). 

In 2008, budgetary expenditures, as 

indicated above, have followed a 

relatively fast growing trend and realized 

the highest annual growth level since 

2002. Budgetary expenditures in 2008 

reached 950.5 € million, which is an 

annual increase of 43.8 percent. 

Compared to the GDP, budgetary 

expenditures reached 25 percent 

(compared to 19.3 percent in 2007). The 

budgetary expenditures increase is 

supported in the increase of capital 

expenditures, which in 2008 had reached 

347.1 € million, an annual increase of 

124.3 percent. This caused the capital 

expenditures in 2008 to absorb the largest 

part of the Kosovo budget with a 

participation of 36.5 percent of the total 

budget expenditures, compared to 23.4 

percent in the previous year. 

The highest participation in capital 

expenditures belongs to investments in 

road infrastructure. The increase of these 

investments has contributed to an 

increase in job opportunities (at least in 

short-term), by also contributing in 

stimulating the demand. In the longterm, 

capital investments shall also 

create more favorable conditions for the 

business development in Kosovo, by 

having an impact in attracting foreign 

investments, which improve the living 

conditions for a more sustainable 

economic development. Another category 

of expenditures that largely contributed 

to the overall increase of budget 

expenditures is the expenses for transfers 

and subsidies. 

In 2008, this category of expenditures 

marked an annual increase of 42.8 

percent, reaching to 218.5 € million (23 

percent of total budget expenditures). 

This increase level mainly resulted from 

70 

the increased subsidies for public 

utilities, which amounted to 60.1 € 

million in 2008 (28.6 percent of total 

expenditures for subsidies and transfers), 

which is double that of 2007. 

Continuous increase of subsidies for 

public utilities puts forward the need to 

restructure them. On the other hand, 

inter alia, payments for basic pensions 

comprise 37 percent and social assistance 

12.4 percent. In 2008, the share of 

expenditures for wages and salaries in 

total budget expenditures was 23.9 

percent, which is 7.6 percent lower from 

last year. This reduction was a result of 

the fast increase of capital expenditures, 

which considerably increased their 

participation in the total expenditures. 

Nonetheless, expenditures for wages and 

salaries marked an increase of 8.9 

percent compared 2007. This increase is 

mainly a result of an increase of salaries 

for the education staff of Kosovo (primary 

and secondary schools) which is 

implemented as of September 2008. 

Depending from the qualification level, 

salaries of education employees increased 

on average for 20.0%. Goods and services 

absorbed the lowest share of budget 

expenditures in 2008. Their participation 

in the total budget expenditures in 2008 

was 16.6 percent compared to 21.9% in 

2007. The reduction of the share of goods 

and services in the total budget 

expenditures results despite the increase 

of 8.9% compared to 2007. This is also 

result of the fast increase of capital 

expenditures’ share. In 2009, budget 

expenditures reached 1.1 € billion (16 

percent higher than in 2008) while 

planned revenues were 956.5 € million 

(1.5 percent higher than in 2008). As a 

result, Kosovo’s budget in 2009 planned a 

deficit of around 137.9 € million. 

However, the effects of the economic crisis 

in Kosovo could have an impact in the 

performance of budget revenues and may 

further deepen the budget deficit. The 

beginning of 2009 showed a slowdown of 

imports, which could be used as an 

indicator for the slowdown of the overall 

economic activity in Kosovo, which could 

directly have an impact in the reduction

of the budget revenues. Revenues 

collected in customs, which are the main 

source of budget revenues, could be 

affected as a consequence of the import 

decline. As of January 2009, some 

changes were introduced in the Kosovo 

taxation system. These changes include 

lower taxes on personal incomes from 5, 

10 and 20 percent to 4, 8 and 10 percent, 

respectively. In addition, tax rates 

applicable to taxable corporate incomes 

(which were among the highest in the 

region) or reduced from 20 to 10 percent, 

which now lists Kosovo among the 

countries with the lowest corporate 

income tax in the region. As a result of 

these changes, budget revenues could be 

affected negatively in the short-term. 

However, assessments of the Ministry of 

Finance and Economy suggest that this 

possible decline will be compensated with 

the increase of the VAT (from 15 to 16 

percent) and the excise on tobacco (from 

17 to 21 euro per kilogram) applicable 

from January 2009. 

In 2008, budget expenditures have 

followed a relatively fast growing trend, 

and realized the highest annual growth 

from 2002. Budget expenditures in 2008 

amounted to 950.5 € million, which is an 

annual increase of 43.8 percent. 

Compared to GDP, budget expenditures 

reached 25 percent (compared to 19.3 

percent in 2007). Budget expenditure 

increase is mainly due to the increase of 

capital expenditures, which in 2008 

amounted to 347.1 € million, an annual 

increase of 124.3 percent. Thus, capital 

expenditures in 2008 absorbed the largest 

portion of the Kosovo budge, with a share 

of 36.5 percent of the overall budgetary 

expenditures, compared to 23.4 percent in 

2007, Aide Memories, IMF, 2006) 

The largest share in capital expenditures 

belongs to the road infrastructure 

investments. The increase of these 

investments has contributed to an 

increase of jobs (at least in the shortterm), 

and also contributed in stimulating 

the demand. In the long-term, capital 

investments shall also create more 

favorable conditions for the business 

development in Kosovo, by having an 

71 

impact in attracting foreign investments, 

which improves the living conditions for a 

more sustainable economic development. 

Another category of expenditures that 

largely contributed to the overall increase 

of budget expenditures is the expenses for 

transfers and subsidies. 

In 2008, this category of expenditures 

marked an annual increase of 42.8 

percent, reaching to 218.5 € million (23 

percent of total budget expenditures). 

This increase level mainly resulted from 

the increased subsidies for public 

utilities, which amounted to 60.1 € 

million in 2008 (28.6 percent of total 

expenditures for subsidies and transfers), 

which is double that of 2007. 

Continuous increase of subsidies for 

public utilities (in particular KEK, 

Trepça, etc.) puts forward the need to 

restructure them. On the other hand, 

within the expenditures for subsidies and 

transfers, inter alia, payments for basic 

pensions comprise 37 percent and social 

assistance 12.4 percent. In 2008, the 

share of expenditures for wages and 

salaries in total budget expenditures was 

23.9 percent, which is 7.6 percent lower 

than in 2007. This reduction was a result 

of the fast increase of capital 

expenditures, which considerably raised 

their participation in the total 

expenditures. 

Nonetheless, expenditures for wages and 

salaries marked an increase of 8.9 

percent compared 2007. This increase is 

mainly a result of an increase of salaries 

for the education staff of Kosovo (primary 

and secondary schools) which is 

implemented as of September 2008. An 

increase of 10 percent was also marked in 

public administration salaries in 2008. 

Goods and services absorbed the lowest 

share of budget expenditures in 2008. 

Their participation in the total budget 

expenditures in 2008 was 16.6 percent 

compared to 21.9% in 2007. The reduction 

of the share of goods and services in the 

total budget expenditures results despite 

the increase of 8.9% compared to 2007. 

This is also a result of the fast increase of 

capital expenditures’ share. In 2009, 

budget expenditures reached 1.1 € billion

(16 percent higher than in 2008) while 

planned revenues were 956.5 € million 

(1.5 percent higher than in 2008). As a 

result, Kosovo’s budget in 2009 plans to 

have a deficit of around 137.9 € million. 

However, the effects of the economic crisis 

in Kosovo could have an impact in the 

performance of budget revenues and may 

further deepen the budget deficit. 

The beginning of 2009 showed a 

slowdown of imports, which could be used 

as an indicator for the slowdown of the 

overall economic activity in Kosovo, which 

could directly have an impact in the 

reduction of the budget revenues. 

Revenues collected in customs, which are 

the main source of budget revenues, could 

be affected as a consequence of the import 

decline. 

As of January 2009, some changes were 

introduced in the Kosovo taxation system. 

These changes include lower taxes on 

personal incomes from 5, 10 and 20 

percent to 4, 8 and 10 percent, 

respectively. In addition, tax rates 

applicable to taxable corporate incomes 

(which were among the highest in the 

region) or reduced from 20 to 10 percent, 

which now lists Kosovo among the 

countries with the lowest corporate 

income tax in the region. As a result of 

these changes, budget revenues could be 

affected negatively in the short-term. 

However, assessments of the Ministry of 

Finance and Economy suggest that this 

possible decline will be compensated with 

the increase of the VAT (from 15 to 16 

percent) and the excise on tobacco (from 

17 to 21 euro per kilogram) applicable 

from January (MEF, 2010). 

Low levels of budget revenues and 

notable increases of public debt have 

exercised pressure for a more efficient 

fiscal system in Kosovo, having an impact 

in the continuous reduction of 

government expenditures. From an 

effective and strategic management 

perspective of government expenditures, 

the application of the Mid-Term Budget 

Program (MTBP, showed an improvement 

of the fiscal discipline, and a better link of 

public expenditures with government 

policies: This has encouraged an greater 

72 

technical efficiency in the allocation and 

use of public revenues. 

Overall government expenditures in 

investments declined for almost 10% in 

2007, also dye the decline of investments 

from donors for 7.7%, thus lowering the 

participation in total investments to 4%, 

from 5.5% in 2006. Total investments in 

2007 marked an increase to 27% of GDP, 

from 23% in 2006. 

As result of the public administration 

reforms, public service employment 

showed no significant increase. 

Consequently, expenditures for wages 

and salaries have been stable. By the end 

of 2008, though, salaries have increased 

in nominal values, compared to the 

previous years. When analyzing the 

figures, the increase after 2006 for this 

category, in addition to the reforms, is 

also linked to the increase of salaries 

(with notable increase for the education 

system, public administration, defense, 

justice, police, etc). 

Although salary increases for the 

education and health in budget 

projections were considered as priority for 

the reduction of poverty, with a higher 

level compared to other sectors, we 

believe that their increase levels 

should’ve been higher. Compared to other 

sector of the civil service, salaries in the 

health sector continue to remain among 

the lowest. Salaries’ levels for these 

sectors have been critical to a decline in 

the education level and the lack of a 

medical treatment, particularly in the 

rural areas. 

Although operational and infrastructure 

maintenance expenditures are planned to 

be increased (with the GDP growth level), 

their levels are considered as insufficient 

to cope with infrastructure maintenance. 

In most cases, operational and 

maintenance expenditures comprise less 

than 13 percent of current costs. As a 

result, physical infrastructure is 

improperly maintained, and is worsening 

rapidly. The quality of public services is 

affected by the lack of equipment and the 

necessary basic materials. This is also 

becoming critical for possibility of

physical infrastructure maintenance, 

reconstructed with donor funds. 

Thus, an increase has to be addressed for 

the health, education and physical 

infrastructure sectors. Measures 

undertaken by the Kosovo Government 

regarding subsidies, particularly for 

schoolbooks, agriculture, urban transport 

and employment programs (for 

employers), are expected to generate the 

first results in the upcoming years. The 

majority of the subsidy funds needs to be 

multiplied, in order to support the 

priority sectors such as agriculture 

(including the dairy products, vineyards, 

etc). Currently, subsidies are only 

symbolical. However, measures 

undertaken by KEK are expected to 

improve the collection rates, and public 

enterprises continue to be the major KEK 

debtors. This could have an effect in the 

further increase of KEK subsidies. Social 

protection transfers are mainly related to 

the pension schemes. Financial 

sustainability and material improvement 

of this vulnerable category largely 

depends on fiscal transfers. The number 

of contributors is very low, and private 

agriculture sector comprises less than 15 

percent of the total contributors on the 

system. The difficult material position of 

this category of population leaves room 

for improvement, if the number 

households that enjoy economic benefits 

is better managed. Good control systems 

and their gradual decentralization to local 

authorities may have an impact in the 

reduction of the number of families that 

managed to go beyond the social scheme, 

to the favor of beneficiaries and the 

population in-need. 

Public investments have shown an 

sustainable increase, reaching 7.4% in 

2008. Essential problems in public 

investments are the lack professional 

capacities in ministries, project planning 

and budgeting, unclear and transparent 

procurement procedures and accounting 

techniques. Project monitoring 

mechanisms, particularly infrastructural 

projects continues to be a problem, which 

has often created problems in the poor 

quality of works in funded projects, 

73 

delays and postponements in completing 

projects within the deadlines, thus 

creating the necessity for additional 

funds, etc. 3 

Public investments have shown an stable 

increase, reaching 7.4% in 2008. Essential 

problems in public investments are the 

lack professional capacities in ministries, 

project planning and budgeting, unclear 

and transparent procurement procedures 

and accounting techniques. Project 

monitoring mechanisms, particularly 

infrastructural projects continues to be a 

problem, which has often created 

problems in the poor quality of works in 

funded projects, delays and 

postponements in completing projects 

within the deadlines, thus creating the 

necessity for additional funds, etc. 

It is important for the expenditures 

structure to highlight expenditures in 

education, health, and social protection. 

Low level of public expenditures has also 

been reflected in the worsening of the 

public service in both sectors, with a direct 

impact in the increased poverty level 

(measured with the following indicators). 4 

General Expenditures, the largest portion 

of expenditures by function, have declined 

to under 25% from over 20% as part of the 

total, and Economic Matters’ expenditures 

have increased from over 16% to 29%. 

This large increase involves largely capital 

costs (57 percent of the total), and 

particularly road expenditures in 2008. 

Social protection expenditures (which are 

mainly periodical) have declined compared 

to other sectors, although in nominal 

terms, education and health have shown 

an increase, mainly comprised of 

periodical expenditures. This is also 

reflected in the table no. 5: 5 

5. Conclusions and implications 

Since 2004, MEF collects income for the 

budget of Kosovo through Kosovo’s Tax 

Administration (KTA). KTA is responsible 

for planning and ensuring other budgetary 

3 See table no.3 in Annex 

4 See table no.4 in Annex 

5 See table no.5 in Annex

income through collected taxes. On the 

other hand, the Department of Budget of 

MEF conducts budgetary planning, in 

conformity with the requests of respective 

line-Ministries of the Government of 

Kosovo and determines the respective 

priorities, this taking into consideration 

the vast needs of the ministries and other 

spending agencies. Finally, the budget is 

approved by the Assembly of Kosovo and 

covers the following fiscal year. Effective 

budget and budgetary expenditure 

management in general is founded on a 

clear allocation of responsibilities within 

the Government. For this purpose, each 

country is responsible for issuing its legal 

infrastructure. The main bearer of the 

budgetary legal infrastructure is the 

Ministry of Finance. 

Management of budgetary expenditure in 

spending agencies in Kosovo is conducted 

through public procurement processes. 

The supply needs of the Government of 

Kosovo can only be met through the 

application of a procurement process, 

which is implemented based on the Law 

on Public Procurement and many rules 

and secondary legislation acts. The Law 

on Public Procurement, enacted in 2004, 

brings public procurement in harmony 

with international standards and 

practices. Data shows that over 80% of the 

contracts are granted through open and 

competitive bidding. Regardless of this, 

such a figure is concerning. Tender 

documents and qualification requirements 

are rather complex, and obligatory 

tendering procedure requirements are 

difficult to meet (including financial, 

technical and professional criteria). The 

market is not well prepared to address 

these complex and ambitious 

requirements. 

An important obstacle to a further 

increase of budgetary income, is the 

dimension of informal economy. Informal 

economy is difficult to ascertain. This so, 

because people engaged into informal 

activities do everything in their hands to 

not reveal details on their undertakings. 

However, policy-drafters and government 

administrators are in need of information 

74 

regarding the number of persons actively 

engaged in informal economy. 

The consequences of informal economy 

should be viewed from a number of 

perspectives: they limit the possibilities 

for any proper economic analyses and 

well-informed decision-making, create 

inequitable conditions for business 

development and damage the interests of 

the country’s budget. 

In most countries in transition, informal 

economy grew in an accelerated manner. 

This phenomenon is also applicable for 

Kosovo. In countries where state 

institutions are strong and efficient, 

informal economy holds a much smaller 

proportion. Even though there are no 

proper studies on the portion and 

occurrence dimensions of informal 

economy, Kosovo economy assumptions 

state that it holds between 30 and 40 

percent of the country’s GDP. 

An important role for the growth of 

informal economy in Kosovo is the low 

level of salaries in the official economy. 

Studies on the informal labor market 

show it covers approximately 30 percent of 

the overall labor market, comprising a 

considerable portion of the overall labor 

market. Fiscal evasion (private entities 

avoidance of tax and custom payments), 

except for significant effect on the 

disturbance of the country’s economic 

structure and market deformation, has 

cause incalculable flows of finances for the 

country. Similarly, there are no clear 

assessments of the scale of evasion in the 

country. 

Therefore, a diminishment in informal 

economy will lead to increased tax income, 

thus stimulating an increase in public 

expenditure, especially in infrastructure 

and services that support the expansion of 

production, subsequently bringing general 

increase of economic indicators. The 

Government should place an emphasis on 

establishing rule of law and rigorously 

implementing a minimal package of 

necessary rules, instead of increasing the 

number of rules applicable.

ANNEX: Tables 

Table 1: Main macroeconomic indicators in Kosovo 2007-2008(million €) 

2007 2008 

Gross Domestic Production 3,400 3,757 

Consumption 3,810 4,176 

Investments 967 1,236 

Export 343 410 

Import 1,720 2,065 

Nominal GDP growth 8.8% 10.5% 

GDP Deflator 3.2% 5.3% 

Real increase of GDP 5.4% 5.0% 

Exchange rate USD/EUR 1.21-1.30 1.30-1.47 

Source: Macro-economy Department – MEF 

Table 2: General structure of revenues of the Kosovo Government 2006-2008 

2006 2007 2008 

Total revenues: 100.0 100.0 100.0 

Taxes 87.2 79.6 84.4 

Direct taxes 16.8 14.8 17.1 

Indirect taxes 70.4 64.9 67.3 

VAT 36.3 34.9 38.0 

Excise 22.7 21.3 21.4 

Custom taxes 11.5 9.0 9.8 

Other 0.4 0.7 0.3 

Tax refunds -0.5 -1.0 -2.2 

Municipal and no tax revenues 12.8 12.0 14.3 

Grants 0.0 0.0 1.3 

One-time revenues 8.3 

Source: Ministry of Economy and Finance, Financial overviews 2000-2008 

Table 3: General expenditures of the Kosovo Government 2006-2008(€ million €) 

2006 2007 2008 

Wages and salaries 207.0 208.9 228.1 

Goods and services 153.4 154.0 167.9 

Subsidies and transfers 157.9 154.6 210.0 

Total periodical 518.3 517.5 606.0 

Capital expenses 138.4 159.2 351.7 

Total 656.6 676.7 957.6 

% of GDP 19.9 26.8 


75

Table 4: General expenditures of the Kosovo Government (€ million) 

As total As part of GDP 

2006 2007 2008 2007 2008 

Goods and services 31.5 30.9 23.8 6.1 6.4 

Subsidies and transfers 23.4 22.8 17.5 4.5 4.7 

Total periodical 24.0 22.8 21.9 4.5 5.9 

Capital expenses 78.9 76.5 63.3 15.2 17.0 

Total 21.1 23.5 36.7 4.7 9.8 

Goods and services 100.0 100.0 100.0 19.9 26.8 


Table 5. General expenditures of the Kosovo Government by functions 2006-2008 

As total As part of GDP 

2006 2007 2008 2007 2008 

General services 24.6 19.6 20.1 3.9 5.4 

Protection 2.6 2.7 1.9 0.5 0.5 

Public order and safety 7.7 11.3 8.4 2.3 2.3 

Economic mattes 16.4 18.4 28.9 3.7 7.8 

Social protection 0.1 0.3 0.2 0.1 0.1 

Community accommodation and 

Equipment 2.0 2.5 2.1 0.5 0.6 

Health 10.4 10.2 8.5 2.0 2.3 

Recreation, culture and religion 1.2 1.2 1.3 0.2 0.3 

Education 16.2 16.4 13.7 3.3 3.7 

Social protection 18.8 17.5 14.9 3.5 4.0 

Total 100.0 100.0 100.0 19.9 26.8 


1. Aschauer David, Is Expenditure Productive 

(Journal of Monetary Economics, 1989), 

23,pp,177-200. 

2. Baxter Mariane and Robert King (Fiscal Policy 

and General Equilibrium, American Economic 

Review, 1993), 83 ,pp 315-334. 

3. Gramlich Edward, Infrastructure Investment a 

Review Essay (Journal of Economic Literature, 

1994), 32, pp 1176- 1196. 

4. Glomm Gerard and B. Ravikumar, Productive 

Government Spending and Long Run Growth 

(Journal of Economics Dynamics and Control, 

1997), 21, pp 183-2004. 

5. Rioja Felix K, Productiveness and welfare 

Implications of Public Infrastructure a 

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77 

Performance (Journal of Economic Dynamic 

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17. OECD, Statistics 2008




CREATIVE MOTIVATION AND PERSONALITY 

AT THE ROMANIANS PUBLIC FUNCTIONARIES 

ABSTRACT 

This study examines the 

importance of the creative motivation 

within the personality of a group of public 

functionaries of the central administration 

from Romania. After applying some 

psychological questionnaires, chosen in 

step with the specific of the public clerks’ 

activity, we could note that group was 

characterised by a moderate motivation, 

generated, specially by the voluntary 

qualities and the high knowledge interests 

but also by the low vocational involvement. 

The creativity of the group is also average, 

with differences in favour of the male 

creativity. From the viewpoint of the 

personality features we are dealing with a 

predominantly introvert and emotionally 

stable group, with a social retractility and 

low tolerance compared to the others. 

Another variable confirming the 

association to the creative motivation is the 

locus of the control, meaning that the 

employees with a low motivation stand out 

by the faith in the internal locus of 

control. Under the terms of the above 

specific of the group, the creative 

motivation prevails on the creative skills, 

the neuroticism, like emotional stability, 

and the localization of control. 

KEYWORDS: creative motivation, 

personality, locus of control, 

administrative field. 

BALGIU Beatrice Adriana 

University POLITEHNICA of Bucharest 

Humanities and Social Sciences Chair 

beatricebalgiu@yahoo.com 

78 

1. INTRODUCTION 

There is much writing and 

criticism on the public functionaries, the 

person by which the state administration 

gets in touch with the citizen. If in the 

private sector there are strict rules of 

presentation, attitude and relationship of 

the public functionary with the client, in 

the public sector, of the public employees, 

as they are often called, it seems that 

everyone acts as they deem fit. Although, 

ever since the 90’s, Perry and Wise 

popularizes the concept of motivation for 

the public service, very little is known 

about the motivation of the public 

functionary. In the USA there is a General 

Social Survey of the Public Functionary * 

accomplished with a certain periodicity 

which considers the psychological 

evaluation of the worker in the public 

field. In Romania, the evaluation of the 

public functionaries’ performance aims at 

the degree in which the objectives 

established are accomplished. 

After a period in which in 

Romania little has been done in this 

respect, a great deal of studies appeared, 

unfortunately most of them dealing with 

the problem only form the legal viewpoint. 

But the studies on the psychology of the 

public functionary are practically 

inexistent, except for the few ones, 

dedicated to the bureaucratic personality 

from the sociologic perspective and the few 

ones regarding the motivation of the 

public functionary. 

* General Social Survey

Next we intend to analyse the 

motivation for performance in public 

functionaries taking as its criterion the 

highest creative motivation. 

2. THE SIGNIFICANCE OF 

THE CREATIVE MOTIVATION FOR 

THE PERSONALITY OF THE PUBLIC 

FUNCTIONARIES 

2.1. Investigation of creative 

motivation to public functionaries 

Most of the theories regarding the 

individual creativity in organisations, 

agree, for some time, on the importance of 

the attitude features in performance, of 

which the motivation to innovate is 

emphasized (Amabile, 1988; Sternberg & 

Lubbart, 1996; Haslam, 2009). 

Not randomly, at the level of the 

public functionary, too, the motivation was 

the most studied. As of 2001 there was 

also a “Guideline for the evaluation of the 

individual professional performances and 

motivation of the public functionaries”, 

because of the Phare programs. In 2004, a 

study carried out by the National Agency 

of the Public Functionaries, which is 

under the Ministry of Public 

Administration and the National Institute 

of Administration on the 63 public 

functionaries (Oros, 2009), uses in the 

analysis of the employees’ motivation, 

tools drawn up by Ramball Management 

and thus, takes into account a series of 

motivational factors in the public 

functionary’s activity, beginning with the 

autonomy, lifestyle, financial aspects and 

ending with the working environment, 

experience, creativity etc. Their hierarchy 

shows that on the last places there is the 

freedom to assume new roles and 

responsibilities followed by “variety” 

perceived as the wish to make new things, 

that is, exactly those factors involved in 

the individual’s orientation to the new and 

openness to experience. On the last places 

in the motivational experience we are 

dealing with the lifestyle (time spent with 

the family, hobbies, extracurricular 

activities) and the contents of the activity 

79 

(the appreciation of directives and clear 

expectations for managers). 

Also in the analysis of the public 

functionaries it is said that an essential 

indicator for the performance is the 

motivation for the public service. The term 

has received several conceptualisations in 

time; which is clearly emphasized is its 

social component. We bring it to question 

in order to underline its specific intrinsic 

constituency and the creative motivation. 

For instance, for Vandenabeele (according 

to Steen & Rutger, 2009) – the motivation 

for the public service is represented by the 

faith, values and attitudes going beyond 

the personal and organisational interest. 

In another context, it is shown that public 

functionaries value the motives of their 

activity differently, compared to the ones 

in the private organisations. For instance, 

the employees evaluated as having a high 

performance standard invest in the 

intrinsic motivation of the work which is 

important to them and which provided 

them with a feeling of achievement, as 

well as in the organisational 

accomplishments, whereas the 

functionaries in the private area value 

more the extrinsic motivation as the high 

income and flexible working hours 

(Houston, 2000). 

What exactly would the creative 

motivation comprise? Besides the 

adherence to the profession there are also 

creative attitudes (Popescu-Neveanu, 

1993) and one of the major components of 

these creative attitudes is the disposal to 

hire in risk. The empiric evidence of this 

relationship for the field of the public 

functionaries appears in several studies. 

For instance, Dewett (2006) finds the 

creative conduct of the public 

functionaries developed by the disposal to 

hire in risk defined as the disposal to hire 

potential risks in the effort to produce 

relevant results at the level of the 

organisation. It is assumed that the risk is 

prominent in the functionaries engaged in 

creative conducts at work. The climate 

itself for creativity exists when the 

workers have a high disposal to hire in 

risk (Tesluk and co, 1997).

2.2 Interaction attitude – 

creative aptitudes 

A number of studies emphasizes 

the role of creative motivation in 

performance of public functionaries. It is 

recognized as a mechanism by which 

innovation is high public officials to 

improve both general creative thinking 

skills (Scott et al, 2004) and, creative 

attitudes (Nickerson, 1999). Affectiveattitudinal 

factors, shows Nickerson, are 

more important than specific knowledge or 

domain knowledge to increase creativity 

techniques. The emotional factors, he calls 

mechanisms to improve motivation to 

innovate. 

Also, Birdi (2007), using self rating 

scales of generation and implementation 

of ideas to work a year for functionaries, 

shows that subjected to methods of 

developing creativity, public 

functionaries who develop their creative 

potential and is oriented towards 

generating and implementation of ideas 

within the organization (in terms of 

negotiation and planning) are due to a 

general creative thinking skills (be able to 

issue and in practice many more ideas), 

but creative motivation. 

Consequently, the identification of 

ways of scaling attitudes and report 

attitudes – aptitudes can be taken as an 

indicator of performance in an 

environmental situation. 

Hypothesis 1 Creative motivation 

is positively associated with creative 

aptitudes 

2.3. Creative motivation and 

individual differences 

The individual differences in the 

terms of the personality features play an 

important part in the examination of the 

motivation and creativity in organisations. 

We will relate, next, to the data necessary 

to our research considering the 

relationship between the motivation and 

the creative attitudes with two of the 

personality features considered as 

80 

important sources of the performance 

motivation (Judge & Ilies, 2002). 

By the conception itself that 

Eysenck offers to Extraversion, it is 

understood that, by its nature, it is 

directly related to the high energy, 

initiative and taking risks. The studies 

regarding the faces of the Extraversion 

from the personality model Big Five bring 

to the first plan correlations as activism, 

nonconformism, high energy, flexibility, 

imagination and so on. Most of the 

researches show that the extraverted 

individuals, because of the high energy, 

report high degrees of self efficiency. The 

empiric studies which relate the 

motivation of Extraversion have also 

caused inconsistencies: for instance 

Barrick and co. (1993) think that 

Extraversion does not correlate with the 

accomplishment of the goals and to their 

level. Judge & Ilies (2002), in a metaanalysis 

of the studies regarding the 

relationship personality – motivation, 

considers that Extraversion is consistent 

with the motivation of performance from 

the perspective of reaching the goals. 

Neuroticism is often used to 

describe the person with emotional 

stability, According to some authors, this 

it is a significant predictor for the 

professional performance (Judge & Bono, 

2001). The results of the meta-analytical 

study quoted above indicate Neuroticism 

as the strongest and most consistent and 

correlated predictor of the performance 

motivation. In other words, the 

neuroticism influences the 

accomplishments achieved by the 

motivation. To the same extent (Molleman 

and all., 2004) think that the individuals 

with low neuroticism are confident in 

choosing and achieving their goals. 

Hypothesis 2 Creative motivation 

is moderately associated with Extraversion 

and strong related with Neuroticism as 

emotional stability.

2.4. Creative motivation and 

locus of control 

In order to have the complete 

motivational “picture” of the public 

functionary, we will refer to another 

variable related to the motivation of selfachievement, 

namely the locus of control. 

The locus of control aims at the beliefs of 

individuals regarding the localization of 

factors that control their behaviour. If a 

person feels that he/she has the control 

over what happens, they express an 

internal orientation of control. In contrast, 

if someone feels that fate, luck or chance 

affect the events they go through, they 

have an external localization of control. 

What is the reason for taking into account 

such a variable so little studies for the 

actors of the administrative field? Most of 

the studies (Spector, 1982, Judge & Bono, 

2001; Schultz & Schultz, 2005) consider 

there is a high relation between the 

motivation of self-achievement, 

satisfaction, the effort made, performance 

and the locus of control. In a similar way, 

the creative attitudes such as taking risks, 

looking for the new, appreciating 

originality as well as the volitional aspects 

raised are characteristic of the internal 

ones to a higher extent than the external 

ones, etc. (Balgiu, 2009). 

Hypothesis 3 Internal locus of 

control functionaries is by high 

motivational structures than external locus 

of control functionaries. 

3. METHODOLOGY 

The object of the study consists in 

the analysis of the creative motivation in 

the ensemble of the personality 

characteristics in case of the group of 

public functionaries. 

Subjects: due to the demands of the 

psychosocial competencies framework, we 

have oriented on the upper segment of the 

public functionaries and we have selected 

a sample of 85 public functionaries with 

managing positions from the central 

administration (The Ministry of 

81 

Administration and Internal Affairs) 1 . 

From the gender viewpoint, 29 of the 

subjects are men, 52 women, and 3 

subjects have not answered the question 

regarding the gender. At the real physical 

level in the administrative field the ratio 

man/woman is in favour of the former. 

With respect to the age, the 

average of the batch is M = 39, 81, σ = 

8,53, minimum – 26 years, maximum – 56 

years. 

Method 

The selection of the working 

instruments was done after checking the 

public functionary’s job description 

broadly provided in the Government 

Resolution 1209/2003. Its contents shows 

that the psychological demands of the 

public functionaries can be resumed to 

three large dimensions: 

– one connected to the innovative 

resolutivity of the situations arisen, the 

capacity to innovatively enforce their own 

solutions and the ones decided in order to 

achieve the objectives, in a word the 

demands for the cognitive style (we quote 

from two sources, once, the counsellor’s job 

description for 1 st class, upper professional 

degree, 1 st step: “the ability to anticipate 

solutions and perform the activities in due 

time; the ability to predict the future 

demands, opportunities and constrictions, 

the possible risks and assuming their 

possible consequences etc.“ and, secondly, 

from the competencies framework for the 

position of manager “it is necessary to 

have the lateral thinking, the ability to 

always look for new and better ways of 

carrying out the activity”); 

– the second one regards the 

motivation for the chosen field, and the 

motivation to improve their activity; 

– the last one refers to the social 

competence comprised starting with the 

communication skills and ending with the 

effective support of the relationship. 

Therefore, we have applied the 

following tests: 

1. The questionnaire of creative 

motivation (M.C.), author Popescu- 

1 The subjects are mostly active in the 

Department for local communities

Neveanu (1977). The main purpose of 

using it considered the establishment of 

the creative motivation coefficient 

(Q.M.C.) as well as the altitudes 

contributing to it: the involvement of the 

ego and confidence in their own forces, 

voluntary qualities and sense of value, 

cognitive interest, vocational involvement 

and directly creative attitudes regarding 

mainly the capacity to assume risks, 

treasuring the new, the tendency towards 

originality, the antirutinery position, the 

innovative employment etc. The 

questionnaire consists in 50 items. Here 

are some examples of items: “I am seldom 

satisfied with the way I work”, “I find the 

routine is useful only to the extent in 

which it can be exceeded by new methods”. 

2. Test of creativity developed by 

Stoica-Constantin & Caluschi (1989) on 

the Romanian population – measured as 

creative thinking skill and its parameters, 

fluidity, flexibility and originality. The 

results are reported in a benchmark 

composed of classes from 1 – very poor to 9 

– very good. 

3. Eysenck Personality Inventory 

(1997) – contains scales for diagnosing of 

Neuroticism and Introversion- 

Extraversion considered major dimensions 

of personality structure that allows us to 

describe the group in terms of how to 

relate, to develop self and affectivity. 

4. Scale of locus of control 

(Spector, 1988) measured internal locus of 

control (belief in behavior caused by its 

own initiative, personal actions and free 

will), ambivalent and external locus of 

control (belief in conduct determined by 

fate, luck, powerful etc.). The content scale 

is 16 items and how the response is in six 

stages: 1 – I do not agree in large measure 

by 6 – I agree to a large extent. Of all 

questionnaires aimed at assessing the 

locus of control, we chose to instrument 

because of its sensitivity and its 

construction methodology, in terms of 

specificity of items, strictly on the 

organizational field. 

5. Scale acceptance of others (AO) – 

author Fey apud. A. Neculau, 1998 – with 

20 statements concerning feelings and 

attitudes toward others, each with 5 

82 

response options from 1 – completely true 

to 5 – very rare indeed. Acceptance of 

others is put in direct relation to the 

acceptance of risk – essential component 

of creative motivation. Sample items 

reverse scored directly and score: ,“I can 

feel comfortable in the company of people 

whose ideals are different from mine”, ,“If 

I do not do what is in the thread, I will 

probably angered others”. 

Application of questionnaires was 

conducted during March-May 2009, both 

as individual pencil-paper and in 

electronic version and add time ranged 

from 5 to 30 minutes depending on the 

questionnaire. 

4. RESULTS AND 

DISCUSSIONS 

The data analysis consisted in 

average experimental performances of the 

group, their reporting to the contents of 

the instruments used and/or the 

comparable results from other research 

plus a correlation analysis in and between 

the dimensions. 

a) Motivational structures 

In order to see the motivational 

level of the subjects analysed we appeal to 

the original standard of the test necessary 

to analyze the average scores obtained 

(table no. 1). 

In the use of this trial, the median 

assessment level of the creative 

motivation coefficient (Q.M.C.) the limit 

values 20 – 40. Therefore, below 20 

Q.M.C., a low level of creative motivation 

is showed, between 21 – 40 Q.M.C. – 

moderately creative motivation between 

41 and 60 Q.M.C. there is a highly 

creative motivational structure, whereas 

over 60 Q.M.C. we can speak of extremely 

high creative motivation. By the reporting 

to the gauge, we can mention the degree of 

creative motivation (M = 25,43), therefore, 

the need to innovate, the need for 

performance for the subjects analysed are 

framed at the moderate level. One single 

person (of the feminine gender) 

insignificant as sample, got a negative

score at the Q.M.C., evaluated as anticreative. 

We bring to the front, as 

comparison, another study in the field of 

the public administration done on 

counsellors and clerks in the city-halls (P. 

Popescu, 2001). This study uses the same 

instrument and finds a Q.M.C. of 39,73 

situated at the upper level of the median 

opening area. Therefore, the motivational 

level appreciated as moderate, relatively 

similar to the one obtained in this study, 

makes us conclude on a possible 

characteristic of the employees in the 

administrative field. 

From the analysis of the 

motivational components we can notice, at 

the first sight, that the vocational factor is 

the lowest of all the five factors existent. 

We can assume that there is no vocation 

for the administrative activity. In other 

words, the staff in these positions did not 

actually think or wished to end up in those 

positions. 

Table no. 1 Average scores – creative motivation 

SUBJECTS 

VARIABILES 

PUBLIC 

FUNCTIONARIES 

M σ 

Q.M.C. 25,43 16,31 

I.E. 4,34 4,03 

Vol. 5,37 2,26 

I.C 5,00 3,58 

Voc. 2,06 3,50 

A.C. 8,81 7,35 

Obs.: the abbreviations represent: QMC – creative motivation coefficient, I.E – 

involvement of the Ego, Vol. – volitional aspect, I.C. – cognitive interests, Voc. 

– vocational involvement, A.C. – Creative attitudes 

A more nuanced analysis, obtained 

by the division of the averages to the 

number of items, shows us the hierarchy 

of the factors contributing to the final 

score of Q.M.C. thus, on the first places in 

the participation to the creative 

motivation there is the volitional 

involvement. 

The most important motivationalcreative 

factor of the people involved in 

the administrative activity is the 

volitional one, of taking decisions and 

acting. Making correlations to the shortest 

factor, as we have showed, the vocational 

one, we may conclude that the 

administrative personnel has the 

necessary will and the capacity to start 

accomplishing the actions but they are not 

interested in the field of their activity, 

83 

something that many times can lead to 

results below the expectations. 

We mention that there were no 

differences in gender with respect to the 

creative motivation. 

Next, we have resorted to the 

correlation analysis for the motivational 

sphere (table no. 2). 

The table of those correlations 

emphasizes 87 % (13 out of 15) significant 

coefficients ranging from .26 and .87. The 

five factors comprised in the creative 

motivation structure are reasonably 

represented, but those with significant 

contribution to the Q.M.C. are the ones 

regarding the volitional aspect, cognitive 

interests and directly creative attitudes.

Table no. 2 Motivational intracorrelation 

VARIABLES Q.M.C. I.E. VOL. I.C. VOC. A.C. 

Q.M.C. – 

I.E. .29* – 

Vol. .70* .26* – 

I.C .81* .33* .40* – 

Voc. .51* – – .33* – 

AC .87* .36* .61* .72* .28* – 

Obs.: the abbreviations represent: QMC – creative motivation coefficient, I.E – 

involvement of the Ego, Vol. – volitional aspect, I.C. – cognitive interests, Voc. 

– vocational involvement, A.C. – Creative attitudes 

b. Creative abilities 

As we can see in table no. 3, the 

creative thinking of the subjects analysed 

can be tagged as average, appreciated 

around class 6 of the gauge. We must 

show that this quiz is not an inventorytype 

test, to which we can answer with 

“yes” or “no” but of the problem 

perception, of thinking orientation 

towards originality etc. Therefore, we do 

not omit, due to the demands of such an 

effort, the possibility of a low maintenance 

of the subjects’ interest during the 

resolution of the tests requirements and 

finally of its fast filling in. Even under 

these circumstances, the results constitute 

an indicator of the moderate creativity of 

the group expressed in the initiation, 

perspective thinking and finding new 

ways of approaching a problem etc. The 

consistency of the interactions (table no. 4) 

between the variables is given by the high 

correlations, between .81 and .99, which 

sustain each other and evolve 

independently and in the same direction. 

Table no. 3 Average values – Creative aptitudes 

SUBJECTS 

VARIABLES 

The gender distinction shows us 

that the male public functionaries have 

PUBLIC 

FUNCTIONARIES 

M σ 

Fluidity 6,09 2,10 

Flexibility 6,47 2,11 

Originality 520 2,16 

Creativity 5,95 2,14 

Table no. 4 Creativity correlations 

VARIABLES FL. FX. OR. CR. 

Fluidity – 

Flexibility .99* – 

Originality .81* .80* – 

Creativity .86* .84* .85* – 

Fl. –Fludity, Fx. – Flexibility, 

Or. – Originality, Cr. – Creativity 

84 

higher scores in the creative thinking (t =

2.50) � to which the fluidity (t = 3,25) and 

flexibility (t = 3,16) contributed, as 

dimensions of creativity, compared to the 

feminine one. We cannot say by this 

significance of the differences that the 

masculine creative aptitude is higher, only 

that the creative aptitudes of women 

“drawing down” the group’s creativity. 

Once again we notice that the 

main relationship which characterises the 

creativity is specific to the interaction 

between the creative aptitudes and the 

creative motivation holding the condition 

of “operating” the former. Thus, we can 

explain why in a moderate degree of 

creative motivation of the subjects (as 

showed in table no. 1) there are creative 

aptitudes made to measure. It is known 

that the distinct note of the creative 

subjects resides in the specific attitudes of 

those developing and vectorizing 

aptitudes. 

c) Personality characteristics 

For the plan of personality 

characteristics, considering both the 

average and the standard deviation 

obtained in case of Introversion – 

Extraversion (I-E), we consider that the 

group of public functionaries presents a 

prominently introvert structure, localized 

at the upper limit of introversion, 

therefore at the border between 

introversion and ambivert structure 

(table no. 5). We can, thus, say that the 

batch is characterised by dynamism and 

energy involved in the moderate level 

social, the tendency to withdraw to 

oneself, in a word low participation in the 

exterior. The results also show the 

presence of a lower tempo of the activity, 

the lack of joy and initiative, possibly the 

desire to remain in the background and 

not to trust their own forces. The activity 

in the public administration means, 

besides theoretic and specific knowledge, 

communication abilities and solution to 

various problems which are pressing in 

the tax payers’ lives – actually, we 

consider that this is an essential specific 

� p = .001 

85 

ability in the field. Or, from the 

perspective of the interpersonalisation 

abilities we see that the results obtained 

which show the tendency towards 

introversion, are somewhat in 

contradiction to what the administration 

workers should be; the group analysed 

displays closure to itself and little 

communication. 

If we consider the positive effects 

of the tendency towards introversion, such 

as, for instance, reflexivity and propension 

towards meditation, tendency towards 

planning, the control of the feelings and 

lack of aggression, then, from this 

viewpoint, it is interesting to explore the 

performativity of the public functionaries 

in this direction. 

Table no. 5 Average values – 

personality test 

SUBJECTS 

PUBLIC 

FUNCTIONARIES 

M σ 

VARS. 

I-E 10,65 3,56 

Neur. 7,37 4,00 

Obs.: the abbreviations represent: 

I-E: Introversion – Extraversion, Neur. – 

Neuroticism

For the “Neuroticism” scale, a 

gross score extremely high or extremely 

low would express significantly 

pathological load. It is not the case of 

these subjects. According to the standard 

done on Romanian population, regarding 

the emotional stability, we can say that 

the lot is within the limits of normality 

and the emotional stability is average, 

meaning the public functionaries analysed 

are not apathetic, inhibited and definitely, 

not with high excitability/emotional 

instability. The result to this dimension 

shows, again, a moderate conduct from the 

social viewpoint, and as positive point, we 

can direct our attention to the behavioural 

control so important in 

interpersonalisation. 

So, the group analyzed can be 

characterized as being a stably introvert 

one. A strong point of these introvert, as 

certain representatives of the 

organisational psychology show (Taylor & 

Humphrey, 2003), is noticed in their 

success “in positions in the local or central 

government” (p. 246) under the terms in 

which they maintain good relations to a 

smaller group of people for a longer period 

of time. At the same time, in favour of 

solving the tasks by the stable introvert 

we bring in one of Bloom’s viewpoints 

(2007) which considers them capable of 

performance due to the good reactions in 

front of stress and the fact that they do 

not trust the impulse of the moment. 

d) The evaluation scale of the place 

of control 

For the score of the locus of control 

(L.C.) we get an average of 49,25 which 

puts the sample of public functionaries in 

the category “ambivalent“, characterised 

86 

by the combination of both internal and 

external localisation beliefs of the control. 

The data offered by Spector (1988) on an 

American population (M = 36.00), show us 

a difference of about 11 points between the 

two averages, of which we can deduct, in a 

first analysis, that the batch of public 

functionaries is defined by a higher degree 

of externalism. For a greater certitude, we 

find it relevant to report to the results 

obtained from other applications such as 

the ones done by us with the same scale of 

students (N = 870) where M = 43,50 and σ 

= 9.64 (t = 2,74, p = 000294). Under these 

circumstances, the data impose the 

ascertainment of a higher degree of 

externalism in the public functionaries of 

this batch. 

From the perspective of the subject 

distribution, we note that 8,23 % are 

internalist, 51,76 % ambivalent and 40,09 

% externalist. 

We propose next a comparison to a 

batch of engineers in the technical field 

(Balgiu, 2009) with the aim of discovering 

a clarification, comparison that we shall 

nuance by the calculation of the 

significance of the differences. As it results 

from table no. 6, although both batches 

(public functionaries and engineers) fall 

within the category of “ambivalent”, we 

can speak of the placement of public 

functionaries at the upper limit of the 

median are in the place of the control, and, 

therefore, of a relative tendency towards 

externalism from them. We consider, 

under the sign of probability, that the 

highest level of internalism might be the 

consequence of accomplishing the batches 

(in case of engineers for the criterion of the 

certitude of a higher production degree).

Table no. 6 The locus of the control – Average values and the significance of the 

differences 

SUBJECTS 

VARIABILES 

PUBLIC FUNCTIONARIES(1) – ENGINEERS 

(2) 

M1 σ1 M2 σ2 t p 

L.C. 49,25 9,50 41,12 11,55 3,68 .000316* 

We mention that for the batch of 

public functionaries we have not obtained 

gender differences with respect to the 

score of the place of control. To this end, 

the research reported presents some 

differences. Still, the vast studies on adult 

population in the USA (D.P. Schultz & 

Schultz, 2005) show that the differences 

such as this one have not been found for 

the place of the control. Having as 

reference a study of Haynes & Ayliffe 

(2006) which shows that men in general 

have an internal place of control larger for 

the items regarding academic 

achievements, we consider there can be 

specific distinctions based on gender for 

varied categories of items in the 

appreciation of the place of control. In this 

case, the women consider they hold the 

control on the activity carried out due to 

the effort and own planning, and men 

functionaries are noticed by the conviction 

that they hold the control on the 

promotions in the organisation unlike the 

women employees tempted to blame the 

promotions on the external factors. 

e) Accepting the others 

The average score at this scale (M 

= 49,20 σ = 9,57) disclose a group 

characterised by low tolerance towards the 

others, weak confidence in people but also 

in themselves, social retractility, the 

absence of the joy to relate etc. Not 

87 

accepting the others may reveal 

difficulties of accepting one's own self. 

f) Intercorrelation of the variables 

The intercorrelational analysis of 

the variables has been motivated by 

expectations able to express the influence 

of the creative motivation within the 

personality characteristics of the group 

studied. 

A first group of correlations 

associates the creative attitudes contained 

in the motivation with the creative 

thinking. The creative attitudes act as 

activators on the fluidity and originality. 

From the analysis of the positive 

correlations (table no. 7) it appears that, 

at the same time, in the future the 

development of the creative attitudes will 

act as stimulator on the creative potential 

of the subjects. 

We notice the role that the 

creative attitudes have as responsible for 

the coordination or regulation of the 

creative operations and inducing the 

authentic creativity, thus confirming the 

first hypothesis proposed. Let us note the 

contribution of the knowledge interests in 

the correlation configuration. 

Although the correlation 

coefficients are relatively weak (.23 and 

.25), the significance of the cognitive 

interests in the constituency and 

operation of the creativity comes out.

Table no. 7 Interdimensionality creative motivation – personality 

FL. OR. CR. NEUR. L.C. 

VARIABILES 

Q.M.C. – – – –.38* –.26* 

Involvement 

of the Ego 

– – – – – 

Cognitive 

interests 

– .25* .23* – –.42* 

Creative 

attitudes 

.20* .23* .24* – –.25* 

Q.M.C. – Creative motivation coefficient, Fl. – fluidity, Or.– Originality, 

Cr. – Creativity, Neur. – Neuroticism, L.C. – locus of control 

The next group of correlations 

emphasizes the relevance of the place of 

control for the creative motivation.The 

internalist people, who rely on themselves, 

have knowledge interests and more developed 

motivation. By opposition, the externalists 

have a lower level of creative motivation. The 

correlation associations suggest the fact that 

this is contributed to the small range of 

knowledge interests (r = –.42) and creative 

attitudes (r = –.25). We can notice that as the 

externalism increases the knowledge interests, 

the creative attitudes and implicitly the 

creative motivation decrease. After the 

analysis of the items, we can say that the 

externalist people or with a tendency towards 

externalism are not interested in news in the 

speciality or outside the profession, have no 

initiative and do not wish to surpass their own 

knowledge thresholds, and the internalists are 

better motivated creatively due to activism, 

their knowledge interests and developed 

creative attitudes. It is thus confirmed that 

the validity of the third hypothesis. 

Another intercorrelational affinity is 

between the creative motivation and the 

Neuroticism dimension (r = –.38) that we 

interpret by the positive role of the creative 

motivation in the balance of the group as to 

the activation and emotional stability, result 

found in the extension of the research 

supporting neuroticism as one of the most 

important predictors of the performance 

motivation (Judge & Ilies, 2002). We thus 

have the partial confirmation of the second 

hypothesis as to the association obtained 

between the creative motivation and the low 

neuroticism but also the non-existence of the 

88 

relationship between motivation and the 

dimension Introversion-Extraversion. 

5. CONCLUSIONS 

The paper investigated the 

implications of the creative motivation in the 

personality of a batch of public functionaries 

starting from the theoretical data and the 

research carried out. The following 

characteristics of the group of public 

functionaries examined stood out: 

– The group is characterised by 

moderate motivation to 

performance along with the 

vocation for the administrative 

field. The most important 

motivational-creative factor of 

those involved in the 

administrative activity is the 

volitional one, of making decisions 

and acting. 

– From the viewpoint of the creative 

aptitudes, the group is situated at 

an average level. Moreover, there 

is a predominantly introvert and 

emotionally stable group with 

social retractility and low tolerance 

towards the others. 

– With respect to the faith of the 

factors holding the behavioural 

control, the public functionaries 

are mostly ambivalent (they have 

not polarised the place of the 

control not in the inside nor the 

outside), followed by the 

externalist and to a lesser extent, 

the internalist; the differences in

gender occurred only with respect 

to some items and in case of value 

of the place of control; the women 

working in the administration 

seem to be more internalist as to 

the activities in which they want to 

succeed, to be successful, not the 

same as the things related to the 

promotion; in this case, men have 

a greater faith in the internal 

control. 

– In this framework drawn up by us, 

of the personality of public 

functionaries in the central 

administration, the creative 

motivation holds certain 

significance in the structure of the 

personality. Thus, the motivation 

prevails over the creative 

attitudes, by the direct interaction 

between attitudes and the creative 

thinking, neuroticism and the 

locus of control (therefore, the 

persons with creative motivation 

are associated with the belief in 

the internal localization of the 

control). 

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creativity and innovation in 

organizations, In Staw, B., 

Cummings, L.L. (eds). Research in 

organizational behavior, 

Greenwich: Jai Press, 10: 123-167 

2. Balgiu, B., (2009) Performance 

and locus of control, paper 

presented at XIV European 

conference of developmental 

psychology, ,,Emerging 

adulthood“, Vilnius, 18 – 23 VIII 

2009 

3. Barrick, M.R., Mount, M.K. & 

Strauss, J.P. (1993) 

„Conscientiousness and 

performance of sales 

representatives: test of mediating 

effects of goal setting”, Journal of 

Applied Psychology, vol. 78, no. 5: 

715-722 

4. Bloom, H. (2007) Creierul global 

[Global brain], Bucureşti: Editura 

Tehnică. 

89 

5. Birdi, K. (2007) „A lighthouse in 

the desert? Evaluating the effects 

of creativity training on employee 

innovation”, Journal of Creative 

Behavior, vol. 41, no. 4: 249-270 

6. Dewett, T. (2006) „Exploring the 

role of risk in employee creativity”, 

Journal of creative behavior, vol. 

40, no. 1: 27-45 

7. Eysenck, H.J. (1997), Personality 

and the biosocial model of 

antisocial behaviour, In A. Raine 

(ed.), Biosocial bases of violence, 

Nato ASI Series, New York: 

Plenum Press, vol. 292: 21-38 

8. Haslam, S.A. (2009) Psychology in 

organizations. The social identity 

approach, (second ed) London: 

Sage 

9. Haynes, P. & Ayliffe, G. (2006) 

„Locus of control of behaviour: is 

high externality associated with 

substance misuse?” British 

Journal of Addiction, vol. 86, no. 

9: 1111-1117 

10. Houston, D.J. (2000) „Public- 

Service motivation: a multivariate 

test”, Journal of Public 

Administration Research and 

Theory, vol. 10, no. 4: 713-728 

11. Judge, T.A. & Bono, J.E. (2001) 

„Relationship of core selfevaluations 

traits – self esteem, 

generalized self-efficacy, locus of 

control and emotional stability – 

with job satisfaction and job 

performance: a meta-analysis”, 

Journal of Applied Psychology, vol. 

86, no. 1: 80-92. 

12. Judge, T.A. & Ilies, R. (2002) 

„Relationship of personality to 

performance motivation: a metaanalytic 

review”, Journal of 

Applied Psychology, vol. 87, no. 4: 

797-807. 

13. Molleman, E., Nauta, A. & Jehn, 

K. (2004) „Person-job fit applied to 

teamwork: a multilevel approach”, 

Small Group Research, vol. 35, no. 

5: 515-539 

14. Neculau, A. (1998) Noi şi ceilalţi, 

[We and others], Iaşi: Polirom. 

15. Nickerson, R. (1999) Enhancing 

creativity, In R. Sternberg, (ed.) 

Handbook of creativity, 

Cambridge: Cambridge University 

Press.

16. Oros, C. (2009) Motivaţie, 

personalitate, performanţă, Teză 

dizertaţie, Bucureşti, UPB, MD: 

Comunicare managerială, 

industrială şi social-politică 

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atitudinilor creative [Study of 

creative attitudes], In Ştefan, B., 

(coord.), Atitudini şi valori în 

administraţia publică locală 

[Attitudes and values in local 

government], Bucureşti: Editura 

BCS. 

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„Studiul atitudinilor creative la 

inginerii proiectanţi”, Revista de 

Psihologie, vol. 23, no. 1: 15-28 

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Creativity as a phenomenon of 

emergence of human psychic 

system, paper presented at 

National Symposium of the 

Romanian Academy, ,,Transdisciplinary 

perspective on 

creativity and creative“. 

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(2005) Theories of Personality (8 th 

ed.), Belmont: Thomson 

Wadsworth. 

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organizations as a function of 

employee’s locus of control, 

Psychological bulletin, vol. 91, no. 

3: 482-497 

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of the work locus of control scale“, 

Journal of Occupational 

Psychology, vol. 61, no. 2: 335-340 

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There are always two sides to the 

coin: the upshot of an instrumental 

approach towards public service 

motivation and the oath of office, 

comunicare la International public 

service motivation research 

conference, Bloomington, June 

7th-9th. 

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M. (2004) „The effectiveness of 

creativity training. A quantitative 

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Journal, vol. 16, no. 4: 361-388. 

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(1996) „Investing in creativity”, 

American Psychologist, vol. 51, 

no.7: 677-688 

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M. (1989) Ghid practic de evaluare 

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Assessment Guide], Iaşi: 

Universitatea Al. I. Cuza. 

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S.R. (1997) Influences of 

organizational culture and climate 

on individual creativity, Journal 

of Creative Behavior vol. 31, no. 1: 

27-41 

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to the top], Iaşi: Polirom 

xxx Ghid privind evaluarea 

performanţelor profesionale individuale 

şi motivarea funcţionarilor publici 

(2001), [Guideline for the evaluation of 

the individual professional performances 

and motivation of the public 

functionaries], Phare RO. 0106.04, 

Bucureşti




SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK 

FUNCTIONS 

BÂRSAN-PIPU Nicolae 

Faculty of Finance, Banking and Accounting Braşov 

“Dimitrie Cantemir” Christian University 

barsan@universitatea-cantemir.ro 

Abstract 

The paper presents some aspects of the Taguchi 

loss function and the Taguchi risk applied in 

quality decision problems. The relationship 

between the specified performance level and the 

process capability indices of a process are 

investigated. 

Key words: Taguchi loss function, Taguchi risk, 

process capability indices, process performance 

level. 

1. The Taguchi approach 

In this paper we will examine some concepts 

due to Japanese scientist Genichi Taguchi, 

who has founded a number of methods for 

off-line quality control and design of 

experiments, of which we discuss here the 

Taguchi loss function and also the Taguchi 

risk function. Quality control methods 

consist of off-line quality control and cost 

activities carried out in the stages of product 

design and its implementation processes. 

The general objectives of these methods are 

improving the quality and reliability of 

products and reducing development and 

production costs of these products. A key 

component in Taguchi’s philosophy is to 

reduce variability. Technical specifications 

often require that each quality characteristic 

to have a specific nominal or target value. 

The objective is to reduce variability from 

that target. Taguchi has modeled the effects 

that may occur as a result of deviation from 

the target value by a quadratic loss function. 

The loss refers to the cost that can occur 

when using a product whose quality 

characteristic deviates from the target value. 

We shall discuss further the Taguchi 

approach considering first the loss function 

defined by Taguchi, and then by calculating 

and analyzing the so-called Taguchi risk. 

91 

2. The Taguchi loss function 

Traditionally - and empirical – it is 

considered that the units produced outside 

the specified tolerances are “equal” defective, 

while units located within the specified 

limits product are equally consistent (or 

acceptable), depending on their location to 

the lower tolerance specified limit (LSL) or 

upper specified limit (USL). The units outside 

the specified tolerance are lost, 

corresponding to the hatched area in Figure 

1. Hence we obtain the so-called actual 

defective fraction. The total loss results from 

considering the unit cost of reworking, 

scrapping or replacement of defective 

product units. 

The modern approach uses the concept of 

natural tolerance interval (NTI), which is a 

measure of the inherent variability in the 

process, determined by the natural limits of 

tolerance. If x and s are respectively the 

average and the standard deviation of a 

quality characteristic calculated for samples 

analyzed from the process, then the lower 

natural limit (LNL) is LNL � x � 3s 

, and the 

upper natural limit (UNL) is UNL � x � 3s 

. 

Pierde Loss re 

LSI LSL T USL LSS 

Figure 1: Empirical interpretation 

of the loss function

The proportion of non-conforming product 

units, outside the specified tolerances, using 

the normal distribution N �t, x, 

s� 

is estimated 

that shape the process, by considering the 

lower ( pinf ), the upper ( psup 

) and the total 

( p ) defective fraction, as the probabilities: 

tot 

p 

LSL 

�X�LSL��N�t, x s� 

�� 

p inf � Prob 

, dt , (1) 

sup 

� Prob 

� 

p tot 

USL 

�� 

N 

�X�USL��1�Prob�X�USL� �t, x, 

s�dt 

� � 

, (2) 

� Prob X � LSLor 

X �USL 

� 

� Prob�X�LSL��Prob�X�USL��. 

(3) 

� p � p 

inf 

sup 

Applying the unit costs of reworking, 

scraping or replacement, we obtain the 

estimated total loss. 

Let X be the random variable representing a 

quality characteristic of a process, with T the 

target value, modeled by a normal 

distribution N �x, �, � �, 

where x � X and 

� � T . Let also � be the deviation from the 

target of the process. Taguchi considered the 

quadratic loss function of the form: 

L T 

� � � �2 x k � x � T 

� . (4) 

Let K� 

be the loss for the deviation 

� � x � T from the target T of the process. 

Then we have: 

L T 

2 �x��k�� K � 

, (5) 

where from we get: 

K� 

k � . (6) 

2 

� 

The Taguchi loss function is represented in 

Figure 2. 

Pierdere Loss 

K � 

� 

LSL LSI T USL LSS 

Figure 2: The Taguchi loss function 

92 

3. The Taguchi risk function 

Now consider the average value of the 

Taguchi loss function. We get: 

2 

2 

E�L �x, T �� 

� E�k 

� �x � T � �� k � E��x�T� 

� 

T 

. (7) 

2 

2 

� k � � � � � T 

� � � � 

We obtained the Taguchi risk that is the 

average loss associated with the 

displacement of the process from its specified 

target. Writing a more general formula, if 

L �x, T � 

T is the loss function used as a model 

and f �x, � � the probability distribution of the 

process, then the Taguchi risk is: 

�L�x, T �� 

� � � � 

� � 

E T 

T 

�� 

� L x, 

T � f x, 

� dx . (8) 

4. The Taguchi risk and the process 

performance 

We continue to analyze the Taguchi loss and 

risk functions in conjunction with the 

performance indicators of a process, that is 

the potential index C , which is a measure of 

p 

process variability and is given by: 

C p 

LSS � LSI 

� , (9) 

6� 

the capability index C , which is a measure 

pk 

of process centering, and is defined by: 

�� 

LSI � � LSS � � �� 

C � min� 

; 

pk � , (10) 

�� 3� 

3� 

�� 

and the precision index C , originally 

proposed by Taguchi, which is a measure of 

the process deviation from the target, 

computed with: 

C pm 

� 

LSS � LSI 

pm 

� �2 � � 

2 

6 � � T 

. (11) 

From the last relation and taking into 

account relation (9), we can obtain the 

following relationship between the precision 

index C and the Taguchi risk, respectively: 

pm 

� 1 � 

� � , �� 

� 

ITS 

E L x T � k � � � 

T 

. (12) 

� 6 � 

� C pm � 

The relationship obtained is interesting, 

since for a process with a specified 

performance level (SPL) of 3 sigma, the 

2

potential index is C � 1. 

00 , then we have 

STI � 6� 

, and the relation (12) becomes: 

E 

p 

�L�x, T �� 

T 

2 

� � 

� 

� 

� k � � . (13) 

� � 

� C pm � 

Generalizing for some specified performance 

levels of three sigma, four sigma, five sigma 

and six sigma, which correspond to the 

values SPL� 

�1.00; 1.33; 1.67; 2.00�, 

then the 

Taguchi risk can be expressed according to 

specified performance level of the process 

and the precision index, with the relation: 

E 

�L�x, T �� 

T 

� � 

� 

SPL �� 

� k � � . (14) 

� � 

� C pm � 

Now consider, for example, a manufacturing 

process that generates a quality 

characteristic with the specified tolerances 

LSL = 21.5 mm and USL = 23.5 mm, with 

nominal value (target) T = 22.5 mm, and the 

unit cost of defective product (outside the 

specified tolerance) being (expressed in 

monetary units - m.u.) K� 

� 3 m.u. 

In Figure 3 there are three cases related to 

this process. In the first case, the process is 

with a very good potential index C � 2. 

00 , 

p 

but the capability and the precision indices 

are inadequate, the process being strongly 

decentered. 

In the second case, the process parameters 

are optimal regarding the process variability 

and central tendency, and therefore all 

performance indicators are very good. 

In the third case, the process is at a 3 sigma 

level of performance, all performance 

indicators, being equal to 1.00. 

We will now calculate the Taguchi loss 

function for each of the three cases of the 

process. For the first case, we have � 1 � 22 , 

� 1 � 0. 

167 , � � 21. 5 � 22. 

5 � 1, 

and k � 3 1 � 3 . 

We have the average loss per unit of product 

2 

2 

E�L��3��0. 167 � �22 � 22, 

5� 

�� 0. 

83 

1 

m.u. 

For the second case, the parameters are 

� 2 � 22. 

5 , with � 2 � 0. 

167 , and the average 

loss per unit of product will be 

2 

2 

E �L��3��0. 167 � �22. 5 � 22. 

5� 

�� 0. 

08 m.u. 

2 

Finally, in the third case, with � 3 � 22. 

5 and 

� 3 � 0. 

333 , the average loss per unit will be 

2 

2 

E�L� 3 � 3 � �0. 333 � �22. 

5 � 22. 

5� 

��0. 

33 m.u. 

Note that, naturally, most of the average 

loss, therefore the highest Taguchi risk, is 

2 

93 

obtained if the case of the first process, 

which is the most decentered, fact which 

confirms that Taguchi’s principle, as we 

move away from the target of the process, 

the quality decrease and the costs increase 

significantly. 

Cp =2 

Cpk =1 

Cpm =0,63 

Cp =2 

Cpk =2 

Cpm =2 

Cp =1 

Cpk =1 

Cpm =1 

21 21.5 22 22.5 23 23.5 24 

Figure 3: Loss function for three processes 

with different performance indices 

The values of the Taguchi risk can be 

obtained easily with the formula that we 

proposed previously. Thus, we have 

STI � 23. 5 � 21. 

5 � 2. 

0 , and for the first 

process we get C � 0. 

6325 . Therefore, the 

pm 

average of Taguchi loss, i.e. the Taguchi risk 

is: 

E 

2 

� 2 1 � 

� 6 0. 

6325 � 

�L��k�� 3� 

� � � � 0. 

83 

1 

� STI 1 � 

� 

� 6 C � 

pm � 

2 

m.u. 

Consider now the Taguchi risk function 

when the specified performance level for the 

process is six sigma. The target parameters 

for the six sigma is a potential index C p � 2 

and an index of capability C � 1, 

5 , which 

pk 

means a defective fraction of 3.4 ppm (parts 

per million)! In our example, for the process 

to be of six sigma must have parameters 

C � 2 , C � 1, 

5 ; hence the average of the 

p 

pk 

process can move towards the target value 

between 22.25 and 22.75 respectively. Then 

the precision index is: 

23. 

5 � 21. 

5 

C � 

� 1. 

11 . 

pm 

2 

2 

6 � 0. 

167 � 22. 

75 � 22, 

5 

� � 

When calculating Taguchi risk for the six 

sigma process we can apply the simple 

formula proposed here, obtaining: 

E 

2 

�2�0, 167 � 

�� 

1, 

11 

�� 

� � 

�L��k�� 3� 

� 0, 

27 

6� 

� SPL �� 

� 

� 

� C pm 

� 

� 

2 

m.u.


Using the concept of Taguchi risk, proposed 

in this paper, we can easily calculate the 

average loss for any process, based on 

process performance indices and the process 

specified performance level. 

References 

1. Bârsan-Pipu, N., Popescu, I. Managementul 

riscului. Concepte - Metode - Aplicaţii. Editura 

Universităţii „Transilvania”, Braşov, 2003. 

2. Bowker, A. H., Lieberman, G. J. Engineering 

Statistics. Prentice-Hall Inc, 1972. 

3. AIAG. Statistical Process Control - Reference 

Manual, 1995. 

94




MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE 

University professor Cătălina Bonciu, Ph.D.; 

University of Bucharest, Faculty of Administration and Business; 

catalina.bonciu@yahoo.com 

Lecturer Cristian Sima,Ph.D.; 

Centre for Industrial Economics and Services, National Institute of Economic 

Research; 

sima60cristian@yahoo.com 

Lecturer Gabriel Popa, Ph.D. 

Politehnica Institute of Bucharest, Faculty of Transports 

gabi21popa@yahoo.com 

Abstract 

The experience of developed countries, 

especially the most important economic 

actors on the world stage – USA, European 

Union, Japan – offered numerous “reference 

anchors” in what concerns the definitive 

characteristics of company management and 

its background. Such characteristics 

explained the fundamentals of their 

performances and their high competitiveness. 

It was long studied the ability of managers 

and management teams of drawing “strategic 

lines” at national, regional, EU(the case of 

companies inside the European Union) and 

world level. Thanks to this ability the future 

development of such companies was possible, 

and the developing methods and their 

consolidation were shaped. The strategic 

management practice became extremely 

important, and it optimized the business 

portfolio, the allocative efficiency and the 

way resources were used. On this basis, 

companies became stronger on the 

international market. 

The future, instead, is at stake because of the 

crisis. All big companies experienced for the 

past two years new managerial methods and 

models, more or less strategic. The present 

shows that those companies which resisted in 

front of the present realities of the market do 

not fit in the general strategic management. 

Often, the strategy does not excel one year. We 

do not know what will happen in the 

theoretical and practical future. 

95 

Key words: strategic management, 

evaluation of management quality 


The strategic management made the object 

of research and study over the years, being 

considered superior to the experimental 

management. Numerous ideas encompassed 

the economic world, and those who knew 

how to apply the scientific fundamentals to 

the actual contexts of their activities won. Of 

course, the countries with developed 

economies ensured a favorable frame for 

launching theories to sustain the necessity of 

scientific, strategic, planned and detailed 

management. 

Globalization imposed itself in the 

development of human society. The world 

dimension of interaction between events, 

processes, economic, social, scientific and 

technologic, politic, ecologic and cultural 

phenomena took shape economically, in the 

evolution of the international economic 

system towards a new trade model, 

investments and economic development. 

Until recently, this model was functioning 

under certain principles that were very 

different from the ones in the mainstream 

economic theory. Mainly, it was oriented 

towards objectives qualitatively superior to 

those in the past. Also, it was based on 

evaluation criteria much more complex and 

with a wider reference area. As for the

present and future, the equations will 

change. 

The economic globalization was 

advantageous for some countries, industries 

and companies that were capable to 

efficiently capitalize the numerous and 

diverse opportunities of this phenomenon – 

enlarging the market of many products and 

services, the possibility of developing the 

economy of scale, easier access to world 

resources and their selective use according 

to the economic efficiency criterion, 

intensifying competition between companies. 

The companies’ competitive capacity as well 

as their potential of standing the 

competition depend, manly, on two 

determining factors, the first endogenous 

and the second exogenous [1]: 

� The companies’ capacity of 

performing productive activities, of 

trading efficiently their products/services, 

of improving their competences and 

position them on a superior level on the 

market. Maximizing the action of this 

factor depends on the quality of 

companies’ management, on their 

professionalism, on its sensitivity at 

powerful or weak market signals and the 

capacity of reacting accordingly. 

� The quality of the national business 

environment where companies exist, 

which is determined by the country’s 

macroeconomic situation, the political 

stability, the strategic orientations of the 

governmental politics, the degree in 

which the government takes part in the 

economic activity, taxation, legislation, 

the economic and social cohesion level etc. 

The present work is aimed to indentify 

permissive solutions for future strategic 

management. Mainly, the purpose is to 

explain the definitive elements and the 

conditions that are to be met for the two 

determining factors of the companies’ 

competitive capacity. Only after this stage, 

the research will be focused on defining and 

developing new meanings for the strategic 

management, applicable to organizations 

emerging from the present crisis. 


Virtually, the scientific research establishes 

a relation between the theoretical 

fundamentals of scientific management and 

96 

the causes which underline the 

methodological marks of quantifying the 

companies’ competitiveness. The quality of 

the managerial act brought to the discovery 

and the study of the strategic management. 

Between the most notable representatives in 

the fields are: Bennis, W., Coulter, M., Dale, 

E., Freeman, R.E., Robbins, S., Stoner, J. A., 

but also Burduş, E., Căprărescu, Gh., 

Cornescu, V., Nicolescu, O., Russu, C., Vagu, 

P., Zorlenţan, T... 


The characteristics of companies’ 

management and of their action frame in the 

developed countries represent the starting 

point for tracing a series of methodological 

elements for the evaluation of management 

quality. 

� Regarding companies’ management 

� The practice of scientific 

management at large scale, using a 

wide number of methods, techniques and 

modern instruments, as well as the 

existence of a large and professional 

network of intellectual services for 

management (managerial, marketing, 

financial, tax, ecologic counseling etc.). 

� The existence inside the 

companies of a well established 

structural frame, which clearly defines 

the individual responsibilities of 

leadership and execution, characterized 

by organizational dynamism and 

flexibility[2], growing decentralization 

and improvement in what concerns the 

decisional process. Decentralization, 

using flexible and temporary structural 

forms – task force, project team etc. – is 

one of the most important practices, with 

the purpose of transforming the 

companies’ structural frame into a 

dynamic one, making it easily adaptable 

to modifications. 

� The fast expansion of reorganization 

within companies for the purpose of 

modernizing activity and developing 

competitiveness by introducing and 

expanding the information and 

communication technology, e-business 

applications, the most important of all 

Enterprise Resource Planning, Supply 

Chain Management and Customer 

Relationship Management, e-procurement

(or online procurement) and emarketplaces. 

E-business represents the 

communication networks that facilitate 

the exchange of information, and it 

comprises the electronic business 

processes (personnel recruitment, 

strategic, tactical and operational 

planning, reserve control and 

management, client support etc.) and ecommerce 

(purchases and sales). 

� Personnel’s professionalism, the 

excellence spirit that challenges the best, 

the continuous desire to improve and 

advance, all the factors that determine a 

high standard of labor productivity[3]. 

Such level of professionalism is also due 

to the functional policies in the human 

resources management, oriented towards 

formation and professional development, 

towards the motivation of employees so 

that these would use all their creative 

and productive potential, their knowledge 

and experience for the improvement of 

the company, and towards promoting the 

fair competition spirit among employees 

in order to ensure the equilibrium 

between performances and rewards. 

� The practice of a rather free and 

easy relation leaders-employees, in 

order to stimulate individual values and 

efficient cooperation. 

� The ability of managers and 

management teams of drawing 

“strategic lines” at national, regional, 

EU (the case of companies inside the 

European Union) and world level[4]. The 

strategic management practice became 

extremely important, and it optimized the 

business portfolio, the allocative 

efficiency and the way resources were 

used and on this basis, companies became 

stronger on the international market. 

� The importance of determining 

ways and actions for the growth of 

productivity by using modern 

organizational methods in terms of 

productive activities and labor processes 

(for example, the Japanese Kanban 

system is everyday more used. This 

system is based on saving time and costs 

in production by making each employee 

directly responsible for the quality of the 

product he/she produced. Another 

program is the just-in-time system that 

practically eliminates the reserves, it 

establishes production standards for each 

stage of the production process.)[5]. 

97 

� Amplifying the role of formal 

and informal communication 

between the members of the 

company, intra-groups and intergroups, 

which infers a free and easy 

organizational climate, with as less as 

possible conflicts, with meeting where 

new ideas are welcome[6]. 

� Engaging all companies in the 

total quality management (TQM), 

which offers and amplifies competitive 

advantages; TMQ is engaged in 

productivity growth so that the 

production cost reduction don’t affect 

quality[7]. 

� We have to mention the 

European management, which is 

emerging on world competition and is 

characterized by[8]: 

� Concentration on unity by 

accepting political, economic, 

social and cultural diversity of 

nation business environment in 

the EU and stimulation of 

expansion and strengthening the 

common elements those 

environments present; 

� Shaping progressively the 

„strategic visions” at EU and 

world level; 

� Decentralization by structuring 

the trans-European activities in 

strategic business units and 

ensuring the development of 

informal relations; 

� Ensuring the congruence 

between the trans-European 

companies and the local, 

regional, national ones from the 

EU member countries; 

� Stimulation of human resources 

international mobility – 

managers, specialists – by 

promoting communications, 

intercultural exchanges and 

intra-cultural formation. 

� Regarding companies’ plan of action 

� Diminishing the government’s 

involvement in the activity of 

companies, [9] even in the countries 

with a less liberal economy, as a result of 

partial or total privatization of public 

enterprises through direct, 

indiscriminating exposure to the market 

requests, their profound technological,

managerial and organizational 

restructuration, the major improvement 

in managerial efficiency, as well as 

applying neutral industrial policies. 

� The predominance of neutral, 

horizontal industrial policies, that are 

aimed to perfect the market mechanisms 

and to improve the specific production 

factors (work force and infrastructures), 

policies that are focused on improving the 

quality of those entering the productive 

activity, especially by means of intangible 

investments – support for research 

activities and development, innovation 

and diffusion of technology, for work force 

formation and improvement at all 

preparation stages, as well as for 

facilitating the entrance on market of 

counseling, judicial, managerial, 

marketing companies. On these lines, the 

idea that companies, companies and 

industries should be adapted to a “state of 

art” is the best way for improving 

competitiveness. 

� Intensely supporting high-tech 

industrial sectors, through 

governmental policies, by improving 

infrastructure and organization of other 

economy and industry sectors. Industries 

with a great capacity of “technological 

irradiation” (expressed through the 

capacity of exporting high tech products, 

direct investments in technologies, 

returns from technological sales and 

technical assistance) are intensely 

stimulated by adequate policies, used a 

wide range of efficient economic 

instruments (support for technical 

assistance, technology transfer, 

technological partnership, creating 

technological enterprises, ensuring the 

risk-capital for companies in high tech 

sectors, etc.)[10]. 

� Encouraging investments by 

conferring facilities in the fiscal 

environment. On these lines, reducing 

taxation became a wide spread measure, 

and the risk-capital investments were 

encouraged in new created companies 

from the high tech industries. 

� Flexibility in competition policy 

under the market rapid globalization 

conditions, which changed dramatically 

the companies’ behavior on the market. 

Therefore, merging companies, buying 

companies and creating semi-public 

enterprises are no more actions that 

98 

contort the market’s competitive 

character even when they lead to a 

concentration of economic activities, but 

they are considered as destined to ensure 

a greater business efficiency and 

international competitiveness, without 

affecting consumer’s interests. Thereby, 

strategic alliances between companies are 

stimulated, cooperation for research and 

development, production and trading, 

purchasing smaller companies, 

restructuration as well. 

� Creating, at national level, 

networks of specialized units 

(institutes, centers, offices, etc.) 

capable of offering the interested 

companies a wide range of professional 

services (information and documentation, 

counseling, technical assistance, 

professional formation), especially for 

small and medium size enterprises, that 

are aimed to support the management of 

these companies to envision strategies 

indispensable on a dynamic market, to 

take the best decisions and measures. 

� Extension of economic 

deregulation measures, by simplifying 

the administrative regulations for the 

foundation or cease of a business, as well 

as the substantial cost reduction needed 

for formalities. Many deregulation 

measures regard other sectors than the 

industry itself (especially banks, financial 

institutions, transportation and 

telecommunications), and their effect over 

the cost reduction and efficiency growth 

producing a benefic impact on the entire 

society. 

� Capitalizing efficiently the 

location advantages. This 

characteristic regards the continuous 

emphasis that is put on the companies’ 

business environment, imposed by the 

actual context of globalization where 

national economies’ capacity, open to the 

world competition, of attracting 

international mobility resources (capital 

and labor force) and to reach superior 

levels of production and investment 

depends, in great measure, on its location 

advantages.[11] The main factors 

determining the existence of location 

advantages for investors are: 

� The quality and availability of 

public infrastructures on the 

entire national territory;

� The ability to innovate products 

and processes, to develop them 

according to the national and 

international market requests; 

� The existence of labor force 

properly qualified for that 

certain activity, of a 

technological know-how; 

� The market flexibility, their 

capacity to rapidly and efficiently 

adapt to the structural 

modification of supply and 

demand; 

� The existence of a fair and stable 

judicial frame; 

� A low level of taxation. 

Between the factors determining the 

existence of location advantages, many of 

them regard the business environment, 

which can be friendly, qualitative, 

attractive or, on the contrary, 

unattractive or even hostile. 

The most efficient methods to correctly 

capitalize the location advantages are to 

improve infrastructures, to ensure 

stability and coherence in the national 

legislation, to invest in the professional 

formation and development, in 

universities and in the research and 

development units. 

� Amplifying the role of the 

environmental protection policies 

became an important factor which will 

actuate in the future the world economy 

and the globalization. The environmental 

protection policies applied at national 

level condition the sustainable 

development, have global and transnational 

effects, reason why they have to 

be defined and widely applied, at 

regional, national and local level. The 

good and services production uses “clean 

technologies”, non-pollutant, which on 

their turn are not polluted, and it became 

a powerful strategic weapon on the world 

market, offering to producers important 

competitive advantages. 

� Modernizing the role of public 

authorities is prevalent in many 

countries[12]. The economic globalization 

creates numerous and diversified 

opportunities for the growth of 

businesses, supported by the possibility of 

administrative and financial cost 

reduction, by cooperating with other 

companies; these opportunities can be 

99 

met by indirect taxation, standardizing 

etc. The modernization implies: 

� Simplification in exercising the 

responsibilities of public 

authorities, of public 

mechanisms that influence 

industrial competitiveness; 

� Continuation of deregulation and 

administrative simplification, 

ensuring full transparency of 

administrative procedures; 

� Ensuring the continuous 

exchange with the economic 

transactor in what concerns the 

industrial performance; 

� Ensuring tight relations with the 

administrative departments 

responsible for the research and 

industrial activities; 

� Cost reduction due to 

regulations; 

� Redefining the public service 

objectives. 

The synthetic classification of the most 

relevant and frequent characteristics of 

company management, as they are practiced 

today in the developed countries, as well as 

the characteristics of the environment where 

these companies activate, offer a convincing 

image of the diversity of determining factors 

in the managerial field, of the ways in which 

the management is exercised, as well as the 

general frame where it manifests. 

When trying to establish certain 

methodological elements to serve the 

evaluation of the management quality and 

the management team, we have to start from 

these characteristics and from the diversity 

of the determining factors. In other words, 

the system of appreciation and its 

methodological elements have to be capable 

of totally covering the most significant parts 

of the managerial activity, so complex and 

dynamic at companies’ level, as well as the 

most powerful influences that the action 

framework of the company exercise on its 

management. In the same time, the 

evaluation system and its methodological 

elements have to be sufficiently simple and 

flexible to be easily applied and adapted, any 

time it is needed, according to the specific 

situations it encounters.


The system of evaluation we propose starts 

by defining certain criteria and sub-criteria 

in relation to which the evaluation is made, 

the latter being divided in well established 

indicators. 

The following proposals should be considered 

just a starting point in the research. 

Thereby, these proposals cannot be 

considered absolute or exhaustive, especially 

in the present context, when the practical 

realities rush the managerial theory. 

� Evaluation criteria for the quality of 

company’s managers[14] 

A. Professional training: basic formation; 

Masters education; Doctorate education; 

managerial formation in Universities; 

managerial development by postuniversity 

programmes; complementary 

formation; specialization in the country; 

specialization outside the country. 

B. Experience: experience within the 

profession; managerial experience; the 

level of the managerial office occupied; 

the relevance of the acquired experience 

for the present executive job. 

C. Managerial abilities: communication; 

computer; linguistic; negotiation; 

representation. 

D. Behavior: figure; the level of self-control; 

behavioral balance; reaction 

predictability. 

E. Attitudes: conservationism; receptivity to 

new; authoritarianism; liberalism; 

conformism; bias. 

F. Ethics: observe the legislation and the 

regulations; respecting the business 

ethics; involvement in conflicts of 

interest; the transparency of actions and 

decisions. 

G. Managerial performances: the degree in 

which the commitments regulated by the 

labor contract are met; the quality of the 

strategy chosen; improvement of the 

company’s image. 


company’s management[15] 

A. The quality of the management system: 

organizational structure; informational 

system; computer system; the frequency 

of delegations; activities’ 

decentralization; the use of complex 

100 

managerial systems; the quality of 

managerial culture; the management of 

time. 

B. The quality of the managerial decisions: 

the available informational basis; the 

use of scientific methods; the decisional 

reaction speed; the quality of the 

decisional act; the quality of 

transmission of a decision; the control 

over the execution of the decision; the 

transparency of the decisional act; the 

equilibrium strategic decisions – tactic 

decisions – operational decisions. 

C. The quality of leadership: the nature of 

managers – subordinates relation; the 

leadership style; the capacity of 

mobilization; the level of involvement of 

the company’s personnel in the 

managerial process; the efficiency of 

motivation at employees’ level; the 

quality of the organizational culture. 

D. The company’s performances and the 

management’s contribution at reaching 

it: indicators regarding the company’s 

profitability; indicators regarding the 

active capital; indicators regarding the 

company’s debt; indicators regarding the 

company’s activity; the growth of 

company’s market share; the competitive 

position of the company on the market; 

the company’s image on the business 

environment; the effects of applying new 

managerial strategies. 


the management team[16] 

A. The rules that govern the collectivity: 

scientific support; ethic support; 

harmonization of economic and social 

reasons in the decisional act. 

B. Team spirit: interpersonal relations 

between the team members; team 

cohesion; cooperation/competition 

relation between team members; the 

degree of solidarity regarding 

responsibility. 

C. The synergy of the collective demarche: 

convergence/divergence of individual 

positions; the frequency of proposals; the 

selection of proposals; the stimulation of 

group creativity; the quality of the 

proposals adopted. 

D. The efficiency of the collective demarche: 

the duration of debates; the conditions 

for reaching a consensus; the collective 

decisional reaction speed.

Summing-up all the points acquired for each 

of the above criteria and sub-criteria, 

equaled by certain importance coefficients, 

we reach a general score of evaluation for 

the analyzed managers and, in the same 

time, we can determine the positive and 

negative parts of a certain company in what 

concerns training, experience, abilities, 

attitudes, behavior… 

The way in which we propose to ideate and 

apply the methodological elements for the 

evaluation of the quality of company’s 

management and of the management team 

is schematized in the below Figure 1. 

References 

[1] Russu, C. Management strategic, Editura All 

Beck, Bucureşti, 1999 

[2] Zamfir,C., Măţăuan, G., Lotreanu, N., 

(coordonatori), Formarea managerială în 

România: Nevoi şi capacităţi, Fundaţia 

Internaţională de Management – FIMAN, 

Editura Alternative, 1994 

[3] Kotter, J.P. The Leadership Factor, The Free 

Press, New York, 1988 

[4] Comănescu, M., Management european, 

Editura Economică, Bucureşti, 1999 

[5] Nicolescu, O. Management comparat, 

Editura economică, Bucureşti, 1997 

[6] Nicolescu, O., (coordonator), Managerii şi 

managementul resurselor umane, Colecţia 

Biblioteca de Management, Editura Economică, 

Bucureşti, 2004 

[7] Robbins, S., Coulter, Mary. Management, 

5 th edition, Prentice Hall, Upper Saddle River, 

New Jersey 07458, 1996 

[8]* * * International Encyclopedia of Business & 

Management, Edited by Malcolm Warner, 

Routledge, London & New York, 1996 

[9] Mihuţ, I. EUROmanagement, Editura 

Economică, Bucureşti, 2002 

[10] Toffler, A. Corporaţia adaptabilă (traducere 

din limba engleză), Editura Antet, Bucureşti, 

1996 

[11] Zorlenţan, T., Burduş, E., Căprărescu, 

Gh., Managementul organizaţiei, Editura 

Economică, Bucureşti, 1998 

[12] OECD Guide for Solving Interests Conflict in 

Public Adminstration, June 2003 

[13] Russu, C., Dumitrescu,M., Plesoianu, G., 

Calitatea managementului firmei. Evaluare si 

interpretare, Editura Economica, Bucuresti 2008 

[14] Nicolescu, O., (coordonator), Sisteme, 

metode şi tehnici manageriale ale organizaţiei, 


101 

[15] Nicolescu, O., Verboncu, I., The 

Management of the Organization, Economic 


[16] Nicolescu, O., (coordinator), Sistemul 

decizional al organizaţiei, Colecţia Biblioteca de 

Management, Editura Economică, Bucureşti, 

1998

Endogenous 

factors 

Company’s 

Management 

The general conception of methodological elements for the 

evaluation of: 

� Managers; 

� Company’s management; 

� Management team. 

Establishing evaluation criteria and sub-criteria 

Dividing sub-criteria in indicators 

Elaborating the indicator sheet for each indicator 

Establishing the weight of each criteria for: 

� Managers; 

� Company management; 

� Management team. 

Establishing the weight of each sub-criteria 

Establishing a domain of points that are to be given for 

each indicator 

The actual evaluation, consisting in: 

- giving a certain number of points for each 

indicator; 

- the gradual summation of points on sub-criteria, 

criteria and objects of evaluation (managers, 

company management, management team); 

- the total sum of points for each object. 

Exogenous 

factors 

Figure 1 – The scheme of applying the methodological elements for 

the evaluation of company’s management and management team 

102

The International Conference on Economics and Administration, Faculty of Administration and 

Business, University of Bucharest, Romania 


ROMANIAN HIGHLY SKILLED MIGRATION POST-1990. DIMENSIONS 

AND CAUSAL FACTORS 

BONCIU, Cătălina 

Faculty of Administration and Business, University of Bucharest, Romania 

catalina.bonciu@yahoo.com 

BLIDARU, Horaţiu 

Faculty of Political Sciences, „Dimitrie Cantemir” Christian University, Bucharest, 

Romania 

horatiu.blidaru@yahoo.com 

Abstract 

After 1990, the phenomenon of external 

migration has decisively contributed to 

deteriorating Romania’s demographics. A 

major component of the migration flows was 

represented by the temporary external 

migration for work, whose amplitude was 

highlighted in the 2002 census. 

Official statistics cover only the legal 

external migration – that is the Romanian 

emigrants who settled down abroad for good, 

which represents only a small part of the 

overall emigrants. Estimates of the 

“unknown” dimension of external migration 

(approximately 2.8 mil people in 2008) shape 

a phenomenon that has become national 

through its dimension, implications and 

geography of origins of the flows. 

In the present study we tackled upon the 

issue of the highly skilled labor force 

migration, the so-called “brain drain”, a 

phenomenon of growing interest on 

international level. 

The analysis focuses on the one hand on 

emphasizing the numerical evolution of 

highly skilled external migration within the 

period 1990-2008 and on its structure 

according to gender, age, country of 

destination, profession, and on the other 

hand on establishing its causal factors, 

resorting to data issued by Romanian 

National Institute of Statistics (INSSE) and 

SOPEMI data of the Organisation for 

Economic Co-operation and Develoment 

(OECD), as well as to the results of some 

research published in the past years under 

the care of European Institute of Romania, 

National Institute of Economic Research, 

103 

Romanian Academy and Open Society 

Foundation. 

At the same time, using the same 

demographic indicators, we tried to identify 

the emigration patterns of tertiary educated 

people in 2008 (the last year that is analyzed 

in official statistical data). 

Key words: high skilled emigration, brain 

drain 


Migration is one of the defining issues of the 

beginning of the millennium. According to 

data provided by International Organization 

for Migration, there are 214 million people 

worldwide who live outside their country of 

origin, representing 2% of the world’s 

population. 

In the past years at the level of the 

European Union there has been a growing 

scholarly interest in analyzing skilled 

migration, including the extent and impact 

of the outflow of the skilled workers after the 

2004 and 2007 enlargement of the EU (EIC, 

2009). 

Despite the high interest of researchers for 

highly skilled migration, the so-called „brain 

drain”, there are relatively few studies on 

this issue. 

The main hindrance in analyzing the 

phenomenon is the absence of rigorous and 

reliable statistical data that would cover the 

whole range of the migrating process. A 

study regarding the quality of emigration 

and emigration data issued by European 

countries ranked Romania as the very worst 

with regard to quality of emigration data 

(Kaczmarczyk and Okolski, 2005). The

impact of highly skilled labor force migration 

is difficult to assess not only because of data 

limitations, but also of the complexity of the 

phenomenon. 

A significant percentage of unrecorded 

migration flows includes short-term 

migrants, irregular migrants or migrants 

working in informal economy. 

Migration changed completely in Romania 

after the fall of the communist regime, in 

form of permanent, temporary and circular 

migrations. In the literature various 

periodizations are described in the evolution 

of post-1990 emigrations (Sandu et al., 2004; 

Sandu, 2006; Baldwin-Edwards, M., 2007). 


The first academic surveys focused on the 

phenomenon of highly qualified migration 

were carried out by Anglo-Saxon 

researchers. The term “brain drain” first 

appeared in a report entitled “Emigration of 

Scientists from the United Kingdom”, made 

by the Royal Society of London in 1963 and 

referred to the exodus of the British 

scientists to the United States. 

In the 1960s and 1970s, the literature was 

orientated towards the emigration of 

academics and professionals from developing 

countries. Researchers agreed upon the 

negative consequences of skilled emigration 

for the countries of origin. It was considered 

that the departure of the best qualified 

persons deprives the Third World countries 

of the very people who were most capable of 

revitalizing their economies (Avveduto and 

Brandi, 1995). 

After the 1980s, researchers concerned with 

the migrations of highly skilled people 

changed their focus towards the labor 

market mobility and analyzed multinational 

companies and the migration of experts 

within the context of international aid 

programmes. 

Interest in the brain drain phenomenon 

revived in the 1990s, in context of massive 

emigrations from Eastern Europe and the 

former Soviet Union, after the end of the 

Cold War gave way to the dissolution of the 

Eastern Bloc (Dolgik E., 2000). Among other 

issues, these studies emphasized the fact 

that a great part of the highly skilled 

emigrants got hired in positions lower to 

their qualifications, situation called “brain 

waste”. 

The so called “new economics of brain drain” 

stressed the fact that high skill migration 

104 

may have beneficial effects on the countries 

of origin, described in the phrase “brain 

gain” (Docquier et al., 2008). 

At the same time, globalization also 

contributed to an increase in the number of 

qualified work force migrating temporarily 

or permanently. 

In the global labor market, there is an 

increasing number of jobs demanding special 

skills, professional experience being bought 

or sold throughout the entire world (Iredale, 

1999). 

In the literature in Romania, studies 

dedicated to highly-skilled labor force are 

relatively few, mainly due to the precarious 

statistical data. Nowadays, there is no 

satisfactory statistical system of recording 

immigration and emigration. We should add 

to this the fact that unlike other 

demographic events, migrations cannot be 

diagnosed always at the very moment of its 

unfolding, nor can illegal migration be 

assessed. (Rotariu T., 2003). 

Temporary or circular migration was 

considered one of the defining characteristics 

of East-West mobility in Europe. In Romania 

this kind of migration – the so called 

“incomplete” migration to European 

countries for illegal work – emerged 

especially starting with 1999 (Sandu et al. 

2004). 

The first estimates of Romanian migration 

based on surveys were made in 2000. 

The main characteristics of contemporary 

Romanian emigration were: circular 

migration with illegal employment in the 

Schengen area (mainly in Spain and Italy); 

permanent emigration to OECD countries 

(mainly non EU) and temporary legal 

migration through bilateral or other 

agreements (Baldwin-Edwards, M. 2007). 

With respect to the driving forces of 

migration in post-1990 Romania, we need to 

take into account the employment situation, 

cultural and historical factors, as well as the 

existence of groups of migrants in the host 

countries (Zaman, 2000). 

Other authors concluded that the 

occupational characteristics of Romanian 

emigrants to the EU are less relevant than 

the individual connections abroad in shaping 

the pattern of foreign employment of 

Romanian nationals (Radu, 2001). 

Another study underlined the tendency of 

people who had been abroad once to go back 

again and take their partners along (Şerban 

and Grigoraş, 2000).

Among the reasons to migrate mentioned by 

Romanian emigrants in a 2008 barometer 

initiated by the International Labour 

Organization we can count: good experience 

of others (85%), networks abroad (18%) and 

contacted people abroad (4%) (Silaşi and 

Simina, 2008). 

An analysis of temporary migration a 

concluded that higher education and high 

satisfaction of living standards are 

associated with tourism migration, while 

temporary labor migration is associated with 

rural areas, high unemployment, secondary 

education level and a high proportion of 

youth (Sandu, 2005). 

A singular study at the level of destination 

countries aimed at Romanian migrant 

communities in Nice, France and El Ejido 

area, Spain (Potot, 2000, 2003). 

The study on the emigration trends of 

higher-educated emigrants over the 1980- 

2000 period, presented for the first time by 

Zaman G. and Sandu S. (2000), concluded 

that less than 0.3 percent of Romania’s 

higher education population had been living 

abroad for a year or longer. 

The causes and consequences of migration 

on work abroad within 1990-2006 were the 

object of a complex study made under the 

care of Open Society Foundation, which 

included a survey at a national level, microregional 

research and quality research in six 

communities in the country and other four 

communities abroad (Sandu, D., 2006). 


The analysis of highly skilled labor force is 

hindered by the lack of a universally 

accepted definition of the phenomenon, 

which would allow a unitary system of 

recording emigrants of this category. 

Although concerns for the study of this kind 

of migration date back in the 1970s, the 

concept of “highly skilled emigrant” remains 

a hazy one, difficult to define (ICMPD, 2005). 

Most researchers use the term “highly 

qualified” to describe those persons who 

have a university degree or equivalent. But 

many people who are not university 

graduates hold jobs that undoubtedly 

demand high skills. For these reasons, some 

authors distinguish between qualifications 

acquired through experience and 

qualifications conferred by educational 

establishments (Koser and Salt, 1997). 

The term “skilled” is usually interpreted in 

terms of level of education and 

105 

qualifications. The main classifying systems 

used are International Standard 

Classification of Education – ISCED, 

adopted by the United Nations Educational, 

Scientific and Cultural Organization in 1975 

and, respectively, International Standard 

Classification of Occupations – ISCO, 

adopted by the International Labour 

Organization in 1988. 

For a unitary assessment of qualifications, 

the European Union applies the 

recommendations of the Canberra Manual, 

drawn up by Organization for Economic 

Cooperation and Development in 1995, that 

combines the educational and occupational 

skills. The term used to describe the persons 

with a high level of qualification is human 

resources in science and technology, also 

agreed by Eurostat, that uses it in 

comparative analyses (Canberra Manual, 

OEDC, 1995). Other authors use other 

synonyms for highly qualified migration: 

“skilled international migration”, “skilled 

international labor circulation”, “professional 

transientist”, “migration of expertise” and 

“quality migration”. 

In this paper we used the term “skilled 

persons” from the angle of years of formal 

education (Dumont and Lemaitre, 2005), 

including here strictly tertiary educated 

persons. We also adopted the general 

meaning of the term “brain drain”, 

understood as migration of well educated 

people from less developed countries to more 

developed ones. 

Data on emigrants refer only to Romanian 

citizens who settled their permanent 

residence abroad. 


Studies regarding the out-migration of 

Romanian labor force are hindered by the 

lack of official statistics that would reflect 

the real dimension of the phenomenon. 

The alleged figure of 2.8 million emigrants 

in 2008 underscores a phenomenon that has 

become national through its dimension, 

implications and geography of flow origins, 

transforming the temporary out-migration 

(the so-called “euro-commuters”) in a highly 

complex issue (CPARSD, 2009). 

An IOM 2005 field survey suggests that 15% 

of the Romanian adult population has 

worked abroad after1990. 

A study about economic migration of 

Romanians concluded that after 1990 about

12% of persons between 18 and 59 years 

worked abroad (Sandu, 2006). 

According to SOPEMI data, since 2000 the 

inflow of Romania emigrants to OECD 

states rose from around 80,000 to 192,000 in 

2006 (OECD, 2007). The increase was 

particularly strong in Spain and Italy. 

The difficulty of establishing the dimension 

of the phenomenon is also due to an 

increasing circulatory character of the 

phenomenon. In the period 1990-2006 

Romania was a country of negative 

migration. In the first year following the EU 

integration (2007) there was a first-time 

positive record of migration which doubled 

in 2008 (Ichim L., 2008). 

2007 2008 

Rates at 1000 

2007 2008 

Immigrants 9575 10030 0,44 0,47 

Emigrants 8830 8739 0,41 0,41 

Difference +745 +1291 0,03 0,05 

The gender structure of the temporary 

external emigration reveals a feminization of 

the phenomenon, a remark that is viable for 

the overall evolution of the post-1992 

phenomenon (Alexandrescu, A.-M. and al., 

2008). 

number of persons 

2004 2005 2006 2007 2008 

Total 13082 10938 14197 8830 8739 

Male 4934 4110 5341 3088 3069 

Female 8148 6828 8856 5742 5670 

Emigrants by gender, 2004 - 2008 

The age structure indicates a concentration 

of emigrants for group of those aged between 

26 and 40, respectively between 18 and 25. 


2004 2005 2006 2007 2008 

Total 1308 1093 1419 8830 8739 

2 8 7 

Under 18 

years 

1417 765 963 1003 1472 

18-25 

years 

1920 1408 1726 1062 682 

26-40 

years 

7174 6359 8198 4979 4563 

41-50 

years 

1414 1355 1782 982 1239 

51-60 

years 

577 545 839 460 487 

61 years 

and over 

580 506 689 344 296 

Emigrants by age group, 2004 - 2008 

106 

The net migration between the two censuses 

(1992, 2002) shows the highest rate in 

women having the most fertile ages, from 20 

to 40 (62%), which means adult persons with 

a work and innovation potential higher than 

in other age groups (Alexandrescu A.-M. et 

al., 2008). 

With respect to the favorite destination 

countries of Romanian emigrants, after 2000 

these were Germany, Canada, The United 

States of America and Italy. 


2005 2006 2007 2008 

Total 10938 14197 8830 8739 

Australia 78 125 83 82 

Austria 421 581 313 345 

Canada 1220 1655 1787 1738 

France 343 529 372 431 

Germany 2196 3110 1902 1788 

Greece 114 134 72 85 

Israel 64 128 57 50 

Italy 2731 3393 1401 1098 

Spain 139 330 138 238 

USA 1679 1982 1535 1591 

Sweden 29 37 2 7 

Hungary 1013 900 266 354 

Other 

countries 

911 1293 902 932 

Emigrants by country of destination, 2005 - 2008 

Starting from this general configuration of 

the out-migration, we have tried to highlight 

these demographic indicators for highly 

skilled emigrants. 

The 2002 census indicated that 7,7% of the 

Romanian population possessed tertiary 

education. The structure of emigrants 

according to the level of their studies has 

seen significant fluctuations in the 1990 - 

2005 interval (Constantin D.-L. et al., 2008). 

Year 1990 1995 2000 2005 

Percentage 6,00 16,43 22,94 26,38 

Higher-educated emigrants, 1990-2005 

After 1990, tertiary studies graduates, 

assimilated to “brain drain”, represented 

10% to 12% of the overall emigrants, 

according to several estimates. 

Around the year 2000, the stock of 

Romanian emigrants in the main destination 

countries had the following composition by 

education: low levels (ISCED 0 to 2) – 34%; 

medium levels (ISCED 3 and 4) – 40% and 

high levels (ISCED 5 and 6) – 25%. (EIC, 

2009) 

From 1990 to 2000, 36,117 higher-educated 

people emigrated from Romania, of whom 

56.2% women (Zaman G. and Sandu S., 

2000).


Total Male Female 

36117 19,012 17,105 

Higher-educated emigrants by gender, 1990-2000 

A typology proposed by the above mentioned 

authors distinguishes between three 

categories of longer-term voluntary 

Romanian emigrants: emigrants searching 

better paid jobs abroad; higher-educated 

family members of early emigrants (family 

reunification) and post-graduate emigrants/ 

students trying to upgrade their professional 

and instruction level. 

As for the motivation for the decision to 

emigrate, voluntary emigrants usually 

search for a better paid job, giving up their 

basic education, skill and training and 

accepting lower level skills positions. 

The phenomenon has a legal aspect to which 

we should add clandestine emigration, which 

is very hard to evaluate. 

The distribution of higher-educated 

emigrants according to age and during the 

same period revealed the fact that the 26-40 

years age group was the most inclined to 

emigrate in order to set up a new life, having 

a strong potential to learn and work. 

Total 26-40 41-50 51-60 Over 

60 

Number 36,117 20,721 6,310 4,190 4,896 

Percent 100,0 57,4 17,5 11,6 13,6 

Higher-educated emigrants by age groups, 1990- 

2000 

In the period 1990-2000, the favorite 

destinations of Romanian higher-education 

emigrants were the EU countries, Canada, 

the United States of America and Australia. 

Country Number Percent 

Total 36,117 100,0 

Austria 2,253 6,2 

Canada 3,133 8,7 

France 1,778 9,9 

Israel 708 1,9 

Italy 2,481 6,9 

Germany 13,481 37,3 

USA 4,132 11,4 

Other countries 8,151 22,5 

Higher-educated emigrants by country of 

destination, 1990- 2000 

With regard to the distribution of emigrants 

in professional categories for the interval 

1990-2000, the high number of engineers, 

architects and economist was explained by 

the fact these categories of professions have 

a higher demand and are better paid in 

107 

developed countries (Zaman G. and Sandu 

S., 2000). 

Country Number Percent 

Engineers, architects 19,122 52,9% 

Medical doctors, 

pharmacists 

4,466 12,4% 

Economists 4,937 13,7% 

Other professions 7,592 21% 

Higher-educated emigrants by professions, 1990- 

2000 

Among the few professions that are included 

in statistical data, the most visible increase 

was noticed in the interval 1995 – 2004 for 

engineers and architects (from approx. 8-9% 

to 12-14%), professors and economists (3-5% 

at the end of the interval), technicians, 

medical doctors and pharmacists (3-4%) 

(CNPD, 2006). 

The most recent data issued by the National 

Institute of Statistics on temporary outmigration 

in 2008 indicates an overall figure 

of 8,739 emigrants, of whom 2,903 (33.2%) 

were higher-educated (Alexandrescu A.-M. et 

al., 2008). 

The amount of women emigrants is 

significantly higher for higher-educated 

emigrants (61.4%). 

Total Male Female 

8739 3069 5670 

Emigrants with tertiary education by gender, in 

2008 

Tertiary educated emigrants structure by 

age group indicate a higher number in the 

category between 30 and 49 years. 

Age 

Total Tertiary education 

group 

Number Percent 

20-24 

years 

682 58 8,5 

25-29 

years 

1329 471 35,4 

30-34 

years 

1840 914 49,7 

35-39 

years 

1394 618 44,3 

40-44 

years 

809 380 46,9 

45-49 

years 

430 189 43,9 

50-54 

years 

298 120 40,3 

55-59 

years 

189 63 33,3 

60 years 

and over 

296 90 30,4 

Emigrants with tertiary education by age groups, 

in 2008

Correlating the age and gender variable, we 

find out that emigrants with tertiary studies 

are best represented for the age group 30-34, 

and 35-39 respectively, for both genders. 

Age group Total Tertiary education 

Male Female 

20-24 

years 

58 17 41 

25-29 

years 

471 108 363 

30-34 

years 

914 332 582 

35-39 

years 

618 242 376 

40-44 years 380 165 215 

45-49 

years 

189 103 86 

50-54 

years 

120 67 53 

55-59 years 63 35 28 

60 years 

and over 

90 51 39 

Emigrants with tertiary education by age groups 

and gender, in 2008 


Highly qualified labor force involved in the 

legal out-migration includes mainly people 

aged between 25 and 40, with more 

competences in science and technology and 

less in education and health (Constantin D.- 

L. et al., 2004). 

The gender structure of emigrants with 

tertiary education reveals a higher number 

in women. 

The age structure of highly skilled migration 

stresses a stronger tendency to emigrate in 

people with the best capacity of work, who 

benefit from increased opportunities for 

professional success. 

There is a variety of approaches to 

understanding the reasons for high skilled 

migration or „brain drain”. 

Economic and growth theory focus on the 

importance of market relations defining 

supply and demand, considering this form of 

migration a choice of rational individuals 

seeking the most advantageous results for 

themselves and their families. In this 

approach, the propensity for migration is 

simply shaped by the potential for 

employment and the differential wage rates 

between countries. 

In fact, a range of complex professional, 

institutional, cultural, economic, political 

and geographic factors shape the migration 

decisions of highly skilled persons. These 

factors may act in a migrant’s country of 

origin (push factors) or in the country of 

108 

destination (pull factors). Personality, 

particular goals and personal history also 

account for individual differences in high 

skilled migration. 

A loss of skilled professionals and tertiary 

educated persons in particular represents an 

important barrier to development. 

But there is a series of factors which might 

offset the impact of brain drain, such as: 

education inducement effects, technology 

and knowledge transfer and remittances 

(estimated by the Romanian National Bank 

to 6.3 billion Euros in 2008). 

As for the factors that might lead to 

emigrants’ returning to their country of 

origin (returning migration), it is considered 

that these include: payment specific to 

Romania compared to that in the countries 

of destination, a relatively low cost of living 

in Romania compared to the countries the 

migrants return from, as well as the quality 

of public institutions and services in 

Romania (CPARSD, 2009). 

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and_non-EU Europe-Romania.pdf (accesed 

April 15, 2010)




THEORETICAL APPROACHES OF THE IMPLEMENTATION SYSTEM OF EUROPEAN COHESION 

Abstract 

This paper is considered to be at the intersection 

of several studying fields, emphasizing on the 

intersection between public policy cycle, new 

institutionalism theories and new public 

management. Structural funds can be considered 

the link between the practice of new governance 

theory, economical convergence and divergence 

theories, governing the commons and principalagent 

theory. What may seem to have in common 

all these theoretical perspectives is the 

governance concept considered from the point of 

view of a common pool resource, of an 

implementation system model of “check and 

balances”, of a macro-economical analysis of the 

governing process results, of a certain way of 

rethinking public management and evolution 

cycle of public policies. In front of this complexity 

of research I will draw up the guidance lines of 

the analysis, specifying the theoretical principles 

that govern the European cohesion policy taking 

into account the theoretical perspectives 

mentioned above, shaping the implementation 

system of structural funds. 

Key words: cohesion, structural funds, 

implementation system, new principal agent 

theory 


The field of European Cohesion 1 Policy 

1 Cohesion is a concept vague defined in the field’s literature, assuming 

different inequalities between living standards, venues, resources access, 

opportunities, etc. Economical/social convergence is a long term process 

which reflects the ability of a economical or social group to be in 

competition. In the European context, near this sense of the concept, we 

can talk about the disparate distribution of resources/benefices of 

European integration in order to reduce the economical/social disparities 

between European regions to create a competitive background. The 

instruments to create this environment are considered to be these 

structural funds and the models of their implementation systems. 

POLICY 

Alina BOUROSU; 

PHD candidate National School of Political Science; 

Bourosu_alina@yahoo.com 

110 

implementation has known various theoretical 

approaches, ranging from early ones concerned with 

the evolution of cohesion policies reforms right up to 

the contemporary analysis of what changes spurred in 

the public management theory or in the public 

policies` implementation systems. 

As the European Cohesion Policy consolidated its role, 

the structural funds implementation systems became 

more and more sophisticated and integrated and ever 

more decentralized. The idea of partnership and the 

involvement of the private and non-governmental 

sector were the key elements in the evolution of 

implementing the structural funds. Using 

mathematical models, the descriptive elements of the 

structural funds implementation systems were 

intersected with the economic approach on funds 

allocation efficiency and the use of the allocated 

funds, in an attempt to prove the probability for 

convergence/ divergence of the financial interventions. 

Defined as “the most influential approach in studying 

the role that regions and the European Cohesion 

Policy play in the EU” 2 , the multilevel governance 3 is 

described as a continuous negotiation system 

involving the local, regional, national and 

supranational governing bodies, being considered the 

main core of this policy. Another approach on 

governance is linked to the diffusion of the decisional 

layer to the informal level, respectively to the level of 

actors` networks. Moreover, the decision making 

process is seen as being interconnected with all the 

levels of the system, with the sub-national actors 

acting both at national and supranational level. 

2 

Rumford, Cris,“The European Union. A Political Sociology”, Blackwell 

Publishing, 2002, pg. 154. 

3 

Concept set forward by Gary Marks “in order to show how the EU is shifting 

to a decision making system in which the power is split between multiple 

levels of governance: sub-national, national and supranational”. Multiple 

actors with authority collaborate in a framework where the power is 

dissipated. Hooghe, Liesbet şi Marks, Gary, “Unraveling the Central State, but 

How? Types of Multi-Level Governance”, The American Political Science 

Review, Vol. 97, Nr. 2, Mai, 2003.

One of the criticisms 4 on this approach of the 

European Cohesion Policy’s implementation 

system talks about the fact that the multilevel 

governance model fails to explain why national 

actors lose their influence in the decision making 

process. Jens Blom-Hansen finds that in this 

particular perspective, there is an unexplained 

assumption that the governance networks 

involved in system control somehow the European 

Cohesion Policy. To put it in other words, if 

national or sub-national actors which implement 

the European Cohesion Policy can also influence 

the content of the European Cohesion Policy, one 

might say that the policy control mechanisms are 

weak at the European level. The European 

Cohesion Policy is a hardly manageable colossus 

and there is a need for the intersection and 

synchronization of actions across all levels. 

2. European Cohesion Policy –Institutional 

Management System’s Reform 

Where the social and economical system fails in 

bringing the attended results, a series of 

interventions as public policies are needed to 

enrich the system efficiency and to create the 

minimal conditions for the system functioning. To 

ensure a macro-economical stability of common 

market, to create the Economical and Monetary 

Union a cohesion policy was created, having as 

key elements the efficiency of financial 

distribution from the developed countries to those 

less developed, ensuring the functioning stability 

for the common market and promoting a 

harmonious development of the European Union. 

European Cohesion Policy is a mix of financial 

instruments used for certain policy objectives and 

rules to oblige social and economical actors to 

have certain actions relevant for the policy’s 

objective 5 . 

The evolution and consolidation process of this 

policy is related the process of European 

integration of new member states, the first 

creating the premises of the second process, 

especial taking into consideration the territorial 

dimension of the European integration. The 

consolidation process is related to multiplication 

of financial instruments, to augmenting their 

value, to defining and developing the 

implementation system in corroboration with the 

4 Blom-Hansen, Jens “Principals, agents, and the implementation of EU 

cohesion policy”, Journal of European Public Policy 12:4, 2005. 

5 Molle, W., “European Cohesion Policy”, Routledge, 2007 

111 

simplification and concentration of the proposed 

objectives. 

The core principle of the evolution of European 

Cohesion policy’s implementation system is related to 

“sub-national actors being sometimes as important as 

central governments of member-states in the 

elaboration and implementation process of European 

public policies. 6 ” Taking all that into account, the 

following reforms of European Cohesion Policy shaped 

the system not only by new geographical criteria but 

also by functional criteria related to structural fund 

management, applying principles as decentralization 

and subsidiarity at the level of management 

structures and financial instruments. 

Besides the principle related to the funds` 

concentration in different priority objectives, David 

Allen identifies another four elements which act as 

milestones for the implementation system of 

European Cohesion Policy: 

1) Programming in a multi-annual and multiregional 

perspective of interventions, in order 

to guarantee stability and impact of 

programmes. 

2) Additionality that gives the opportunity for 

each beneficiary (member-state) to add its 

national co-financing from the national 

budget. 

3) Partnership at national, regional and local 

level in order to implement these multiannual 

programmes. This principle was 

extended with the 1988 reform by including 

social partners in different stages of the 

implementing process of operational 

programmes. Partnership principle 

encourages cooperation mechanisms between 

social actors in implementing public policies. 

In this way, the accent can be on decision 

making transparency, on the justification and 

legitimacy of governmental interventions. 

4) Subsidiarity 7 -the problems are solved at the 

sub-system level that these problems appear. 

The intervention should be made when it is 

necessary; the sub-systems are being 

encouraged to deal with their own problems 

without appeal to the superior level. 

All these elements have been consolidated during the 

reforms of European Cohesion Policy’s 

6 Sutcliffe, John B. “The 1999 Reform of the Structural Fund Regulations: 

Multi-level Governance or Renationalization?”, Journal of European Public 

Policy, Vol. 7, 2000, pg. 292. 

7 Allen, D. (2000) Cohesion and Structural Funds: Transfers and Trade-offs, in 

Wallace, H. &Wallace, W. (eds.) “Elaborarea Politicilor în Uniunea 

Europeană”, IER 2005

implementation system, observing an evolution 

from a „policy based on national strategies to 

European strategic policy” 8 . Gian Paolo Manzella 

and Carlos Mendez talk about a step by step 

evolution from financial supporting assistance on 

different projects to multi-annual financial 

programming and integrated programmes, 

evolution that took place since 1988. Also we have 

to mention that the programming responsibility of 

the last two implementing periods was 

established at the member-states level. The 

simplification of the management system is also 

related to the integration of communitarian 

initiatives in the programming period 2007-2013 

and to the elimination of innovative actions 

instruments. 

Analysing these successive reforms, the 

implementation systems of structural funds 

became more and more sophisticated and 

integrated and the partnership concept became 

the most important element that marked the 

evolution of the system. As it is shown in the 

paper “Turning strategies into projects: The 

implementation of 2007-2013 structural funds 

programmes” 9 , regarding the last programming 

period of implementation systems we can talk 

about an evolution of Monitoring Committees` 

responsibilities through “control and project 

evaluation integrated systems”, about a higher 

trend participation of economical and social 

partners in programme’s implementation, about 

an horizontal and vertical consolidation of 

partnership principle. The last two elements are 

related especially to Lisbon Agenda, which 

promotes an active implication of partners, not 

only on advisory bodies but also in 

implementation process itself. 

In the article “Reforming the implementation of 

European Structural Funds - A next development 

step”, authors develop models for the successive 

reforms of implementation systems of structural 

funds, taking into a consideration the evolution 

through a model of administrative 

decentralization and strategic management. The 

models are being classified according ro the 

following dimensions: programming and 

management, implementation structure, regional 

inclusion, improvement and evolution of 

8 Manzella, G.P.; Mendez, C., “The turning points of EU Cohesion 

policy”, Report Working Paper, January. 2009, 

http://ec.europa.eu/regional_policy/policy/future/pdf/8_manzella_finalformatted.pdf 

9 Ferry, M.; Gross, F.; Bachtler, J.; McMaster, I., “Turning strategies 

into projects: The implementation of 2007-2013 structural funds 

programmes”, European Policies Research Center, 2007www.eprc.strath. 

ac.uk 

112 

implementation mechanisms. Reforms have been 

balancing between these models. New challenges of 

public management in the field are being related to 

the strategic partnership development, to new 

investment instruments in human resources, to 

simplify the system and to ensure clear delegated 

tasks for intermediate bodies in the decentralization 

process, efficient monitoring and evaluation schemes. 

As Hooghe and Keaning` perspective in applying 

structural funds is necessary the mobilizing subnational 

actors and well as private actors for the scope 

of „improving governing capacity on the entire 

system”. 10 

Tabel 1: Models of the evolution of structural 

funds implementation systems (Jochen Lang) 

Impleme 

ntation 

model 

Managem 

ent and 

program 

ming 

model 

Impleme 

ntation 

structure 

Social 

inclusion 

Bureaucr 

atic 

model of 

control 

Announced 

detailed 

objectives; 

Mix 

implement 

ation 

process; 

Insignifica 

nt regional 

participati 

on; 

Administra 

tive 

decentraliz 

ation 

Announced 

detailed 

objectives 

and 

indicators; 

Administrati 

ve 

decentralizat 

ion of 

decision 

making but 

maintenance 

of central 

approval; 

Accent is on 

the 

information 

and 

participation 

process of 

societal 

actors (subregional 

and 

social 

Strategic 

managem 

ent and 

decentral 

ization 

Agreement 

on 

quantifyin 

g the main 

objectives 

and 

indicators; 

Programm 

ing 

decentraliz 

ation and 

implement 

ation – the 

coaching 

and 

stimulatin 

g role of 

the 

European 

Commissio 

n; 

Improvem 

ent and 

expansion 

of the 

regional 

dimension 

(local 

institution 

s, societal 

actors); 

10 Hooghe, L, Keaning, M, “The politics of European Union Regional 

Policy”, Journal of European Public Policy,1994, apud Wallace, H., Wallace, 

W., Pollack, M., “Elaborarea Politicilor în Uniunea Europeană”, IER 2005

Improvin 

g and 

evolution 

of 

implemen 

tation 

mechanis 

ms 

Lack of 

coordinatio 

n of 

evaluation, 

monitoring 

and 

financial 

control 

measures; 

partners) 

Systematic 

monitoring, 

evaluation, 

control and 

financial 

measures; 

Continuu 

m decision 

making 

process is 

oriented 

through 

system 

monitoring 

and 

evaluation 

including 

transnational 

strategic 

evaluation 

and 

through 

financial 

control; 

Lang J.; Naschold, F.; Reissert, B. “Reforming the 

implementation of European Structural Funds A next 

development step” Wissenschaftszentrum Berlin für 

Sozialforschung gGmbH (WZB) Reichpietschufer 50, 

10785 Berlin 

Institutional reform of structural funds 

implementation system has been accompanied by 

a functional reform of evaluation and monitoring 

process of the system. The reform was 

unstructured at the beginning and progressively 

at European level there was established different 

(relevance – needs associated with the 

programme/project priorities, efficiency - obtained 

results associated with costs for reaching those 

results, efficacy - fulfilling the objectives of 

operational programmes, utility – response to 

economical and social need and the improving the 

life quality by those financial interventions, and 

sustainability – the possibility to sustain those 

interventions after exhausting the financial aid 11 ). 

3. General elements of European Cohesion 

Policy management system for 2007 - 

2013 12 

“There is no successful policy with one-size-fits-all 

solutions. Cohesion Policy promotes flexibility 

11 “Guidelines for the ex post evaluation of objective 5 B programmes 

1994-1999 programming period”, European Commision, 

http://ec.europa.eu/agriculture/eval/ben.pdf 

12 Bourosu, Alina, section from the article “Fondurile Structurale. 

Probleme, soluţii şi perspective pentru România.” in volumul “ 

Evaluare de programme şi politici publice”, cood. Mirela Cerkez, 

Polirom, Collegium, 2009 

113 

that allows each region and city to design and 

implement its own strategy” 13 . 

Implementation practice of European Cohesion Policy 

proves the interaction between three levels: regional, 

national, and European authorities. European 

Commission proposes a budget and a series of rules 

for a programming period of 7 years on which the 

Council and European Parliament are supposed to 

give an opinion and to adopt this budget. After this 

procedure, the budget of European Cohesion Policy is 

spitted between member-states after member-states 

negotiations and consultations on eligible regions, on 

distribution criteria, on objectives, etc. As I already 

mentioned, the implementation system of structural 

funds is based on a series of compulsory rules imposed 

by the EU regulations and informative documents, 

following the entire cycle of a programme’s 

implementation, starting from the programming 

phase, including identifying problems, finding 

solutions, financing agreements, implementation, 

monitoring, evaluation and control procedures. 

The main elements in implementing this policy are: 

� Legislative background at European level 

(e.g. Regulation for putting into practice the 

European Regional Development Fund 

(ERDF) or European Social Fund (ESF), at 

national level (normative background to 

implement structural funds in a certain 

member-state); 

� Institutional background at European and 

national and regional level; 

� Financial instruments and Cohesion Fund; 

� National strategies for identifying the main 

priorities regarding structural funds 

concentration; 

� Operational programmes which are the 

means used for funds allocation at the 

national level; 

� Evaluation and control mechanisms 

(Monitoring Committees - MC Audit 

Authorities - AA, Certifying and Paying 

Authority - CPA, European Commission - 

EC). 

This general framework of implementing the 

European Cohesion Policy is interweaving with a 

series of principles and rules to ensure structural fund 

management’s transparency and efficiency. Besides 

regulations and financial instruments established at 

13 Opening statement of Commissioner Danuta Hubner at conference “Success 

Story of the EU Cohesion Policy and problems in practice”, may 2007 –aped. 

Ferry, M.; Gross, F., Bachtler, J. , McMaster, I., “Turning strategies into 

projects: The implementation of 2007-2013 structural funds programmes”, 

European Policies Research Center, 2007, www.eprc.strath. ac.uk

European level, the rest of the implementation 

system follows each member-state’s institutional 

and legislative specificity. Taking all this into 

consideration, it might result a lot of differences 

in the structural funds implementation system, 

especially at national and regional levels, 

differences that are the result of civic and political 

culture of each country. Even though all memberstates 

use the same legislative background, there 

are differences regarding the level of 

decentralization of the system. For instance in 

Hungary, we can talk about one operational 

programme for each development region financed 

by ERDF and coordinated at the governmental 

level, while in Romania there is only one 

operational programme implemented from the 

national level with some decentralized tasks 

delegated to intermediate bodies (IB). Even 

though there are these delegated activities to IBs, 

the level of decentralization is not the same as in 

Hungary. This element is also reflected in the 

competences` distribution in programme 

management at the local, regional, national level, 

in political interests, in the number and purposes 

of the operational programmes, in the existing 

administrative structures and their organization - 

partnership structures, governmental agencies. 

One of the main characteristics in the European 

Cohesion Policy’s implementation system is relate 

to the actions` stratification in the decision 

making process. In this way, we can talk about 

the three levels mentioned above (European, 

national and sub-national or regional level) which 

are intersecting by the partnership principle, 

lobby and advocacy actions. There is a certain 

complexity of the system given by these 

communicative levels but at the same time we can 

also identify some flexibility by the equilibration 

of private - public relation in the attempt to 

involve actors in the implementation process. 

Another dimension that we can discuss regarding 

structural funds implementation system at 

member- states level is the dynamics of social 

problems that these funds should be the solution. 

Each country builds its own development strategy 

taking into account its lean sectors, its resources 

and it’s potential in a certain domains. In 

different countries, actions are concentrated to the 

development of certain economic activities, taking 

into consideration the socio-economical and zone 

realities. Besides this, institution building process 

has its own voice in personalizing the structural 

funds implementation system in a country. All 

these elements are detailed in the next figure: 

Fig. 1 - Implementation system of 

structural funds 14 

European 

implementation 

model 

Actors 

� European 

Commission 

� National 

Context 

(National, regional, 

socio-economical, 

political, cultural, 

judiciary context) 

Principles and 

phases 

� Programming 

� Management 

Governments 

procedures 

� Regional 

� Monitoring and 

governments 

control system 

� Monitoring 

� Selection process 

Committees 

� Managing 

Authorities 

� Certifying and 

Paying Authorities 

� Intermediate 

Bodies 

� Beneficiaries 

� Social partners 

� External experts 

Decentralization, 

centralisation 

Adaptation of the 

model at national level 

to its context 

� Financial 

procedures 

� Coordination 

� Information and 

publicity 

� Partnership role 

114 

Foreword, I will emphasize the differences between 

the European and national level of the European 

Cohesion Policy`s implementation system: 

IMPLEMENTATION 

COHESION POLICY 

SYSTEM OF EUROPEAN 

Common elements at Specific element at national 

European level 

level 

Principles: 

� Partnership principle 

� Partnership 

� Regionalization, 

principle 

decentralizing, 

� Regionalization, 

centralization 

decentralizing � Programme and project 

� Subsidiarity 

co-financing 

� Additionality � Project management 

� Project management � Multi-annual 

� Multi-annual 

programming 

programming � Incentives for feasible 

� Transparency 

project creation 

� Efficiency 

selection 

in project 

� Transparency 

� Administrative capacity 

� Absorption capacity 

European Cohesion National economical and 

Policy 

social development policy 

� National priorities 

14 Figure adapted from “A Study of the Efficiency of the Implementation 

Methods for Structural Funds Final Report”, ÖIR in association with LRDP 

and IDOM, Viena, 2003.

Communitarian 

institutional framework 


(European 

Commission) 

� Implementing 

� Monitoring 

� Evaluation (at the 

level of European 

cohesion policy) 

� Control 

Legislative background 

– regulations 

Means: financial 

instruments –structural 

funds and cohesion fund 

Beneficiaries: member 

states/regions 

National institutional 

framework – with specific 

competences 


(Coordinator of the 

National Strategic 

� 

reference framework - 

NSRF) 

Implementing 

(Managing Authorities 

of the operational 

� 

programmes) 

Monitoring (Monitoring 

Committee of NSRF and 

monitoring committees 

of each operational 

� 

programme) 

Evaluation (Coordinator 

of the National Strategic 

reference framework – 

at NSRF level and 

Managing Authorities of 

operational programmes 

– at programme level) 

� Control 

Authority) 

(Audit 

Legislative background– 

regulation and specific 

national legislation 

Means: Operational 

programmes within the 

funds are being accessed 

� Number of programmes 

� Applicable domains and 

key areas of 

interventions 

� Types of projects 

(integrated or not) 

Beneficiaries: different 

types of beneficiaries 

(small and medium 

enterprises, county 

council, municipalities, 

non-governmental 

organizations) 

4. Analysis on theoretical perspectives on 

structural funds implementation system 

After the period when public administration was 

based on the Weber’s model of hierarchical 

bureaucracy, new perspectives of public 

management raised with the diversification of 

actors and their interaction in the public sphere 

and with their contribution within partnership 

and coalitions to fulfil administrative tasks at 

societal level. On this evolution the management 

system of structural funds was built up, having at 

background different theoretical perspectives: 

115 

1) New governance theory 15 , which brings a new 

vision on principles used in public management, 

and especially emphasizing the accountability 

of citizens and their implication in 

partnerships and networks in managing 

structural funds. 

2) Principal agent theory and the relation between 

actors in structural funds implementation 

system have been considered a critique to new 

governance 16 , bringing into the light the control 

mechanisms and the contractual realtions 

beetween actors, especially when an agent acts 

in a contractual relation as a representative of a 

principal. Aslo, the critics is related to the fact 

that national actors seem to loose their power in 

the decision making process, not existing a so 

called “centre of accumulated authority” 17 . 

3) The descriptive elements generated by the 

above mentioned theories have been crossed 

with economical approaches on fund efficiency 

allocation and spending, more concrete with 

the attempt to prove the convergence and 

divergence 18 probability of structural funds 

interventions, by using mathematical models. 

The two concepts try to prove the existence of 

a positive or negative correlation between 

these interventions and reducing socio - 

economical disparities. In particular, the 

theories that take into account the differences 

15 „Governance” has not the same sense „government”, the first term 

referring to a new method, a new process of governing the society. Problems 

which appear in clarifying the concept mentioned above are related to 

specifying the method used to govern a society. Among the different senses of 

the concept we can identify: „governance”–„good governance” –applying 

new public management principles; „governance”–„socio-cybernetic 

system”– interaction’s effects of governmental, political, social economical 

actors, interaction in which non of the mentioned types of actors is in a 

position of information monopole of solving problems; „governance”–- „self 

organising networks”- networks in which individuals and public, private and 

non-governmental organizations interact for offering public services, the 

accent being on their autonomy as alternative mechanism in providing public 

services Rhodes, W. „The New Governance: Governing without 

Government”, Political Studies, XLIV, pg. 652-667, 1996. 

16 Blom-Hansen, Jens “Principals, agents, and the implementation of EU 

cohesion policy”, Journal of European Public Policy 12:4, 2005. 

17 Hooghe, L. ‘Introduction: Reconciling EU-wide policy and national 

diversity’, aped. Blom-Hansen, Jens “Principals, agents, and the 

implementation of EU cohesion policy”, Journal of European Public Policy 

12:4, 2005 

18 Regional development knew two opposite economical perspectives 

regarding the economical space of regional disparities evolution Convergence 

theory of venues has its roots in neoclassical economical approaches of 

equilibrium, considering that there are no major obstacols in functioning the 

market and that these forces on the long run will bring a general convergence 

of regional venues. – G. Borts, J. Stein, J. W.; Chatterji M.; Barro R.; Sala-i 

Martin, X; Boldrin M; Canova, F.; Marcet, de la Fuente, A; Galor, O. 

Beugelsdijk M.; Eijffinger, Ezcurra R.; Rapu N; Lopez-Rodriguez J. Şi Faiña. 

The second approach proves that there are no sufficient reasons to believe that 

economic growth and venues will lead to convergence on long term, and 

regional disparities are more likely to occur. Economical growth models 

developed by Perroux, F.; Myrdal, G. ; Kaldor, N; Miderlfart K; Overman 

estimate that regional venues will tent to be divergent because market forces 

are being in spatial lack of balance.

in technological development 19 estimate 

those venue disparities will vanish in a 

certain period of time, while economical 

geography literature 20 argues the 

emergence of an opposite phenomenon by 

deepening the divergence between 

analyzed counties. 

Taking into consideration all the above mentioned 

the supporters of European Cohesion Policy are 

centred upon benefices brought by the 

implementation policy’s model, especially on the 

multi –annual programming which encourages a 

strategic vision, on monitoring, control and 

evaluation conditions, which influence the 

thinking and acting manner of public 

administration in new member-states, on 

partnership principle’s role in the design and 

implementation phases of administrative 

decentralization policy. From a financial point of 

view it is being arguing that European Cohesion 

Policy puts together all the efforts and national 

strategies into an European perspective of 

spreading European governance’s model. 

Critics of this European policy are questioning the 

fulfilment of its objectives, emphasizing costs, 

bureaucratic means, incapacity of quantifying the 

policy’s scope, not having a clear mission focusing 

on economical growth, being a “catch all policies” 

21 . 

I will analyze the implementation system of 

European cohesion policy from the perspective of 

new governance theories and principal - agent 

theory, emphasizing the deficiencies appeared in 

the management of this sector form functional 

point of view. 

4.1. Netwoking governance 

19 This perspective suggests that if a region uses its structural funds 

allocations for promoting technological progress or for exploiting the 

existing technological potential then the regional productivity will come 

closer to the one of the more developed regions. Ederveen S.; Gorter, J; 

Ruud de Mooij; Nahuis, R. “Funds and Games. The Economics of 

European Cohesion Policy”, CPB Netherlands’ Bureau for Economic 

Policy Analysis, 2002, 

http://www.cpb.nl/eng/pub/cpbreeksen/bijzonder/41/bijz41.pdf 

20 This approach considers that if a company is located in a certain place, 

this will make that area more attractive for other companies to be located 

in. In this way, there are centrifugal forces in the developed regions and 

for the undeveloped areas it will be difficult to recover the gap related to 

crowded areas and to reverse the dynamics of this agglomeration. idem 

21 Tarschys D., “Reinventing cohesion: the future of European Structural 

Policy”, SIEPS, Stockholm, 2003 

116 

“A remarkable transformation has taken place in 

recent years. The individualistic market-based 

solutions to the problems of government, so loudly 

trumpeted in the two decades to the mid 1990s, are 

quietly being replaced by more collaborative models 

and practices of social organisation. The result has 

been the rapid growth of 'partnerships' involving a 

wide variety of actors in undertaking an extensive 

range of programmes across the public policy 

agenda 22 . As George Fredrickson affirmed „public 

administration is steadly moving toward theories of 

cooperation, networking, governance and institution 

building anad maintenance”. 23 

The phase of entreprenorial government in modern 

public administration centred on providing public 

services in colaboration with all sectors – public, 

private and non-governamental, on using market 

mechanisms, on saving public budget, on preventing 

problems, on efficiency princile and management 

descentralization 24 have been considered the key 

elements in applying new governmance theory. J. 

Ewalt makes an analysis of public management`s 

evolution starting form bureaucratic model of public 

administration untill new governance theory, 

emphasizing the following: 

a. The austerity of normative framework is 

being replaced with the ideas of pramatism, 

flexibility; 

b. Ierarchy is being replased by the 

descentralization process; 

c. Results are not the only one to be 

considered, the admninistrative process is 

also being taken into consideration; 

d. Financing is related to administrative 

performance; 

e. Institutions and actors from the nongovernamental 

area are being involved in 

the administrative process; 

f. Autonomous partnership and networks are 

included in the implementation phase of the 

process and their action capacity is 

independent from the governmental 

authority; 

g. Evolution through an adapting process, 

learning by doing; 25 

22 Skelcher, Chris, “Changing images of the State: overloaded, hollowed-out, 

congested”, Public Policy and Administration. 

http://ppa.sagepub.com/cgi/content/abstract/15/3/3 

23 Fredrickson, G., “The reposition of American Public Administration”, 

Political Science and Politics, Vol. 32, nr. 4, 1999 

24 Osborne, D; Gaebler, T., “Reinventing Government: How the 

Entrepreneurial Spirit is Transforming the Public Sector”, Perseus Publishing, 

1992. 

25 Ewalt. J.A, „Theories of Governance and new public Management: Links to 

Understand Welfare Policy Implementation”, Annual conference of the

h. Market mechanisms are being prefered 

over bureaucratic ones in public 

management. 

On consider that the competitive system of the 

market can not cope with all the problems of a 

society/community and this is why, there has been 

adopted the idea of collective solutions produced 

by networks in which the state doesn’t have the 

central role anymore. Partnerships promote 

cooperation, reciprocity and are legitimate to be 

involved in governing the society. Networks have 

the necessary expertise in certain areas, 

intervening in the democratic process, 

constituting the middle level between state and 

citizens. Under this paradigm the evolution of 

European cohesion policy reforms took place. 

„The most influencial current approach to 

studying the role of region and cohesion 

policy in the EU is multi-level governance” 26 

Studies on European Union have as variable the 

multi-level governance, initially described as a 

continuous negotiation system, within specificity 

of European Cohesion Policy, between local, 

regional, national governments,. Also, another 

approach was related to the diffusion of decisional 

level at informal level and at the networks level. 

The optimal authority allocation within the 

multitude of actors and the way that these actors 

interact was the research elements on governance 

at European level. Multi-level governance 

theoreticians 27 affirmed that European 

integration deals with numerous negotiations at 

intergovernmental level, but the governments are 

not remaining the gatekeepers of controlling this 

process, there also were other actors involved in 

the process. This theory is less about market 

principles, rational choice and competition, is near 

to institutionalism and natural/voluntary forms of 

cooperation. New governance theory identifies the 

debates as the most legitimate and efficient 

mechanisms in decision making process in 

complex organizational structures. Legislative 

only establishes the directory lines of public 

policies, cooperating with other actors involved in 

determining the best means for fulfilling the 

objectives of the policy. 28 

American Society for Public Administration, Easten Kentucky 

University, Newark, NJ, 2001. 

26 

Rumford, C.,“The European Union. A Political Sociology”, Blackwell 

Publishing, pg. 154, 2002 

27 

Marks, G; Hooghe, L şi Blank 

28 

Ford, Cristie L.,"New Governance, Compliance, and Principles-Based 

Securities Regulation", American Business Law Journal, 2007. 

117 

Multi-level governance is also applied in the 

European Cohesion Policy’s negotiations on the three 

different levels – European, national and subnational 

29 . “ 1 “In one view, the 1988 reform was 

integral to the development of a system of multi-level 

governance in the policy sector, whereby sub-national 

actors would become increasingly important alongside 

European actors, such as the Commission, and the 

central governments of the member states” 30 , 

promoting partnership and cooperation between those 

actors. 

Negotiations for financial allocations, for institutional 

framework of operational programmes` 

implementation and for structural programming for 

establishing the main priorities are important phases 

of European Cohesion Policy, where new governance 

principles are being applied. Especially on this last 

mentioned phase, member-states` governments 

appeal to a partnership system in order to fulfil the 

programming needed to manage allocated funds. The 

vertical dimension (territorial dimension) and 

horizontal dimension of European networks are part 

of the management system, but the size and 

magnitude of these networks depends on the specific 

“political culture” 31 of each member- state. In some 

countries the participatory level of actors in the 

decision making process is higher than in other 

countries, and this leads to different degrees of 

societal actors` involvement in all the phases of the 

structural funds management and control system. For 

example, we can take as criterion the partnerships` 

involvement in the entire process of operational 

programmes` implementation, or only in some 

phases 32 . 

There are some advantages and disadvantages related 

to the use of this theory. As G. Fredrikson affirmed „it 

is in governance theory that public administration 

wrestles with problems of representation, political 

control of bureaucracy, and the democratic legitimacy 

of institution and networks in this time of a 

fragmentated state” 33 . The key element is residing 

into the actors and the relations between these actors. 

The system’s description is reduced to the 

29 Sutcliffe, B John., “The 1999 Reform of the Structural Fund Regulations: 

Multi-level Governance or Renationalization?”, Journal of European Public 

Policy, pg. 292, 2000. 

30 Marks, G apud.. Sutcliffe, John B, “The 1999 Reform of the Structural Fund 

Regulations: Multi-level Governance or Renationalization?”, Journal of 

European Public Policy, pg. 292, 2000. 

31 „Political culture” is referring to attitudes towards political system, a set of 

orientations towards a special set of objects and social processes. Almond, G. 

şi Verba, S., “Cultura civică”, Bucureşti, DU Style CEU Press. 1996. 

32 Bouroşu, Alina, “Fondurile Structurale. Probleme, soluţii şi perspective 

pentru România” în volumul “Evaluare de programe şi politici publice”, 

cood. Mirela Cerkez, Polirom, Collegium, 2009 

33 Fredrickson, G. “The reposition of American Public Administration”. 

Political Science and Politics.Vol. 32. No 4, 1999.

nongovernmental action zone, to the actors` 

actions and competences areas, without 

emphasizing additional mechanisms used to 

influence the management system. Taking into 

consideration the principles mentioned above and 

the democratic theories, the management system 

of the European Cohesion Policy is being placed at 

a superior level of citizens’ responsibility, being 

aware of problems in implementing public 

policies. 

In the article “Toward a Political Framework for 

Flexible Management of Decline”, there are 

described the advantages of this approach in 

public management, emphasising the flexibility of 

the system, the risks that actors assume in the 

process of a public policy creation, being a 

participatory process with flexible structures in 

which consensus and proactive attitude are the 

main principles 34 . Among the advantages, the 

authors also talk about avoiding rigid reactions 

and the openness through all opportunities and 

solutions, about the acceptance of a „shared 

governance” process, the consensus building and 

negotiation in solving conflicts. All these elements 

legitimate the decision making process and create 

a more transparent environment involving all the 

concerned actors in solving a social problem. 

All these principles vary in a comparative 

approach of structural funds implementation 

system; differences are being evident on the 

vertical axe – between the communitarian and 

national level and on the horizontal axe – between 

member-states. As an example, the public 

communication function and the way that it has to 

be fulfilled is established at the communitarian 

level, within regulations, and in this way it should 

be uniform to all member-states. But public 

information differs from one state to another and 

also its communicational context, depending on 

the public transparency legislation in public 

administration of these states. The involvement at 

national level of social actors, of interest groups in 

the structural funds implementation system 

depends on system building capacity, on the 

specific civic culture, on a historical approach of 

interest groups involvement in shaping and 

implementing public policies. 

Analysing the communication function, the 

involvement level of interest groups in the 

management system and framing the analysis 

34 Rosenblatt, Z.; Rogers, S. K.; Nord, R. W.., “Toward a Political 

Framework for Flexible Management of Decline”, Organization Science, 

Vol. 4, No. 1, Focused Issue: Organizational Decline and Adaptation: 

Theoretical Controversies, (Feb., 1993), pg. 76-91. 

118 

into the communication models 35 may lead to us to a 

conclusion related to the level of governance in the 

structural funds implementation system. It can be 

associated, for instance, in a matrix the actors` 

involvement in all phases of the implementation 

system and bidirectional and symmetrical model of 

communication 36 . 

The implementation of European Cohesion Policy 

using networks perspective has also its difficulties. 

Within networks there are independent actors with 

different strategies, sometimes in conflict. Public 

policies are not considered as ante-formulated 

objectives, but as interactions and exchange of 

information between actors, being a building process 

of preferences, objectives and resources. Governance 

is concentred on conscious and deliberative actions of 

public actors (individuals, coalitions, organizations, 

etc) to influence social process 37 . According to the 

theoretical approach mentioned above the European 

Cohesion Policy is a result of the interaction between 

these actors, being implemented in inter-depended 

networks. 

Another disadvantage is related to .underrepresentation 

of key actors in public-private 

partnership, which can be explained by the 

impossibility to cope all the citizens in decisional 

process and in implementing public policies. Also, we 

can add the resistance of some actors to reform; there 

are certain social groups that, due to the advantages 

that benefit at certain moment, would be against of all 

change of the system that could lead to loosing their 

initial status. Beside this, the inadaptability of public 

administration to deal with diversity, to experiment, 

to promote flexibility can also be considered a 

disadvantage in applying the new governance theory 

in public policy. This inadaptability is due to the 

rigidity of the weberian bureaucratic model of public 

administration. 

Walter J.M.Kickert, Erik-Hans Klijn and Joop F.M. 

Koppenjan talk about the following disadvantages in 

35 There are 4 models of communication identified by taking into account the 

phases in the public relations` evolution. These models are: agent popularity, 

public information, the bidirectional and asymmetric communication and 

bidirectional and symmetrical communication. Details in Grunig, J., 

“Excellence and Public Relations and Communication Management”, 

Lawrennce Erlbaum Associates Inc.,1992. 

36 Main characteristic of the model are: the accent is on the communication 

target groups` feedback, the organization using this feedback to reach its 

objectives and to identify the targeted public needs; the interested parties 

involved in the communicational process have the same importance, the 

mediation between the organization and its publics takes into account an 

equity in interest representation of the involved actors in an equilibrate 

relation. Grunig, J., “Excellence and Public Relations and Communication 

Management”, Lawrennce Erlbaum Associates Inc., 1992. 

37 idem

public policy’s implementation by using 

networking interaction: 

a. the absence of incentives in the 

cooperation process between actors; the 

blocking actions in collective decisions; 

b. The policy’s objectives can be imprecise 

and vague and can vary from one group to 

another, which will lead to passionate 

disputes and the impossibility to reach a 

consensus; 

c. Actors that act in the implementing field 

of a public policy can be absent from its 

elaboration, while the presence of other 

actors can discourage the interaction of 

others. 

d. The level of expertise in a certain field can 

be different among actors that participate 

at the elaboration of a public policy and 

some decisions can be taken in 

ignorance. 38 

4.2. Principal, agents and management 

system of structural funds 

The approach of Jens Blom-Hansen in analysing 

the structural funds implementation system is 

related to principal-agent theory. This approach 

brings in the centre of analysis the control 

mechanisms of the implementation system, more 

concrete, the contractual relation between an 

agent and a principal. This theory has been 

initially developed in the private sector, analysing 

the relation between private actors (owners, 

managers), afterwards it has been applied to 

bureaucratic model of public institutions, 

exemplifying corrupt relations. The model implies 

the existence of three actors: principal - P, agent - 

A and client - C: 

1. P creates the rules for A using a 

contractual agreement with the purpose of 

regulating different exchange actions 

(licences, contracts, services) with C. In 

the context of these relations it may 

appear some incompatibilities, conflicts of 

interest between P and A, taking into 

consideration that each actor tries to 

maximize its own utility and advantages, 

acting rationally. P tries to maximise its 

own advantages by hiring or delegating 

some tasks to A, and this last one, 

disposing of an informational advantage is 

38 Kickert, J.M.W; Klijn, E-H; Koppenjan F.M. J.,(eds.), „Managing 

Complex Networks- Strategies for the Public Sector” Sage Publications, 

London, 1997 – review of Cristina Ion 

.www.iccv.ro/romana/revista/rcalvit/pdf/cv1999.3-4.r02.pdf 

in the position in which can hide a part of 

information from P. Loosing the loyalist 

relation between A and P can be identified 

also in A breaking the rules in favour of C. 

2. The model was developed by including 

another variable – audit/supervisor – S, with 

the role of monitoring A`s actions. S is usually 

hired to monitor and to report the quality and 

the corectness of A`s actions. Also, in this case 

there can be corruption, as false reporting of S 

or A to P 39 

Fig. 2. Exemplifying contractual and monitoring 

relations in principal –agent theory 40 

Contractual 

agreement/contractual 

benefices/ payment 

119 

P 

Correct reporting/ 

false reporting 

Negotiate 

the 

contract/ 

fails 

respecting 

the contract 

Contractual 

agreement/contractual 

benefices/ payment 

Monitoring 

These elements are A being found in the 

implementation system of structural funds, being a 

system with multiple contractual and control levels. 

1. The relations scheme mentioned above are 

being multiplied on different levels of the 

European Cohesion Policy implementation 

system, at communitarian, national, regional 

and individual level, the last level is referring 

to beneficiaries. In this context, some actors 

can take the place of P in a superior level and 

the place of A at an inferior level or P in a 

level and S in another level. This repeated 

intersection of roles between actors and levels 

ensures stability to the system and contouring 

39 Lambsdorff, J.G., “How Corruption in Government Affects Public 

Welfare”. Center for Globalization and Europeanization of the Economy, 

2001. 

40 Figure from Lambsdorff, J.G., “How Corruption in Government Affects 

Public Welfare”. Center for Globalization and Europeanization of the 

Economy, 2001 

S 

Corrupti 

on acts

the monitoring complex scheme of the 

entire construction, creating circular 

relations. 

2. At European level 41 P is represented by 

the European Union, especially by the 

European Commission, A is represented 

by the member-states and S by the 

European Court of Auditors or other 

institutions with counterbalancing role. 

The main characteristics of this level is 

given by the number of P, respectively the 

number of member-states that negotiate 

between them and with the European 

Commission (P) the values and the 

contractual benefices, respectively the 

national strategic frameworks for the 

operational programmes` management. 

The contracts are between P and A, 

representing the national strategic 

frameworks of each eligible member-state 

within the European Cohesion Policy. 

3. At national level, as almost a rule, P is 

represented by the ministry of finance or by 

the ministry responsible with the national 

strategic framework, A is represented by the 

resort ministries and S is the audit authority 

of the national system. The particularity of 

this level is also given by the number of A, 

number established according to the national 

development priorities of each eligible 

member state, by the number of the 

operational programmes. Contractual 

agreements between A and P are the 

operational programmes, negotiated between 

As under the surveillance of the management 

authority of national strategic framework. 

Also, at this stage we can emphasize an 

intersection with the European level at P`s 

level, in the sense of the Commission 

approving the national operational 

programmes. 

4. At regional level P is, as a rule, the resort 

ministry with implication in the 

administrative field of the operational 

programme, A is represented by the 

intermediate bodies of different operational 

programmes with delegated tasks in 

implementing those programmes and S is the 

audit authority of the national system, 

internal audit departments of resort 

41 

Criteriul pentru clasificarea nivelelor luat în considerare este zona de 

acţiune de la nivelul lui A. 

120 

ministries, the certifying authority situated at the 

level of ministry of finance most of the cases, the 

monitoring committees of operational programmes 

and of national strategic framework. The main 

characteristics at this level is given by the 

multitude of intermediate bodies for each 

operational programmes, by the relation between 

A and P in the sense that A can be decentralized 

agency of P or an independent institution towards 

P. The nature of the contractual agreement 

between A and P depends on the subordinating 

level of A towards P. In the case in which A is 

independent towards P, the contractual relations 

between those two actors take the form of 

technical assistance agreements, management 

contracts for fulfilling the delegated tasks. Also, 

we must add the multiplication of S and the 

intersection of levels at this stage, realised by the 

Certifying and Paying Authority placed in the 

responsible institution with the national strategic 

framework and being responsible of verifying the 

eligibility of expenditures and the fulfilment of 

delegated tasks to A. 

5. At individual level. P is represented by the 

intermediate bodies of operational 

programmes, A is constituted by the 

beneficiaries of these programmes and S is 

audit authority of the national system, the 

internal audit department of resort ministries 

and the certifying and paying authority. 

Fig. 3. New governance theory`s intersection 

with new –principal agent in the implmentation 

system of European Cohesion Policy 

Legend: 

EC –European Commission 

EP –European Parliament 

OP –Operational Programme 

MA –Managing Authority 

MC –Monitoring Committee 

IB –Intermediate Body 

AA –Audit Authority 

CPA –Certifying and Paying Authority 

NSRF –National Strategic Reference Framework

Fig. 3. New governance theory`s intersection with new –principal agent in the 

implmentation system of European Cohesion Policy 

European level 

National level 

Individual 

level 

Contract/beneficii 

contractuale/ 

CNSR si 

PO/fonduri 

A – 

member 

-states 

Contract/contractu 

al benefices/ 

OP/funds 

A –MA 

OP 

Delegated tasks` 

agreement/negotiatio 

ns /funds 

Negotiates 

the contract 

Negotiates 

the contract 

P - EC 

Monitoring 

P – MA 

NSRF 

Monitoring 

P – MA 

OP 

Monitoring 

Monitoring 

EP – Budget approval for 

European Cohesion Policy 

S –European 

Court of 

Auditors/EP 

S – 

AA/CPA/M 

C/EC 

Negotiates Monitoring 

A –IB 

OP 

the contract 

Monitoring 

S – 

AA/CPA/MC/A 

whitin MA 

Financial 

contract 

A – 

beneficiaries 

P – IB for 

each OP 

Monitoring 

121 

Monitoring 

S –AA/CPA/MC/A 

whitin IB and MA

As I already affirmed the principal agent 

perspective has been developed as a 

criticism to new governance theory applied 

to the structural funds implementation 

system. Jens Blom-Hansen considers that in 

new governance theory appears the 

supposition that the governance networks 

from the structural funds` implementation 

system control the European Cohesion 

Policy, not explaining why this is 

happening. In other words, if national/subnational 

actors that implement the 

European Cohesion Policy can influence its 

content, its control mechanisms at European 

level are very weak. The main problem of 

the contract from the susbsidiarity 

perspective of structural funds` 

implementation system is connected to the 

agent’s loyalty in the context of delegated 

tasks and to ensure this loyalty. In this way 

there are 4 control mechanisms - on the 

selection process of agents, a contractual 

design with incentives for A in order to fulfil 

it obligations, monitoring agents` actions 

and penalties for not fulfilling the 

contractual obligations. 42 

As it shown in figure 3, the system becomes 

more and more complicated top-down by the 

multitude or control and monitoring 

institutions 43 . Besides this, the intersection 

between levels gives to the control 

mechanisms more efficiency. In my opinion 

the two perspectives are not opposite, but 

they can be considered complementary in 

order to create a concrete image of how the 

system functions and where can be 

difficulties in the control system. The 

principal agent theory brings into discussion 

the contractual relations and the control 

functions of the system with all its 

implications. Using the lens of this theory 

the system appears as string contractual 

relations at different levels, intersected by 

the control mechanisms. The principal agent 

theory emphasizes a supra-stratified 

contractual relation in the European 

Cohesion Policy’s implementation system 

and the apparition of another analysis level, 

respectively the individual level of 

beneficiaries. 

42 Blom-Hansen, J. “Principals, agents, and the implementation 

of EU cohesion policy”, Journal of European Public Policy 

12:4, 2005. 

43 I have to add that I didn`t realise a distinction at S`s level for 

simplifying the applicability of the theory. 

122 

New governance theory brings to this system 

of contractual agreements the partnership 

principle and governance networks applied by 

lobby and advocacy actions in strategic 

decision making, conferring a democratic view 

of the entire system. New governance theory 

explains the process of including different 

actors in the European cohesion policy’s 

implementation with the purpose of ensuring a 

more transparent management process and a 

higher absorption rate. The partnership 

principle and networking governance were 

implemented top-down, being the result of 

different reforms of European Cohesion Policy. 

From this level it can be observed the 

applicability of the partnership principle, 

trying to decentralize the system and to create 

control and monitoring structures at 

local/regional level. This theory emphasizes 

the decisional process and social mechanism of 

monitoring. 

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Politica_regionala.pdf.




THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF 

DECISIONS 

Abstract 

The successful business management 

requires the understanding of systemic 

relations between the basic elements of 

investment and finance company operations 

and the impact on their decisions. An overall 

thinking of the business system is vital both 

to substantiate the strategy and for its 

implementation. 

Shareholders' expectations in terms of cash 

flow are the beginning of creating value for 

them. The business value reported to the 

competitors or the market as a whole will 

change according to these expectations. 

Creating value for shareholders is a key 

responsibility of business management, 

whose success is linked to the use of coherent 

economic comparisons by business 

management. This requires a proper 

understanding of the management structure 

of the economy and business implications of 

decisions taken on cash flow, risks involved 

and the organizational climate, which can 

ensure consistency and coherence of policies 

and strategies, and making and 

implementing decisions. 

Key words: financial decision, investment 

decision, operational decision, financial 

management, business system 

Introduction 

Any business is a system of financial 

relationships and cash flows that are 

activated and directed by managerial 

BRATU Anca; 

University of Bucharest; 

bratuanca@yahoo.com 

CORNESCU Viorel; 


cornescuviorel@yahoo.com 

GRIGORE Maria; 

“Nicolae Titulescu” University, Bucharest 

mgrigore@univnt.ro 

126 

decisions. Creating value for shareholders 

depends on obtaining a cash flow higher 

than expected by them. The purpose and the 

business value depend on the generation of 

long-term cash flows. Any business 

conducted successfully in all aspects as an 

integrated system will generate in future 

such cash flows, thereby creating value for 

shareholders. 

The success of the operational activities, the 

performance and long-term sustainability of 

business depend equally on a number of 

fundamental, individual or collective 

decisions of the management team. Each of 

these decisions has an economic impact on 

business. The management process always 

involves taking economic decisions, each 

time by weighing the costs involved in cash 

and expected cash benefits. In turn, these 

decisions produce certain changes that can 

be identified in the financial and physical 

resources of a business. 

The managers make decisions on behalf of 

the company shareholders, decisions that 

affect a wide range of groups interested in 

the company's activity, like employees, 

creditors and the community. In doing so, 

the managers are responsible for the 

efficient allocation of internal and external 

resources available to create economic gains 

for shareholders, while earnings reflected by 

the combination of the distribution of 

dividends and the appreciation price of the 

shares held by theowners. 

Although daily the management faces a 

variety of issues, in principle, most

managers’ tasks are similar, so that we can 

group all management decisions in three 

categories: 

� investment decisions (concerning issues 

related to allocation / investment of 

resources); 

� operational decisions (involving the 

conduct of business operations using the 

resources); 

� financial decisions (determining the 

appropriate financing structure of such 

allocations). 

These basic types of managerial decisions 

properly rotate around each segment of the 

system business decision: investments - 

Investment 

decision 

segments into 

the business 

operations - financing. 

Operations 

Financing 

For a competitive management, the 

fundamental economic target is to select the 

strategic resource allocation in order to 

create an economic value over time sufficient 

to recover all the involved resources and 

getting an acceptable gain in terms of risk 

expected by the shareholders. 

The successful allocation of resources will 

result in superior value for business and 

automatically improves the net economic 

position of the shareholders / owners. If the 

company shares are traded on an organized 

market, its value is determined by financial 

markets, if the company is not listed on a 

capital market, its value will be reflected in 

the price offered by potential buyers of 

business. 

Creating value for shareholders depends, 

ultimately, on the proper coordination of the 

three segments based decision-making 

common to all organizations: 

� the selection, implementation and 

monitoring of all investments, based on a 

coherent and sustainable economic 

analysis of a concise and effective 

managerial process; 

� guideline the company transactions on 

the basis of profitability, in case of 

choosing the decisional alternatives, and 

127 

the principle of cost-benefit relationship 

in optimizing the use of available 

resources; 

� ensuring a prudent financing business, 

weighing the expected benefits and risks 

involved in balancing the financial 

structure of capital based on the internal 

or external resources. 

The decisional variants must be selected and 

targeted to ensure long-term success, not 

limited to current achievements that cannot 

be sustained in the future or which may 

divert the attention from long-term goals set. 

1. The Business System 

We present the way how the operations are 

conducted through a company and a scheme 

that includes cash flows, key relationships 

and major decisions involving the approach 

of a company as a system. 

The system is organized into three segments 

corresponding to the three decisional areas 

defined above: investments - operations - 

financing. 

1. The top segment represents the three 

components of investment: 

� the investment, which is already done 

� the surplus of new investment, 

� the disinvestment of resources that no 

longer prove their necessity in terms of 

efficiency and strategic direction. 

Here is also presented the effect of 

amortization / depreciation on investments 

and the income base due to the reductions in 

accounts of some of the impaired assets. 

2. The central system represents the 

operational interaction of three basic 

elements: 

� the price of products and services, 

� the volume of products and services, 

� the costs (fixed and variable) of products 

and services. 

The result of interaction between the three 

elements of the operational sectors is the 

profit or loss after deduction for income tax. 

The operating profit is a vital element in 

financing a company. 

3. The last segment presents in two parts, 

the basic options of financing a business: 

the availability of the operating profit after 

tax achieved during a certain period. It has 

three main directions: the payment of 

dividends to shareholders, interest payments 

to creditors and undistributed profits, 

continued to reinvest in its business activity.

The cash used for dividends and interest 

payments is an output of system. 

� the available options for the use of longterm 

capital resources. They reflect the 

shareholders’ equity plus the nondistributed 

profits and long-term debt to 

external entities. The influencial 

relationships between these elements 

and the decisions that have been made 

and which affect the level of 

shareholders’ equity, the undistributed 

profit or the long-term funding sources 

have a direct impact on the financing 

capacity, which affects the volume of new 

Depreciation 

effect 

Dividends 

Equity 

Price 

Scheme The system of business 

New 

investment 

Investment 

base 

Costs 

(fixed & variable) 

Operating profit 

after taxes 

Undistributed 

profit 

Financing 

capacity 

128 

investments that can be assimilated to 

the basic ones. 

Volume 

Disinvestment 

Adjusted 

interests 

Long-term debts 

Investments 

Operations 

Financing

2. The Investment Decisions 

The investment is the driving force of any 

economic activity. They are the source of 

economic growth and the support of the 

competitive strategies of the management, 

normally based on a prudent planning 

(investment budget) in order to ensure the 

existence of sources of funding in three 

major areas: 

� working capital (cash, receivables and 

inventory, without commercial credit 

from suppliers and other current 

operating obligations); 

� physical assets, fixed assets (land, 

buildings, equipment, machinery, offices, 

IT technical equipment, laboratory 

equipment etc.). 

� fund allocation programs (R & D, 

developing new products and services, 

promotional programs, etc.) and 

procurement. 

Investment is defined broadly in terms of 

resources allocated and recovered in time, 

not only according to accounting 

classifications which, for example, would 

include the resources for research on 

projected expenses and investments. 

In setting the budget for investment in the 

regular planning process, the management 

has to choose from a wide range of options 

regarding the new investment, which is 

intended to exceed the expectations on the 

profitability or at least to be at the level of 

expectations. The level of profitability is 

generally correlated with the shareholders’ 

expectations how to determine the cost of 

capital. In this respect a key management 

responsibility is the consistent choice of 

investment options and their successful 

implementation (the results exceed the 

demands reflected by the cost of capital). The 

new investment is the vital factor of growth 

strategies, leads to the creation of value if 

the predetermined performance standards 

are met or exceeded by the results. 

The successful companies regularly evaluate 

the allocation of investment resources to see 

if the current performance and forecasts on 

products, services or business segments are 

still in line with the organization's overall 

strategic position. When the economic 

performance or projections arising from the 

analysis as being below expectations, the 

decision option is disinvestment – seen as 

diametrically opposed to investment. 

Creating value for shareholders depends on 

129 

a successful combination of the existing 

investments, coupled with the successful 

implementation of new investment. The 

management of the portofolio of the strategic 

activities of the enterprise is efficient if there 

is a genuine value creation. 

Assessing the performance and the value of 

investments and of the existing activities in 

the value-based management are widely 

used indicators such as economic benefits, 

the value added in cash and cash return on 

investment. The value-based management 

expresses the inclination of the management 

to maximize the company value, the main 

aim being the maximizing of the 

shareholders’ wealth. The value-based 

management seeks to avoid the managerial 

errors that occur because of the accounting 

data analysis using for this the management 

techniques, the elements of organizational 

culture and specific managerial performance 

measurement tools. Proving its superiority 

over the traditional approach, the valuebased 

management is a philosophy adopted 

and promoted by large international 

consulting and financial planning firms. 

3. Operational Decisions 

The strategies and key decisions must focus 

on efficient use of resources invested to 

make sure that their continued 

implementation and operation are consistent 

with the criteria and expectations that the 

original decision of allocation of these 

resources was based. In the beginning the 

company has to identify the basic skills they 

have and to put them into service of the 

segments of the target market, and to 

allocate human and material resources 

effectively and prudently against 

competitors’ products and services. 

Companies must differentiate supply market 

to achieve a competitive advantage, being 

necessary to pursue excellence in meeting 

the real needs of consumers. 

In this segment there are, besides strategic 

perspective, the advantages and practical 

use of low-cost production facilities, special 

skills of employees, customer service quality, 

information systems related to network 

performance reviews or unique opportunities 

for research and development. In carrying 

out the work, managers need to anticipate 

and cope with the consequences of price 

changes and the action of competitors on 

sales and on the profitability of each

individual product or service. However, all 

the activities of a company, whether 

conducted internally or externally, must be 

organized on principles of efficiency and 

maintained at a level which allows it to 

achieve a competitive advantage in the 

market. 

The solid operating results can be achieved 

only if the management has a realistic 

understanding and perception of the 

processes carried out, of the economic costs 

and benefits for each component of the 

organization and the relative contribution of 

each product or service in order to achieve 

overall company results. This requires an 

information system properly articulated, 

which has a high degree of data collection 

and reporting meaningful information to 

policymakers. Another necessity is the one 

related to the impact on the profitability 

determined by the level and the share of the 

fixed costs and also by the variable nature 

and the volume of the business transactions 

in a company. 

For the operational efficiency it is essential 

an operational planning process. The targets 

set are likely to increase the importance of 

economic decisions. Budgeting and review 

processes are designed to provide important 

feedback to management and to provide 

signals on the need for corrective action, 

without which it could not meet its 

objectives. Modeling the activities and the 

company accounting based on activities 

(Activity-Based Accounting) represents new 

informational structures, whose 

achievement is made possible by the 

information technology which is more and 

more efficient. 

The key parts of the operational segment 

contain a number of operational indicators 

that measure the efficiency and effectiveness 

of revenue and expenditure management. 

Among these are found a series of financial 

indicators such as operating income margin 

or indicators that relate to the various cost 

items of revenue or sales. There are also 

indicators that reflect an overall picture of 

an operational activity, such as turnover or 

total assets per employee and certain 

operating statistics such as average hourly 

production, increases the percentage of 

production or consumer satisfaction. These 

operational indicators vary from one activity 

to another, because these indicators are 

known according to the specific variables 

that guide the company performance. In fact, 

130 

the operating rates are ideally derived from 

the key factors determining firm 

performance, whether by physical assets, 

human resources skills, the resources or the 

application of new technologies. 

Economically speaking the relative profit on 

a product or the contribution to the product 

in cash for each product or service to achieve 

sales is important information to determine 

the current performance and to guide 

strategic decisions regarding product and 

service portfolio. 

The distinction between indicators 

calculated according to the accounting data 

and those resulting from economic analysis 

are important in the operational segment, 

because the results may vary significantly. 

This problem has led to increasing use of 

recent methodology, which directly 

addresses to these needs, called analysisbased 

activities (activity-based analysis). 

This process is actually a step identification 

of all physical activities involved in a 

particular function of the firm or any 

activities necessary to ensure the 

achievement of certain product lines, 

followed by a thorough economic analysis of 

costs and benefits involved in running of 

each stage, and of the total. Because it is 

based on economic value this analysis has 

become an important tool to support the 

current emphasis on management during 

the creation of value. In addition, reporting 

such activities to the greatest achievements 

in the industry is another way to refine the 

measurements made in the company. 

4. Financial Decisions 

In this segment, various financing options 

meet and they are available to management, 

necessary for the operational assets and 

long-term investment. As shown by the 

schematic representation, the financing 

segment starts from the operational net 

profit which is the major source of financing 

a company. In this context one can identify 

two major decision areas, strategic and 

opportunity (costs - benefits): 

� The destination of the profit 

� Modeling firm financing structure 

This type of comparison and decisions is the 

power and top-management decisions, as the 

exclusive prerogative of the Board, as these 

decisions are crucial for future stability and 

continuity of business activity.

The first part, the division of proceeds, 

reflects the basic recipients of surplus 

created by the firm: 

� Shareholders; 

� Creditors; 

� Company itself (through reinvestment of 

profits). 

Each of these recipients of profits is affected 

in one way or another by the policies, 

strategies, opportunity analysis or current or 

previous management decisions. For 

example, payment of dividends to 

shareholders is related to the Board 

decision. Here, the main analysis of 

opportunity is related to establishing the 

amount of dividends paid to shareholders as 

part of return on investment made, to 

alternative investment funds and maintain 

them in the development of the company, in 

order to create additional value added for 

the shareholders, reflected in the assessment 

of the company shares on the market 

quotations. 

Moreover, interest payments to creditors are 

a contractual obligation. Paying interest 

rates relative to the operating profit is a 

function of management policies and actions 

regarding the use of debt. The debt ratio will 

be higher in capital structure; the greater 

the need for cash will be required to pay 

interest and the greater will be the 

company's risk exposure, raising the 

possibility that the company basically is not 

able to pay its obligations on interest, if a 

decline in activity occurs. 

The undistributed profit is the residual 

earnings of the period after tax, a net 

amount remaining after payment to the 

company's interest and dividends. Normally, 

this amount constitutes an important part of 

the capacity needed for increased funding. 

Increasing the funding can be achieved 

through capital injections by creditors or 

shareholders, according to management 

policies aimed at ensuring long-term 

sources. 

The key indicators, in terms of distribution 

of surplus created, are cash flow and net 

profit, calculated as unit values per share. 

They are leading indicators of firm capacity 

to pay both shareholders and creditors. In 

addition, one can use specific indicators to 

measure the proportion of dividends paid, 

the coverage rates and interest repaid on 

account of profit and how the company met 

its obligations relating to debt service. 

131 

The second part, planning the capital 

structure involves the selecting and 

balancing of the relative weight of capital 

received from shareholders and those 

obtained from creditors. The combination 

chosen after consideration of risk and debt 

service requirements will have to provide 

financial support to a predetermined level of 

profitability, linked to the risk acceptable to 

management and Board of Directors. A key 

factor in the choice of financing structure is 

the impact of financial lever of indebtedness. 

It can be defined as a prudent use of capital 

raised from fixed-cost obligations in the 

context of investment opportunities whose 

earning potential is higher than the cost of 

the capital borrowed, the difference 

representing the benefit of the company. 

This process also requires a series of 

comparative economic analysis, which is 

facing the benefits associated with risks of 

various financing options available to 

management. The existing equity 

shareholders may be reimbursed by the 

company repurchases shares on the market, 

using some of the financing capacity. This 

choice has become an important issue of the 

management of the capital of a firm, as these 

redemptions reduce the volume of shares 

available on the market, making existing 

ones more valuable. In addition, for those 

repurchased shares are not required a 

dividend payment, thus saving funds for 

possible acquisitions or investments. The 

choice to be made is between adding value 

through new investment or adding value to 

existing unit by reducing their shares. 

A basic economic principle of a success 

management is that the results from an 

investment must be higher than the average 

cost of capital (own and borrowed), in order 

to create added value for shareholders and to 

obtain a satisfactory total return for them. 

The results obtained are the weighted 

average cost of capital, have no impact on 

value, while those under the cost level will 

lead directly to the destruction of 

shareholder value. The manager's decision 

will be based on a careful analysis that 

distinguishes between measurements made 

on the basis of accounting data and those 

based on cash flows. 

If the business is based on the development 

of a stable political structure of capital, as 

growth occurs on account equity value on 

non-distributed profits, management will 

want to benefit from this growth, to a certain

extent, by increasing the volume of longterm 

debt, while the management decides to 

change any policy debt. In this case a new 

repayment plan will be considered and this 

will normally change the company's capital 

structure and the cash flow projections. 

5. Managers’ role in building and 

operating a successful business system 

The economic manager is the person who 

operates an economic system based on 

options applicable to each decision. 

Each person makes choices in analysis and 

daily life, either consciously or unconsciously 

in the individual unconsciousness. Each of 

us has a certain system of measuring the 

value received in exchange for which we 

make a purchase or give an investment and, 

conversely, that gives value in return that 

we receive when we sell a certain good or 

provide services on the market. What 

distinguishes the economic manager of other 

individuals is his level of understanding and 

quantifying its analytical discipline applied 

in practice. 

The economic manager understands very 

well the economic flows of the business and 

its components, in particular business 

segments that respond directly. The process 

begins by understanding the dimensions and 

implications of selected business system, 

including the understanding and knowledge 

of the characteristics and needs of 

consumers, the supply circuit, positioning 

against the competition and efficiency and 

procedural organization of business, all 

general conditions of societal management. 

These requirements extend to the knowledge 

of the contributions and demands of 

different groups of stakeholders, both inside 

and outside the company, but company 

obligations towards these groups. 

With such a stock of knowledge, economic 

managers are in a position to identify and 

set priorities on the key drivers of value 

creation, the key to long term success of the 

company. 

The economic manager sees business not 

only as an integrated whole, but as a finely 

tuned set of individual and interrelated 

components. This knows the business 

segments that require special attention and 

he knows how to improve their methods. In 

addition, he understands the business model 

and its components well enough to have a 

132 

positive impact through carefully selected 

and implemented decisions. 

In addition to the understanding of the 

system, an increasing importantance is to 

accommodate the economic manager to the 

decisional process. His trial work is oriented 

to clearly define the issues analyzed, 

determining suitable alternatives, 

identifying relevant information to achieve 

the purpose and interpretation of results in 

terms of long-term value creation for the 

benefit of shareholders. 

Involving the managers in fragmentation of 

the matter, in choice of instruments for 

analytical work and direct effort result in 

greater efficiency, both in terms of decisionmaking 

ability by managers and in terms 

leadeship's or organization's ability to guide 

the economic criteria based business 

consistent with analysis of existing 

opportunities. 

Conclusions 

The core business system that one compels 

us to track and analyze a series of dynamic 

relationships between strategies, policies 

and management decisions and cash flows 

they generate. In fact, the system is reduced 

to a simple financial model of firm growth in 

its key variables interacting with one 

purpose: to create value by generating 

positive cash flows that exceed the cost of 

capital. Achieving a certain consistency in 

these choices and decisions on key variables 

is critical for long-term success of the 

company management and shareholders to 

satisfy claims, whereas only one coherent 

system can achieve calibrated performance. 

The basic idea of a successful management is 

to develop and maintain a compact and 

uniform set of strategies, investment 

objectives and operational and financial 

policies that support one another, not to be 

antithetical. They must be chosen from the 

relevant and cautious analysis of the 

economic conditions and options, both 

individually and in various combinations. 

The measurement and implementation 

arrangements should be chosen so as to 

support and emphasize the need to obtain 

long-term performance, which will lead to 

improve the investors’ perceptions about the 

flows released from the existing and future 

investments or disinvestments of 

underperforming units.

References 

1. Brezeanu, P., Managementul deciziilor de 

investiţii, Editura Universităţii Româno- 

Britanice, Bucureşti, [2005] 

2. Copeland, T., Koller T., Murrin J., Valuation: 

Measuring and Managing the Value of 

Companies, Wiley, New York, (1990). 

3. Jensen M. C., Meckling W. H., “Theory of the 

firm: Managerial behavior, agency costs and 

ownership structure”, Journal of Financial 

Economics 3, (1976). 

4. Johnson, R.E., Shareholder Value – A Business 

Experience, Butterworth-Heinemann, [2001] 

5. Kalay A., “Signaling, information content and 

reluctance to cut dividends”, Journal of Financial 

and Quantitative Analysis, (1980). 

6. Knight, J.A., Value-Based Management: 

Developing a Systematic Approach to creating 

Shareholder Value, McGraw-Hill, [1998] 

7. Myers S., “Finance Theory and Financial 

Strategy”, The New Corporate Finance: Where 

Theory Meets Practice, McGraw-Hill, 1993. 

8. Rappaport, A., Creating Shareholder Value, 

New York, The Free Press, [1998]. 

9. Reimann, B.C., Managing for Value A Guide to 

Value-Based Strategic Management, The 

Planning Forum, [1987] 

10. Spătaru, L., Analiza economico-financiară, 

Instrument al managementului întreprinderilor, 


11. Vasile, I., Gestiunea financiară a 

întreprinderii, Meteor Press, Bucureşti, [2008] 

133




GLOBALIZATION AND ECONOMIC GOVERNANCE 

Abstract 

Noticing the failures of the current 

globalization and of the corrupted governing 

system has changed the debates on 

identifying new and more correct 

management and governing forms, witch 

could favor the speeding up of economic 

growth and promotion of humanistic value. 

The rhythms and sizes of the current 

globalization call for better assurance of a 

correct balance between market and the state, 

the capitalization of their adjusting 

potentials and reciprocal failure 

compensation. Also, the lack of transparency 

and of democratic responsibility imposes the 

reformation of the international institutional 

system's architecture and the promotion of 

economic policies systems that could ensure 

nations' prosperity and stability of the world 

economy. 

Key words: globalization, worldwide 

governing, market failures emergent 

economies, democratic deficit. 


Rapid and profound changes characterizing 

the geo-political and institutional 

environment call for permanent adaptation 

of the governing systems to the new 

prerequisites. The configuration of the 

current world economic governing represents 

the consequence of the arrangements made 

after the Second World War and is 

dominated by a paradigm which is focused 

on international economic institutions and 

national states suzerainty. 

The weak points of contemporary economy 

governing are generated by numerous 

factors and multiple causes, manifested 

under the circumstances of new economic 

and social organization forms' occurrence, of 

BUCUR Ion; 

Faculty of Business and Administration; 

Email: ion.bucur@drept.unibuc.ro 

134 

modernized capitalism expansion and of the 

crisis faced by current international economy 

order. The study of international 

institutions' governing emphasize the lack of 

adequate institutional structure, able to take 

over all functions transferred by national 

states, as well as the lack of adaptation of 

the institutions to economy's solutions. 

The critics regarding the institutions for 

managing international common actions 

refer to two categories of aspects: lack of 

clearly defined mission which could be 

subject to a larger consensus; and the lack of 

capital and responsibility. The objective 

regarding global economic institution's 

democratization must be achieved under the 

context of reduced control placed over such 

by national states, given the fact that 

regulation national competencies are being 

transferred. In the conditions of 

globalization, the major economic governing 

institutions have increased their power and 

influence, which significantly diminishes the 

direct control from the sates. Given the 

transfer of competencies towards 

international authorities, the demand 

becomes increasing for democratic 

representation. 

Taking into account the numerous gaps in 

the current governing system and its 

inability of coping with globalization issues 

the need arises for urgent measures for 

strengthening the international governing 

community. The perspectives for reforming 

those international institutions witch play a 

central role in the governing of world 

economy represent a major source of 

disputes. The specific globalization players 

place considerable influence over governing 

along with the new regulating bodies on a 

global level. New and important forces such 

as nongovernmental organizations are

progressively manifesting. Along with public 

governing authorities new “private” 

authorities and associations are occurring on 

a global level. The occurrence of new 

worldwide authorities contribute both to 

increasing the number and complexity of the 

economic governing bodies, and to the 

setting in of a new characteristics of the 

market regulation process. In the same time, 

the influence and power of “private” 

authorities are increasing given the 

occurrence of a new generation of collective 

players. In a wider sense, the private players 

contribute to designing, legitimating, 

implementing and controlling institutional 

norms that could influence the values 

promoted by economic globalization. 

Recent developments in the field of 

international institutional system can 

contribute to the identification of new forms 

of a more just globalization, able to allow for 

the economic growth to speed up and poverty 

to be reduced. The central reason for 

globalization failure in the way in which 

decision are made on a international level. 

During the past decades an original system 

has developed for promoting international 

public policies, qualified as “global governing 

without a world government”. 

2. Failures and reforms 

Most of the core world decisions are made in 

international economic institutions the main 

mission of which is to ensure world economy 

stability. As a result of recent developments, 

the idea has been increasingly admitted that 

of a defective global governing system exists 

(Stiglitz, 2006, p.29). The lack of 

transparency and legitimacy, as essential 

features of a democratic governing, 

represent a preemptory proof that 

fundamental ruled regarding the functioning 

of democratic public institutions are 

breached, as well as the mechanisms 

characterizing the current world economy 

governing. One of the main issues arising 

from less democratic and transparent 

institutions is the possibility of remedying 

the market's failures worldwide. The 

emergency of promoting reforms aiming to 

ensure more equitable globalization and 

governing is due to the complex political and 

economic mutations in the national and 

world environments. 

135 

The generalization of governing and public 

policy concepts over those of government and 

public economy means that state's 

intervention is grounded on the articulation 

of numerous public and private players, 

although the state plays and important role. 

This symbiosis of the players in the 

governing process involves the mix of their 

functioning laws. Ensuring proper governing 

in the public goods production, witch creates 

a new vision over governing, grounded on 

the culture characteristic to each national 

public production system. The decentralization 

strategies play an essential 

role in respect with the governing and not 

promoted as individual aim. 

The reforms in the public sector and in the 

public management must be made upon the 

context whereas a new public institutional 

design is configured, allowing for the public 

and private mechanisms to be compatible in 

the very middle of public production. Some 

international organizations have supported 

the idea of “less government, more 

governing” for the very purpose of avoiding 

public intervention and of allowing for 

markets liberalization and for occurrence of 

foreseen outcomes. The theme of governing, 

ambiguous and differently perceived concept, 

according to national cultures, seems to 

underline the pertinence of such approach. 

Grounded on the national and world realities 

in the field of governing, possible evolutions 

can be forecasted both from an institutional 

stand point, and in respect with the concrete 

manifestation forms. Hence, the idea has 

imposed that new governing institutions and 

control and regulation bodies should be 

established, as well as self-proclaimed 

governing forms (Attali, 2006, pp.292-294). 

The occurrence governing forms providing 

specialized assistance will be accomplished if 

governing itself will become a particularly 

profitable economic sector. 

The idea of reforming the international 

economic institutions' architecture is 

grounded on the need of coping with the 

economic globalization defies, having 

generated a chaotic world governing system. 

Given the present context, it becomes more 

and more difficult to reach a just equilibrium 

between the market and the state has

imposed the need for a new rapport between 

the local, national and world order. 

The market-state dichotomy represents an 

abusive simplification, whilst a more realist 

vision is imposed over the state's role, the 

avoidance oppositions between different 

ideologies', market party-pries and the state. 

(Touffut, 2006, p.128). The national state 

which represented the center of the political 

and economic power for over a century and a 

half is new at the confluence of world 

economy forces and political exigencies of 

power's evolution, although it does not 

represent the only means for public 

intervention. The idea is increasingly 

shaping that globalization enhances the 

need for powerful collective action. The 

argument according to which the state in 

ineffective by default is rather ideologically 

than scientifically grounded. Without 

specific state interventions and regulations, 

the markets cannot lead to equilibrium and 

economic efficacy. The state and the market 

must cooperate, must complete each other, 

as the only way of ensuring reciprocal 

failures compensation. Activities exist in 

which the state can achieve better 

performances than the private sector. The 

conspiring against the public side must be 

replaced by concerns for revalorizing the two 

sectors and for making them to cooperate. 

Moreover, a new public-private mixture 

constitutes a real challenge for economic 

globalization. 

The old forms of market-state dualism are 

under process of disappearing. Today, a 

certain conscience has developed over the 

market's limits, and the validity of the old 

general assertions over the efficacy of the 

market is severely contested. The economic 

doctrines of ”market fanaticism”, according 

to which markets spontaneously lead to 

equilibrium, is profoundly damaged (Stiglitz, 

2006, p.13). Alan Creenspan, one of the 

eminent champions of the market economy 

evoked certain turbulences regarding the 

“irrational exuberance” of the markets and 

the necessary conditions for ensuring their 

efficacy. The potential evolution of the 

markets depends both on the modifications 

in their content, nature and manifestation 

forms, as well as on the perspectives of 

public interventions. Tendencies are 

somehow contradictory. A regulated and 

global market will be achieved under the 

136 

condition of state' “deconstruction” (Attali, 

2006, p.241) and for the progressive 

reduction of state's role. The victory of the 

market over democracy will create a new 

situation: a market without the sate, 

although the need is recognized of regulation 

in order to ensure proper functioning of the 

market. In the same times, the markets will 

find new profitability sources which are 

currently performed by public services 

(education, health care, environment, 

suzerainty). The role played by the state and 

possibility for such to be harmonized with 

the market is modified in time, is different 

from one country to another and provides 

specific features to the economic governing 

mechanisms and forms. Capitalism has 

generated a variety of practices during the 

post-war period (Greenspan, 2007, pp.267- 

294). 

Practicing own capitalism versions does not 

exclude the occurrence of problems of 

general nature, affecting the basis of the 

system. Such danger is first of all due to 

excesses. Some of these challenges are the 

fact that the large enterprises reveal 

insolent profits, very comfortable wages for 

managers and distribute record dividends to 

shareholders. All these under the 

circumstances of lent or stagnating economic 

growth, increased relocations and ever 

growing unemployment rate. The increased 

vulnerability of the capitalism system is due 

to the domination of a short term financial 

vision in respect with “wealth creation”. 

However, the low term profitability 

obsession perverts the system and contains 

the grains of its very end, as it involves 

scarifying the future. This is about 

capitalism without a project, unable to avoid 

a new crisis (Artus, 2007, pp.6-9). In order to 

avoid such faith, it is necessary to achieve 

profound reform economic management and 

impose new governing rules. 


Increased debates on globalization are 

justified by the need of evaluating current 

stage and removing some myths and dogma 

around such controversial phenomenon. 

History demonstrates that globalization is 

not an unavoidable process and that it is of 

reversible nature, even though it is based on 

strong economic and political forces.

Such measure is grounded on the increased 

sense of distrust generated by inappropriate 

management of globalization, calling for 

sustained researches for mitigating market 

failures worldwide and identifying the 

solutions for a better functioning of 

globalization and governing. The difficulty is 

also amplified by the fact that economic 

theory and historic experience do not 

comprise enough clues regarding the 

reorganization and reforming of 


In an era in which free market de-regulation 

and ideology have dominated the public 

arena, ensuring economic prosperity implies 

a realist vision over the state's role and its 

harmonization with the market forces, 

promoting economic policies systems able to 

provide stability and to contribute to the 

creation of new stronger economies and 

societies, in witch humanistic values could 

prevail. 

References 

1. Artus, P., Virard, M.P. (2007). Le capitalisme 

est 

en train de s’autodétruire, Edition Le 

Découverte, Paris. 

2. Attali, J. (2006). Une breve historie de l'avenir, 

Fayard, Paris. 

3. Greenspan, A. (2007). The Age of Turbulence. 

Adventures in a New World, Penguin Books. 

4. Stiglitz, J.E. (2006). Un autre monde contre le 

fanatisme de marche, Fayard, Paris. 

5. Touffut, J.P. et al. (2006). L'avancee des biens 

publics, Edition Albin Michel. 

137

“Your Culture, My culture, Our opportunities” 

INTERCULTURAL COMPETENCE AND MANAGEMENT 

Globalization is rapidly breaking down our 

vision of a world with well-defined national, 

cultural and linguistic boundaries. Cheap 

computers and internet service, and 

innovations like Google, YouTube and 

Wikipedia are enabling a constant flow of 

knowledge and ideas across borders. This, 

along with the emergence of faster and 

cheaper transportation, has meant even the 

most remote parts of the planet are brought 

into instantaneous contact with one another. 

Not surprisingly, intercultural competence 

has taken on an importance that no one 

could have imagined even 20 years ago. 

We’ve shifted into a new mode of living 

where transnational contact is almost a 

daily occurrence. Our lives are enriched but 

are also far more complex. 

The very nature of cross-cultural 

communication — different languages, 

behavior patterns and values — makes it 

imperative to avoid assumptions of 

similarity and to stimulate appreciation of 

intrinsic differences. 

Thus, intercultural skill (the ability to 

understand the values and beliefs behind 

behavior and reconcile them with your own) 

are basic, necessary tools in today’s world. 

It’s not something that happens overnight! 

Usually it means living in another 

country/culture/language for several years 

and, even then, one has to be both observant 

and openminded. 

But globalization has no time for that... 

Whether it’s the economy, the ecology, or 

just plain international politics, the world 

can’t seem to wait. Administrators and 

salesmen, diplomats and artists and aidworkers 

race around the globe working on 

their assignments. Our job, as intercultural 

specialists, is to watch the process, to 

explain the fundamentals of social 

communication while relating to the 

specifics of any society. But how do we know 

we’re getting through? How do we recognize 

Short paper 

Irina Budrina (Russia) 

Doctoral Student at ASE, Bucharest, Romania 

irina-budrina@hotmail.com 

138 

the beginnings of intercultural competence ? 

A good place to start is complex allegiance, 

where a person’s identity becomes less fixed. 

Thoughts and emotions are less a product of 

previous beliefs than an on-going process of 

understanding. Sense of self moves in and 

out of different world-views; one no longer 

thinks in ethnocentric terms but according 

to ambiguous conditions, a natural set of 

value systems. 

Arnold Schwarzenegger is an excellent 

example of what can be called “bicultural 

belonging”. When visiting die Heimat, he’s 

as Austrian as it gets. But when he returns 

to California, he’s home... 

A truly intercultural person speaks more 

than one language and knows that language 

is far more than a means of communication-not 

so much a system of vocabulary, 

grammar and syntax as a shared perception 

of the world. Experience and meaning are 

connected via a shared framework and each 

new linguistic reality teaches you more 

about yourself. 

The intercultural person is able to see and 

feel the relativity of beliefs, of decisions: an 

“absolute standard of rightness” no longer 

exists. Instead the process is dynamic, a 

continuing awareness of your own cultural 

boundaries. Which, in turn, allows you to 

expand your own parameters and wander 

into another person’s mind. 

Take the well-adjusted American manager 

of a U.S.-German pharmaceutical company 

outside of Frankfurt. He wants to develop a 

new marketing campaign on a trial-anderror 

basis but knows his team will feel 

insecure about it. Understanding that the 

German need to plan things out is real, not 

frivolous, he comes up with a reassuring 

analogy. 

“It’s not a hit-or-miss operation, quite the 

contrary. What we’re doing is running a loop 

in a flow-chart on daily sales and will adapt 

the campaign accordingly.”

This “other” perspective builds on empathy 

and permits events to be reconstructed as 

alternative cultural experiences. 

However, the ability to see oneself according 

to dual frames of reference — a sort of 

“dynamic in-between-ness” — can cause 

some to lose their primary cultural identity 

and create what might be described as 

internal culture shock. 

The breakdown of identity leads to cultural 

marginality, an existence on the periphery of 

two (or more) cultures. 

If each life is ultimately insignificant, the 

decisions you make, whether based on your 

own culture or an adopted one, don’t matter: 

they have no weight, they don’t tie you 

down. 

But insignificance is unbearable. When our 

decisions lose their importance, our lives are 

set adrift. We no longer exist as clearlydefined 

individuals. It’s a common condition 

among long-term expatriates and “global 

nomads.” Conflicting identities often lead 

them to seek out other cultural marginals 

rather than people belonging to a specific 

group. 

Despite periodic identity-confusion and the 

“unbearable lightness” of an uprooted life, 

such people may find roles as global 

mediators. The attempt to understand and 

reconcile cultural differences in both 

perception and expression is a worthy 

personal goal as well as a viable career 

opportunity. 

We are, however, being forced to move from 

a “nationalistic worldview” to the universal 

recognition that each culture is unique and 

must be accepted for what it is before any 

real communication is possible. 

The worldwide mobility among students is 

now higher than ever before and 

particularly business students, who are very 

active in moving throughout the world. The 

exchange programs are nowadays more or 

less standard for business universities, and 

the responsibility on the cultural level 

139 

should be taken more seriously. It should be 

clearly understood that going abroad comes 

along with certain cultural challenges, 

which are hard to grasp and explain, yet can 

heavily influence the outcome of one’s 

international activities. The intercultural 

preparation could make a big difference. 

Moreover, it should become also an 

integral part of all study programs in 

International Business Administration. 

Higher attention to intercultural competence 

at university is indispensable. Students 

should be 

prepared by university for a global, 

intercultural working environment. 

Unfortunately, only few universities do 

already offer intercultural training courses. 

None of them are offered in Bucharest 

(Romania). However, the universities do 

provide language classes and didactic 

courses about specific cultures. 

Much more than education has been 

discussed about the impact of globalization 

on multinational organizations and the new 

global leaders that will need to be developed 

now for the next generation by the 

universities as the prime business 

education. 

The current development of world events – 

politically and economically, necessitates a 

continuous and dynamic educational offering 

by universities that can better prepare 

students to be responsible and empathetic 

global citizens and future leaders oriented 

on globalization of knowledge, economies, 

politics and conflicts. Our success in 

preparing our students and in managing the 

knowledge domain will largely be a function 

of how we develop the intercultural 

competence. 

The goal of my research is to develop a 

course=module “Intercultural Competence 

and Management” for Business 

Departments of the Universities in 

Bucharest (ASE and the University of 

Bucharest).




STATE AID THROUGH THE GOOD GOVERNANCE CONCEPT 

Abstract 

State aid is an important tool through which 

the government intervenes in the market 

economy for correcting some failures or for 

equilibrating some processes. The intervention 

of the state in such situations could have 

benefic effects on society’s welfare. Sometimes, 

the measures of aid offer unjustified selective 

advantages for certain enterprises and could 

lead to the distortion of the competition 

environment. After such distortions, consumers 

can be harmed by facing bigger prices, lower 

qualities and reduced innovation. So, the state 

must find the point of equilibrium in its 

interventions, so as to stimulate the 

development. 

This paper analyzes situations where the state 

must intervene for correcting the failures of the 

market mechanism, the so-called “market 

failures”, in order to maintain the equilibrium 

in the economy and to ensure good governance 

in the given society. Otherwise, the distortion of 

competition happens. The dangerous effects of 

competition distortion are further analyzed in 

the given work. 

The purpose of the paper is to demonstrate that 

the role of the state in managing the 

instrument of state aid is crucial, and that the 

efficiency of public resources administration 

depends much on it, which, in fact, influences 

the efficiency of the governing. In practice there 

is no ideal model, everything depends on the 

specific of national economy development. It is 

sure that the state must intervene exactly where 

its contribution is needed to correct market 

failures and to stimulate the activities that 

could have benefic effects for the society. 

CARAGANCIU Anatolie, Professor, PhD., 

University “Lucian Blaga”, Sibiu 

an_caraganciu@yahoo.com 

CHIRIAC Mirela, post-graduate, 

University “Lucian Blaga”, Sibiu 

kiriakmirela@yahoo.com 

140 

Key words: state aid, competition, market 

failure, distortion, society’s welfare. 


Good governance supposes the intervention 

of the state in the economy to such an extent 

as to ensure equilibrium between the 

allocation of resources and the insurance of 

social needs. Starting from this principle, the 

state has a very important role, to find the 

middle point between the extreme of a 

planned economy and that of the total 

liberalization. 

In this framework, an important tool for the 

intervention of state in the market economy 

in order to equilibrate some economic 

processes is the state aid. 

The state aid appears exactly where the 

mechanism of market economy fails to solve 

efficiently all the problems that may arise. 

The involvement of the state in the economy 

in order to cover such failures is welcome. 

But sometimes, the measures of state aid 

offer unjustified selective advantages for 

certain enterprises, thus complicating the 

task of market forces to reward the most 

competitive enterprises, and as a result the 

general competitiveness may suffer. Such 

measures could lead to the creation of the 

market power of certain companies, for 

example when enterprises that do not 

receive state aid have to reduce their 

presence on the market, or when the state 

aid is used for rising entry barriers on the 

market. After such distortions, consumers 

can face bigger prices, lower qualities and 

reduced innovation.

Thus, according to the principles of good 

governance, the state must intervene in 

those situations where the solving of 

society’s problems is not possible to be done 

by the mechanism of market economy; so, 

they are put in charge of the state. In other 

words, the intervention of the state in the 

economy is necessary for correcting market 

failures, facts which are going to be 

demonstrated bellow. 

Traditionally, market failures are defined as 

situations when the social surplus is bigger 

in an alternative allocation of resources than 

that in which the market equilibrium is 

achieved. Thus, the market failure offers 

reasons for the intervention of public 

administration in the private problems. 

The question may arise whether the market 

would not succeed to distribute these 

resources without the intervention of the 

state. The answer is offered by Ronald Cose; 

he says that an efficient level of resources 

distribution would be possible only in the 

situation where property rights are clearly 

defined and their application does not 

require any transaction cost. When 

transaction costs are very small or null, 

parties are interested to realize these 

transactions in order to optimize the 

distribution of resources. Really speaking, 

the transaction costs cannot be excluded. 

The situation is even more difficult in the 

case of the such-called “diffuse” externalities, 

meaning that the number of external effects 

transmitters is very high, and the individual 

effect referred to the transaction costs is 

very small. The same happens in the case 

when there are a big number of receivers, 

every one of them suffering an external 

effect which is lower than transaction costs. 


The instrument of state aid and its effects 

over the society’s welfare has been largely 

analyzed in the economic literature. One of 

the first important contributions concerning 

the impact of state aids on the economic 

development can be found in the so-called 

“Welfare Theory”, appeared at the beginning 

of the XX-th century, the general idea of 

which is that a public intervention can have 

fruitful results only if the estimated total 

welfare in the result of the intervention is 

bigger that the cost of intervention. This 

idea has been further promoted by other 

141 

economists, as Hans W. Friederszick, Lars- 

Hendrik Roller, Vincent Verouden (2006). 

Market failures, which are covered by this 

paper as situations in which the 

governments should intervene for 

reestablishing the equilibrium, have been 

the subject of discussions and debates among 

economists many years. A big contribution 

has been given by Paul A. Samuelson (1995), 

especially in what concerns the public goodsa 

situation of market failures. He states that 

as the public goods can be used by all the 

consumers at once, social marginal cost is 

equal to the sum of all persons’ rate, thus, 

for assessing the quantum of needed public 

goods for the equilibrium, it is necessary to 

compare the sum of marginal advantages 

with the marginal cost of production. 

Another failure – the market power, is 

profoundly analyzed in the “Market power 

handbook” of the American Bar Association, 

providing that the market power is identified 

as the ability of a firm of a group of firms to 

establish profitable prices over the general 

level of competitiveness, for a longer period 

of time. And the last part of the notion is the 

most important, because if any other 

companies that do not have a market power 

will raise the prices for the products, they 

may not be able to maintain them for a long 

period of time, and this is an important 

criterion for distinguishing the companies 

with market power. 

Also the aspects of competition distortion 

through the application of state aids 

attracted the attention of researchers. 

Mathias Dewatripont, and Paul Seabright in 

their”Wasteful” Public Spending and State 

Aid Control of 2005 give a very interesting 

reason for thinking, saying that: “State aid 

control is a paradox: in the name of 

protecting competition, a public authority 

intervenes in spending decisions taken by 

other public authorities -rather than in 

decisions taken by private firms, as in the 

rest of the domain of competition policy”. 


Market failures include situations when the 

behavior of the market does not succeed to 

maximize social surplus. In general, there 

are four failures of the market: public goods, 

externalities, informational asymmetry and 

market power. Besides traditional failures, 

there are also other limits of the competition 

framework, among which: problems of

preference, problems of incertitude, 

temporary problems, and adaptation costs. 

The first category of market failures refer to 

externalities. Those appear when the actions 

of an economic agent have consequences on 

another. The given effect can bear a negative 

character, it means that it generates 

negative externalities, or a positive one, 

respectively it generates positive 

externalities. An example of negative 

externality is the situation when producers 

do not take into account the negative effect 

on the natural environment. An example of 

positive externality can be found in the 

research and development domain: when a 

company receives aid for research and 

development activities, the positive effect 

could be also felt by other companies, 

through the diffuse of knowledge, 

innovations, informational technologies, etc. 

Even so, these effects are open to 

discussions, as the private benefits of an 

economic agent must be put on the balance 

with the general benefits for the economy. 

The existence of externalities leads to 

divergences that arise form the fact that a 

certain number of production factors of 

certain producers have not been paid, thus 

in the absence of incentives these production 

factors are produced in very small 

quantities. Following this, the intervention 

of state in this case must be oriented to the 

stimulation of positive externalities’ 

producers, by compensating their expenses 

for the production of factors of production 

that could be used by another producers (for 

ex: the compensation of expenses for 

fundamental scientific researches). And vice 

– versa, some harmful effects or non-utilities 

which influence negatively production 

functions of some economic agents are 

produced in too big quantities if the damages 

that they provoke are not compensated or 

the reduction of these damages is not being 

encouraged. 

In this case, the intervention of the state 

must be oriented to the stimulation of the 

economic agents to reduce negative 

externalities (for ex: the contribution of state 

to apply measures of environment 

protection). 

The second category of market failures 

which provoke the intervention of state in 

the market economy are the public goods. 

The public goods are those, from the 

consumption of which cannot be deprived 

142 

certain consumers, thus every one being 

obliged to pay. Here the services of general 

economic interest, audiovisual, etc, can be 

mentioned. 

Public goods are usually produced by public 

powers and can be used by several 

consumers in the same time, and also can be 

produced by the private sector. 

In what exactly the situation of failure 

consists when we speak about public goods? 

This one results from the non-exclusive and 

non-generator of rivalry character of the 

public good. Thus, when it is about 

consumption, more persons can obtain 

consumption advantages from a certain good 

in the same time. It means that the use of 

the good by a person does not affect the use 

of the same good by another person. Here 

the problem of evasion from debts may arise. 

In essence, in the case of existence of a big 

number of persons, the demand of every 

person is extremely low compared to the 

total demand and the total cost of the offer. 

Also, the contribution of a person is 

extremely low, and in the case of its lacking, 

the person who evaded from debts could 

benefit from the public good in the same way 

as those who contributed, without reducing 

its quality. In the case when all the persons 

of the society will evade from the acquittal of 

contributions and only one person will 

contribute, that single person will not 

benefit from the public good, because the 

contribution of a sole person is insufficient to 

offer the public good. So, in any situation, 

the person who does not contribute is 

advantaged. The state, through the public 

authorities, being the main furnisher of the 

public goods, has the power to impose the 

obligation to execute debts and, in such a 

way, to eliminate the market failure. 

To some extent, the public goods can be 

considered a situation of externality, because 

furnishers of those goods cannot estimate the 

benefits for all the consumers. As a result, 

public goods are not always offered at the 

highest level of efficiency. According to the 

welfare theory, state aid for such kind of goods 

and services is welcome. 

The state also intervenes in the market 

economy by applying state aid in the cases 

when an informational asymmetry is found, in 

other words, a discrepancy between the 

information available on a portion of the 

market referred to the information on the 

other part of the market. A good example in

this sense is the financial market. Companies 

that ask for financing are usually better 

informed about the capacities of the market 

than banks or investors. Or in the field of 

insurance: informational asymmetry happens 

when the insured person knows better the 

risks to which he is exposed than the insurer, 

for example the real value of the insured 

goods. 

The information is implied in the market 

failure cases at least in two ways. First, 

information may be regarded as a public good, 

because consumption of information is nongenerator 

of rivalry and, as a result, we can 

affirm that the information is not a private 

good. Secondly, there are situations when the 

quantity of information on the characteristics 

of a good varies from one person to another. 

For example, the buyer and the seller can have 

different information on the quality of the 

traded product. We have to mention that the 

cases of informational asymmetry most often 

appear when there is a question of a good’s 

characteristics. 

In order to assess whether the informational 

asymmetry leads to market failure, the 

information on goods must be classified in 

three categories, according to the categories of 

goods: prospecting goods, experimental goods 

and goods after experimentation. As far as the 

prospecting phase is concerned, the buyer can 

decide on the given good after an exterior 

examination of the specimen. In the case of 

experimental goods, the buyer can determine 

the characteristics only after acquisition, and 

in the case of goods after experimentation, the 

buyers find it difficult to determine the 

characteristics, even after they began to use 

those goods (for example, in the cases of 

medicines), because the continuous 

consumption does not emphasize the quality. 

The market failure caused by the 

informational asymmetry between the buyer 

and the seller can be encountered on more 

markets. The inefficiency potential is in few 

cases bigger for the prospecting goods and 

often bigger for the experimental goods and 

even bigger for the goods after 

experimentation. The appearance of market 

failure is determined by the measure in which 

the problems generated by the public 

goods/services deter the functioning of 

mechanisms for assurance of adequate 

information. 

Thus, the market failure appears especially in 

the situation when the informational 

asymmetry on the market of the traded goods 

143 

is combined with the problem of access to the 

information in terms of a public good 

(certificates of quality, standardization, etc). 

For example, there is no sufficient information 

concerning the quality of the imported 

agricultural products and autochthon ecologic 

agricultural products. In the case of export, 

there is no sufficient information concerning 

the aid for the promotion of goods on the 

external markets, state aid for participation to 

fairs and exhibitions, etc. 

Another situation which is included in the 

category of market failures is the market 

power. Economists define it as the ability of a 

firm or of a group of firms on a market to fix 

profitable prices for them, over the level of 

competitiveness, for a long period of time. 

Even if any company could raise the prices for 

its products or services not every of them does 

it in the most profitable way. Following this, 

what characterizes the firms with market 

power is the fact that even if the increase of 

prices is not profitable, the given firms will not 

suffer too much loss. When we speak about 

market power, we mean the ability of 

companies to raise the prices following more 

the level of competitive prices than the level of 

current ones. This happens because the 

company with market power in the past 

already exercised its power and raised the 

price to such a level over which the continuous 

increase of price would not be profitable, 

because consumers would switch to substitute 

goods. 

The second part of definition, the one which 

refers to the longer period of time for 

maintaining the increased price, is an 

important index in determining firms with 

market power, because there may be 

situations when other companies, without 

market power, because of informational 

asymmetry, have the occasion to raise the 

price for a limited period of time, but are no 

capable to maintain it to such a level for a 

longer period of time. 

Sometimes the terms “market power” and 

“monopoly” are used in the same context, 

without making a difference between them. 

Still, there is a difference, and in order to feel 

it, it is necessary to determine the level of 

market power, for what a detailed economic 

analyses of the relevant market is needed. In 

the result of such researches, monopolies are 

considered to be those companies or groups of 

companies which hold a significant market 

power and which are “protected” from 

competitors through some substantial market

arriers, even if the differences between the 

characteristics of monopolies’ products and 

those of competitors are minor. 

The market power can also be encountered 

under the name of competition failure. In most 

of the cases market power can generate 

exaggerate prices, which affect the consumer. 

Measures of state aid can reduce market 

power of some companies, for example by 

granting access for some smaller companies. 

But in some cases, state aid can contribute to 

the creation of some entry barriers or to the 

aversion of competitors from the given market. 

There are some other market failures, such as: 

-coordinated actions of the economic agents, 

which represent serious infringements to the 

law, this also being a serious deviation from 

the fundamental principles of market 

economy. Thus, in such cases, the intervention 

of state is necessary; 

- the problem of incertitude – public policies 

can have the capacity to increase economic 

efficiency in situations of incertitude. 

- temporary allocation – with the change in 

time of advantages it is necessary to use the 

social marginal rate of preferences, rate to 

which anyone remains indifferent concerning 

the change of the current consumption with 

the future one. In reality, on different markets 

this rate is different and this is determined by 

the characteristics of the capital market and 

concern for the future generations. The 

reserves expressed in relation to the efficiency 

of capital markets and concern for the 

preferences of the future generations can 

constitute serious reasons for the application 

of public policies in the view of improving 

temporary allocation of goods and resources; 

- adaptation costs, result form the fact that 

the economy is in a continuous change. The 

appearance of some new products, the 

modification of the capital, the impact of 

natural factors, need a continuous adaptation 

for an efficient allocation of advantages and 

costs. As long as the prices change freely in 

function of demand and supply, the adaptation 

process takes place at minimum costs. In the 

case when fix prices are maintained, these 

restrictions on the change of prices can impede 

the economy to achieve a new point of efficient 

equilibrium. In such situations, there may be 

an overrate of social surplus earnings and 

underrate of social surplus loss, respectively, 

the intervention of state is welcome. 

In the result of the above-mentioned it can be 

concluded that the role of the state is very 

important for correcting the market failures 

144 

and for restoring the equilibrium among some 

processes in the economy. But the state has a 

huge responsibility for the application of the 

state aid, because the granting of unjustified 

aids could cause serious prejudices to the 

economy. 

As far as the state aid is applied for the 

correction of the above-mentioned market 

failures and it is justified from the economic 

and social point of view, this may have very 

benefic effects on the society and fall into line 

with the principles of good governance. In the 

case when there is a deviation from those 

principles, state aid can have very negative 

effects, evinced through the following: 

a) distortion of competition environment and, 

as a consequence, increased prices, low 

quality, reduced innovation, etc. 

b) inefficient use of the limited financial 

resources of the state. 

The distortion of competition happens when 

the rivalry between companies is disturbed. 

This very often takes place when a firm 

receives state aid, this one reducing firm’s 

costs and increasing its revenues. In such a 

situation, firm’s competitors will have to 

increase efforts in order to remain profitable. 

In the case when state aid is given only to 

some firms and others do not have access to 

such support, or when state aid is provided 

illegally, the result may be that inefficient 

companies will prosper and efficient ones will 

be affected negatively. This, in general terms, 

means distortion of competition. 

The distortion of competition through state aid 

is a very serious danger for the economy. 

Usually distortion of competition takes place 

because the firm receiving the state aid is 

tempted to change its behavior. This happens 

because state aid influences the costs and 

revenues of the beneficiary company, and this 

one may change the prices for its goods, focus 

on research and development activities, thus 

having an impact on competitors. Sometimes 

even the most efficient firms cannot compete 

with less efficient rivals who are granted state 

aid. 

State aid may often cause inefficiencies, 

because they will artificially reduce prices and 

in such a way consumers may switch to that 

company, even if the real cost of the good is 

hidden. 

Bellow, there are presented three of the most 

serious effects that state aid may have on 

competition:

-Allocative inefficiency: this mean - s that -Dynamic inefficiency: state aid can also 

production resources could be allocated in a influence investment decisions of the company. 

wrong way, as a result of the application of Thus the firm can invest in wrong objectives, 

state aid. For example, when there is a real which in the long run, can lead to wrong 

competition in the market, consumers will 

indicate clearly to the company which products 

activities dealt by the company. 

they prefer and, respectively, where the All the above-analyzed effects demonstrate 

company should allocate more resources in once again the significant impact that the 

order to satisfy consumer needs. When the state aid has on the economic activity and 

company receives state aid, the price will be social welfare. Respectively, the state has a 

lowered, even if the cost of production will stay very important role in managing this 

high. It is normal that consumers will prefer instrument, and the efficiency of public 

products for a lower price, and will demand resources administration depends much on it, 

more of those goods. But the allocation of more fact which influences the efficiency of the 

resources to the subsidized activity is not the governing. The practice shows that there is no 

best decision. 

ideal model and everything depends on the 

-Productive inefficiency: the state aid can help specific of national economy development. It is 

a firm to gain market share, and sometimes to sure that the state has a very important role, 

stop the entry of other efficient companies. All to intervene exactly where its contribution is 

these are driven by the additional source of necessary to correct market failures and to 

capital, and not as a result of increasing stimulate the activities that could have benefic 

efficiency of the firm. In the long run, this may 

lead to productive inefficiency. 

effects for the society. 

References 

1. Boardman A.E., Greenberg D.H., Weimer 

D.L., Vining A.R. Analiza cost-beneficiu: 

concepte şi practica. (Chişinău, Edition 

ARC, 2004). 

2. Ciutacu Constantin and Chivu Luminiţa. 

Evaluări şi analize economice ale 

ajutoarelor de stat. Definire. Politici. 

Rezultate. (Bucureşti, Expert Edition, 

2006). 

3. Falon Marc. Droit matériel général de 

l’Union Européenne (Academia-Bruylant, 

2002). 

145 

4. Market power handbook (USA, 

Competition Law and Economic 

Foundations, ABA Section of Antitrust 

Law, 2005). 

5. Mathias Dewatripont and Paul 

Seabright,”Wasteful” Public Spending 

and State Aid Control. (IDEI, Toulouse & 

CEPR, 2005). 

6. Quigley C., Collins A. EC State Aid Law 

and Policy (Oxford, Portland Oregon, 

2003). 

7. Weimer D.L., Vining A.R. Analiza 

politicilor publice: concepte şi practica. 

(Chişinău, III-rd Edition, ARC, 2004).

QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF 

EXTERNAL LABOR MIGRATION BY APPLICATION OF COST-BENEFIT 

ANALYSIS 

CARAGANCIU Anatol, professor, ………., 

an _ caraganciu @yahoo.com 

BELOBROV Angela, Ph.D. Student, Faculty of Finance, Academy of Economic 

Studies of Moldova, belobrov_angela@yahoo.com 

Cost-benefit analysis is a term that 

refers both to: helping to appraise, or assess, 

the case for a project or proposal, which itself 

is a process known as project appraisal; and 

an informal approach to making economic 

decisions of any kind. Authors decided to 

apply cost benefit analysis to assess the 

impact of migration. In this article is 

described methodological approach of Cost - 

Benefit Analysis implementation for 

quantifying economic and social impact of 

external labour migration. 

Key words: Cost-benefit analysis, 

labour migration, impact of migration. 

JEL classification: E2, G2, G3. 


The dynamic nature of economic 

processes and phenomena, complexity, 

diversity and their mutations impose for an 

ongoing concern improving the methods and 

analysis of the techniques aimed at their 

correct management. Relevant 

characteristics of economic processes and 

phenomena necessarily impose their 

systemic treatment. The specialized 

literature devoted to external migration of 

the workforce focuses on the research of all 

effects of this process. Researchers recognize 

that migration has a wide range of 

consequences on the most varied fields of 

activity and the existence of human society. 

Most researchers recognize the causal 

relationship “migration – development” and 

focuses on identifying positive and negative 

effects on the “general objective” of human 

society - sustainable development. In order 

to elucidate and implement these links and 

effects, of the generalized impact of the 

process of migration for work purpose, we’ve 

decided to analyze the relationship between 

the obtained results and consumed resources 

in this process. 

146 

2. Economic and financial analysis 

methods 

The main generalized methods of 

economic and financial analysis applicable in 

the analysis of projects / policies / actions, 

through the process characterized by a 

multitude of costs and benefits are listed: 

Cost - benefit, cost-effectiveness and Multi 

criteria-analysis. 

Cost-Benefit Analysis (CBA) is a 

conceptual framework applied to any 

quantitative, systematic assessment of a 

public or private project to determine 

whether or to what extent it is valuable from 

a social perspective. Cost - Benefit differs 

from a simple financial assessment which 

takes into account all gains (benefits) and 

losses (costs). 

Cost-effectiveness (ACE) is a 

monitoring and evaluation technique used 

when benefits can not be reasonably 

measured in monetary terms and the costs 

can be estimated accurately. This is usually 

done by calculating the cost per unit of 

product benefits “without monetary 

equivalent” and requires the existence of 

means to quantify the benefits, but not by 

attaching to these benefits a monetary or 

economic value. 

Multi Criteria Analysis (AMC) is an 

assessment methodology which takes into 

account several objectives by assigning 

weights to each measurable objective. In 

agreement with the CBA, which focuses on a 

single criterion (maximizing social welfare), 

AMC is a tool that covers a set of different 

objectives which can not be aggregated by 

using shadow prices and weight wealth, as 

in is standard CBA. 

Based on the background 

characteristics of these types of analysis, we 

consider the cost-benefit analysis is the most 

appropriate for the application to the 

analysis of external migration for work.

3. Essence and use of cost-benefit 

analysis 

Traditionally cost-benefit analysis 

(CBA) is a practical method, or an analytical 

tool used to: 

i) chose of implementing a 

particular project, which requires an 

evaluation of the effects of medium and long 

term project implementation and a 

comparison of costs incurred and expected 

benefits, 

ii) assessment of policies, 

which quantifie in monetary terms the value 

of all consequences of this policy to all 

members of society. Cost-benefit analysis is 

a way to provide balance and evaluate 

different policy options based on their costs 

and benefits, 

iii) determine the net benefit 

of a program of measures applicable to a 

certain level (item level, Level subsystem, 

system level), 

iv) estimate(in terms of 

benefits and costs) socio-economic impact 

due to implementation of certain actions. 

The impact must be assessed against 

predetermined targets, the analysis is 

usually accomplished by taking into account 

all individuals affected by the action, directly 

or indirectly. We believe that successful CBA 

can be used to assess socio-economic impact 

due to the onset of certain processes, as ex. 

migration processes. Cost-benefit analysis 

was taken from the private sector and 

applying it to evaluate various projects in 

the public sector is very much hampered by 

the existence of future benefits and costs 

that can not be easily quantified. 

4. Problems and objectives of costbenefit 

analysis 

In the specialized literature it is 

discussed the question “Whose benefits and 

costs are taken into account?” Or “Whose 

welfare is included in the aggregate 

benefits?” In some cases, to identify those 

affected we need to be aware of the existence 

of a number of social actors (stakeholders), 

as costs and benefits may affect large and 

small groups of economic / social actors 

based on the geographical level adopted by 

analysis. 

Guide for Cost - Benefit of projects 

financed by EU structural instruments 

requires that the CBA must decide whether 

the analysis is done by adopting a local, 

regional, national, EU or global perspective. 

The appropriate level of analysis must be 

147 

determined in relation to the size and scope 

of the project, i.e. in relation to group / area 

where the project has a relevant impact. In 

the 70is there has been a certain decrease of 

interest in the CBA as a result of more and 

more frequently expressed reservations 

about the possibility of using money as a 

measure of things like peace of mind, 

security, life, peace, clean air. In response to 

these difficulties have been developed a 

number of alternative techniques of analysis, 

more moderate ambitions: studies on impact 

for analyzing complex effects of 

technologies or analysis of cost-effectiveness, 

were only costs are calculated in money and 

the benefits remain in non-monetary units. 

The objective of the Cost – Benefit 

analysis is to identify and quantify all 

potential impacts of the analyzed action in 

order to determine appropriate costs and 

benefits (in monetary value). CBA should not 

be confused with income-cost analysis that 

allows choosing the optimum variant from 

the economic point of view. The objectives 

considered in the CBA must obligatory 

include economic and social components. The 

analysis will be done by systematic 

consideration of the relationship between 

brought benefits (all the positive 

consequences) and its costs (resource costs), 

plus the negative effects. In principle, all 

impacts should be assessed: financial, 

economic, social, environmental, etc. 

Traditionally, the costs and benefits 

are evaluated by analyzing the difference 

between the scenario ‘with a project”; and 

this alternative scenario: scenario “without 

project”; (so-called “incremental approach”). 

Further, the results are combined to identify 

the net benefits and determine if action is 

timely and deserves to be implemented. 

Thus, CBA can be used as a decision tool for 

evaluating the usefulness of investments / 

policies to be financed from public resources. 

The rule is simple: if the net benefits to 

society of the project (benefits minus costs) 

are positive, then the company has some 

advantages for the project because its 

benefits outweigh the costs. Test application 

of the CBA, even if doesn’t lead to 

undisputed results, is a useful exercise 

because it raises awareness to the screening 

efficiency. For example: the current crisis of 

social regulations. Community tends to 

adopt various regulations (rules, laws, 

measures, programs) to provide a solution to 

the problems faced. However, the

accumulation of such regulations has often 

negative indirect consequences, 

unintentional (costs), which makes them 

sometimes even counterproductive. 

These situations necessitate 

rethinking requirement: the regulations 

should not be taken on the basis of vague 

“impressions”, on the common sense belief 

that they could work, but following a 

thoroughly CBA by considering various 

short-and long-term consequences, direct 

and indirect, and costs involved. 

4. The moment of performing a 

cost-benefit analysis 

Depending on the temporal 

relationship and the progress of ongoing the 

Cost – Benefit Project, there can be 

distinguished ex ante CBA and ex post CBA. 

Ex ante CBA is made in the period 

when a project is studied, before it’s 

implementation or conduct of, it’s 

contribution to decision making is direct, 

immediate and specific as the ex ante CBA is 

carried out before the time when you must 

decide if limited resources should be 

allocated by the government for a project. 

Ex post analysis is carried out at the 

end of the project and the amount of analysis 

is more comprehensive but less direct, as 

they contribute to “learning” by the decision 

makers whether certain categories of 

projects are appropriate or not. 

Further analysis is conducted over the 

life of a project that is - in medias res. Some 

elements of such studies are similar to those 

of ex ante analysis, while others are like an 

ex post analysis. 

There is also the fourth type of CBA, 

that compares an ex ante CBA with an ex 

post CBA for the same project. This 

comparative type of CBA is the most useful 

for the decision factors in policy matters to 

discover the effectiveness of CBA as a tool 

for evaluation and decision making. 

5. The steps of Cost benefit analysis 

applicable for external migration for work As 

to the Guide for Cost analysis – the benefit 

of financed projects from structural 

instruments by EU, proposed steps to 

achieve the CBA, in the context of 

preparation the investment projects are: 

1) Identifying the phenomenon and 

defining the objectives; 

2) Analysis of options, 

3) Financial analysis; 

4) Economic analysis, 

5) Sensitivity analysis; 

148 

6) Risk analysis; 

7) Presentation of results. 

Analysis of the migration process 

differs essentially from the analysis of an 

investment project or a government policy. 

For argumentation of CBA selection to 

assess the consequences of external 

migration for employment purposes, we can 

mention that at this stage, the economic 

approach to measuring vulnerability is based 

on the Cost-Benefit Analysis. Research 

devoted to external migration of labor shows 

that economic and financial systems are 

vulnerable to migratory processes. 

From the initial stage, we can state 

that proceeding from the specific process 

studied will be avoided methodological 

problems in designing and implementing 

CBA and the entire analysis requires a 

certain degree of abstraction. Current 

research goal is to quantify the impact of 

external migration of labor. 

We consider it necessary to say that 

the term “migration phenomenon” is used 

with the meaning “lots of migration events” 

where “event migration” “refers to the 

movement of a person - individual or group - 

outside its community residence during the 

reference period data, to change his 

permanent address and / or usual work “. If 

the movement of the person exceeds the 

boundaries of one or more States, it is 

defined as international migration. In the 

case when the determinative factor of the 

purpose of traveling of a person represents 

change or obtaining jobs, the change of 

residence is a condition that can be ignored, 

migration is defined as migration with labor 

purposes or for work. Placing the 

phenomenon of work migration purposes on 

financial and economic coordinates qualifies 

this phenomenon as labor force migration, 

based on the fact that there is a movement 

in space of factor of production - labor. 

Starting from the specific features of labor 

migration, we believe that the way to build 

or the mechanism of Cost - Benefit analysis 

applicable to this case can be segmented into 

at least six stages (Fig. 1).

Figure 1. The mechanism of Cost – 

Benefit analysis for external 

Source: prepared by author. 

Phase I. Setting goals, specifying 

the reporting period, geographical 

perspective and alternatives 

The pursued objectives of the CBA for 

migratory phenomenon to identify causality 

of immigration to the socio-economic 

phenomenon, to discern its net profit and to 

find benchmarks for the design and redesign 

of management policies of the phenomenon, 

considering the performance criterion. 

Under the current circumstances, for 

Moldova we will conduct an analysis of CBA 

in medias res of migration phenomenon, ie 

during the lifetime of the phenomenon. 

Accordingly, we use elements of the analysis 

of ex ante and similar to ex post analysis. 

From a geographic perspective we will make 

analysis by adopting national or global 

vision. Regarding the analysis of 

alternatives, the Guide for Cost - Benefit 

I. Setting goals, specifying the reporting period, 

geographical perspective and alternatives 

II. Identification of participants and non participants 

in the trial, the subjects who pay and those who 

benefit from the process 

III. Cataloging impacts, selection of indicators for 

quantitative measuring and estimating 

IV. Assigning monetary values to resources 

(expenditures) and outcomes of the process 

V. Estimation and analysis of benefits and costs over 

time 

VI. Cost / benefit ratio calculation, formulation of 

conclusions and recommendations 

149 

migration with the aim to work 

analysis of projects financed by EU from 

structural instruments, provides that at 

least three options to be considered: 

- zero option, represents the 

alternative to continuation of activity 

without any intervention 

- medium variant, which includes 

realistic costs required for maintenance plus 

a minimum value of intervention or 

improvements necessary to prevent or delay 

deterioration of the situation 

- maximum version, involves 

maximum interventions proposed in order to 

achieve the expected objectives. 

Phase II. Identification of 

participants and non participants in 

the trial, the subjects who pay and 

those who benefit from the process 

Characteristics of the analyzed 

phenomenon, in the position of participants 

in the process falls persons directly involved

in the migration process. We considere 

appropriate their separation in the following 

subgroups: 

I. migratory flow directly insiders - 

migrants or remittances 

II. those left in the country (families, 

households) who receive remittances. 

The state plays a distinct role, that 

emerges from his fundamental tasks: on one 

hand state invests in human capital 

formation (education, social and medical 

support, etc.), on the other hand he can’t 

claim on the direct recovery of this capital. 

The group of non-participants includes 

people who do not migrate and families have 

no member to work abroad and send 

remittances. If the process is assessed in 

terms of export-import migrant labor, in the 

analyzed items fall: 

I. participants - the country of 

origin and country of destination of 

migrants, and indirectly the transit 

countries, 

II. non - participants- non 

integrated countries in the migration process 

with work purposes 

At this stage the goal is to seek and 

identify those who pay and those who benefit 

from the process of labor migration 

processes. It is usually social groups 

(families, households), regions or entire 

society. In the investigated work, we 

consider logical to use the following method: 

instead of examining the benefits or costs in 

relation to a specific segment of individuals 

or groups, we examine the costs and benefits 

to the whole society or government for a 

whole set of criteria. 

Phase III. Cataloging the impacts, 

selection of indicators for measuring and 

quantitative estimation of impacts is a 

fundamental step for successful 

implementation of the CBA for any type of 

action and especially the migration. The aim 

is to discover all the direct impacts of the 

process, and externalities. 

Phase IV. After identifying the target 

groups, cataloging the impacts and selection 

of measuring indicators, there should be 

assigned the monetary value to resources 

(expenditure or costs) and outcomes. In most 

studies of state policies application, costs are 

defined in budgetary terms. The two major 

categories of expenditure are reflected in 

material costs (equipment, buildings, etc.) 

and administrative costs (salaries, etc.). And 

benefits are measured in monetary terms. 

150 

Some typical benefits include increasing 

budget revenues from tax revenues, reducing 

budget expenditures related to the social aid 

etc. Beyond these direct benefits, there are 

also benefits that can not be measured 

directly. The classic examples are increasing 

the quality of life and even of human life. 

For costs or benefits, the amount of 

which can not be measured directly, it must 

be determined a price-shadow, which is a 

procedure to make subjective judgments on 

monetary value of benefits and costs, when 

the market price is not reliable or not 

available. 

In the case of migration process 

analysis the determination of costs and 

benefits requires a special approach. We will 

estimate all the consequences on the basis of 

our cost structure and revenue in terms of 

economic theory. Cost is an economic 

indicator that includes all labor and material 

consumption expressed in monetary form 

made or to be made to perform work, service 

etc. In the case of migration, costs include all 

labor, material, psychological-emotional 

consumption, expressed in monetary form, 

made or to be incurred for travel, 

employment and deployment in labor by 

migrants abroad. 

From the perspective of analysis of the 

CBA we consider the following cost 

categories: 

- Direct costs, which delimits the costs 

that can be individually and unambiguously 

attributed to activities undertaken for travel 

and employment abroad, among them: cost 

of completing the instruments expenses 

related to obtaining visas, travel expenses, 

financing costs (borowing cost), the cost of 

consultancy services, payments to 

intermediaries migration schemes (social 

networks of migration), studying foreign 

expenditures, payments to find a job 

- Indirect costs from externalities. To 

demonstrate the need to include these costs 

in our analysis we consider it necessary to 

specify the content of economic categories of 

externalities. Externalities are known as 

external effects. The emergence of 

externalities is a consequence of 

interdependence that occurs between the 

utility function and the function of 

production or consumption, or between 

consumers and producers. 

In other words, the actions of a player 

can have effects that reverberate on another 

actor, influencing their activity or positive or

negative welfare without ever last to make a 

payment or compensation. Externalities can 

be positive or negative. Economic theory 

identifies positive and negative externalities 

as marginal or infra marginal. 

Marginal externalities occur when 

a change in the externality generating 

activity affect production or utility 

experienced by affected agencies. Instead, 

infra marginal externalities are those 

where a change in the activity generating 

the externality does not affect any 

production or utility experienced by affected 

agencies. If the externality generating 

activity shall be amended so that the activity 

affected by the externality is improved 

without generating the greenhouse to 

worsen, an externality is said to be Pareto 

type. 

Externalities arise because of market 

failures. They, in turn, are explained by 

market failure to respect property rights. In 

the analysis of the projects, externalities are 

effects of the project not covered in the 

financial records and therefore not included 

in the evaluation. Costs, direct and indirect 

must be expressed in monetary value, i.e. in 

prices. Prices can be discussed in terms of: 

market price, as ex. Replacement costs of 

productivity loss in education, medicine, 

industry, agriculture, decreasing property 

value, etc. , and shadow price, as ex. 

improving or deteriorating investment 

climate, changing the country's credit rating 

etc. In the application of CBA, frequently it 

is used the opportunity cost, which is the 

value of the best chances slaughtered, to be 

waived when making a choice. In other 

words, it measures the largest loss of 

variants sacrificed, considering that the 

choice made is the “winning”. The amount of 

actual election sacrifices in terms of given 

resources. The opportunity price expresses 

the evaluation of the amount of goods that 

will can’t be produced because it was decided 

to produce another good. Every activity has 

an opportunity cost. This concept has a 

broader meaning than the cost in the 

current, normal expression. He is not 

confined to mere expenditure of money, but 

designates a subjective estimate of the 

sacrificed opportunities, which may mean 

more than money spent. 

We consider the following benefits in 

the CBA of the migration process with 

working purposes - direct benefits grouped 

in: 

151 

a) financial benefits - as income flows 

and financial funds, taxes on the process 

outputs. 

b) economic benefits - economic, local, 

regional, national development - especially 

in infrastructure development projects, 

saving the resources used, consolidate its 

position on the internal and external 

markets, 

c) social benefits – enhancing the 

quality of life, social stability effects in 

economic and political stability. 

- Indirect benefits from 

externalities expressed as: market prices - 

increased property value, lower costs of 

unemployment benefits, health benefits: 

lower costs to public health, education and 

training benefits, the cost saving achieved by 

reducing the tax burden on entrepreneurs, 

etc. Price-shadow - higher quality of public 

and private services, etc. In the analysis 

process with the aim of external migration 

for work, stressed from the perspective of 

society as indirect costs and indirect benefits 

of externalities have major share in the total 

costs and benefits, evaluation and their 

inclusion in the CBA is crucial for the 

successful implementation of qualitative 

analysis and its results. 

Phase V. Estimation and analysis of 

benefits and costs of migration process over 

time is the most complex and expensive step. 

In this stage will be applied economic and 

financial analysis techniques, updated 

techniques, techniques for sensitivity 

analysis and risk. Need to update is based on 

the fact that while some assets may lose 

value, they wear, while other items may 

become more valuable. 

Phase VI. Last step consists of 

calculation the cost-benefit ratio analysis 

and formulation of conclusions and 

recommendations based on tests carried out. 

Cost-benefit ratio is a single numerical value 

reflecting the relationship between costs and 

benefits. If the ratio is less than 1.00, it 

means that the benefits are outweighed by 

the costs, and vice versa for a value higher 

than 1.00. 

In the final report, the ratios between 

costs and benefits for various items should 

be presented in a table and detailed in a 

descriptive-narrative way. 

6. Pictures presentation of costs and 

benefits of external migration process with 

the aim of employment, of labor force from 

different perspectives according to the

perspective adopted by the application of 

CBA, general presentation pictures of costs 

and benefits can be presented in various 

ways, eg. Table 1.1, 1.2, 1.3. 

Is important to mention that in 

practice there are disagreements about the 

Table 1.1. 

Items 

The costs of external migration for 

employment purposes 

Direct costs 

Participant’s expenditure determined by 

integration of the migratory process 

Fees and taxes in the case they are migrating 

through state programs 

Expenditure on maintenance of children of 

migrants in kindergartens and orphanages 

social criticism of fundamental assumptions 

regarding the usefulness of CBA, namely, 

that the utility can offset gains with losses of 

some of the utility of others. 

Society 

(A) 

(A=B+C) 

Participants 

(migrants 

and 

households) 

(B) 

- - 0 

0 - + 

0 + - 

Nonparticipants 

(C) 

Expenditure on education for children of migrants 0 + - 

Expenditure on health care for children of 

migrants 

0 + - 

Expenditure on social security for the parents of 

immigrants 

0 + - 

Expenditure on health care for the parents of 

immigrants 

0 + - 

(Social) allowances received by participants 0 + - 

Expenditure on minimum-age pension insurance on 

their return in country (B) 

0 + - 

State of Research Programs of the impact of - 

external migration for work 

0 - 

State programs of information and legal support 

provided to participants 

Indirect costs of externalities 

0 + - 

Deteriorating the labor market - 0 - 

Loss of human and intellectual capital - 0 - 

Loss of investment in human capital formation - - ** - 

Loss of qualification and labor skills - - 0 

Loss in GDP caused by reduced potential labor - 0 - 

Export loss resulting from the difference in yield 

potential 

- 0 - 

Net loss of income from labor migrants - - - *** 

underestimation 

Increasing the tax burden - 0 - 

Increasing the imports - 0 - 

Deterioration of the external balances - 0 - 

Generating inflationary pressures - - - 

Exchange rate appreciation of national currency 0 - + 

Generation of demographic aging - 0 - 

152

Generating pressure on the pension insurance 

system 

- 0 - 

Generating pressure on social security system - 0 - 

Generating pressure on medical insurance system - 0 - 

Increasing income inequality - 0 - 

Destructive effects on the promotion of state 

policies 

- - - 

Dutch disease syndrome 

… 

BENEFITS - Results related to incadration in 

the migration process 

Direct benefits 

- 0 - 

Remittances (in money, goods, technologies) + + 0 

Accumulating knowledge and new skills 

Indirect benefits of externalities 

+ + 0 

Decrease in unemployment – reducing the + 0 + 

unemployment costs 

Increasing demand for goods and services + 0 + 

financed by remittances 

Growth / Economic Development + + + 

Poverty Reduction + + 0 

Increased savings (from remittances) + + + 

Increasing investment (from remittances) + + + 

Maintaining the currency exchange rate 0 - * + 

Positive multiplier effects + + + 

Increasing FDI in the country of destination 

(attracted by migrants) 

+ + + 

Reduction of external financial assistance + + + 

Reduction of external borrowing to cover budget 

deficits 

+ 0 + 

Reduction of foreign loans to cover deficits of the 

balance of payments (deficit trade balance) 

+ 0 + 

Reduction of external loans to increase + 0 + 

international reserve assets 

Countering the pro-cyclicality of the economy 

… 


+ 0 + 

Notes: * For participants in the migration process is more convenient the depreciation of national 

currency, as in this case they will have to transfer less currency in the country to cover 

consumption of their families / households. ** Investment in human capital has been made in 

public and private resources, so participants bear the investment loss in self-funded education. 

*** Non-participants indirectly suffer loss of externalities, as ex. reduction of indirect taxes paid 

by participants. 

Conclusions that we can make, analyzing the Table 1.1. (performed at this level of 

abstraction of the research) focuses on the fact that external migration process with work 

purposes, analyzed from the company's home country of migrants, involves higher costs than 

benefits. Specifically, cost-benefit ratio is 20 items of cost to 16 items to benefits, so benefits are 

outweighed by costs 1.25 times. 

153

Table 1.2. 

Stylized framework of cost-benefit analysis of external migration of labor force from 

the perspective of the destination country 

Items 

Society 

(A) 

(B+C) 

Participants 

(migrants) 

(B) 

Costs 

Social assistance given to immigrants 0 + - 

Medical (health) assistance to immigrants 0 + - 

Costs and detention of immigrants 0 + - 

Travel costs to work native fired or forced to 

change jobs 

… 

- 

0 

- 

Benefits - 

Economic Prosperity 

Immigrants provide low-cost labor => 

+ + + 

increasing revenues of employers 

0 

- 

+ 

cost savings for consumers 

+ 

+ 

+ 

Increasing cultural diversity + 0 + 

Increased living standards of immigrants 

… 


0 + - 

Nonparticipants 

(C) 

Conclusions that we can make, analyzing the Table 1.1. (performed at this level of abstraction of 

the research) focuses on the fact that external migration process with work purposes, are based 

on the fact that the process of external migration with employment purposes, analyzed from the 

point of view of the society of the destination country of migrants, comprises lower costs than 

benefits. Specifically, cost-benefit ratio is 1 cost to 3 benefits items, so the benefits outweigh the 

costs 3 times. 

Table 1.3. 

Stylized framework of cost-benefit analysis of external migration of work force 

worldwide 

Items 

Global society 

(A) 

(B+C) 

Home 

countries 

(B) 

Costs 

Investment in human capital formation 0 - + 

… 

Benefits 

Economic prosperity + + + 

… 


Conclusions that we can make, 

analyzing the Table 1. 1. (performed at this 

level of abstraction of the research) focuses 

on the fact that external migration process 

with work purposes, analyzed in terms of 

global society entails lower costs than 

benefits. Analysis allows us to say that 

external migration for employment purposes 

is a phenomenon with favorable impact on 

global economic prosperity. The report of the 

analysis must include generalized 

conclusions and recommendations on the 

154 

Countries 

of 

destination 

(C) 

involvement of governments in the proper 

management of migration for employment 

purposes. 


Conclusions stemming from costbenefit 

analysis of labor external migration 

(at this level of abstraction of research) is 

summed up in terms of global society that 

labor external migration process involves net 

benefits, whether in particular increasing 

wealth, while foreign labor migration 

involves net benefits for countries of 

destination and social net losses for the

countries of origin of migrants. The purpose 

of cost-benefit analysis, summarizes broadly 

in determining the net result of labor 

migration, is to sensitize policy makers from 

Moldova and other countries supplying 

labor, decision makers at regional and 

international public opinion on the impact of 

external migration of labor that generates 

huge costs in the social, economic, political, 

cultural and democratic processes 

deployment to serve for rational decisionmaking 

for the implementation and redesign 

of processes of management of migration 

with work purpose policies and apply the 

most effective methods in all areas of 

application of the law review items. 

Bibliography: 

1. Cost - benefit and proportionality 

analysis / / http://www. rowater. com / 

dacrisuri / Documents% 

20Repository/Directive% 

20Europene/PLAN% 20MANAGEMENT% 

20DAC/Spatiul% 20Hidrografic% 

20Crisuri/cap10_Exceptii% 20de% 20la% 

20obiectivele% 20de% 20mediu_Crisuri% 

202009s. pdf, visited on 01 februarie 2010. 

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. National Guide to Cost – Benefit 

analysis of projects funded under the 

structural instruments (draft) / / 

http://discutii. mfinante. 

ro/static/10/Mfp/evaluare/GhidACB_RO. pdf, 

visited on 01 februarie 2010. 

4. Guide to Cost-Benefit Analysis of 

Investment Projects. Structural Funds, 

Cohesion Fund and Instrument for Pre- 

Accession, 2008 / / http://ec. Europe. 

eu/regional_policy/sources/docgener/guides/c 

155 

ost/guide2008_en. pdf visited on 01 februarie 

2010. 

References: 

1 The „process” element was introduced in this 

context by the author, considering that any 

project / policy is essentially a process. 

Clarification was made basing on the distribution 

of the meaning of words project / policy / process. 

According to DEX: the process is a sequence of 

operations, states or events involved in any work, 

there is a transformation. [DEX, p. 853]. 

ii Eng. Cost Benefit Analysis (CBA). 

iii http://www. search. com / Reference / Costbenefit_analysis, 


iv Adapted from http://www. rowater. com / 

dacrisuri / Documents% 20Repository/Directive% 

20Europene/PLAN% 20MANAGEMENT% 

20DAC/Spatiul% 20Hidrografic% 

20Crisuri/cap10_Exceptii% 20de% 20la% 

20obiectivele% 20de% 20mediu_Crisuri% 

202009s. pdf, visited on 01 februarie 2010. 

v National Guide to Cost - Benefit of projects 

funded under the structural instruments (draft) / 

/ http://discutii. mfinante. 

ro/static/10/Mfp/evaluare/GhidACB_RO. pdf, 


vi Guide to Cost-Benefit Analysis of Investment 

Projects. Structural Funds, Cohesion Fund and 

Instrument for Pre-Accession, 2008 / / http://ec. 

Europe. 

eu/regional_policy/sources/docgener/guides/cost/gu 

ide2008_en. pdf visited on 01 februarie 2010 

vii Measuring the Un-measurable. The Challenge 

of Vulnerability. United Nations University. 2006 

/ / http://www. EHS. one. edu / file. php? id = 212 

(visited on 06 februarie 2010) 

viii Sandu, D. Migration flows in Romania. - 

Bucharest 1984. , P. 20. 

ix This includes some political economists, 

philosophers and socialists. 

x Broadman, A. , Greenberg, D. , Vining, A. , 

Weimer, D. Cost-benefit analysis. Concepts and 

practice (translation: Ustiriu, D. AND. of. ). - 

Chisinau: Arc, 2004. P. 2.



ICEA – FAA Bucharest, 4-5th June 2010 

DISTORTION OF COMPETITION: THEORETICAL APPROACHES AND 

PRACTICAL CONSEQUENCES 

Abstract 

CĂRARE Viorica; 

The National Agency for Protection of Competition, Republic of Moldova 

viorica_carare@yahoo.com 

When used without content explanation, the 

term distortion of competition creates 

impediments to business competition 

protection authorities. The study carried out 

allows us to ascertain that the economic 

content of this concept brings to law 

enforcement, and may vary depending on the 

economic policy pursued by each state at 

different times. 

Key words: competition, distorts competition, state 

aids. 

Introduction 

Functional economy rules are important for 

sustainable economic growth. The result of 

the competitive activity increases while 

reducing the barriers. State intervention can 

produce rigid barriers, which would distort 

not only the domestic competition. 

The economists support the idea that 

competition increases efficiency and deems 

to be an important reason for innovation. 

But they also consider that competition can 

not solve all the problems that might arise in 

the economy, cases when state intervention 

is necessary and substantiated. 

The consolidated version of the Treaty on the 

Functioning of the European Union art. 107 

paragraph 1 provides for the incompatibility 

with the common market of the aids granted 

by States or through State resources in any 

form whatsoever which distorts or threatens 

to distort competition by favouring certain 

undertakings or productions, so far as it 

affects trade between Member States. 

MAXIM Ion; 

Cooperative Trade University of Moldova 

maxim@anpc.md 

156 

Specifically, state aid as a form of state 

intervention in the economy is manifested by 

granting subsidies, including export tax, 

exemptions or reductions of taxes and social 

charges, credits or low interest loans or their 

refund delay, transformation of guaranteed 

loans into capital, misconduct in domestic 

prices of goods and services, regional and 

sector aid, transfer of land and buildings free 

of charge or under profitable conditions, etc. 

The concept of competition allows us to 

identify situations of misrepresentation, 

distortion or restriction of competition and to 

understand the content and meaning of 

these terms. When applying the legal 

provisions, the situation becomes even more 

difficult as the legislator uses the notions 

but does not define them in the law content. 

The Romanian law on State aid nr.143 of 

July 27, 1999, stipulates that state aid 

distorts or threatens to distort competition. 

As well the Moldovan Law on Competition 

Protection of June 30, 2000 nr.1103 prohibits 

the actions on behalf of public 

administration authorities which restrict 

competition. 

The decision-maker is to understand the fact 

of misrepresentation, distortion or 

restriction of competition. Out of such 

reasons the problem of identifying the 

theoretical content of these concepts has a 

great practical importance. 


The concept of competition in economic 

theory is often discussed in a contradictorily. 

The fundamental question is: competition 

situation or process?

The competition can be approached from two 

points of view, static and dynamic. The first 

is the case of traditional theory when 

competition is examined as a market 

condition, including a system conditions 

specific for market in which the competitive 

fight occurs. In this case it is dealt with a 

structural approach to competition. 

The traditional theory of competition 

provides for a number of conditions for the 

existence of "pure and perfect competition". 

The list of these conditions varies at 

different authors, but it usually includes the 

following elements: a large number of buyers 

and sellers, each having a relatively small 

economic size, a homogeneous and 

commensurable product, and perfect 

information. The condition on the relative 

size of parties is critical while the other 

conditions are secondary. 

The traditional approach defines competition 

proceeding from the result of markets’ 

operation (in terms of production structures). 

In traditional theory, the producers’ 

differentiation can only be transitional; 

resulting is a situation of final equilibrium 

in which all producers are absolutely 

identical, using the same production 

techniques and obtaining null revenue. 

Passing to contemporary economy stage, this 

theoretical model of perfect competition has 

been hit increasingly hard by reality. The 

traditional theory adopts a technological 

vision of productive activities: in order to 

manufacture a certain product, it is assumed 

that there exists an optimal technology 

which emerged in exogenously, being 

available to all producers. 

However the information on production 

technologies is a rare knowledge which must 

be discovered by innovators. Thus, one of the 

core elements of pure and perfect 

competition, namely perfect information can 

not be achieved. The gap between theory and 

practice occurs due to the phenomenon of 

undertakings’ concentration, which lead to 

gradual disappearance of market 

anatomicity, thus increasing state 

intervention in the economy. Pure and 

perfect competition represents a theoretical 

category, different from reality. It was 

sought to create an instrument of explaining 

reality as it is, by modifying the theory of 

competition, in order to resolve the 

difficulties arising from the discrepancy 

between reality and theory. This approach 

was initiated in particular by J. Schumpeter, 

157 

Hayek F., I. Kirzner; according to them, for a 

better understanding of this reality, the 

competition shall be seen as a dynamic 

process, promoting the idea that competition 

is a dynamic process by its nature, whose 

fundamental particularity is to remove the 

core conditions of the competition static 

analysis. 

A considerable contribution in developing 

the concept of competition was provided by 

Harvard School and Chicago School. 

Harvard School’s followers J. Clark, E. 

Mason, J. Bain tried to examine empirically 

the market phenomenon. They considered 

that market structure affects market 

performance through behaviour and 

excessive market concentration has negative 

impact on market achievements. 

The concept of workable competition 

promoted by J. Clark reveals the real 

competition: competition in products’ sale, by 

which every trader persuades a maximum 

profit, while the prices claimed by a seller 

are limited by freedom of choice of the buyer 

who can buy what he considered to be same 

product from rival sellers. 

This type of competition was held even by 

Rome Treaty in 1957, the Court of Justice 

deciding that art. 85 of the Treaty "imply the 

existence of a workable competition on the 

market, i.e. the level of competition 

necessary to meet the basic requirements 

and to achieve the objectives of the Treaty”. 

Chicago School’ followers represented by G. 

Stigler, Demsetz H. and Y. Brozen criticize 

the view of the Harvard School 

representatives considering that if the 

market efficiency represents the objective of 

competition policy, the perspective must be 

changed, the correct paradigm having to 

bind the market concentration efficiency and 

namely the allocated efficiency. 

Representatives of Chicago School found it 

necessary to recognize the market virtues of 

concentration and self-regulation, with 

minimal state competition policy. The 

biggest problem was deemed to be barriers 

to market entry created by the state. 

The competition as a dynamic process can be 

approached behaviourally, 

entrepreneurially, functionally, evolutionary 

and from Marxist perspective. 

Approaching the competition from a 

behavioural perspective has been supported 

by A. Smith, M. Weber. A. Smith regarded 

competition as being a fair rivalry between 

market actors struggling for the best

conditions of goods’ sale. Weber regarded 

competition as being peaceful attempts to 

create control over the possibilities and 

benefits which are also sought by others. 

Thus in the case of behavioural approach, 

the competition content is rivalry to obtain 

benefits and possession of rare goods. The 

domain subject to competition is the 

exchange sphere manifested mainly through 

price competition. In case of behavioural 

approach, the function of competition is 

granting support for understanding market 

signals, thus contributing to harmonization 

of the production structure with the supply 

structure. 

The case of approaching the competition 

from the entrepreneurial perspective is 

supported by I. Kirzner, J. Schumpeter, 

being regarded as a struggle between old 

and new, a process of constructive 

destruction. In this case the competition is 

related to the innovative ideas of 

entrepreneurs, competition applying 

different methods than price. The 

competition’s function is to generate 

incentives for change, highlighting and 

remunerating the best actors in the market. 

The role of the competition is changing the 

market to by means of technical progress 

and innovation. This approach allows its 

interpretation as a differentiating force in 

accordance with deep and natural 

aspirations of human being. Therefore, the 

competition encourages the producers not 

only to imagine new products and better 

production techniques, but also to develop 

better systems of organization. The theory of 

economics and the competition policy whose 

essential expressions constitutes the Rome 

Treaty was approved by the Brussels school 

term, which identifies three main objectives 

in approaching competition at Community 

level: 

The first is a political one and involves the 

partial transfer of sovereignty in terms of 

achieving a single market between Member 

States of the community. 

The second is an economic one overcoming 

the competition efficiency; the European 

competition policy assumes multiple 

functions related to productivity, income 

transfers between producers and consumers, 

insurance and balanced use of labour force. 

The third goal is moral and social one, 

justified by partial renunciation of 

sovereignty by the Member States. 

158 

For countries as Moldova, claiming the 

European membership and having a modest 

experience in implementing competition law, 

the study on member states’ experiences and 

particularly the experiences of the recently 

joined the EU countries is of great 

importance. 

Paper Content 

Based on the approaches of competition 

concept, the sense of the notion competition 

distortion may vary significantly, as follows: 

The examination of competition from the 

static point of view allows ascertaining that 

the competition shall be distorted if market 

structure changes, fact which shall set it 

apart from the perfect competition. In this 

case the change of profitability of market 

actors takes place. The dynamic approach to 

competition of Harvard School allows 

concluding that "workable competition" shall 

be distorted if the profitability of competition 

and consumer welfare is affected; 

Chicago School brings arguments for the 

efficiency reduction as a criterion of 

distortion; 

For the Brussels School the competition 

shall be distorted if the single market is 

affected as a result, the resources are 

inefficiently redistributed and the principle 

of justice is ignored. 

The behavioural approach to competition is 

related to the fair rivalry between market 

actors in order to obtain benefits; in this case 

the competition is deemed to be distorted if 

the legal and moral principles are violated; 

In case of approach from entrepreneurial 

perspective, the competition is deemed to be 

distorted if not based on innovative ideas of 

entrepreneurs. 

It is noteworthy to mention that all the 

reforms elaborated by countries with 

developed market economy were based on a 

well reasoned strategy proceeding from 

economic theories. It allowed determining 

clearly the reforms’ goal, the limits and 

possibilities of using the market mechanism, 

the place, role and functions of the state, its 

correlation with the market laws. The 

Legislative framework which must have 

been adopted by the State in order to 

promote reforms had to follow the adopted 

concept. 

The State has always had and shall have 

significant importance for the functioning of 

the economy; however the competition has

an important role in its functioning and 

must be promoted by the state policy. 

Conclusions and implications 

Proceeding from the above mentioned, and 

from the fact that competition is not an end 

itself but it is a tool to achieve objectives, we 

ascertain that competition distortion by 

granting State aid should be seen threedimensionally: 

It is fundamental to appreciate the effects of 

state aid on social wealth and namely to 

appreciate the net social benefit; 

It is essential to comply with the justice and 

legality, taking into account the social 

peculiarity of our state need the principle of 

fairness and legality; 

Considering the objective of joining the 

European Union, we ascertain that the 

granting of state aid in the Republic of 

Moldova shall be viewed through the 

perspectives of communitarian legislation 

existence. 

In a functioning market economy, the 

existence of competitive struggle can not be 

denied; applying competition is a legitimate 

and protected right; however, as any legal 

right, the right to competition shall be 

exerted in good faith, respecting the law and 

morals. Competitive struggle is deemed to be 

the unity and antagonism of the constructive 

and destructive processes evolving over time, 

to each participating parties. 

In the same time, as mentioned above, the 

competition is not an end itself; it is a tool 

for certain objectives achieving. 

Therefore, competition promotion does not 

aim at creating conflict situations among 

economic agents, but it persuades the 

struggle between them which shall increase 

the social welfare, which otherwise is the 

purpose of any economic system. 

Consequently the concept of competition 

distortion shall be elucidated in terms of 

state’s economic policy which guides its 

development. 

References 

Clark J. M., Toward a concept of workable 

competition. The American economic review, vol.30, 

no.2, 1940, pp.241-256 

Competition policy in subsidies and state aid, 

Organisation for Economic Co-operation and 

Development, 12-Nov-2001 

159 

Hayek, F., “The Use of Knowledge in Society”, 

1945 American Economic Review, XXXV, No. 4; 

September, 1945, pp. 519-30 

Rydelski Michael Sánchez, The EC state aid regime: 

Distortive effects of state aide on competition and trade// 

Camerton May Ltd, 2006 

Souty F., Le droit de la concurrence de l’Union 

Europene, Ed.Mont-Crestien, Paris, 1997 

Stigler G. The theory of economic Regulation // Bell 

Journal of Economics, 1971 vol.2 N1, pp.359-365 

Vickers, J., “Competition and Regulation: The UK 

Experience”, Industrial Economics Lectures on 

Regulation, 1995 

Кирцнер Израэл М., Конкуренция и 

предпринимательство /Пер. с англ. под ред. проф. 

А.Н. Романова. -- М.: ЮНИТИ-ДАНА, 2001. 

Круглов В.В. Конкуренция Москва: ТК Велби 

Издательство Проспект, 2004




HUMAN OBSOLESCENCE – A PERSONAL AND ORGANIZATIONAL 

CHALLENGE 

Abstract 

Human obsolescence has become an 

important issue for organizations and 

societies as well since the rapid 

technological change and the exponential 

growth of knowledge. Managers and 

professionals do not stop learning after 

their formal education is completed. 

Moreover, the expansion of the new 

knowledge and the inevitable 

deterioration of the previous skills and 

abilities compel them to imagine and 

create their own strategies for updating. 

The literature review explores a two-ways 

approach that needs to be adopted to 

tackle human obsolescence: one at the 

individual level and the other at the 

organizational level. At the individual 

level, employees need to take 

responsibility for their professional growth 

and take initiatives for reinventing 

themselves. Organizations too are a part 

in this process if they want to keep its 

employees competent and committed to 

the organizational objectives. Every 

organizational culture should include the 

professional development of its employees 

as a major goal at every level of its 

hierarchy. 

In this article we suggest that employees 

that are at different stages of awareness, 

intention and behavior in relation to 

updating themselves should be treated 

COMAN Adela 

-assistant professor- 


e-mail: adela_coman2003@yahoo.com 

TOADER Rita 

-assistant professor- 

The North University of Baia Mare 

e-mail: ritatoader@yahoo.com 

160 

differently and organizations should 

create different strategies accordingly. 

Key-words: human obsolescence, 

updating knowledge, awareness, 

intention, behavior. 

Introduction 

The speed of change is so high in the 21st century that no organization can 

accurately foresee the future for itself. 

And no organization can guarantee 

lifelong employment for anyone. 

Therefore, enhancement of employability 

has become an issue of utmost importance. 

Peter Drucker in his book “Managing for 

the Future: The 1990 and Beyond” writes: 

‘From now on, the key is knowledge. The 

world is not becoming labor intensive, not 

energy intensive, but knowledge intensive 

(p.67). Further, in his 33rd book at the age 

of 93 he said that as we begin our journey 

in the 21st century it is clear that we live 

in an increasingly interconnected world. 

He expressed that ‘the next society will be 

a knowledge society in which knowledge 

will be the resource and knowledge 

workers will be the dominant work force. 

In the future, there will be two work forces 

made up of the under-fifties and the overfifties’. 

It means that education does not 

stop when we finish our formal education. 

In other words, gaining knowledge in

college is as important as gaining college 

after college. Benjamin Franklin once said 

that ‘there will be plenty of time to sleep 

when you are dead’. We are going through 

a phase where there are no time-outs and 

no commercial breaks. What is out of the 

ordinary is the speed of change. The 

question is not whether what is current 

will become obsolete, but how rapidly. Bill 

Gates wrote in his book ‘Business@Speed 

of Thought’ that business is going to 

change more in the next ten years than it 

did in the last fifty years. His statement 

‘we are always two years away from 

failure’ is a powerful indication towards 

uncertain and unsteady conditions. The 

speed of change is higher than ever and 

therefore the speed of human obsolescence 

should be kept under control. Noceraz 

(1996) said that one can expect the skills 

one has to be obsolete in three to five 

years. There is a dire need to remain 

updated to survive which calls for 

unlearning and relearning the old habits, 

knowledge and skills. Howard (1995) said 

that in the post-industrial information 

age, the balance of work has tipped from 

hand to head, from brawn to brain. 

Rown Gibson (1998) who has been called a 

‘Guru among the Gurus’ said in his book 

“Rethinking the Future” that the winners 

of the 21st century will be those who can 

transform their organizations into 

something that more resembles a jeep-an 

all-well drive, all-terrain vehicle that is 

lean, mean and highly maneuverable. 

Such an organization would be one that 

would move and shift direction quickly in 

uncertain territory, reacting rapidly to the 

changing nature of the business 

environment, the changing nature of 

competition and the changing needs of the 

customers. Waitley (2004) in his book 

“Empires of the Mind” said that ‘…the 

only empire that will survive in the 

twenty-first century will be the empire 

you build within your own mind’. 

Communicating the need to get adapted in 

this changing and challenging 

environment, Waitley also said that 

‘unless many giant companies adapt, they 

will become the dinosaurs of the twentyfirst 

century, and millions of ‘worker 

161 

dinosaurs’-individuals who will become 

obsolete because they lack the knowledge 

or skills to compete in the new knowledge 

era-will share that fate’. 

Obsolescence – Conceptual 

Framework 

According to Darwin, individuals – as a 

species – will survive only if they adapt to 

the changing environment. Translated 

into the 21st century, this means that 

individuals have a chance to survive in 

their jobs only if they adapt their skills 

and abilities to the needs of an ever 

changing environment. Some choose to 

react to the changes around them. Others 

may choose to adopt rather a proactive 

attitude towards change and, by doing so, 

they keep obsolescence away at least in 

the short run. When the individual’s 

productivity declines, this is a sign that he 

fails to adapt to change and that his role 

in the organization will diminish in the 

long run (Dhar, 1994). 

Obsolescence occurs when there is a gap 

between the job needs and the individual’s 

capabilities or when the skills and the 

knowledge of a manager are inadequate to 

perform his job effectively. Covey (2004), 

in his book “The 8th Habit” (p.295) 

cautioned when he said that over 20% of 

the present workforce is becoming obsolete 

and that unless they rededicate and 

reinvent themselves, within a few years, 

another 20% will become obsolete. 

Drucker (1995) emphasizing the 

importance and relevance of knowledge 

said that ‘knowledge has become the key 

economic resource and the dominant 

perhaps even the only source of 

competitive advantage’. ‘Leveraging 

organizational knowledge is not only 

important’, adds Drucker, ‘but may be the 

most important job management has’. 

Extending this further, an organization’s 

capacity to improve existing skills and 

learn new ones offers the most defensible 

competitive advantage of all (Prahalad 

and Hamel, 1990). Thus, it is very clear 

from the above that failure to update 

oneself on a regular basis to be able to

meet changing needs will render an 

individual obsolete sooner than later. 

A problem faced by all researchers and 

writers in this area is that of definitions, 

many of which are to be found in 

literature which focuses on different 

factors underlying obsolescence. The most 

commonly subscribed to definitions of 

obsolescence are those which are related 

to job performance (Burack and Pati, 

1970, Fossum et al. 1986, Harel and 

Cohen, 1982, Kaufman, 1974, Mahler, 

1975, Norgren, 1965, Pazy, 1996, Reeser, 

1977). They all define obsolescence as the 

discrepancy between job performance and 

an expected level of competence which 

incorporates new knowledge into a 

profession. 

Managerial obsolescence is in relation to 

knowledge, skill and attitude and 

therefore we have the following two 

definitions: Jones and Cooper (1980) 

define obsolescence as the extent to which 

a manager’s knowledge and skills have 

failed to keep pace with the current and 

likely future requirements of his job. 

Another aspect related to obsolescence is 

that of attitude which gets reflected in the 

definition by Mahler (1965) wherein 

managerial obsolescence is defined as ‘the 

failure of the once capable manager to 

achieve results that are currently expected 

of him’. He identified two types of 

obsolescence: ability obsolescence – the 

manager’s abilities and skills are no 

longer sufficient for him to keep up with 

past jobs; and attitudinal obsolescence – 

the manager fails to maintain flexibility in 

attitude and approach and to changing 

problems and conditions. 

To be able to effectively tackle the problem 

of obsolescence it is necessary that we 

identify the causes of obsolescence. Here, 

the emphasis is on the obsolescence 

caused due to different types of changes. 

The Changing Scene 

There are four types of changes which 

make heavy demands o a professional’s 

knowledge and skills: 

● technological change; 

162 

● occupational change; 

● organizational change; 

● changes in practices. 

Technological Change 

Technology can render certain skills 

obsolete. On one hand, technological 

changes have a positive impact on 

productivity. On the other hand, progress 

is not possible if individuals do not update 

their knowledge, skills and abilities 

(KSAs). Goggin (1999) suggests that, in 

order to avoid obsolescence, workers must 

continually develop KSAs. Goldberg (1999) 

observed that today, the only way to 

succeed is to embark on a continuous 

learning program. He remarks that the 

change is highly visible in the form of new 

products being created by new methods of 

production. Automation alone has 

revolutionized organizational processes, 

ranging from purchasing to production 

scheduling and control. 

One indication of this phenomenon is the 

staggering increase in the use of 

computers. Fox (1965) in his article on 

‘personal obsolescence’ identified 

automation and cybernetics as two factors 

most instrumental in causing 

technological change. These factors have 

become even more evident in recent times 

with the move towards capital intensive 

industries resulting in higher rates of 

unemployment and redundancies at both 

management and other levels (Hartley, 

1978, Jones, 1979). Fox (1965) further 

explained three fears associated with 

these technological changes: 

-automation and cybernetics will 

do away with many jobs and so 

swell the numbers of the 

unemployed; 

-the computer will become so 

intelligent that it will replace man; 

-many individuals cannot adapt 

themselves to the radical changes 

happening at an ever increasing 

rate in technology. 

The survival of many organizations 

depends on their innovative capacity. If

they understand the nature of change, 

they will make efforts to adapt their 

products and processes to their customers’ 

needs. The warehouse sized computer of 

1945 can presently be housed on a silicon 

chip the size of a fingernail. 

Occupational Change 

According to the Bureau of Labor 

Statistics, the unemployment rate for 

college graduates for the age of 25 was 

4.1% in February 2009, up from 2.1% a 

year ago. However, this rate is 

substantially lower than the 8.3% 

unemployment rate for people with only a 

high school diploma. That situation is 

partially due to automation, 

mechanization and growth in productivity 

that have reduced the number of bluecollar 

jobs. Many of these have just been 

eliminated, while new white-collar jobs 

have been created under the impact of 

technological change. 

The white-collar jobs of the “knowledge 

economy” require new competencies. 

White-collar workers are more 

sophisticated, more demanding more 

aware of their value and therefore they 

have higher expectations from their 

organization. To keep that workforce 

highly motivated is definitely a challenge 

for all organizations. 

Organizational Change 

An ever increasing number of companies 

are affected by organizational change 

every year. 

Gibson (1998) states that only the 

companies that challenge their status quo 

by redefining their industries, creating 

new markets and products - will have a 

future. According to the same author, the 

expansion of markets, the development of 

new products as well as mergers and 

acquisitions may favor and help 

companies stay ahead of the changing 

curve. External forces such as political 

alliances – the European Union – 

economic alliances – the OPEC – and the 

163 

introduction of the European Monetary 

System – may also have a contribution to 

the organizational change. Many 

structural changes range from the 

introduction of organizational 

development programs to the creation of 

new functions (such as training and R@D) 

in the modern organizations of the 

“knowledge economy”. 

Changes in Practices 

Quantitative analysis and sophisticated 

computer methodologies are used to 

improve management information, 

decision making and forecasting. In order 

to make employees more productive, some 

research in behavioral economics is 

focused on what motivates people when 

making decisions. Based on these findings, 

competitive management techniques do no 

longer neglect the need to keep balance 

between productivity and the need to 

create a more comfortable working 

environment for all. 

The impact of these changes can be 

noticed in the fact that over 8.2 million 

jobs were lost in the mining industry 

between 1889 and 1996 in nine countries 

of the Eastern Europe, for reasons ranging 

from lack of future career prospects to 

difficulty in coping with intense work 

pressure (OECD, 1996). 

The Impact of Changes 

The effects of these changes on 

professionals are enormous. For, besides 

having to cope with ‘knowledge changes’ in 

their own discipline, they must also cope 

with changes in other disciplines if they 

hope to maintain their effectiveness. 

‘Knowledge changes’ alone render 

particular education programs of little 

value after a short time unless the 

individual continues to study and acquire 

new learning. The concept of halflife, as 

used in nuclear physics, has been applied 

to explain the rate at which a 

professional’s knowledge goes out of date. 

When used in this context, it is a measure

of the length of time after formal 

education when a professional’s education 

is only half as relevant compared to the 

total knowledge in his field. In some 

disciplines, this is considered to be as low 

as five years (e.g., some branches of 

engineering), while for others is as high as 

10-12 years (e.g., psychology). Because of 

this, it is imperative for professionals to 

engage in some form of continuing 

education/training in order to retain the 

currency of knowledge and skills to meet 

the changing demands of their jobs. 

The growth in knowledge or the 

knowledge revolution has been attributed 

to the allocation of resources to research 

and development and educational 

activities, which together provide the basis 

for the production and distribution of new 

knowledge, somewhat like the concept 

already alluded to ‘technology feeding on 

itself’. Machlup (1962) and Drucker (1969) 

both use the term knowledge economy to 

describe the phenomenon arising from the 

growth of the ‘knowledge industries’ which 

deal with the production and distribution 

of ideas and information rather than goods 

and services. The rapid increase in the 

number of knowledge workers has 

resulted in a staggering growth in the 

production and distribution of new 

information, sometimes referred to as the 

‘information explosion’ (Bennett and 

Weiher, 1972). The number of scientific 

164 

journals alone has doubled every 15 years 

since they began 300 years ago. 

To keep abreast with this newly published 

information, it has been estimated that 

20% of a professional’s working time 

should be devoted to reading (George and 

Dubin, 1972). The implications are clear, 

for few professionals can afford to do this 

and so, the consequences are that ever 

increasing numbers are becoming 

obsolete. According to a study conducted 

by Chauhan and Chauhan (2005) in order 

to ascertain the level of obsolescence 

among Indian managers it was found that 

68.5% of the managers were obsolete, the 

extent varying from slightly obsolete 

(23%) to moderately obsolete (24%) and to 

obsolete (21.5%). Another significant 

revelation from the same study was that 

among the various factors causing 

obsolescence, organizational climate and 

attitude of superiors were found to be the 

major contributors. It has been rightly 

stated that what worked well yesterday 

will be effective today, ineffective 

tomorrow and obsolete the day after 

tomorrow. The resultant effect of this 

obsolescence for managers is a decline in 

performance standards, affecting industry 

at a time when greater demands are being 

made on these same industries to develop 

and expand. 

Two broad variables influencing 

obsolescence are given in figure 1.

INTERNAL 

FACTORS 

EXTERNAL 

FACTORS 

Source: Chauhan and Chauhan 2005. 

Chauhan and Chauhan (2005) in their study 

‘Overcoming Managerial Obsolescence: The 

Key to Human Development’ found two 

broad dimensions for human obsolescence. 

These are: individual factors – which include 

professional knowledge/skills, motivation to 

update, self-initiated updating activities, onthe-job 

updating activities and attitude 

towards learning; organizational factors – 

organizational climate, organizational 

support and attitude of superiors. 

Consequences of Obsolescence 

There are a number of outcomes for the 

individuals: some decide to retire because 

Figure 1 

Variables Influencing Human Obsolescence 

165 

Level of Awareness: 

� Denial obsolescence 

� Lack of awareness to change 

Level of Competence and Motivation: 

� Lack of competence 

� Lack of confidence 

� Negative attitude towards updating 

� Lack of motivation 

� Lack of experimentation 

Inertia: 

� Resistance to change 

Job Related: 

� Mismatch between person and job 

� Lack of autonomy 

� Non-involvement in decision making 

Relationship Oriented: 

� Non-supportive boss/organization 

� Personality clash 

Systems Related: 

� Faulty/ineffective performance 

Appraisal system 

� Lack of reward/recognition 

� Limited career progression 

opportunities 

they realize that they cannot cope with 

pressure at work. Others may cause 

trouble at work as a result of their 

incompetence. And finally, if they are 

identified as ineffective or obsolete, some 

professionals may opt for Voluntary 

Retirement Schemes (Jones and Cooper, 

1980) 

The problem of obsolescence has far 

reaching consequences, for not only can it 

affect the individual and his family, but 

also the entire department or 

organization. 

The extent of the impact of obsolescence is 

illustrated in figure 2.

High 

Degree of Impact 

Low 

Source: Chauhan and Chauhan, 2005. 

How to Tackle Human Obsolescence 

The main consensus of literature revealed 

that combating of obsolescence was a 

shared responsibility between the 

organization and its employees. Mohan 

and Chauhan (1999) found that without 

continuous training and updating of skills 

and knowledge, the possibility of 

obsolescence increases. The problem of 

obsolescence can be tackled by a two-ways 

approach: (1) initiatives taken at the 

individual level for self-development and 

updating; (2) interventions like training 

and continuing education to be taken at 

the organizational level. 

Initiatives at the Individual Level 

How can a professional who is not 

internally driven to updating activities – 

be attracted to unlearn old skills and 

relearn new skills and new attitudes? We 

believe that one way of dealing with it is 

Figure 2 

Implications of Human Obsolescence 

Self and Family 

Department 

Org 

166 

by encouraging people to make reading a 

second nature. Nevertheless, we cannot 

expect them to dedicate 20% of their time 

to reading. But, if managers and 

supervisors find a way of rewarding those 

who update their knowledge, probably 

more and more professionals would realize 

that continuous reading and learning is a 

simple and direct way of keeping control 

over one’s career. Kotter (1997) in his 

book “The New Rules: Eight Business 

Breakthroughs to Career Success in the 

21 st Century”, advised that it is essential 

to aggressively seek learning 

opportunities at work, not just to maintain 

job satisfaction, but also to ensure 

employability in a turbulent economic 

environment. At the individual level, 

professionals can work towards updating 

themselves to maintain their effectiveness 

in their present jobs and also prepare 

themselves for taking up more responsible 

and challenging jobs in the future.

The individual’s responsibility for 

updating has been clearly brought out by 

Drucker who recommends that managers 

take specific command of their career 

advancement opportunities with lifetime 

education and acceptance of complex 

project assignments (Pressly, 1999). A prepost 

study of the effects of training on 

perceived obsolescence by Mohan and 

Chauhan (1999) has shown that training 

helped in reducing the perception of 

obsolescence particularly on the 

dimensions like: (1) self-initiated updating 

activities; (2) attitude towards learning; 

● develop a work ethic; 

This is done by putting the onus for 

continuous professional growth on oneself. 

● make professional development one’s 

first loyalty; 

Keep enhancing one’s skills in ways that 

will help ensure employability in and 

outside of the organization. 

● set high developmental goals; 

Each year set high but attainable goals 

and stretch oneself to achieve those goals. 

● develop short and long-term goals 

which expand knowledge and skills; 

This currency is especially crucial as more 

years elapse between the present and 

one’s formal education. Read professional 

journals, attend or participate in regional, 

national or international conferences 

when possible. 

● keep abreast with current 

developments in one’s field; 

This involves knowing how far one’s 

function within the organization deviates 

from the mainstream in one’s field. Have a 

working knowledge of how tasks might be 

accomplished in other organizations which 

differ in size, client demographics, 

mission, etc. For all learning experiences, 

whether it is reading, seeing, thinking or 

attending, apply the formula ‘Recognize, 

relate, Assimilate and Apply’. These 

actions will help one grow in the direction 

of one’s goals. 

167 

(3) professional knowledge/skills; 

motivation to update. 

Initiatives at the individual level can be 

taken with regard to the following: 

● developing a prepare-today-fortomorrow 

attitude; 

In case our actions are focused on 

yesterday and today, then we may not 

have a tomorrow to deal with. ‘…in this 

business there are two kinds of people 

really, the quick and the dead’ (Dell, 

2002). This dramatically sums up the 

speed at which one has to prepare for the 

future. 

●strengthen communication with 

individuals at all levels in the 

organization; 

Those would be subordinates, 

peers, supervisors and senior managers. 

One should not assume that they 

intuitively understand what one is doing 

and what progress is being made. An 

information vacuum breeds 

misunderstanding. 

●develop a fair understanding of 

some other aspect of the organization’s 

work which might be related to one’s own; 

Regular informal discussions with 

a colleague in another department address 

many of the ‘how-what-where-when-why’ 

issues. 

One’s awareness of the bigger picture 

beyond one’s immediate work is not only 

helpful in maintaining perspective, but 

may be the decisive factor in allowing a 

lateral move should the organization be 

reorganized or downsized. 

� consider working towards an 

advanced degree or certification 

even if all course-work would be 

completed on a part-time basis. 

While an additional credential should 

justify the extra time, energy and money, 

it may tip the scales in one’s favor at the 

time of promotion. 

Fisher (1996) observed that lifelong 

learning has emerged as one of the major 

challenges for the worldwide knowledge 

society of the future. Some recent events

support this claim: (1) UNESCO has 

included ‘lifetime education’ as one of the 

key issues in its planning; (2) the G7 

group of countries has named ‘lifelong 

learning’ as the main strategy in the fight 

against unemployment. Fisher (1996) 

believes that the previous notions of a 

divided lifetime education followed by 

work are no longer tenable. Learning can 

no longer be dichotomized, spatially and 

temporally, into a place and time to 

acquire knowledge (school) and a place 

and time to apply knowledge (the 

workplace). 

Reinventing 

Career Development 

Yourself for 

Finding meaning in our work is 

critical if we are to avoid stagnation and 

boredom (Bergguist et al, 1993). It is the 

responsibility of each individual to effect 

the change necessary to reinvent work so 

that it has personal relevance. Companies 

require that employees take responsibility 

for their own careers. Grossman and 

Blitzer (1992) suggest at least four 

strategies for career survival: (1) honest 

assessment of self and skills; (2) 

motivation and drive to establish and 

pursue a goal; (3) awareness and 

knowledge of the strategic challenges of 

business (e.g. improving quality and 

customer service); (4) establishing an 

action plan that is built upon realistic 

expectations and that draws upon 

available resources, both within and 

outside the company. 

Being able to accomplish successful career 

transitions within an existing 

organization or a new organization 

Organizational Initiatives 

According to a study conducted by Bennett 

and Bell (2005), it was found that the best 

organizations build their talent whereas 

the rest buy talent. In this study, one of 

the six characteristics of the best 

organizations was that the best 

organizations ‘relentlessly develop the 

best talent and invest in keeping them at 

the leading edge’. While selecting the right 

168 

requires personal motivation. Successful 

transition is linked with one’s sense of 

autonomy or internal locus of control and 

is manifested in a willingness to learn and 

a positive attitude. It is the force that 

propels individuals to take the initiative in 

directing their own lives and careers. 

Many people find value in their work as a 

source of new learning and challenge. 

‘They return to school, enter training 

programs, or enroll in workshops and 

seminars to keep up to date in their 

current jobs or strike out on their own’ 

(Bergguist et al, 1993: 122). Others, 

hampered by lack of drive, fear or failure, 

or reluctance to exit company retirement 

plans by terminating employment, stay in 

unsatisfying or stressful jobs. Bergguist et 

al. ask if the sacrifice is necessary or 

worthwhile. ‘When does the time come for 

us to cease deferring gratification for the 

future and begin actually living the fabled 

future?’ (1993: 125). Whatever their age, 

adults must find meaning and community 

in their work if they want to be generative 

and alive. Therefore, they must look 

towards continued opportunities to 

‘reinvent work as a central part of 

reinventing themselves’ (1993: 135). 

The views expressed by Hudson (1991) in 

relation with life transition are equally 

applicable to managers taking the onus of 

self-development upon them by following 

principles such as: 

(1) hold on to what is working; 

(2) let go of what is not working; 

(3) take on new learning and 

exploration of new options; 

(4) move on to new commitments. 

people for the job could be one way of 

ensuring the best results, organizations 

also need to develop their people. 

Performance appraisal should focus more 

on potential appraisal to assess the 

potential of a manager to perform 

additional and higher responsibilities 

rather than one which is based on past 

performance alone. This would help in

career planning and career development. 

The appraisal should be followed by giving 

feedback, counseling, coaching, mentoring 

and training. To make training more 

effective it is suggested that it should be 

given its due and its return on investment 

should be assessed not as an ‘activity’ but 

as ‘the impact’ it produces in terms of 

improved performance by those trained. 

Organizations should seriously be 

concerned with the return on training 

investment (ROTI) they get after training. 

Today, training interventions play a key 

role and are viewed as very important. 

According to research conducted by 

Bennett and Bell (2005), one of the 

principal findings regarding training of 

employees is that the best employers give 

68 hours of training per employee per year 

while the ret give 49 hours of training per 

year per employee. Training may be a 

means to upgrade skills and competencies 

and thereby employability. It goes in line 

with the other finding of the same 

research that the best employers build 

talent while the rest buy talent. 

Emphasizing the importance of training, 

the president of Genpact said that 

‘training has become the most essential 

part of retaining people and consistently 

growing’. 

Managers also need to be provided on-thejob 

experience in appropriate positions. 

Jobs should be structured as challenging 

and at the same time make sure there is 

accountability. In other words, it should 

provide sufficient headroom (authority 

169 

and responsibility) and elbow room (scope 

and variety). Organizations that are 

decentralized in terms of business or profit 

centers create more opportunities for 

development than organizations that do 

not. Also, people with high potential 

should move through a series of 

challenging jobs. Jobs should provide a 

range of challenges. Finally, executives 

need to learn from highly skilled 

colleagues as well as from superiors. 

As Drucker (1995) claims, ‘knowledge has 

become the key economic resource and the 

dominant, perhaps even the only source of 

competitive advantage’. ‘Leveraging 

organizational knowledge is not only 

important, but may be the most important 

job management has’ adds Drucker. 

Extending this further, an organization’s 

capacity to improve existing skills and 

learn new ones offers the most defensible 

competitive advantage of all (Prahalad 

and Hamel, 1990). 

Organizations should adopt different 

approaches in dealing with different 

employees with regard to their own 

perception and self-initiated action 

towards overcoming obsolescence. These 

are explained in figure 3. In relation to 

updating activities, the interventions can 

be worked out by categorizing employees 

into: individuals at the awareness stage; 

individuals at the intention stage; 

individuals at the behavioral stage 

(Chauhan and Chauhan, 2005).

Level of Awareness 

Intention 

Behavior 

Source: Chauhan and Chauhan 2005. 

Figure 3 

Organizational Interventions to Tackle Obsolescence 

for Different Employees 

LEVEL OF 

EMPLOYEES 

Unaware of Need 

to Change 

Concerned about 

need to Change 

Motivated to Change 

Tries New Behavior 

Sustains New Behavior 

170 

ORGANIZATIONAL 

INTERVENTION 

Raise Awareness 

Recommend solutions 

Identify perceived barriers to 

and benefits of behavioral 

develop skills/knowledge 

Provide support/resources 

Reduce barriers/ 

Provide opportunities to 

develop skills/knowledge 

Encourage continuance by 

recognizing/rewarding 

Appreciation/reward for 

new behavior/groomed 

for higher responsibilities

At the awareness level, employees could 

fall into two categories: (1) those that are 

unaware of the need to change should be 

made aware through constant interactions 

and communication and provided 

suggestions; (2) those that are concerned 

about the need to change but are 

uncertain about what is to be done; the 

perceived barriers should be targeted and 

the benefits of behavioral change should 

be made known to them. 

Depending on employees’ view of change, 

an employee may display any of the 

following responses: confusion, shock, 

anxiety, relief or denial. 

For the organization, this stage is where it 

finds the level of energy awareness that 

employees currently have, what will 

encourage them to change behavior and 

how they will get involved. This is the 

stage where managers should identify an 

“audience” and create a message. 

When employees are in the awareness 

stage, organizations can: 

- communicate often, share in-depth 

information; 

- solicit and address questions and 

concerns; 

- let employees know that all feedback 

is appreciated. 

At the intention stage, employees 

begin to understand why updating is 

necessary: some may see this change as 

positive and are willing to make an effort 

to improve themselves; others may 

perceive updating as negative and timeconsuming 

and display decreased 

productivity and ambivalence. 

Employees may also begin to say 

such things as: “I see some risks 

associated with this new knowledge”. 

When employees are in the 

intention stage, organizations can: 

- show concern for employees whose 

skills and abilities may soon become 

obsolete; 

- show sponsorship both verbally and 

by action in “healing” obsolescence; 

171 

- convey to employees how their 

future state will look like and what 

type of orientation and support 

employees will receive for continuing 

their learning and training 

activities. 

At this stage, professionals are generally 

motivated to change and therefore they 

need to be provided constant support in 

terms of resources, commensurate job 

profile, opportunities to develop skills and 

efforts should be made to remove or 

reduce any barriers in the process of 

development. Dubin (1972) found that one 

of the chief situational determinants for 

motivating managers to update 

themselves is the behavior of their 

supervisors. 

In the behavior stage, employees could fall 

into two categories: those who are trying 

to make changes in behavior and those 

who have made the necessary changes and 

need to sustain them. For those who are in 

the process of trying out changes, they 

need constant encouragement and praise 

and reward for any positive outcome of the 

changed behavior. For continued effort 

with the changed behavior, organizations 

should suitably reward the employees and 

groom them for higher responsibilities. 

Earlier research by Locke (1970) 

concluded that the supervisor aids in the 

motivational process by helping a 

subordinate to specify his goals within the 

context of his job and ensuring that 

facilities exist for the subordinate to 

update his skills and to accomplish his 

goals. This takes the supervisor out of his 

traditional ‘regulatory role’ and into that 

of developer and facilitator of the 

subordinates’ motivational potential. 

When employees make a personal 

commitment to lifelong education and 

training and display energy and 

enthusiasm in acquiring new skills and 

abilities, it is often a good time for 

collaboration. 

When individuals are in the behavior 

stage, the organization can:

- clarify and communicate desired 

behaviors; 

- recognize and reward new attitudes 

and skills; 

Conclusion 

We have discussed a two-ways approach to 

tackle the problem of human obsolescence: 

one at the individual level, based on a 

proactive approach to lifelong learning 

needs in order to adequately respond to 

challenges of the knowledge-based 

economy. At the organizational level, 

challenges should be addressed by 

assessing the employees’ potential on a 

regular basis. Different strategies should 

be designed in order to address the three 

stages of an employee’s “road map” in 

fighting obsolescence: the awareness 

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IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE 

LEARNING? 

Abstract 

Computer games are today an important part 

of most children’s lives and increasingly an 

important part of our culture as a whole. 

Computer games are for our new generations 

a way of relaxing and entertaining, learning 

and communication. This games are 

designed ‘to be learned’ and therefore provide 

models of good learning practices We often, 

as adults, watch in amazement as children 

dedicate hours to acting as football coaches, 

designers of empires, controllers of robots, 

wizards and emperors. 

In this paper we explore the idea of 

combining education and software games to 

make the learning process motivating. Across 

the whole world, educators and professor are 

increasingly becoming interested in the 

potential role of computer and video games to 

support young people’s learning. In academic 

research circles, video games are now a 

popular subject of study not only in computer 

science departments but in media, 

communication and cultural studies, literacy 

studies, and education departments too. 

A key finding of our study was that teachers 

focusing on encouraging competency skills 

such as teamwork, problem-solving, 

communication were more likely to maintain 

the overarching narrative of the game in 

lesson activities than teachers who were 

focusing on students' acquisition of content 

knowledge. 

One other important conclusion suggested by 

our study is that when young people are 

playing games on their computer they are 

engaged in learning activities that are more 

complex and challenging than most of their 

formal school tasks. 

CONSTANTIN Ionut 


ionut.constantin@drept.unibuc.ro 

Dumitrascu Raluca-Bogdana 


raluca-bogdana.dumitrascu@drept.unibuc.ro 

174 

Key words: edugames, game based 

education, e-learning. 

Introduction 

One of the main uses of computers at 

home is for computer games. Computer 

games are very popular: a study showed that 

75% of children played video games, alone or 

with friends. While there are games with an 

education focus, the main reason reported 

for playing games is enjoyment: games are 

engaging and fun. The amount of time that 

children spend playing computer games at 

home suggests closer consideration of the 

role of games. Despite early concern about 

computer games and the negative effects like 

violence, addiction or poor school 

performance, studies have also shown a 

positive side. Playing computer games can 

enhance visual processing skills, including 

visual attention, and the ability to 

manipulate objects or mental images 

through space. Players discover strategies 

for overcoming obstacles, and construct 

understanding of complex systems through 

experimentation in natural and unobtrusive 

ways. There are countless games where 

educational objectives are in the foreground, 

and learning is the explicit goal of the game. 

Thus the computer games technology 

could be used to render educational software 

more motivating and engaging. In this 

respect, the difficult process of learning 

could become more amusing. 

Recent studies suggest that when 

young people are playing computer and 

video games they are implicate in learning 

activities that are more complex and 

challenging than most of their formal school

tasks. This argument can be divided into 

three related strands: first, games as 

challenging learning environments; second, 

the sorts of things gamers may learn 

through game play; and third, the social 

factors that contribute to learning through 

games. Briefly, before outlining these three 

areas, it should be noted that it is highly 

unlikely that many games exhibit or 

inculcate all of the characteristics of 

learning that are listed; nor do we suppose 

that games are good for learning everything 

or for every learner. Many educators have 

used games for learning, games designed to 

educate as well as entertain. There are many 

genres of video and computer games such as 

strategy games, adventure games, roleplaying 

games, action games, and others. 

Although each genre can inform 

instructional designers and educators about 

engagement, the new game genre, massively 

multiple online role-playing games 

(MMORPG), may be of great relevance in the 

design of interactive learning environments 

because it provides a flexible environmental 

design which provides scaffolding for 

problem-solving along with elements which 

foster intrinsic motivation. An MMORPG is 

a persistent, networked, interactive, 

narrative environment in which players 

collaborate, strategize, plan, and interact 

with objects, resources, and other players 

within a multimodal environment. 

Instructional designers and educators 

continually seek methods for fostering 

collaboration and critical thinking in rich 

learning environments. Collaboration and 

critical thinking are activities central to the 

MMORPG game play experience. There are 

many genres of video and computer games 

such as strategy games, adventure games, 

role-playing games, action games, and 

others. Although each genre can inform 

instructional designers and educators about 

engagement (Dickey, 2005), the new game 

genre, massively multiple online role-playing 

games (MMORPG), may be of great 

relevance in the design of interactive 

learning environments because it provides a 

flexible environmental design which 

provides scaffolding for problem-solving 

along with elements which foster intrinsic 

motivation. An MMORPG is a persistent, 

networked, interactive, narrative 

environment in which players collaborate, 

strategize, plan, and interact with objects, 

resources, and other players within a 

175 

multimodal environment. Instructional 

designers and educators continually seek 

methods for fostering collaboration and 

critical thinking in rich learning 

environments. Collaboration and critical 

thinking are activities central to the 

MMORPG game play experience. For this 

reason, computer games have captured the 

attention of educators and researchers who 

are interested in how gaming might affect 

pedagogy (Juul, 2001). The purpose of this 

website is to take a look at if the computer 

games indeed enhance the specific learning 

skills as predicted by the researchers in 

educational settings. All information is 

based on research articles findings. 

There are many researchers and 

educators that advocate the use of software 

games for the purposes of education. Papert 

(1993) notes that software games teach 

children that some forms of learning are 

fast-paced, immensely compelling and 

rewarding whereas by comparison school 

strikes many young people as slow and 

boring. Boyle (1997) points out those games 

can produce engagement and delight in 

learning; they thus offer a powerful format 

for educational environments. Moreover, 

there are studies that have shown that the 

use of carefully selected computer games 

may improve thinking (Aliya 2002). As a 

result, many researchers have developed 

games for educational purposes (e.g. Conati 

& Zhou 2002). However, the attempts to 

create educational games have not reached 

schools yet. There are several reasons for 

this. At first, not all educators and parents 

are convinced that educational games can be 

beneficial to students. 

Second there are criticisms about the 

quality of the existing educational games. 

For example, Brody (1993) points out that 

the marriage of education and game-like 

entertainment has produced some not-veryeducational 

games and some not veryentertaining 

learning activities. 

There are advantages and 

disadvantages of using games for education 

and learning. 

Advantages of game based education: 

� Clear learning goals - Educational 

game have clearly defined goals. 

Players know from the start what 

kind of content, skills and strategies

had to learn and how to apply them 

in the game. 

� Experiences and practice 

opportunities that challenge the 

learner to increase the level of 

expertise - Players are engages 

with different learning situation 

where they can increase the level of 

expertise by going through them. It 

is important for the game to offer 

engaging experiences to captivate 

the player for hours in problem 

solving activities. 

� Progress monitoring and 

feedback - Player’s progress is 

continuously monitored and provides 

clear and immediate feedback. The 

game must adapt at the level of 

player and make him improve his 

capabilities by offering new 

challenges. 

� Provocation of inquiry, 

questions, and teamwork - Games 

motivates players to seek out 

additional information (strategies 

and concepts) about the game from 

friends, other players, tip guides, 

websites, and other resources, 

receive assistance from other game 

players through forums. 

� Strong motivation and goal 

orientation using bridging 

between theory and practice: 

Games had features that motivate 

player to don’t give up. They will 

continue to play the game, even after 

some failure, in order to improve 

their level of expertise. Also games 

act as a bridge to connect concepts 

and theory (what is learned) with 

how it is used. 

� Customization: Novice players 

begin to play the game at easiest 

level and then gradually increase the 

difficulty of tasks until he manage to 

reach mastery. 

� Unlimited patience and 

unlimited attempts – In games you 

can try as many times as you want to 

resolve milestones unlike teachers 

who can lose patience with students 

when they don’t perform well 

affecting students performance and 

self-confidence. 

176 

Disadvantages of game based 

education: 

� High development cost - 

Development of educational games is 

very expensive and sometimes is not 

feasible. Public schools have in most 

of the cases low budgets and it is 

very hard to attract enough sponsors 

for development. 

� Conservative prejudices – Using 

edutainment games are hard to 

accept for some parents and 

educators. 

� Evaluation problem: - 

Standardized examinations measure 

student’s performance only from 

theoretical point of view while higher 

order knowledge and skills, such as 

strategic thinking, interpretative 

analysis, problem solving, and 

decision-making, are not revealed by 

them. 

� Games may cause addictiveness 

– Students must be warning about 

the potential risk of addiction and 

the play times spend monitored. 

Given the motivational advantages 

of software games as well as the criticisms 

that have been made on educational games, 

there has to be further investigation on the 

advantages and limitations of software 

games for education. Such investigation may 

lead to useful guidelines for the design of 

effective educational software games. 

Indeed, educational software games should 

be designed in such a way that they are 

educationally beneficial for all students, 

even those that are not familiar with 

computer games. 

CONCLUSIONS: 

The strong motivational influence of 

computer games on children can be used 

positively within education. There are some 

points that have to be accomplishing to 

reach education through games. For 

example: 

Games which will be used in school 

should provide progressively complex

challenges which are clear and finite and can 

be repeated; players should be able to adapt 

the level of difficulty (from novice to expert) 

if necessary. 

Players need to be absorbed in 

meaningful activities whose aims and goals 

they clearly understand and the 

accomplishment of which stretches their 

current competence. 

Using a game in the classroom 

should not necessarily need players to be 

‘trained’ beforehand; players should be 

allowed to practice playing, often by failing 

and revising and re-trying tactics, but may 

need support from staff or peers. 

Tasks should be related closely to 

real-world practices and concrete 

experiences or be consistent with the 

fantasy, and not staged as practice for some 

later test or exam, or, worse still, as reward 

for completing a ‘learning activity’. 

The game demands that players 

interact with the rule system, by taking 

responsibility for actions in alternative 

contexts, and by seeing their impact on the 

outcomes of the game as a whole. 

Players should be able to infer from 

the feedback supplied how their actions have 

caused particular effects, and whether these 

effects are the ones that were desired; 

scoring systems provide immediate and 

constant ‘assessment’ of progress and 

accomplishment, although cannot as yet 

provide any improvement or further 

progress. 

Games which will be used in 

classrooms should promote dialogue and the 

exchange of knowledge and opinions; they 

don’t need to be multiplayer titles, but 

should have some cultural relevance to the 

participating players. 

Playing a game should be supported 

by the availability of additional resources 

such as walkthrough guides and hints and 

tips on the internet in order to promote 

wider understanding and knowledge about 

it. 

It should not be assumed that all 

players in a classroom have the same 

expertise; some may be recruited to ‘tutor’ 

others how to play, including pointing them 

towards relevant resources or sources of 

information. 

Games in the classroom should allow 

players to take on new identities and to 

experience these identities’ demands and 

challenges, and to consider their potential 

177 

courses of action; players may begin to 

understand alternative perspectives in 

particular social and political contexts. 

The literacy demands in games vary 

from the fantastical to the professional and 

are often as complex as the literacy’s of 

subject domains as diverse as science, 

literature and history; in-game literacy 

demands may extend and stretch players’ 

linguistic repertoire in particular contexts. 

Playing games in classrooms can 

prepare players for 21st century working 

and learning practices, by dealing with 

diverse media and complex data, multitasking, 

communicating and working with 

others, making decisions, analyzing pictures, 

audio and actions as well as written words, 

and to engage in ongoing development 

through ‘on the job’ practice. Space for 

reflection is rarely present in games; players 

in classrooms should be provided space to 

review their performance and what they 

have learned by playing, eg to ask why 

particular courses of action always fail or 

how it is they have learned to overcome 

particular problems. 

References 

� C. Dormann, J-P. Fiset, S . Caquard, B. 

Woods, A. Hadziomerovic, E. Whitworth, 

A. Hayes, R. Biddle COMPUTER 

GAMES AS HOMEWORK How to 

delight and instruct; Carleton University, 

Ottawa, Canada; 

� Elliott, J., Adams, L., Bruckman; "No 

Magic Bullet: 3D Video Games in 

Education"; Proceedings of ICLS 2002, 

International Conference of the Learning 

Sciences, Seattle, WA, October 23-26, 

2002. 

� Gunter, B. The Effects of Video Games 

on Children: The Myth Unmaske, 

Sheffield: Sheffield Academic Press; 

(1998). 

� Maria Virvou, George Katsionis and 

Konstantinos Manos; Combining 

Software Games with Education: 

Evaluation of its Educational 

Effectiveness, Department of 

Informatics; (2005). 

� Richard E. Mayer, Learning 

Environments: The Case for Evidence- 

Based Practice and Issue-Driven 

Research; Educational Psychology 

Review, Vol. 15, No. 4, December 2003;




THE ROLE OF THE STATE IN OBTAINING NATIONAL COMPETITIVE 

ADVANTAGE IN ROMANIAN ECONOMY 

Abstract 

In Romania, the process of transforming a 

centralized economy into a competitive 

market economy proved difficult and was 

accompanied of material setbacks for a long 

period of time. Romania's accession to the 

European Union does not mean the end of 

efforts to achieve the objectives related to 

economic development and competitiveness, 

but is just the beginning of a hard fight to 

gain a strong position in the Single European 

Market characterized by fierce competition. 

Responsibility for achieving this goal does 

not belong only to state or only business life 

but all economic actors should coordinate 

their efforts and find the most appropriate 

solutions and directions for action. 

Currently, it is considered that there is a 

clear convergence between trade and 

competition in the context of globalization 

and national domestic market saturation, 

therefore Romanian companies must be 

prepared to deal with massive inflows of 

foreign companies wishing to take advantage 

of the less exploited Romanian market. To 

prevent the creation of barriers to trade the 

following points must be on the agenda of 

governments: the incidence of state 

monopolies, of exclusive rights and 

regulatory policies on competition and 

international trade, the incidence of trade 

policy on competition; the report between 

trade and competition policy and 

development and growth; the analysis of 

tools, rules and current activities on trade 

and competition policy; the incidence of 

organizations’ and companies’ anticompetitive 

policies on international trade. 

Moreover, it is well known the fact that the 

economic effects of mergers, restrictive 

practices or abuses of dominant positions are 

often felt in other countries than in those in 

which the undertakings concerned are 

formed. 

Adina Gabriela Dascalu, PhD student; 

Univerity of Craiova; 

adina_gabriela_dascalu@yahoo.com 

178 

Key words: 

1.The Role of the State in Acquiring 

National Competitive Advantage 

In the continuous debate on the 

competitiveness of nations, no matter raises 

more heated discussion and creates higher 

disagreement than state's role. Many 

consider state as a key supporter of the 

industry, which applies a set of policies to 

contribute directly to ensuring the 

competitiveness of strategic fields or 

subjects. Others accept the optics of free 

market economy that the economic 

operations should be left to the “invisible 

hand” mechanisms. 

Both approaches are incorrect. By following 

their logical outcome, both of them would 

lead to continuous erosion of the competitive 

capacity of a country. On one hand, 

proponents of government’s industry support 

often propose policies that, in reality, would 

affect the long-term situation of companies, 

doing nothing but create a need for more 

substantial aid. On the other hand, 

supporters of reduced presence of state in 

the economy do not recognize the legitimate 

role that it plays in shaping the context and 

institutional structure surrounding 

companies and creating an environment to 

stimulate companies to gain competitive 

advantage. 

The role of the state must be one of a 

catalyst and a stimulant; it must encourage - 

or even push - companies to aim higher 

aspirations and to raise the bar of 

competitiveness, even if it can be unpleasant 

and difficult. The state can not create 

competitive economic fields, only companies 

can do that. The state plays an inherent 

partial role, and could be successful only 

when favourable conditions necessary for the 

development of competitive advantage are 

associated with its actions. However, state’s

ole of transmission and amplification of 

these forces is a very important one. 

Successful government policies are the ones 

that create an environment where 

companies can gain competitive advantage, 

not those directly involving the state in that 

process. The Romanian state shall take into 

account that its role is an indirect, a not 

direct one. 

Romanian state should understand that 

countries go through competitive 

development stages and the role of the state 

changes as the economy progresses. By 

stimulating the demand for superior 

products, by putting industry before the 

need of creation of new technologies through 

symbolic cooperation programs, by offering 

prizes to reward quality and by applying 

other policies which amplify the forces of the 

above conditions, the state can accelerate the 

pace of innovation. 

It is not hard to understand why the state 

can make mistakes when planning to ensure 

the competitiveness of the nation: the time 

needed by the companies to achieve 

competitiveness differs, in principle, from 

the time the government policies need to 

take effect. Often it takes more than a 

decade for the industry to gain a competitive 

advantage and this process involves an 

extensive training to people skills, 

investments in products and activities, the 

creation of conglomerates and the 

penetration of foreign markets. 

In politics, however, a decade means forever. 

Therefore, most governments prefer policies 

that provide benefits clearly visible in the 

short term, such as subsidies, protection and 

arranged mergers - which are the exact 

policies that delay innovation. That is why 

the fact that competition law prohibits 

subsidies or protection based on anticompetitive 

criteria and agreements between 

firms, is a benefit for preventing the 

government to bow to popular measures 

involving long-term disadvantages. Most 

policies that would produce real positive 

effects are too slow and require too much 

patience from the politicians or, worse, 

require painful measures in the short term. 

As it could be observed in the transition 

period in Romania, the liberalization of 

protected industries, for example, quickly led 

to the bankruptcies of many companies and 

only later to the emergence of other, stronger 

and more competitive. 

179 

Policies that offer static short-term cost 

advantages but unconsciously undermine 

innovation and dynamism are the most 

common and most serious error of state 

industrial policy. Wishing to help the 

government finds it very easy to adopt 

measures such as conducting joint research 

and development programs that would avoid 

the "useless" research activity, measures 

that undermine the dynamism and 

competition. Even a 10% reduction in costs 

due to economies of scale is easily cancelled 

by the rapid improvement of products and 

activities and the increase in volume of 

activity in international markets- 

advantages that such measures undermine. 

There are some simple, elementary 

principles, which the Romanian state and 

any state should meet in order to fulfil its 

role of supporting national competitiveness: 

fostering change, promotion of internal 

rivalry, stimulating innovation. Thus, there 

can be applied several policies designed to 

guide the national economy toward 

competitive advantage and these will be 

presented further. 

2.Fundamental Policies for Acquiring 

Competitive Advantage 

The focus over the creation of 

specialized production inputs. The state 

bears the primary responsibility for 

fundamental issues such as primary and 

secondary education systems, national basic 

infrastructure and research activities in 

broad areas of national interest such as 

health care. However, these generalized 

efforts to create production inputs rarely 

produce competitive advantage. Factors to be 

translated into competitive advantage are 

advanced, specialized and tied to specific 

industries or industry groups. Mechanisms 

such as specialized apprenticeship programs, 

research activities undertaken by 

universities and related to a particular 

industry, trade union activities and, most 

importantly, private investment by 

companies create the ultimate factors that 

will generate competitive advantage. 

Avoiding any actions on the factors’ and 

the currency market. By interventions on 

the currency and the factors’ market, the 

state hopes to reduce the cost of production 

factors or to obtain a favourable exchange 

rate to help companies compete more 

effectively in the European market, frequent

interventions that also took place in 

Romania. However, evidences gathered from 

around the world indicate that these policies 

- such as devaluation policy - are often 

counter productive. They are hostile to the 

improvement of industrial activities and to 

the acquisition of a more sustainable 


Often, foreign currency shocks may force 

companies to improve their competitive 

advantages. The idea is that it is not the 

state to implement policies that intentionally 

lead to increased costs of production factors 

or exchange rate. Conversely, when market 

forces determine the factors’ cost or 

exchange rate’s increases, the state should 

resist the temptation to reduce them. 

Applying strict standards on products, 

products’ safety and natural 

environment. Strict government 

regulations may help to acquire the 

competitive advantage by stimulating and 

increasing the quality of domestic demand. 

Stringent standards for product performance 

in service, their safety and effect on the 

natural environment requires firms to 

improve quality, improve technology and 

provide products that meet social and 

consumers’ requirements. Relaxation of 

standards, no matter how tempting it seems, 

it would be counterproductive [1]. 

When the tough regulations at national level 

anticipate standards that will apply to 

European or global scale, they may offer to 

the Romanian companies the advantage of 

creating products and services that will be 

appreciated throughout Europe or elsewhere. 

For example, tough standards imposed by 

Sweden in the field of natural environment 

protection have helped to acquire 

competitive advantage in many other 

domains. But strict standards must be 

combined with a fast and efficient regulatory 

process that would not consume resources 

and cause no delay. 

Clear limitation of cooperation between 

rivals. The most sustained global policy 

imperative in the competitiveness area is 

currently the cooperation in research and 

the creation of groups of companies to obtain 

the benefits of economies of scale. 

Competition law [2] in Romania, harmonized 

with European legislation, provides as an 

exception to the anticompetitive 

arrangements those arrangements which 

lead to the promotion of technical and 

economic progress, to the improvement of 

180 

product and services quality or to the 

improvement of production or distribution of 

goods or provision of services. 

Starting from the belief that independent 

research activity carried out by competitors 

is unnecessary and is repetitive, that 

collaborative efforts lead to achieving 

economies of scale and that it is likely that 

individual firms allocate insufficient funds 

for research and development because they 

can not exploit all the results, governments 

have embraced the idea of a more direct 

cooperation. 

Collaborative projects stimulate companies 

to explore new areas and increase internal R 

& D spending as firms know that their rivals 

are studying their moves. 

Under well defined conditions, research 

cooperation can be beneficial. The respective 

projects should target commodities and 

operational research, not issues which are 

closely related to the sources of a firm's own 

advantage. They should represent only a 

small part of the overall research program of 

a firm in a given field. Cooperation in 

research should have an indirect nature and 

should be conducted by independent 

organizations that have access to most 

economic operators in the respective 

industry. Organizational structures, such as 

university laboratories and centres of 

excellence, reduce management problems 

and reduce the risk of rivalry. Finally, the 

most useful cooperation projects are focused 

on issues related to several areas of activity 

and require substantial investments in 

research and development. 

In conclusion, Romanian state should 

allocate more funds for research and create 

the necessary organizational structures to 

encourage cooperation between companies 

oriented towards obtaining advantages in the 

benefit of several activity fields. 

Promoting objectives that require longterm 

investments. The state plays a vital 

role in influencing the objectives of investors, 

managers and employees through policies in 

various areas. For example, the way of 

regulating capital markets influences the 

motivations of investors and therefore, the 

behaviour of companies. Romanian state 

should encourage long-term investment in 

human skills, innovation and tangible 

assets. The most effective tool for increasing 

the pace of long-term investment in industry 

is, probably, granting tax benefits for longterm 

capital gains (at least five years)

limited to new investment in a company’s 

shares. Tax facilities for long-term capital 

gains should also be applied to pension 

funds, and other investors who currently do 

not pay taxes and have little reason not to 

engage in rapid trading of shares. 

Liberalization of competition. About this 

aspect should be noted that regulation of 

competition through policies that maintain a 

state monopoly, entry control into a field of 

activity or price fixing has two important 

negative consequences: the first is the 

suppression of rivalry and innovation when 

firms become concerned about the 

relationship with regulators and about 

protecting what they already have, and 

secondly, that area becomes less dynamic. 

However, liberalization and privatization by 

itself does not succeed without a vigorous 

domestic competition - and for that a 

consistent and efficient competition policy is 

needed - attributes that have not 

characterized the Romanian competition 

policy at the time of liberalization and 

privatization of many areas and many 

Romanian enterprises. 

Implementation of effective antitrust 

policies. This measure is worth mentioning 

because, although it is considered that 

mergers and alliances are necessary to meet 

globalization by creating large national 

companies, they often undermine the 

competitive advantage. An effective 

competition policy is of fundamental 

importance for innovation. Real national 

competitiveness requires governments to 

reject the mergers, acquisitions and alliances 

involving leaders in the field. Moreover, the 

rules applied to mergers and alliances 

should apply to both domestic and foreign 

companies. Finally, government policy 

should be favourable to the entry of new 

firms, both Romanian and foreign 

companies, on the domestic market and 

unfavourable to acquisitions. Companies 

should however be allowed to buy smaller 

companies in related fields where this action 

facilitates the transfer of skills that could 

ultimately lead to competitive advantage 

creation. 

Rejection of controlled trade. Controlled 

trade is a dangerous tendency to eliminate 

side effects of national competitiveness. 

Systematic marketing agreements, 

voluntary restriction agreements and other 

instruments that set quantitative targets for 

the markets sharing are dangerous, 

181 

ineffective and often very expensive for 

consumers. Instead of promoting innovation 

in the Romanian industry, trade control can 

provide a market for inefficient companies. 

Government trade policy must aim at free 

market access to each country. To be 

effective, the trade policy should not be a 

passive tool, it cannot address grievances or 

cannot serve only those areas that can 

generate sufficient political influence, it 

should not be the result of a long period of 

injustice or serve only to industries in 

difficulty. Trade policy should strive to open 

markets when the nation has a competitive 

advantage, to actively help the growing 

industries and resolve problems since their 

early stage. 

3.The implementation of policies aimed 

at acquiring competitive advantage in 

Romanian economy 

As noted above, there is a set of policies to 

determine the acquisition of a nation's 

competitive advantage. These policies should 

first target the potential strategic areas, of 

most importance for the Romanian economy, 

after an analysis of the best way in which 

each policy could be applied to develop and 

increase their competitiveness. But how can 

these economic areas be supported on longterm 

considering Romania's EU integration 

and the globalization and 

internationalization of world markets which 

require the deregulation of all restrictions, 

subsidies and protective measures? 

The main methods of support should focus 

on actions at the microeconomic level and at 

the level of production factors involved in the 

process (the human factor and fixed capital). 

Such concerted action involves: 

� the facilitation, through monetary 

and fiscal policies, of fixed capital 

stock growth, simultaneously with 

the investment in high-level 

technology. The transparency of 

information in the field of technology 

and know-how transfer must have an 

important role in this area; 

� the creation of national programs of 

education and training in the 

management and specialization in 

the areas mentioned above. The 

budgetary impact of these programs 

is minimal, and temporary 

restriction schemes for the "brain

drain" [3] that might result can be 

created; 

� elimination of bureaucratic 

regulations and restrictions in these 

industries, the creation of simple 

institutions specialized by industry 

(NGOs being the most appropriate), 

of special programs to facilitate 

export promotion and staff training 

in those fields. 

Another question that arises is which should 

be the best action to offer Romanian 

economy the compatibility and 

competitiveness of other EU Member States. 

Firstly, Romania must apply a 

competitiveness strategy for directing the 

development of national economy on concrete 

components. This strategy must focus on 

improving the overall framework which 

facilitates the promotion of exports and 

boosts investment. Through it, high speed 

growth can be reached for long periods of 

time and the competitive advantage can be 

acquired. 

Secondly, the competitiveness strategy must 

involve a large national effort to enhance 

workforce’s education and lifelong learning 

or retraining, in the spirit of competitive 

economy, of information society, in order to 

meet the requirements of companies. The 

transfer of high technology and know-how 

from other countries should be supported 

internally, with measures to promote 

educational quality of the human factor, the 

only able to absorb rapid evolutionary jumps 

and to change the inertia of economic 

structures (through actions at the 

microeconomic, micro-social and cultural 

level). There are two basic directions of this 

training policy: 

� the education and training of policy 

makers and administrative staff, 

through both budget and private 

effort in the spirit of competitive 

mechanisms of economic systems of 

highly developed countries, in order 

to reduce bureaucracy, lack of 

flexibility of the central institutions 

and managerial incompetence at 

macroeconomic level. Strategies of 

implementation of such measures to 

minimize "brain drain" from 

Romania, can be created through 

incentives or contractual procedures. 

� restructuring the education system 

so as to ensure the preparation of 

new generations in the spirit of the 

182 

globalized society, based on the 

primacy of information transfers and 

on the promotion of competitive 

systems at global level. 

Thirdly, the promotion of sectors that can 

bring the greatest benefits like the increase 

of their innovation capacity that will lead to 

the increase of export sales must be carried 

through microeconomic policies and 

institutional means. Creation of specialized 

institutions to promote research and 

providing companies non-preferential access 

to research and its results, or imposition of 

bureaucratic restrictions to reduce the 

duration of transactions and any internally 

generated administrative barriers are only 

some examples of practices needed by the 

Romanian economy to get aligned with the 

superior economic skills held by the 

developed countries of the European Union. 

Finally, domestic investment environment 

can be boosted by the expansion, 

development and support of all 

infrastructural systems that create the 

interface of economic structures: 

telecommunications infrastructure, 

transport network, information networks, 

etc. 

Romanian economy has shown in recent 

years that it can achieve significantly higher 

annual growth rates than Western European 

countries that have experienced a very slow, 

but sustained, growth and were outrun 

mainly by emerging Asian economies. 

However, for competitiveness, development 

and high but stable long-term rates of 

economic growth, focused and targeted 

actions are needed in order to implement the 

policies that lead to acquiring national 


Conclusion 

As mentioned in the first part of this paper, 

the government can play an important role 

in the economy, with all constraints imposed 

on it by competitive legislation. It can find 

more ways to support, directly or indirectly, 

firms’ investments in research and 

development in the competitiveness area. 

Moreover, in many sectors the government is 

still a buyer or supplier and can have a say 

through the policies it adopts. For example, 

the government decided during the current 

economic crisis to allow large gas consumers 

access to domestic gas supply, cheaper 

compared to imports, for the reduction of

products and services costs of Romanian 

producers affected by the crisis. 

Another example may be that government 

can influence the position of sectors 

confronting substitute products through 

regulations and other measures, such as 

supporting firms seeking to produce 

alternative sources of energy like solar 

energy, by using instruments such as 

taxation and providing funds for research in 

this area. Safety and pollution standards 

may influence the relative cost and quality of 

substitute products. 

No structural analysis can be complete 

without the analysis, at all levels, of how 

present and future government policy will 

influence the structure of activity sectors. 

From the perspective of strategic analysis, it 

is more useful to analyze how the state 

influences sectoral competition through the 

competitive forces outlined above, than only 

to consider it as a static force. 

References 

1.Michael Porter - "Despre concurenţă", page 309, 

Meteor Press Publishing House, Bucharest, 2008. 

2.Competition Law no. 21/1996, Art. 5. 

3. Dan Voiculescu, Cezar Mereuţă- „Analiza de 

competitivitate a economiei româneşti. Orizont 

2000-2005-2010”, page 194, Romanian Academy 

Publishing House, Bucharest, 1998. 

183




THE HISTORICAL APPROACH TO COMPETITION AND THE 

COMPARATIVE ANALISYS OF COMPETITIVE MARKET VERSUS 

MONOPOLISTIC MARKET 

Abstract 

Competition’s existence in the 

market for goods and services is not only 

a major concern of economists around 

the world, but also of all states, 

especially in recent years. This is because 

internal competition between national 

operators or between them and the 

foreigns help boost international 


It is known that economic 

autonomy gives economic operators their 

freedom to choose the economic field in 

which they invest capital, in setting 

strategies for achieving their activities 

and, secondly, private property is the one 

that stimulates the process of 

consolidating the market positions held 

by business, the one that mobilizes all its 

resources to streamline business and 

ultimately provides the fundamental 

achievement, maximize profit (short 

term) and enterprise value (long term). 

However, within the competitive 

process, some traders win, others lose. It 

is, however, a normal phenomenon 

specific to the market economy as 

through the protection of competition it is 

not looking to protect those adversely 

affected by competition, but to ensure the 

normal completion of competition, in 

terms of loyalty and fairness, and the 

orientation of the economy as a whole 

toards progress and welfare. 

The concern of economists to 

define the optimal framework for 

expression of competition between 

operators and to determine the most 

appropriate rules governing economic 

activities based on principles of 

Adina Gabriela Dascalu, PhD Attendant; 

University of Craiova; 

adina_gabriela_dascalu@yahoo.com 

184 

competition is not a new attempt, this 

concern appeared even in the ideology of 

the classical theory from which it has 

evolved and acquired several forms along 

with the development of society. 

Key words: competition, 

progress, welfare, maximizing profit, 

maximizing business value, perfect 

competition, monopolistic competition. 

The Historical Approach to 

Competition 

Over time, competition has been a 

controversial topic for economists who have 

attempted to explain its mechanisms and 

provide appropriate solutions to situations in 

various stages of social development. 

Analyzing the supply and demand, 

Adam Smith noted that a reduced supply 

lead to competition among buyers, which 

raises prices, while an excess supply leads to 

competition for getting rid of surplus causing 

prices falling [1]. In "Wealth of Nations", 

Book I, Chapter 7, he mentions not only the 

multitude of sellers, but also perfect 

information and perfect mobility of resources 

as a prerequisite for effective competition; 

only the homogeneous product is not 

considered as a condition like in any modern 

analysis on perfect competition. Therefore, 

the analysis conducted by Smith on 

competition is not equivalent to the modern 

concept of perfect competition. He highlights 

the process of competition leading the 

market price towards natural prices. His 

brief overview over monopoly is "old school": 

monopoly for any product is a fixed bid. Not 

reproducible goods such as valuable 

paintings or “the vineyards of France”, fall 

outside the scope of competitive price theory. 

However, Smith notes that "industry

secrets" involve monopoly, understanding 

that they give the industrialist the power to 

decide on the price. He concludes that 

"monopoly price is almost in every case the 

highest that can be pumped from buyers," a 

statement which acknowledges that demand 

must meet the price level. 

Book IV, Chapter 2 presents the view 

of A. Smith in favor of free trade. The 

assertion that "what is prudence in the 

management of each family life can be less 

stupid in the life of a great kingdom" is a 

false theory which he condemned early at 

mercantilists. A. Smith shows the basic 

reason of someones own interest to prove 

that the general welfare is best promoted by 

removing all restrictions on imports and 

exports. By pursuing only their own good, 

people are led by an "invisible hand" to 

further social goals. Every man, if left alone, 

will wish to maximize their own wealth and, 

therefore, all men, if unimpeded will 

maximize the total wealth. The sum of all 

these separate actions determine prices; 

each person, considered separately, is 

dominated by prices and prices are governed 

by the total amount of individuals’ reactions. 

Thereby, the "invisible hand" of the market 

provides such social outcomes that are 

independent of individual desires and 

intentions. But the system of natural liberty, 

which is said to reconcile private interests 

and economic efficiency becomes, after a 

careful examination, identical to the concept 

of competition: "the invisible hand is nothing 

more than the automatic balancing 

mechanism of the competitive market”. 

Smith's statement shows that 

competition, which equalizes the levels of 

earnings and excess earnings are spent, 

leads to an optimal allocation of labor and 

capital between industries. Protectionist 

measures are justified in the case of 

embryonic industries and of the rematch 

against foreign tariffs. The state has three 

major tasks: ensuring military defense, the 

administration of justice and the duty to 

raise and maintain public works and 

appropriate public institutions, which are 

not ment to save individual interests but the 

interests of whole society. 

So, in terms of public sector 

development, Adam Smith attempts to show 

that the market mechanism leads to 

harmony, but that it must be surrounded by 

an appropriate legal and institutional 

framework. 

185 

In 1870, Jevons, Menger and 

Walras found almost simultaneously “the 

principle of reducing marginal utility”. 

Jevons approached value theory by 

analyzing two individuals engaged in a trade 

of goods. He used the isolated case of 

bilateral and competitional exchange to 

demonstrate the simple logic of competitive 

price determination. But, in fact, isolated 

exchange has unmet properties in 

competitive exchange and, later, Edgeworth 

showed that isolated exchange, or what he 

called "bilateral monopoly" is not unique and 

does not determine relative prices. 

Based on the rule that each party 

maximizes its satisfaction during the 

bilateral exchange, where each person shall 

procure such quantities of goods, and 

ultimately, the degree of usefulness of any 

pair of goods will be inversely proportional to 

the exchange ratios of goods, Jevons 

concludes that all goods are distributed 

through the exchange in order to produce 

maximum benefit. But even if we consider 

the distribution of income as given, based on 

the analysis of bilateral exchange it cannot 

be assumed that competitive exchange 

maximizes all satisfaction. Jevons did not 

take into account that the marginal utility of 

each commodity must be equal for both 

parties to exchange, at the time of 

equilibrium. So the utility is measurable 

only in terms of comparison of two or more 

goods and Jevons does not consider the 

possibility of comparisons between utility 

among individuals, thus the conclusion that 

"total freedom of exchange must be of benefit 

to all" has not a too clear meaning. 

Cournot is one of the predecessors 

of Alfred Marshall. He was the first writer to 

define and draw the demand function. He 

was not interested in utility theory, but 

assumed that market demand curve is 

negatively sloped: the market demand curve 

does not express the quantities in the 

market that consumers would buy at 

different prices, when the distribution of 

wealth, taste and habits are constant, but 

the quantities they buy currently at annual 

average prices; the demand curve traced by 

Cournot is the empirical relationship 

between sales and prices. He treated the 

monopoly as a pure case easily and 

confronted the functions of total and 

marginal revenue with total and marginal 

cost functions in order to show that the 

instant gains can be maximized if the 

monopolist produces an output at which

marginal cost equals marginal revenue. In 

1838, he proved the uniqueness of this 

maximum by establishing the condition that 

the first derivative of the total profit 

function to be cancelled and the second 

derivative to be negative. 

Marshall adopted Cournot's analysis 

for maximizing profit in his book 

"Principles", but expressed equilibrium 

conditions more in terms of cost and total 

revenue of the monopolist than in terms of 

marginal values of these variables. Thus, the 

concept of marginal income had to be 

rediscovered in 1920 when the situation of 

imperfect competition pointed theorists’ 

attention to the possibility of tilting down 

the demand curve in the case of an 

individual company. 

Cournot not only founded the pure 

theory of monopoly, but also duopoly theory. 

Each duopolist estimates a demand function 

for its products and then sets its quantity to 

be sold on the assumption that its 

production levels remain fixed. They adjust 

their output at given prices. Although each 

duopolist simultaneously adjusts its 

production to the production of the other, 

each assuming at any time that its 

production level remains constant, the 

determined solution never appears. 

Duopolist’s optimal production of output is 

represented as a function of its rival output, 

arguing that each can provide the entire 

production of one good and that production 

cost is zero. Equilibrium is reached when the 

two output levels are compatible with one 

another, and even more, Cournot shows that 

the equilibrium is "stable" under certain 

specific conditions, meaning that any 

deviation from it leads to reactions that 

restore the quantities offered at equilibrium 

levels. 

In 1880, French mathematician 

Bertrand criticized Cournot's solution and 

suggested that vendors need to set their 

prices and that each must determine his 

price by assuming the price of its rival, while 

its output remains constant. Edgeworth, in 

his "Theory of Monopoly" (1897), led this 

idea further and introduced the uncertainty 

of mutual reactions, reaching the conclusion 

that it plays an indefinite solution. 

When we take into consideration the 

behavior of firms that reciprocally test their 

reactions many cases may occur. They can 

lead to Cournot's point of view, if noncooperative 

equilibrium in which each party 

maximizes its profits relative to the other 

186 

party reaction, they can result in "minimum 

and maximum point” and maximize profits 

considering that rivals adopt the most 

dangerous policy or may lead to a 

cooperative equilibrium. Each of these cases 

contains different price-quantity pairs. 

Also, Cournot introduced the idea 

that perfect competition limits the entire 

spectrum of market structures defined by 

the number of sellers. He tried to show that 

duopolists will finally reach a common price 

that will be lower than the price that would 

have been obtained under a monopoly, but 

higher than that generated by free 

competition with several sellers. He 

maintained the concept that as the number 

of sellers increases, the branch’s production 

converges to the limit of the perfectly 

competitive branch’s production. Hence, it 

appears here in its early form, the concept of 

perfect competition later spread as a 

standard for judging uncompetitive market 

structures. 

Marshall's approach has inherited 

its emphasis on price competition from 

Cournot's static design and from the 

profits’equalization process proceeds from 

classical school; these are obstacles in the 

analysis of the competitive process. 

Marshall's concept comprises three 

elements: the replacement of partial 

equilibrium by the general equilibrium, 

placing the issues related to time passing in 

the static framework, the assumption that 

this model is suitable to clearly represent 

the real world practical issues [2]. 

Time is entered in Marshall's 

analysis through the construction of two 

distinct models. First, a short-term model, 

with determined capital, in which the 

neoclassical considerations are dominant, 

particularly those related to the merger (the 

number of market participants) in a given 

market and competitive modes adopted by 

them, and secondly, a long- term model, the 

classic one, in which is also being considered 

the capital flow entering or leaving the 

market. The decision to determine when a 

market is competitive assumes fixed 

schemes less popular among economists. 

Competition situation on a market can be 

defined as “pure” when it encounters a large 

number of producers, while the adjective 

"perfect" assumes the condition of free entry 

to the market. 

As regards the monopoly profit, 

Marshall concludes that the maximum net 

income is found by maximizing the

difference between total revenue and total 

cost, which tends to equal the marginal 

revenue with marginal cost. 

Desiring to answer the question 

whether perfect competition maximizes the 

gains from free exchange, Walras and Jevons 

made the error to generalize the analysis to 

the case of two persons and two goods. 

The dynamic approach. Friedrich von 

Hayek. One of the most representative 

contemporary economists, of the dynamic 

approach of competition and a critic of the 

static approach, is F. Von Hayek. Among his 

criticisms is also the one over perfect 

competition, because, he said, if the state of 

affairs assumed by the theory actually ever 

existed, it would deprive of their scope all 

the actions involved by the verb "to 

compete", and moreover, would make all 

these actions virtually impossible. 

Thus, the emphasis on perfect 

competition, as static equilibrium, excludes 

all manifestations of competing operators: 

advertising, selling at lower prices than 

competitors, differentiated goods and 

services, this because perfect competition 

means the absence of any competitive 

activity. The foundation of Hayek's dynamic 

approach on competition as a behavioural 

dynamic activity is an analysis of how 

knowledge is acquired and communicated in 

an economic system. For him, the 

neoclassical assumption of perfect knowledge 

of the market has an inhibitory effect on the 

investigation of firms’ conduct for someone 

who wants to research the market. It is 

assumed that producers already know which 

is the lowest cost for which a good can be 

produced. However, this information that is 

assumed to be given and with which the 

analysis begins is one of the elements that 

can be achieved only through the process of 

competition. The most damaging feature of 

monopoly is not, in fact, the likelihood of 

excessive growth rate of profit, but the 

tendency to generate higher costs than 

thoese in normal competition conditions. 

Even under normal competition, reaching 

the minimum cost cannot be assumed for 

itself, but it causes concentration of all 

management efforts to minimize production 

costs. In fact, the lowest cost that could 

produce a good is a dilemma, as Henry Ford 

said: "Although some carefully calculated 

what is their cost of production, and our 

costs are, of course, calculated with the 

utmost care, no one knows which is the 

lowest cost that might occur. One way to 

187 

discover this would be when on the market is 

set a price so low that everyone "must dig 

after profit””. Arguably, the production 

without profit is not necessarily a signal for 

price increases, but, first, to explore ways to 

rationalize the consumption of resources and 

lowering production costs. 

So, unlike traditional design in 

which costs are seen as an exogenous 

variable that determines the constraints to 

management in determining the production 

function, for Hayek, they are a challenge to 

resolve the problems of real economy. An 

important concern in his approach is the way 

of acquisition and use of knowledge in 

economic decision making: “It has become 

customary for economists to stress only the 

need for knowledge of prices, apparently 

because, following the confusion between 

objective and subjective data, complete 

knowledge of the other elements that make 

up the true situation was taken for granted. 

Knowledge not only means posesing the 

technology which is considered as known in 

static analysis. Classical theory assumes 

that there is a set of detailed plans for the 

conduct of economic activity, while Hayek 

supports a high number of ways to do 

business. For him it is impossible to believe 

that information is available to all agents at 

no cost. The entrepreneur must not continue 

to maximize an objective function subject to 

constraints and exogenous variables 

universally recognized, dictated by the level 

of technological knowledge and preferences 

on the market. On the contrary, through a 

process of interaction with the environment, 

the entrepreneur has to develop and 

experiment with new methods of production 

(even in the absence of technological 

innovation) and offer new products in 

response to specific situations. 

Hayek's theory about the firm is 

related to behavior. The company is not a 

mere object of exogenous variables 

constraints, but is mandated to handle the 

constraints. The very nature of business is to 

remove such obstacles, to create new 

markets and to consider the old ones as part 

of their creative work. 

Hayek's analysis stops to examine 

the action of a single person wishing to 

demonstrate the effectiveness of the 

institutions of a free market under all 

conditions. For all times and places, for all 

conditions of exchange, the information 

communicated through price by individual 

economic agents, will be to society of greater

importance and more useful and, whatever 

customers, traditions, customs, superstitions 

in the market, these prices will lead always 

to the best use of resources by individual 

economic operators. Neoclassical theory 

reaches the same conclusions, but also offers 

a list of preconditions necessary for such an 

outcome. 

Hayek's approach should not be 

confused with the insistence on a separation 

of subjective data available for individuals, 

on the one hand, and objective facts, on the 

other. Confusion has often been maintained 

by two different conceptions of subjectivity 

presented in his works. 

Under the first concept, competition 

is a dynamic behavioural process, which has 

its bases in the subjective perception of 

economic agents on objective reality. The 

second concept says that the knowledge over 

the competitive process can be gained 

through a subjective analysis, an insight into 

the rational part. Hayek and his supporters 

have adopted both of the first and the second 

approach, but to demonstrate that, in the 

economy, competition is increasing, they are 

obliged to use Marshall's structural 

categories. 

In response to the ideas developed by 

Hayek, the classical theorists have argued 

that any competent economic analysis must 

look beyond static equilibrium theory. In 

general, classical theory can be regarded as 

appropriate for statistical confirmation from 

the desire to establish a basic scientific 

generalization. In comparison, individual 

case studies give the impression of being 

devoid of method and direction. 

However, behavior has the central 

position in the dynamic approach. 

Separation between intentions and 

perceptions of ex ante and ex post results is 

very important, but difficult to split from the 

statistics. In addition, there is ample 

information available in case studies that 

are difficult to see in a statistical test. 

To summarize, Hayek considers 

competition as the main factor in finding the 

resources (human, material and financial) 

and to stimulate scientific and technical 

creativity. Competition was awarded with 

the merit of ordering on a scale of 

importance of the values and utilities the 

satisfaction of needs. In his view, the concept 

of market economy can only function within 

a democratic state of law, provided that its 

structure is compatible with human 

behavior, all economic operators are equal 

188 

before the law and their freedom of initiative 

to be undertaken only within civil society [3]. 

Comparative analysis of 

competitive market’s efficiency versus 

monopolistic market 

Economic efficiency means proper 

allocation of resources and to avoid wastage. 

Even when resources were allocated in full, 

they may be used inefficiently. Yet the main 

objective of market competition is precisely 

efficient resource allocation and economic 

welfare. For example, if too much of a 

particular product and too little of another 

are produced, resources are also used 

ineffectively. The conditions for ensuring 

economic efficiency were studied long ago by 

the Italian economist Pareto, so efficiency of 

resource usage is often called Pareto 

efficiency or Pareto’s optimum. 

Relative effectiveness of competition 

and monopoly depends on a number of basic 

assumptions. 

First, it requires about consumers 

that are maximizers of utility, and 

manufacturers are maximizers of profit. It is 

assumed that the price paid and received is 

the value of the marginal unit traded 

between seller and buyer. It also assumes 

that the additional units of consumers and 

producers can be collected and substracted, 

meaning that one additional unit represents 

the same amount of benefit whether 

accruing to the seller or the buyer. 

If competition policy objective is to 

maximize economic welfare, then the total 

surplus (consumer’s or producer’s surplus) 

must be maximized. Thus, by comparing 

alternative economic structures, the most 

effective is defined as the one that generates 

the highest total surplus. This approach on 

effectiveness completely ignores the 

important question of income distribution. 

With regard to economic efficiency is 

irrelevant whether the surplus is accruing to 

the consumer or to the manufacturer. 

The comparison between the relative 

efficiency of perfect competition and of pure 

monopoly shows monopoly’s inefficiency. The 

basic argument against monopoly is that, 

compared to perfect competition, it reduces 

production capacity, it increases prices and 

reduces welfare. So the main effect of 

monopoly is to reduce economic welfare. 

However, this result is based on the 

assumption that all other factors remain 

constant. Thus, mergers bring benefits by

educing production costs through achieving 

economies of scale. It is undeniable that 

high-scale production may be technically 

efficient. In this way, as shown by 

Williamson (1968), it is possible that the 

final net effect of monopolization to be 

represented by benefits, and not by losses. 

In the case of perfectly competitive 

industry, supply curve is infinitely elastic. 

Price and output are determined by the 

intersection of supply and demand curves. 

There is no producer surplus and total 

surplus consists entirely of consumer 

surplus. 

If it is assumed that the industry is 

monopolized with no change in costs (an 

unrealistic assumption in real economic 

environment), all production units merging 

into one company, without changing their 

number or production costs, a consequence of 

assumptions over constant cost is that in 

monopoly case, marginal costs are equal to 

average cost. There is no reason for 

consumer preferences to change, thus the 

demand curve is not affected. Faced with a 

demand curve with negative slope, the 

monopoly producer will maximize profits 

when marginal cost equals marginal 

revenue, production will be reduced and the 

price will increase. Consumer surplus has 

been transferred from consumers to 

producers and the total surplus was reduced. 

There is thus a net loss of surplus. 

Thus, economic prosperity has been 

lowered. Given the fact that “all other 

elements of the market remain constant”, 

the monopoly will inevitably distort the 

allocation of resources and is inefficient 

compared with perfect competition. 

Analysts suggest that there is no 

theoretical justification for condemnation of 

monopoly and/or direct mergers, since the 

negative effects of restriction of production 

capacity could be offset by cost reductions. In 

such circumstances, monopolisation would 

lead to an increase in total surplus. 

Therefore, in an attempt to determine the 

effects of monopoly costs must be analyzed 

by comparison with benefits. In these 

circumstances it is very important that there 

are ways to measure changes in the 

prosperity, but neither in this case there is 

certainty of a high degree of accuracy. 

Therefore, it can be concluded that 

the monopoly is not harmful if it is a natural 

monopoly, which arises under certain 

conditions, as the effect of market process. If, 

for example, a good’s production is subject to 

189 

gradual reduction, the most effective 

competitor in terms of production will 

remain on the market. Moreover, natural 

monopolies do not last forever. 

The emergence of new products and 

technologies may change the conditions 

giving rise to new competitive situations on 

the market. On the other hand, if a product 

is individualized by elements representing a 

value for the consumer (design, brand 

prestige, reputation of associated services), 

he will be noticed and will detach from the 

group of undifferentiated products. 

Competitive pressure will lower and this 

product will thus be recognized in the 

market through a higher price, which may 

give the company a privileged position in the 

market leading to a monopoly. 

The analysis of welfare loss due 

to monopoly. 

Regarding the need for expensive 

anti-monopoly policies, there have been 

several studies that have followed the 

calculation of welfare losses caused by the 

existence of monopolies in the U.S. economy. 

Through these studies many economists 

have concluded that the losses would be 

small enough that do not necessarily justify 

the cost of implementing these policies 

(Harberger, Schwartyman, Worchester or 

Kamerschen). 

American economist, Harvey 

Leibenstein, criticized these estimates of 

the actual cost of monopoly (such as 

Harberger's early test, who calculated that 

the U.S. industry losses due to the existence 

of monopoly in the economy, in terms of 

economic welfare was only 0.1 % of GNP) 

arguing that monopoly power allows 

managers and workers to operate at lower 

levels of productivity than it would have 

been required to achieve in a competitive 

framework, calling this (in)efficiency-x. 

Inappropriate allocation of resources 

associated with monopoly power is the main 

reason why economists opposed the 

monopoly and led to the popular perception 

that monopoly firms use their market power 

to exploit consumers, and explains why most 

governments have decreed laws against such 

unlawful monopolization of potentially 

competitive industries. 

A pro-monopoly attitude has been 

supported several times by representatives 

of firms who had or wished to obtain such 

power, but also by economists, such as the

Austrian- American economist Joseph 

Schumpeter, who argued that monopoly 

serves to promote the research, development, 

and the methods of efficient production. 

Unlike other innovators in noncompetitive 

theories of the firm, Schumpeter 

pursued a different approach, not by 

correcting the methods of the main economic 

theory, but rather by ignoring them in 

favour of a historical analysis. For him, the 

structure of economy is the result of a long 

process of evolution, which he called a 

process of “industrial mutation” through 

which the structures of existing economic 

organization were continuously destroyed, to 

be replaced by new ones. To describe this 

process he created a single term: creative 

destruction - the two words are not only 

antonyms; there is a common point in their 

contradiction. Namely, that capitalism's 

success stems from the fact that stable 

businesses must, sooner or later, to make 

room for some new and more productive. In 

capitalism, as it can be seen today, there can 

be no stagnation. 

The agents of creative destruction in 

Schumpeter's system are entrepreneurs. 

“These are individuals who come from time 

to time with one new idea that could even be 

implemented. Even if it is about a new 

product, a new method of producing an 

existing product, a marketing strategy, or 

anything else. The true entrepreneur is seen 

as an enemy of stable businesses, a threat 

worthy of being crushed by those in control 

at that time, once appeared, in order to 

preserve the status quo. This opposition tests 

entrepreneur’s resistance. 

If success is achieved, the 

entrepreneur gains profits, and can build the 

great enterprise. Should such success be 

penalized? Should enterprising company 

that manages to take control of an industry 

be accused of something? Certainly not, said 

Schumpeter, as it is the source of mobilizing 

force that made capitalism work, increasing 

productive efficiency of businesses at an 

unthinkable level in other systems known in 

history”. Not surprisingly, Schumpeter 

opposed U.S. anti-trust legislation (antimonopoly) 

and the government's efforts to 

preserve competition and protect inefficient 

business firms (usually small) against the 

giants who owed their position to successful 

innovation. 

In Schumpeter's view, the problem in 

neoclassical economic theory of producer 

behaviour was that it had not considered the 

190 

historical evidences. Marshall and his 

disciples seemed obsessed with “price”, but 

business people who ran modern businesses 

were concerned about other things. The way 

modern business is successful or not, is not 

to reduce the price, but in bringing new 

products or new technologies, or new sources 

of supply, or through reorganization (maybe 

becoming stronger through capturing several 

market sectors), which doesn’t ignore the 

possibility of selling at a lower price, but 

which also take into consideration other 

priorities. With regard to government 

regulations designed to “protect 

competition”, Schumpeter deemed them as 

unproductive and unnecessary. In fact, he 

said, historical evidence shows that when 

monopoly takes place, it rarely persists. 

Attempts to penalize big businesses mean 

essentially to penalize success; that success 

through which capitalism has succeeded to 

raise living standards for workers and 

capitalists alike to unprecedented levels. 

Profits resulting from the monopoly, 

he believes, are some awards, less important 

for the few lucky winners, but rather some 

incentives to encourage many to seek success 

and at the same time increase productivity 

and welfare for all. 

Arguments made by Schumpeter in 

defence of monopoly were not the only 

possible. Other economists have argued that 

it is technically possible that the 

monopolization of a prior competitive 

industry will lead to lower costs. A great 

organization, well financed, could introduce 

new production methods, more efficient, 

leading to decreasing the cost curves. If the 

benefits of such cost savings would be passed 

on to consumers or not is another matter. 

Monopoly firm is motivated (as it is also, of 

course, the competitive company) to 

maximize profits, not to minimize price. 

Unfortunately, there is no effective 

solution against technical monopoly. There 

are three alternatives from which to choose: 

private unregulated monopoly, private 

monopoly regulated by state and government 

operations. 

There is also the phenomenon of socalled 

natural monopolies (or “technical 

monopolies”) that was mentioned above. In 

such situations there is no possible 

alternative to the monopolistic structure of 

industry. Where scale economies are very 

high and market sizes are limited, it is not 

possible to have more than one 

manufacturer.

Systems generating electricity and 

other public utilities, such as rapid transit 

systems, exemplify situations where there is 

no competition in practice. 

This lack of a general conclusion (for 

example, Cowling and Mueller have shown 

that the welfare losses caused by monopoly 

can be quite important), both in theory and 

empiricism, support cost-benefit approach to 

monopoly, in which individual industries are 

evaluated for their merits. However, not 

even this idea is accepted by all, as it can be 

seen from the different approaches of ad-hoc 

or laissez-faire economists groups. 

There are several considerations to 

be taken into account in analyzing the 

market with monopolistic competition. 

Economies of scale. Economic theory 

suggests that monopoly leads to inefficient 

allocation of resources in the sense that the 

production level is limited. There can be 

made a series of reservations about this 

claim, apart from the possibility of 

economies of scale appearance. They are 

especially important when considered their 

likely effects in the real world. 

First, the analysis is entirely static, 

ignoring changes that may take place over 

time. Thus, any demonstrable effect on the 

surplus may be larger or smaller as industry 

progresses and the welfare losses that occur 

over time can cancel the immediate gains, or 

vice versa. In practice, firms must make 

decisions in an uncertain climate and the 

results will be different depending on their 

attitude towards risk. 

Secondly, competition in economic 

theory is seen only in terms of price 

competition and to a lesser extent in terms of 

maximizing profits. The above analysis 

ignores the effects of other variables of the 

company such as product quality, diversity 

and product differentiation. Moreover, if 

firms have other objectives than profit 

maximization then the picture becomes even 

less accurate. For example, the theory of 

sales revenue maximization (Baumol 1959) 

[4] assumes that managers pursue the 

objective of maximizing revenues rather 

than profits, so there are pursued higher 

levels of production. The implications of this 

are that any proposed strategy for a 

particular industry can be made only after 

an investigation not only of that industry’s 

structure but also of the objectives and 

conduct of firms in that industry. 

Thirdly, in the economic theory it is 

assumed that any level of output is always 

191 

produced at the lowest cost technically 

possible. For economists, inefficiency arises 

because an inadequate level of production is 

achieved. However, in the real world there is 

still another concept of efficiency, which is 

taking into account that real companies are 

never as effective in terms of technique as 

theoretical firms. This type of inefficiency 

occurs because employees and management 

are often poorly equipped and poorly 

motivated and therefore the performances 

achieved do not reflect their maximum 

abilities. The inefficiency of this kind, which 

involves the existence of a given level of 

production at a higher cost than a 

theoretical minimum cost, is called 

"inefficiency-X" (it is what an ordinary man 

would understand by the term "ineffective"). 

Clearly, such inefficiency is incompatible 

with perfect competition where competitive 

pressure would be sufficient to remove any 

less efficient firm. However, in monopolistic 

markets the cause of the inefficiency-X could 

be the absence of competitive discipline. It 

would appear that this comes to strengthen 

the arguments against the monopoly, 

because it can be said that any move 

towards the monopoly could lead to higher 

costs because of inefficiency-X. This would 

counteract, to a certain point, any cost 

reduction through economies of scale. 

The net effect on costs is therefore 

unclear, because the picture becomes more 

complex. An analysis of all costs and benefits 

is required before making any 

recommendation to adopt a policy. 

Fourthly, a theoretical description of 

monopoly was done by comparing the two 

theoretical extremes, namely perfect 

competition and monopoly. In the real world 

there will never occur a move of any one to 

the other and the implications of 

inefficiency- X and of allocated 

ineffectiveness are, therefore, even less clear. 

For example, if two companies merge in an 

industry made up of 10 companies, thus 

approaching the industry to monopoly, the 

effects on either of the two types of 

inefficiencies are not at all clear a priori 

(even in the absence of economies of scale). 

Again, it seems that this can be resolved 

only after a detailed investigation of the 

industry concerned. 

Fifth, even if it is clearly about the 

economies of scale, so that there is a net 

increase in surplus, it can still be discussed 

whether or not it is a loss of social 

opportunity. The surplus could be increased

further if the monopoly firm should produce 

at a marginal cost equal to the price. 

Sixth, and most importantly, the 

theoretical analysis normally used is totally 

partial. This means that the repercussions 

on the industry as a whole have been 

ignored in considering the effects on an 

isolated industry. Thus, an individual 

merger may be considered absolutely 

innocent, but if it is a merger among many 

other mergers, then the general trend of the 

industry towards monopoly could be 

worrying. 

Seventh, Baumol and his associates 

(1982) argued that resources will be 

allocated effectively (in the sense that price 

will equal marginal cost) in the industries 

that are perfectly competitive, and that this 

result does not take into account the number 

of companies from that industry. A perfectly 

competitive industry is characterized, in 

addition to free entry on the market, by the 

completely free exit. Therefore, without any 

cost to exit from an industry, even modest 

profits would be an incentive for entry into 

the industry. Therefore, when firms would 

not obtain any profit, could leave the 

industry quickly and without having to pay 

any cost. The only protection in the face of 

this potential threat to competition is 

allowed only to companies that have prices 

equal to marginal costs and earn only 

normal profits. 

Finally, the Austrian economic school 

interpreted differently the existence of these 

profits. Competition is seen as a process in 

which profit is both an impetus and a 

reward. Thus, the profit is rather a symbol of 

success, encouraging innovation and 

progress than a symptom of an inefficient 

allocation of resources. As such, this requires 

recognition of the dynamics of industrial 

change, which is often obstructed by 

referring strictly to the theoretical 

comparative balance as it happens in the 

neoclassical tradition. Consequently, the 

followers of Austrian tradition would be less 

inclined to proactive intervention measures. 

Ideally, all points described above 

should be considered in any attempt to 

recommend a strategy. Theory shows that 

lack of competition can certainly lead to 

inefficiency, but it also identifies the 

potential benefits from production at a lower 

cost. A clear policy recommendation requires 

the assessment of all these costs and 

benefits. Many attempts were also made to 

establish empirically whether general 

192 

conclusions can be drawn about the losses of 

welfare in the economy due to the presence 

of monopoly. However, no consensus could be 

reached and the findings are even less 

consistent than the theoretical ones. 

Conclusion 

Basic economic theory identifies as 

important factor of economic progress the 

existence of competitive market. 

Competition is the vital principle of market 

economy. It causes producers to act 

effectively to meet consumer preferences. 

Competition eliminates the ineffective[5]. 

Competition determines the development of 

superior products and leads to the discovery 

of methods of lowering production costs. 

Private interest, when oriented towards 

competition, is a source of economic progress. 

The benefits of competition between 

businesses reflected on the welfare of society 

as a whole are detected by analyzing the 

many functions that it fulfills. It should be 

stressed one important fact, namely that not 

only price it is subject to competition, as it 

appears at first sight, but also the product, 

distribution and promotion (constituent 

elements of marketing mix). Therefore, 

experts consider, that actually, the causes of 

success of an enterprise can be found in: the 

quality of its product, launching new 

products, competitive prices, advantages in 

terms of cost, its good location, the 

company’s size and importance, the 

dominance of distribution channels, the sale 

and distribution methods, advertising and 

promotion, design, etc.[6]. But, in short, the 

reason to be of competitive mechanism is to 

serve the consumer. 

Competition is an important premise 

of market economy and its manifestation 

brings a number of advantages such as 

encouraging technical, economic and 

managerial innovation with benefic 

implications over long-term costs, and 

ensures consumers of the existence on the 

market of a wide range of products and high 

quality services and facilitates equitable 

distribution of income in society, among 

others. 

As reflected in the analysis 

undertaken by economists over time, 

although welfare losses are not entirely clear 

in the case of monopoly and competitive 

market is the model to be achieved, the two 

types of market cannot be found in a pure 

form in reality. Their combined

characteristics can be more often found in 

structures such as the oligopoly or 

monopolistic competition. However, in 

economic theory, they still remain of 

reference to which are compared all the 

other structures. Perfect competition 

remains, indisputably, the model in terms of 

benefits and gains of prosperity, without 

ignoring the positive aspects of monopoly, 

despite the negative footprint it has in the 

duo perfect competition-monopoly. 

In most cases, practices restricting 

competition have predominantly negative 

effects, which bring more disadvantages 

than benefits to consumers, and, in addition, 

there always exists a conflict between the 

interests of monopoly and consumer 

interests. This is the reason and explanation 

for the need for state intervention, with the 

purpose of creating the necessary policies 

and monitoring their application, or with the 

purpose to control their behaviour and 

reduce the harmful effects of such behavior 

on consumer welfare. 

These legislative measures were also 

adopted in Romania, by alining the relevant 

laws of competition with thoese applicable in 

the European Union. 

References: 

1.Mark Blaug- “Economic Theory in Retrospect”, 

Fourth edition, p. 77, Didactic and Pedagogic 

Publishing House, Bucharest, 1992. 

2. Tatiana Mosteanu, Theodor Purcarea- 

“Competition. Guide to Business Performance”, p. 

62, Economic Publishing House, Bucharest, 1998. 

3. Costel Petcu- “The Factors of Economic 

Development”, p. 38, Hermes Publishing House, 

Craiova, 2000. 

4. William J. Baumol- „Business behaviour: value 

and growth”, Macmillan Publishing House, New 

York, 1985. 

5. Costel Petcu- “The Theory and Science of 

Economics. Microeconomics”, p. 322, Drobeta 

Publishing House, Drobeta Turnu Severin, 2006. 

6. Sică Stanciu- “General Fundamentals of 

Marketing”, University of Bucharest, 2002. 

193




CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH 

Abstract 

This paper aims to present the problems 

facing consumers in terms of how they are 

produced, distributed and marketed food. 

After 2007, when Romania joined the 

European Union, our country has devoted 

considerable attention to achieving food 

security through the adoption of legislation 

and establishment of specialized institutions, 

and ensures consumer health. 

Key words: consumer, food safety, consumer 

health, foodstuff. 


Our life stile nowadays, compared to the 

past, is quite different. The rapid pace of 

today, as well as the increase of the single, 

mono-parental and working-women number 

of households, has brought visible changes in 

how food is prepared and consumed. 

A positive outcome of such changes has been 

the quick advancement of the food 

technology, of food preparation and 

packaging, in order to provide safety and 

good quality in food supplying. Despite of 

these new discoveries, it is very likely to 

have the food contaminated naturally or 

accidentally, or an inappropriate treatment 

of food. 


Food safety involves the assurance given to 

the consumers that the products on the 

market are safe, and this includes all 

products. 

From the perspective of the Romanian 

legislation, which lacks the community 

stipulations specific to a product in itself, 

DAVID Oana; 

“Politehnica” University of Bucharest; 

davidgioana@yahoo.com 

MIHAI Valia Maria; 

Petroleum-Gas University of Ploiesti; 

mihai_valia@yahoo.coms 

194 

that product will be considered safe when it 

complies with the national regulations of 

Romania or of the Member State where it is 

being traded. Those regulations will be 

added the principles of free circulation of the 

market products and services, which 

formulate the health and safety 

requirements that the product needs to meet 

so that it will be traded. 

A product will be regarded as safe, from the 

point of view of risks and risk categories 

governed by the relevant optional national 

standards that translate the European 

standards and whose reference is published 

in the Official Journal of the European 

Communities. The references of such 

harmonized national standards are made 

public by the Romanian Standards 

Association (ASRO). 

The conformity of a product with the general 

requirement of products safety may be 

assessed by looking at the criteria below: 

a) the optional national standards that 

translate the relevant European 

standards; 

b) the standards that are set up in the state 

where the product is being traded; 

c) the guidelines in the area of products 

safety assessment; 

d) the codes of good practices in terms of 

products safety, applicable in that 

respective sector; 

e) the present status of the scientific and/or 

technical knowledge; 

f) the reasonable expectations of the 

consumers, concerning the general safety 

of products. 

The producers are bound to launch only safe 

products on the market. Limited to their 

activities, they need to provide the 

consumers with the useful information that

will allow him to assess or to avoid the 

inherent risks of a product during an 

average use time or for a reasonably 

predictable period of time. This will happen 

when they are not quickly enough perceived 

by the consumer, unless there is a pertinent 

warning. 

The distributors of the products are 

constrained to: 

a) to take a good care in complying with the 

present safety requirements, mainly not 

to distribute products when they are 

aware that these products do not meet 

the safety criteria; 

b) to participate, as limited in their 

activities, into the monitoring of the 

safety of products on the market, mainly 

by: 

1. the dissemination of information 

regarding the products risks; 

2. the storage and delivery of the 

documents that are necessary to 

determine the products origin; 

3. the cooperation in the actions taken by 

the producers and the competent 

authorities to avoid the risks. 

Within the lines of their activities, the 

distributors need to take measures that will 

allow their efficient cooperation with the 

producers and the competent authorities in 

this field. 

In Romania, the competent authority for 

monitoring the market in respect to the 

conformity of products with the general 

safety requirements, the control of 

contraventions, the sanctions application 

and the complementary measures taking is 

the National Authority for Consumer 

Protection. 

This organism may cooperate, according to 

its duties in the current legislation, with 

other similar organizations monitoring the 

market, with the purpose of building up 

actions towards the implementation of the 

present laws on the national territory. 

The consumers health and safety-related 

information that regard the risks in 

products, held by the authority abilitated to 

monitor the market for the compliance of 

products with the general safety regulations, 

needs to be available to the large public, in 

line with the transparency criteria and not 

harming the restrictions that are required 

during the activities of control and 

investigation. The public needs to have 

mainly access to the information regarding 

195 

the identification of product, the risk nature 

and the measures taken. 

The EU Member States make sure that the 

producers and suppliers fulfill their tasks, in 

such a way that the products entering the 

market are safe. 

These States appoint or identify the 

authorities that have a say-so in the 

monitoring of how the products meet the 

general safety requirements and act upon it, 

so that these authorities have and apply the 

prerequisities required in the appropriate 

measures to be used. 

The measures to be adopted may concern the 

following categories of products: 

(a) for any product: 

(i) to make proper verifications of the 

product safety properties, even after its 

market launching, at a right scale, up to 

the final stage of its use or consumption; 

(ii) to require all the necessary information 

from the parties involved; 

(iii) to take product samples and test them 

for safety; 

(b) for any product that might show risks 

under certain conditions: 

(i) to request its marking with appropriate 

warnings, clearly formulated and easy to 

understand, in the official language of 

the Member State where the product is 

being traded, about the risks that might 

occur; 

(ii) to limit its trading under the previous 

conditions, so that they will make it a 

safe product; 

(c) for any product that might present risks 

for certain people: to give instructions that 

the warnings be timely and appropriate with 

the risk, including special warnings; 

(d) for any dangerous product that is already 

on the market: 

(i) to give instructions and have it recalled 

immediately and effectively and to alert 

the consumers in regards to the risks 

within them; 

(ii) to give instructions and coordinate or, 

as case may by, to organize, along with 

the producers and suppliers, its recall 

from the consumers and destruction in 

proper conditions. 

Any adopted measure that involves 

restrictions about the introduction of a 

product into the market or requests its recall 

or return, needs to mention the underlying 

reasons and indicate the available remedy 

measures within the accepted legal

stipulations in the Member States and the 

deadlines for recovery. 

The risk that the food is contaminated with 

chemicals or micro-organisms is present 

throughout the entire food chain (production, 

processing, transport and consumption). 

Generally speaking, the food safety is 

threatened by factors falling into two 

categories: 

� Biological contamination - bacteria, fungi, 

viruses or parasytes. For such a 

contamination type, food displays easily 

identifiable signs, in most of the cases 

� Chemical contaminants - which include 

chemicals coming from the environment, 

grounds of veterinary use medicine, heavy 

metals or other residua that enter the food 

unintentionally or by accident, during the 

processes implied by agriculture or 

animals and birds breeding, the food 

processing, transport or packaging 

Should a contaminant agent generates a risk 

or not, it depends on a lot of factors, among 

which we mention the substance absorbtion 

and toxicity, the contaminant quantity in 

food, the quantity of the consumed food and 

the time of exposure to that contaminant. 

Besides these, the individuals differ in 

regards to their sensitivity to contaminants. 

Also, other factors of diet may have an 

impact upon the toxic consequences of the 

contaminants. Another element that would 

make difficult the things concerning the 

chemical contaminants is that many of the 

studies involving chemical contaminants 

represent outcomes of animal-based studies. 

They never know for sure whether the 

chemical agents would have a similar effect 

upon humans, too. 

The process of globalization of the food chain 

triggers the constant emergence of 

challenges and risks for the health and 

interests of the European consumers. The 

main objective of the European Union for the 

food safety is to reach the possibly highest 

degree of protection of human health and the 

consumers’ interests in terms of food. 

To this matter, the European Union (EU) is 

working hard to guarantee the food safety 

and their correct labelling, taking into 

account the products diversity, including the 

traditional ones, and, at the same time, 

providing a good operation of the local 

market. This is the reason why the EU has 

created a comprehensive legislative body for 

food safety, which relies on the risks 

analysis. 

196 

The creation of the European Food Safety 

Auhority (EFSA) has come as a help with 

the efforts made by the European 

institutions for protecting the European 

consumers in this field, by providing 

independent scientific counselling regarding 

the new or current risks. 

The basic principle of the EU strategy for 

food safety is the implementation of an 

integrated approach, such as ‚from farm to 

table’, to cover all the food chain sectors – 

including the fodder production, health in 

plants and animals, animals well-being, the 

primary production, food processing, storage, 

transport, retailing, as well as their import 

and export. 

This all-embracing and integrated approach, 

where the responsibilities of the operators in 

the food products and fodder sector, as well 

as the competent authorities’ are clearly 

defined, represents a more coherent, efficient 

and dynamic food strategy. 

The consumer is the direct beneficiary of the 

products that pass through the food chain, 

and his safety is vital for the health of every 

one. 

During the Second Meeting of the 

Consumers Associations in Europe 

(Brussels, 2000), Romano Prodi, the 

President of the European Commission 

during 1999-2004 highlighted the fact that, 

at the European level, an integrated food 

policy is being promoted, with a view to the 

entire chain of food safety. 

There is no doubt that the ‚European 

consumers expect their food be the safest’, 

Romano Prodi said. Hence, they have taken 

measures of legislation modernization, of 

creating a flexible and efficient legislative 

framework in order to regain the consumer 

trust in the products freely moving on the 

European market. 

The Romanian consumer will have a large 

selection of food products to pick from, which 

for the last years went from natural products 

to enriched ones, getting to the functional 

food. Lately, the European and Romanian 

markets have accomodated the genetically 

modified food. 

Even if the final choice belongs to the 

consumers, the producer duty is, though, to 

correctly inform the consumer by means of a 

correct labelling. This involves not only the 

appropriate labelling of the food products, 

but also the specification whether it is 

ecological, genetically modified or radiated 

for the purpose of destroying the parasytes

or pathogenic bacterias, like Salmonella, 

Lysteria, etc. 

The improvement of the food safety process 

in Romania may count on the programs for 

agriculture, rural development and 

environment, such as: SAPARD, ISPA and 

PHARE. 

Also, the rural development will be 

addressed to in a close connection with the 

durable development that may not avoid the 

consumer’s protection. For this reason, the 

SAPARD mentions under 1.2. item about the 

progression of the structures concerning the 

quality, veterinary, phytosanitary control, 

the quality of food products and the 

consumers protection. 

Lastly but not the least, the food quality and 

safety heavily relies on the efforts of all 

people involved in the complex chain that 

includes production, processing, transport 

and consumption. According to the European 

Union and the World Health Organization, 

food safety is everyone’s responsibility, 

starting with their origin up to the moment 

they reach the tables. 

In order to maintain food quality and safety 

along this chain, we need both procedures to 

make sure that food is safe, and also 

monitoring procedures that will allow the 

completion of all the operations under the 

best conditions. 


Food safety will not be a real issue unless it 

is a responsiblity of all people involved in the 

food field, from professionals to consumers. 

Along the food chain, diverse control 

procedures and mechanisms are 

implemented, which guarantee that the food 

on the consumers’ tables are edible and the 

contamination risk is minimum, so that the 

population be healthier upon consuming safe 

and healthy food. 

Nevertheless, the zero risk in food does not 

exist and we have to be aware that not even 

the best legislation and the state-of-art 

control systems are unable to fully protect us 

from the evildoers. 

The best way to implement food safety is to 

inform ourselves about the basic principles 

of food production and their safe treatment 

in our houses. The issue of food safety may 

not be approached but only in a strict 

relation with the problems of environment, 

agriculture and the economic and social 

context in Romania. 

197 

References 

1. Boboc, D.,2005, Quality Management for 

Agricultural Products, Bucharest, Editor ASE; 

2. Anastase, A., Anastase, I.,2004, 

Standardization and certification of goods, 

Bucharest, Editor ASE; 

3. Oprean, C., Kifor, C.V., Suciu, O., 2005, 

Integrated Quality Management, Sibiu, Editor 

“Lucian Blaga” University; 

4. http://europa.eu/index_ro; 

5. http://www.anpc.gov.ro; 

6. http://www.legestart.ro; 

7. http://www.gov.ro.




Abstract: 

KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES 

DIANA Dorus 

“University of Bucharest”, Business Administration 

dorusdiana@gmail.com 

In the last years, the topic of knowledge 

management has gathered a lot of interest in 

the corporate sectors, most of the 

interpretations of knowledge management 

being relevant in the world of business. Due to 

this interest, and because of the changes that 

occurred in the world lately, knowledge 

management is proposed to be seen from a 

new perspective, being implemented in the ebusiness 

enterprises. 

For the purpose of this article, the focus of 

the discussion is on e-business enterprises, 

and how knowledge management is 

implemented by managers in this “new world” 

of e-business, but also it consists in the 

presentation of the relationship between ecommerce 

and e-business, with detailed 

information about e-commerce in particular. 

Based on this discussion, a new perspective 

of knowledge management is proposed, and it 

is also presented the importance of the 

Internet in the nowadays enterprises, and its 

contribution to success. 

Key words: knowledge management, ebusiness, 

internet, network, e-commerce 

Introduction 

It is increasingly becoming an 

understatement to say that the Internet and 

related technologies are changing the ways in 

which we live. Because of this major impact of 

the Internet, it was introduced on the market 

the idea of Electronic business, commonly 

referred to as "eBusiness" or "e-business". 

This concept may be defined as the application 

of information and communication 

technologies (ICT) in support of all the 

activities of business. 

198 

Since the concept of virtual organization 

was implemented by Mowshowitz in 1986 and 

popularized by Davidow and Malone in 1992, I 

believe has become increasingly used in 

management theory, and in particular, in the 

information system literature. 

Virtual organizations use information 

technologies such as electronic mail to share 

information and coordinate their work. The 

structure of an eBusiness allows a high degree 

of flexibility, competitiveness and cost 

efficiency, but it also involves a high level of 

trust between the individuals that take part of 

a network. 

Flexibility in the integration of knowledge 

is easily facilitated by virtual organizations 

because of their easy access to global 

collaborations without temporal and spatial 

barriers. E-businesses contribute to increase 

flexibility in the communication between 

organizations, with the customers, in the 

methods of publicity that they adopt. 

Therefore they are superior to other options in 

the integration of knowledge in rapidly 

changing and hyper-competitive 

environments. 

Knowledge management in an eBusiness 

enterprise, is interpreted in terms of potential 

for action, as the philosopher and professor 

Charles West Churchman had observed three 

decades ago in his work, called “The design of 

inquiring systems”: “knowledge resides in the 

user and not in the collection of 

information…it is how the users react to a 

collection of information that matter”. 


There are described three myths about the 

knowledge management, as relevant to the 

new world of “e-business”, in the opinion of 

Yogesh Malhotra, in the book named

“Knowledge Management and Business Model 

Innovation”. 

The first one is called “The myth of 

knowledge management technologies that can 

deliver the right information to the right 

person at the right time”. This idea applies to 

an outdated business model. Information 

system in the old industrial model shows the 

notion that businesses will change 

incrementally in a natural stable market, and 

executives can foresee change by examining 

historical data and trends. Businesses can not 

plan long term; instead, they must shift to a 

more flexible “anticipation-to-surprise” model. 

For more significant decision, it is impossible 

to build a system that can pre-define who the 

right person is, what the right time is, and 

what constitutes the right information. 

The second myth is called “Knowledge 

management technologies that can store 

human intelligence and experience”. 

Technologies such as databases and 

groupware application store a large quantity 

of pixels and bits, but they can not store the 

rich schemas like human minds, that are used 

for making sense of bits and pixels. Moreover, 

information is context sensitive. The same 

assemblage of data can evoke different 

responses from different people in different 

points in time. 

The third and the last myth, is known as 

“The myth of knowledge management that can 

distribute human intelligence”. Again, this 

reveals that companies can predict the right 

information to distribute and the right person 

to distribute it to. For most important 

business decisions, technologies can not 

communicate the meaning embedded in 

complex data as it is constructed by human 

minds. Often it is assumed that compilation of 

data in a central repository would somehow 

ensure that everybody who has access to that 

archive is capable and willing to utilize the 

information stored. Past research on this issue 

revealed that despite the availability of 

databases, most executives take decisions 

based on their interactions with others, which 

in their point of view are knowledgeable about 

the issues. 

The arrival of e-business only underlines 

the necessity for organizations to adopt 

systematic approaches to sharing knowledge. 

The demands of e-business for rapid response 

and agile adaptation to the market-place is a 

challenge both for the new businesses 

199 

developed on the Internet, and the older 

traditional companies that are trying to adapt 

to the new world of electronic business. 

The role of online communities has become 

increasingly important to the success of Ebusiness. 

The E-business enterprise's 

capability for creativity and ability to leverage 

the community will determine if it loses or 

wins in the "market-space." 

Commercial success in E-business depends 

on organizing and exploiting the potential of 

virtual communities. Their key argument is 

based on the premise that the knowledge, 

content, and resources produced by online 

communities are extremely valuable 

commodities. This perspective expands on the 

earlier role of the potential user or customer 

primarily in terms of self-service through 

limited configuration. 

Theoretical Background 

The expanded role of the user includes 

involvement in creation of content, in product 

and service reviews, and in self-support by 

asking questions of other users, addressing 

answers in return to gain recognition and 

points in terms of goodwill, 

Source: Stephen Denning, The 

Springboard: How Storytelling Ignites Action 

in Knowledge-Era Organizations and in 

reviewing the comments posted by others. 

As Zorayda Ruth Andam presented in the 

book named “E-Commerce and V-Business”, 

the terms with the same name as the title of 

the book, have increasingly become a 

necessary component of business strategy and 

a strong catalyst for economic development. 

With developments in the Internet and 

Web-based technologies, distinctions between 

traditional markets and the global electronic 

marketplace-such as business capital size,

among others-are gradually being narrowed down. 

“Electronic commerce or e-commerce refers 

to a wide range of online business activities 

for products and services”. (Anita Rosen, The 

E-commerce Question and Answer Book (USA: 

American Management Association, 2000). “It 

also pertains to “any form of business 

transaction in which the parties interact 

electronically rather than by physical 

exchanges or direct physical contact.” (MK, 

Euro Info Correspondence Centre (Belgrade, 

Serbia), E-commerce-Factor of Economic 

Growth). 

E-commerce is the use of electronic 

communications and digital information 

processing technology in business transactions 

to create, transform, and redefine 

relationships for value creation between or 

among organizations, and between 

organizations and individuals. 

While some use e-commerce and e-business 

interchangeably, they are distinct concepts. In 

e-commerce, information and communications 

technology (ICT) is used in inter-business or 

inter-organizational transactions 

(transactions between and among 

firms/organizations) and in business-toconsumer 

transactions (transactions between 

firms/organizations and individuals). 

Three primary processes are enhanced in ebusiness 

according to Ruth Andam: 

1. Production processes, which include 

procurement, ordering and replenishment of 

stocks; processing of payments; electronic 

links with suppliers; and production control 

processes, among others; 

2. Customer-focused processes, which 

include promotional and marketing efforts, 

selling over the Internet, processing of 

customers’ purchase orders and payments, 

and customer support, among others; 

3. Internal management processes, which 

include employee services, training, internal 

information-sharing, video-conferencing, and 

recruiting. Electronic applications enhance 

information flow between production and 

sales forces to improve sales force 

productivity. Workgroup communications and 

electronic publishing of internal business 

information are likewise made more efficient. 

200 

Of course, we should also discuss about the 

three forms of e-commerce: 

1. Auctions facilitated at a portal, such 

as eBay, which allows online real-time 

bidding 

on items being sold in the Web; 

2. Peer-to-peer systems, such as the 

Napster model (a protocol for sharing files 

between users used by chat forums similar to 

IRC) and other file exchange and 

later money exchange models; 

3. Classified ads at portal sites, such as 

Excite Classifieds and eWanted (an 

interactive, 

online marketplace where buyers and sellers 

can negotiate and which features “Buyer 

Leads & Want Ads”). 

The Internet is relevant to e-commerce 

because it allows people from all over the 

world to get connected inexpensively and 

reliably. As a technical infrastructure, it is a 

global collection of networks, connected to 

share information using a common set of 

protocols. 

Also, as a vast network of people and 

information, the Internet is an enabler for ecommerce 

as it allows businesses to showcase 

and sell their products and services online and 

gives potential customers, prospects, and 

business partners access to information about 

these businesses and their products and 

services that would lead to purchase. 

The use of the Internet for different aspects 

of the product dimension can be easily shown 

through a scheme.

Source: Stuart Barnes, Brian Hunt, E- 

Commerce and V-Business 

Paper content 

For a better evaluation of e-commerce and 

e-business, a differential description is 

needed. Firstly, E -business and e-commerce 

are terms that are sometimes used 

interchangeably, and sometimes they're used 

to differentiate one vendor's product from 

another. But the terms are different, and that 

difference matters to today's companies. In 

the opinion of Andrew Bartels, E-commerce 

covers outward-facing processes that touch 

customers, suppliers and external partners, 

including sales, marketing, order taking, 

delivery, customer service, purchasing of raw 

materials and supplies for production and 

procurement of indirect operating-expense 

items, such as office supplies. It involves new 

business models and the potential to gain new 

revenue or lose some existing revenue to new 

competitors. 

Conclusions and implications 

E-commerce involves only three types of 

integration: vertical integration of front-end 

Web site applications to existing transaction 

systems, cross-business integration of a 

company with Web sites of customers, 

suppliers or intermediaries such as Web-based 

marketplaces, and integration of technology 

with modestly redesigned processes for order 

handling, purchasing or customer service. 

E-business includes e-commerce but also 

covers internal processes such as production, 

inventory management, product development, 

risk management, finance, knowledge 

management and human resources. Ebusiness 

strategy is more complex, more 

focused on internal processes, and aimed at 

cost savings and improvements in efficiency, 

productivity and cost savings. 

E-commerce and e-business are both part of 

Knowledge Management and address to a 

technology infrastructure of databases, 

application servers, security tools, systems 

management and legacy systems, and both 

involve the creation of new value chains 

between a company and its customers and 

suppliers, as well as within the company itself 

and represent a serious part of the business 

201 

development and approach to business in the 

future. 

As technology develops more and more 

tools and e-tools, allowing higher speed of 

communication, more research shall be done 

in the ways knowledge management is 

developed, maintained and passed around. 

References 

1.Yogesh Malhotra, Knowledge Management 

and Business Model Innovation (Idea Group 

Publishing) 

2.Kim Viborg Andersen, Steve Elliot, Paula 

Swatman, Eileen Trauth, Niels Bjorn-Andersen, 

Seeking Success in E-Business (Kluwer Academic 

Publisher) 

3. Stuart Barnes, Brian Hunt, E-Commerce & V- 

Business (Business Models for Global Success) 

4.Caesar Camison, Daniel Palacios, Fernando 

Garrigos, Carlos Devece, Connectivity and 

Knowledge Managementin Virtual Organisations 

(Premier Reference Source, 2009) 

5.Zoryda Ruth Andam, e-Commerce and e- 

Business ( e-ASEAN Task Force, 2003) 

6.Stephen Denning, The Springboard: How 

Storytelling Ignites Action in Knowledge-Era 

Organizations (Butterworth Heinemann, Boston, 

London: 2000) 

7.C. West Churchman, The Design of Inquiring 

Systems: Basic Concepts of Systems and 

Organizations (New York, NY: Basic Books, 1971) 

8.Anita Rosen, The E-commerce Question and 

Answer Book (USA: American Management 

Association, 2000) 

9.MK, Euro Info Correspondence Centre 

(Belgrade, Serbia), E-commerce-Factor of Economic 

Growth




GLOBAL ECONOMICS AS A COMPLEX SELF-REGULATED SYSTEM: 

THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES 

DREIMANIS Andrejs; 

Radiation safety centre of the State Environmental Service, Latvia; 

Andrejs.Dreimanis@rdc.vvd.gov.lv 

Abstract 

The current global economics crisis has 

seriously influenced the tendency of 

sustainable development of our world, 

namely - 

a) via endangering – in short- as well in 

the long-term scale – the quality of life, 

and primarily - the real running of the 

whole set of socio-economic-financial 

processes and their development, 

b) via demanding to reveal fundamental 

reasons of the origin of this crisis in the 

context of general laws of sustainable 

functioning and development of complex 

systems. 

Key words: complex systems, variety, 

systems thinking, creativity, education 

The aim of our report – to reveal general 

reasons of origin such socio-economic 

instabilities and to indicate possible 

approaches to prevent serious concussions of 

the development of global socio-economic 

system treated as cybernetic system.The 

basis methodology of the present analysis 

the W.R Ashby principle of requisite variety, 

stating that for successful development of a 

given system (e.g. human being(s)) in the 

external environment its internal variety or 

complexity of the given system should exceed 

the variety of its environment. 

Application of this principle gives following 

criterion of sustainable development of the 

global world society: the internal (or inner) 

of an individual/society shall exceed the 

variety (complexity) of its external 

environment (denoted as the external 

variety). At the present stage the internal 

and external variety are defined on a 

qualitative level environment is basically 

defined as a multitude of material, financial, 

socio-economical, entetainmental benefits 

202 

and conditions. The inner variety is regarded 

as a variety and wealth of the inner world of 

the individual/society, namely, the set of 

cultural, ethical and analogous qualities of 

the individual/the whole society. 

The basic problem of a human’s adequate 

survival and adaptation to complex external 

environment could be defined in a following 

way: how should a human being develop 

himself and to be educated, in oder to elevate 

his own internal variety as well as the 

internal variety of the whole society to the 

level exceeding the external variety (where 

external variety could be regarded basically 

as a multitude of material and related 

matters). Let denote the internal variety as 

I, the external variety – as E, their algebraic 

diference: (I – E) = D. Furthermore, let 

propose: the pace of the development should 

be proportional to the value, where the case 

D < 0 will mean negative development 

(crisis, degradation). 

The fundamental principle of requisite 

variety serves as the basic mechanism 

providing the necessary self-regulation cycle 

of the global world exhibiting in following 

main steps: 

1) inner variety I greatly > the 

environmental variety E: high 

cultural-ethical level of people 

ensures rapid progressive beneficial 

socio-economical progress and the 

growth of material well-being of the 

society; 

2) the growing environmental varity 

decreases of the diference inner 

variety-extern.variety, the society to 

a more extent enjoys the material 

wealths and entertainments 

promoting further progressively 

decrease of that diference resulting 

in the change of the sign of this

diference; the economics is continued 

to grow; 

3) the external variety > the internal 

variety: sustainable development 

starts to be interrupted, there 

originate financial and socioeconomic 

global as well as widespread local 

crisis, dropdown of production output 

and material well-being and of the 

whole quality of life; 

4) the drastic drop in the level of the 

material well-being provides the 

decrease environmental variety; in 

turn, in the crisis situation the 

people activate their inner cultural 

and creative resources thereby 

increasing their internal variety as 

well finding inner reserves for 

reconsidering the existing 

approaches, procedures and opinions; 

the inner variety again will overcome 

the environmental one, socioeconomic 

development is renewed; 

the 4-step cycle has been completed. 

Based on the above schema we derive 2 

forthcoming goals: 

a) to acquire a possibility to control and 

impact the self-regulation cycle, by 

trying to regulate the variation of the 

D value, the amplitude and the 

durations of these steps, 

b) as the ultimate goal one could assume 

to reach and maintain stable positive 

D value – via progressively 

stimulated permanenet growth of the 

inner variety - thereby providing 

steady complex material-cultural – 

ethical development of the whole 

society, in particularly, to ensure 

the transition of the whole society to 

a qualitatively novel state, where, 

according to the Weidlich’s selfconsistency 

principle, the people 

contribute, by means of their 

cultural and economical activities, to 

the generation of a general field of 

civilization. 

203 

Basic routes of elevating our internal selfvariety 

could be knowledge and flexible, 

creative thinking, Moreover, in conditions of 

crucially changing environment where there 

are numerous degrees of the system to 

evolve, just the necessity of flexible integral 

thinking will come in the forefront, which, 

according to the Banathy proposal, will 

provide creative reaching out of the system’s 

own boundaries. 

A likely way to acquire the capability to 

develop a novel, complementary state of 

thinking patterns and sensible perception to 

the hierarchy of multiple sets of individual 

as well as global values seems to be the 

following one – namely, to develop a creative 

approach to world phenomena, problems and 

values. It is highly important just nowdays – 

in the period of mutually controversal 

realities and values – that creative flexible 

thinking, as a manifestation of the systems 

thinking, could promote the self-organization 

process in the direction facilitating an 

integral perception of the world and its 

values. 

As an important mechanism for the 

development of these necessary qualities and 

values of the society one consists of: 1) 

adjustment of the principle of requisite 

variety to the case foreseing the necessity to 

develop novel insight and apprehension of 

basic values; 2) on this basis to reorganize 

and optimize - taking into data of 

contemporary natural and social scences – 

the education system towards accelerated 

and profound development of system 

thinking being actual also for humane use of 

the contemporary knowledge, in particular – 

the safe use of nuclear energy. 

In conclusion, the proposed revealing of 

the world economics dynamics internal rules 

and possible tools to guide this dynamics is 

worth further development towards 

sustainable and humanious development of 

our world.




Abstract 

KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD 

Management based on knowledge is seeking 

solutions to harmonize the objectives of 

organizations of the human group, which 

need to rationalize, to provide policy makers 

and to implement. Although there is a 

diversity of research in this area, 

diversification that led to approach the 

complex concept of management based on 

knowledge, unfortunately, most 

organizations in the value of a goal is still a 

matter for the future. 

That’s why, the main aim of our approach, is 

to investigate the relevance management 

based on knowledge, operational routes on 

conceptual coordinates in the current 

international context. We will review the 

concept of knowledge management through a 

debate between two paradigms (positivist 

and constructivist) to develop valid methods 

of obtaining performance. 

The main purpose of our approach is just to 

provide an epistemological and 

methodological support for undertaking 

research and the same basic theory to 

management. Starting from here, our 

intention is to argue and disprove a failure 

irreconcilable objection between positivist 

and constructivist paradigms. 

Key words: knowledge, management based 

on knowledge, epistemology, positivism 

paradigm, constructivist paradigm 

DUMITRU Paula; 

University Nicolae Titulescu, Bucharest; 

pauladumitru@univnt.ro 

JOIA Radu-Marcel; 


radu.joia@univnt.ro 

BABONEA Alina-Mihaela; 


alinababonea@univnt.ro 

204 


In the “new economy” and “the knowledge 

society”, intangible assets such as knowledge 

management and information and 

knowledge become the new core 

competencies. According to Professor Quash 

the London School of Economics, we are in a 

world that emphasizes the economic value of 

intangible assets. We are dealing with 

“cognitive domains” in which ideas are worth 

billions, while the products still cost less. 

In Peter Drucker’s vision in the future 

others will be key success factors: 

“traditional factors of production-land, labor 

and capital-have not disappeared. But they 

have become secondary. Knowledge is only 

really relevant resource today. Knowledge 

becomes essential component of the system 

of contemporary economic and social 

development” (Drucker P., 1988). 

Knowledge, unlike labor, land and capital is 

an asset that is assessed as usage. 

The more used the knowledge becomes more 

effective and efficient. In his opinion, 

(Sveiby, 1998) “the New Economy”, 

knowledge has four characteristics: 

� is tacit; 

� is oriented towards action; 

� based on rules; 

� is amended regularly.” 

Understanding the implication tacit & 

implicit [Nonaka & Takeuki model, 1999], 

shows dynamics of knowledge conversion 

from explicit knowledge to tacit knowledge. 

- But knowledge can be considered 

as an existing theory?

It believes that more and more knowledgebased 

assets as tangible replace vital 

support creating competitive advantage. 

Those who make the essential difference 

between organizations are people, not 

money, buildings or equipment 

[Venkatraman & Subramaniam, 2002]. 

Human resources are a key factor in this 

context, for employees and the extent to 

which they manage, play an essential role in 

the success of an organization. 

Organization’s ability to adapt to the future 

economy depends largely on developing a 

new type of management, focused on value 

creation of knowledge and scientific progress 

achieved through the operational results of 

scientific research. 

Thus, management based on knowledge as 

the result of knowledge progress achieved 

through the operational results of scientific 

research. 

In defining the concept of management 

based on knowledge (the world there are 

many approaches), noted that, regardless of 

the treatment, each definition is focused 

around the ideas: economic performance, 

creation of economic value added, improve 

operational efficiency, effectiveness and 

profitability. 

Aware of the importance of the concept, the 

Romanian school has treated knowledge 

management through leading 

representatives of modern management – 

[Nicolescu, O., I. Plumb, & collective, 2003], 

defining a highly suggestive as “strategically 

oriented approach to reasoning and facilitate 

the employment of members of organizations 

to develop and use their cognitive 

capacities”. 

If we consider the theory in terms that we 

are in infancy, in terms of knowledge-based 

managerial practice, it is a step forward, 

particularly in organizations working in 

areas such as informatics, 

telecommunications, biotechnique, etc. 

Quick dynamic world of ideas relating to 

management based on knowledge although 

beneficial in terms of possible applications is 

still considered a profusion and diversity 

almost confusing. Focusing must be 

sufficiently broad to cover the interesting 

mix of perspectives, conceptual approaches, 

theories and results which are due 

interdisciplinary and nature with many 

facets of this area. 

In this context, the argument for addressing 

personal issues that go beyond the finding 

205 

that management based on knowledge must 

be placed in the current economic context. 

An enterprise is a dynamic environment 

which has the main objective of adding 

value. In terms of management based on 

knowledge, knowledge (resources) are a key 

factor in the extent to which they are 

managed in such a way as to constitute a 

source of benefits. 


The main source of inspiration for this 

article is Davenport TH., Prusak L’s., 

„Working Knowledge: How Organizations 

Manage What They Know” where the 

authors describes their own beliefs regarding 

the economical issues in business 

organization. Also they are presenting the 

important of the relation between the 

knowledge management and fundamental 

business strategy. As many business 

academics, the authors have long stressed 

the internal role knowledge plays in 

business strategy and organizational 

performance. This idea is also promoted in 

Drucker P.’s book: „The coming of the new 

organizations” that shows hoe people have to 

be organized across the business for bringing 

success. The main two sources are completed 

by a lot of international articles in which the 

knowledge management is the main subject 

discussed. 


From the intelligence company to the 

company producing ideas 

We mentioned implanted in a socio-economic 

complex calls us, asking us new ways of 

approaching problems, new styles of 

behavior. To face the demands, will use its 

creative potential, in every situation 

inventing alternative solutions originals. In 

these conditions, organizations are put in 

front redefining own culture through 

processes of organizational redesign and 

change of strategy. 

Concept of knowledge management, best 

known in literature under the name Anglo- 

Saxon “knowledge management” emerged in 

1989 in the Harvard Business Review 

magazine with a history of learning 

organization concept in the ‘80s. He made 

several definitions over not present, among

which the most representative present them 

below: 

� “management based on knowledge 

involves the acquisition, storage, 

generation and review of knowledge 

assets within the organization in a 

controlled” (Watson, 2002); 

� “means to improve overall business 

performance through operational 

knowledge in production, marketing, 

research development, planning and 

innovation” (Kim, 2003); 

� “art of creating value by using 

intangible assets” (Sveiby, 1999); 

� “Processes of creating, capturing and 

using knowledge to enhance the 

performance of organizations. 

Economic forces which determine the 

emergence of science – management 

based on knowledge and use of 

intellectual capital are fundamental 

and will continue to act” (Chan, 

2002); 

� “the collection and dissemination of 

collective or individual experiences 

that fulfill their missions to obtain 

performance in an 

organization”(Nicolescu, 2005). 

The starting point in addressing knowledge 

as an asset of the enterprise, and 

Therefore attempt to evaluate the 

intellectual capital is highlighting its 

components, so where they are at a time, 

form and, most importantly, how can we 

measure and improve. 

Literature has identified and submitted in 

time, several types of knowledge existing in 

an organization, but the really useful key to 

be retained and capitalized are: on the one 

hand know-how or the ability to design, 

build, sell, and on the other hand, collective 

and individual qualification (the ability to 

act, to adapt and to develop). 

In another perspective, there are tangible 

elements (data, procedures, plans, models, 

documents, analysis and synthesis, and 

intangible elements (ability, skill training, 

private knowledge, knowledge of the 

company). For intangible is necessary first to 

formalize the know-how, which involves 

acquisition and knowledge representation. 

Whole knowledge of a form the intellectual 

capital that is characterized by a high 

volatility. Specialized studies show that over 

80% of information and knowledge that form 

the memory are recorded in information 

systems, which are stored on paper 

206 

documents or experts in the brain, they 

cannot be directly exploited in conditions of 

all those concerned. 

From previous approaches, we could say that 

management based on knowledge emphasize 

not only new phenomenology, but induces a 

different vision on how to conceive an 

practice management. 

In this sense, we could say that based on 

knowledge management is: 

� to optimize the process of adopting 

decisions; 

� back to corporate experiences; 

� to increase the number of 

innovations; 

� to acquire new knowledge; 

Epistemological and methodological 

components of the concept of 

management based on knowledge 

This concept of management based on 

knowledge, is based on a deterministic 

approach, from the technological and 

organizational factors. 

At the beginning of the millennium, there 

was convergence between perspective and 

technological management, through the 

merger between organizational needs and 

information technologies. Accordingly, the 

government issued a new management 

paradigm based on knowledge, upper 

positivism paradigm management based on 

control and authority. 

Members of such organizations are aware of 

the relationship between goals and 

objectives, means and results and between 

organizations and environment. 

There was recently the concept of 

“knowledge base” used in a broad sense for 

organizations that integrates both personal 

dimension of knowledge to individuals and 

groups, and its size, presented in artificial 

intelligent information systems. 

In this context, “the knowledge base present 

organizational attributes of extended 

memory, designed to support cognitive 

autonomous specific projects and to benefit 

the cumulative results.” (Androniceanu A 

and Androniceanu M., 2007). 

Fundamental problem of management based 

on knowledge is related to the production of 

knowledge and know-how needed to use 

them. Knowledge production and know-how 

for operation is the result of a combination of 

factors of socio-human, cultural, technical, 

etc. Knowledge is made increasingly more in

the area of “production” effective. Production 

of knowledge and know-how is related to this 

methodology as well as many different 

elements of a practical-applicative, ethical, 

technical and cultural. 

If you return the organizational realm, we 

can accept the idea expressed by Davenport 

and Prusak we cannot take claim of a final 

definition of knowledge, while epistemology 

enough to have dedicated entire life trying to 

understand the essence of knowledge. From 

a pragmatic perspective, organizational, two 

American authors use knowledge as a fluid 

mixture of structured experience, values, 

contextual information and expertise that 

provide the framework for evaluating and 

incorporating new information and 

experiences (Davenport & Prusak, 

1998). Hence the difficulty, even 

impossibility formalization, complex and 

unpredictable nature of most of the 

knowledge. 

About the information-knowledge, Alain 

Godbout distinguish two different 

approaches sensitive (Godbout, 2004). First 

we grouped those who assimilated the 

knowledge economy. For the second category 

of “knowledge is information in the step 

above a chain of value-time informationknowledge-wisdom”. 

The problem presents a 

great importance in defining the concept of 

management based on knowledge. 

Represents the object of knowledge 

management, knowledge management 

process or a mixture of the two approaches? 

Speaking of management based on 

knowledge, you must first clear the nature of 

the object (knowledge or information?) and 

the nature of the process (learning or 

knowledge?) 

Machlup (quoted in Court, 1997) replaces 

the information process to inform and be 

informed and inform the state of knowledge. 

He attached the concept of communication of 

information, which suggests that 

information is dynamic. On the other hand, 

knowledge is a state, a property of an 

individual. 

(Leave, 1996) states that knowledge always 

undergoes a process of construction and 

transformation in use. 

For Hill (quoted in Court, 1997) - knowledge, 

to be stored, you must first be concrete and 

have a real message. He takes the example 

of a book. A book is practical and also a 

message. The problem: the knowledge is 

207 

represented by the book - itself or mental 

process that results from reading the book? 

It is believed that knowledge is more than 

information stored. Knowledge may be called 

the mental state of ideas, facts, concepts, 

data, techniques, etc., recorded in the 

memory of an individual. But two 

individuals who read the same book remain, 

often with a volume of knowledge differently. 

This is because knowledge is strictly related 

to a (processing) problem. 

Knowledge is obtained from individuals and 

groups of “knowledge” or analyzing 

organizational processes and procedures. 

Wisdom springs from understanding the 

fundamental principles on which are built 

grids representing knowledge. When belief 

creates knowledge, beliefs, values guiding 

the behavior of an individual can speak 

wisely. 

(Bellinger, 1997) draws the following 

parallel: 

� information: What? - description, 

definition, or perspective, 

� knowledge: Who? When? Where?, 

How? - the strategy, practice, 

approach; 

� wisdom: Why?, What implications? - 

principle, conviction, archetype. 

Prusak and Davenport draw attention to the 

fact that the value chain can be made 

in respect downward, especially when due to 

the huge volume of knowledge, the 

information becomes impossible to manage. 

Knowledge and information can become even 

date. 

To reinforce the idea, the authors make 

reference to Eschil who said that “it is not 

wise who knows many things, but useful 

things” (Davenport & Prusak, 1998). 

Remains a crucial question: How do I build 

the significance, meaning that data are 

“advanced degree” to information and then 

knowledge, how we construct knowledge and 

acquire wisdom? Of course, it is sufficient to 

place science philosophical reflection. 

Basic problem of epistemology - the validity 

and limits of knowledge - became a current 

concern not only the current in the 

philosophy or theory of organizations but 

also organizations of concrete, in particular, 

they each develop and test on a continuous 

representations about the business 

environment, own mission and powers, 

making them intelligible to its members 

(Von Krogh & Ross Slocum, 1994).

In strict complementarity with the 

production of knowledge and know-how, 

epistemology proposes and implements 

systems for the recognition and 

dissemination referential form of systemic 

accumulation. Two paradigms have been and 

are still considered the most significant and 

robust construction: positivism and 

constructivism. 

The basic idea of positivism is that reality, 

the implicit social dimension is an objective, 

external individuals and as such should be 

evaluated on the basis of procedures and 

objectives beyond connections or influences 

subjective measures produced by researchers 

and subjects investigated. Reality is 

therefore external and objective, and 

knowledge becomes significant (true, 

actually) if implemented on the basis of 

observation of this reality: “... there can be 

no real knowledge than to that based on 

observed facts” (Comte A., quoted by Zait & 

Spalanzani, 2006). 

In social sciences, management and 

therefore subject research is dominated by 

the subjective nature of relationships that 

can not be only rarely approaches that of the 

researcher and drovers not to interfere and 

influence each other. On the other hand, 

there are problems and approaches to 

management that may be subordinate to the 

relative ease positivist canons. Moreover, a 

good time, they have developed well under 

the sway of positivism formally. 

Management - decision science, contoured by 

`50 years of the last century, seem even to 

final passage by positive subjects. Positivism 

left practically out areas in which 

intervention by the researcher subjectivity, 

in particular, could change anything in the 

state and evolution of the object 

investigated. The objective (reality must be 

dealt with “real”?), external (only the 

approach of what we all could be outside 

objective) implies, in fact, lack any contact 

with the object looked at, any of the attacks, 

because thus could be altered reality itself, 

and consequently the results of the research 

would not be conclusive. 

Even if positivism is operational, some 

principles are also at least questionable even 

for the fields “positive”. 

Given the above, my opinion is that 

management based on knowledge, positivism 

paradigm is only partially valid, even if you 

find principles of positivism in decision 

theory, for example. The influence of the 

208 

human factor in management based on 

knowledge, decisive and irreversible, is 

difficult to verify both the theory and 

practical solutions. Reality that must be 

addressed is an intrinsic inner (object and 

subject of research come to confuse), is 

dominated by subjective (or is not entirely 

objective) is in fact the result of a series of 

interventions of the human factor, in its 

various actions you succeed to produce a 

“social construction” meaning that having 

the man himself ill assigned a priori. This 

fact can only exist as an entity and can not 

be studied as such. 

The principles of constructivism have not 

been explained, rather than in opposition to 

positivism. 

(Le Moigne, 1995) conducted one of the first 

attempts at systematizing the principles of 

constructivism, based on corresponding 

elements of positivism provided by A. Comte, 

on the one hand, and theoretical references 

of the new doctrine, the logic and scientific 

knowledge Piaget, in particular, on the other 

hand: representation principle, the principle 

of building the universe (postulate teleology) 

proiectivity principle (subject-object 

interaction), general argumentation 

principle. 

Defined by these basic principles, 

constructivism satisfying the requirements 

of research, at least for management, in 

particular. Because management is above all 

projective, he should propose projects that 

represent in an intelligible intervention that 

occur within the enterprise, and to 

anticipate the consequences of this 

intervention. 

So, our view is that the two paradigms can 

cohabit just additional elements that each 

brings to the other. In our orientation, it is 

possible to recognize a dominant 

constructivist, but in-depth approach, the 

intention was to argue the insufficiency of 

opposing and irreconcilable pieces between 

positivism and constructivism. Premises and 

the type is different, but the aim should 

remain the same: build a coherent system of 

knowledge management based on a uniform 

methodology and structure practically 

exploitable. 

Why we need a management based on 

knowledge? 

Management based on knowledge used to 

solve specific problems arising in an

organization, even when we are dealing with 

a product or service is an in. Knowledge 

management facilitates the superior 

relationships with beneficiaries, partners 

and suppliers. Organizations implementing 

a management based on knowledge acting 

decisively on line using the parameters 

maximum intangible assets at the expense 

allocation of new funds for investment in 

intangible assets. With changes in the 

market, the uncertainty becomes greater, 

develops technologies, competitors are 

proliferating, and the products and services 

is rapidly devalues. 

We often face a situation where we do not 

fully cover what we know, is left uncovered 

differences that sometimes can be a disaster, 

and sometimes may be lower. In these 

circumstances, an organization must be 

successful to increase the ability to create 

new knowledge on which to spread quickly 

and to incorporate them into new products 

and services. 

In our opinion, we need a management 

based on knowledge, because: 

� Modern organizations focus on 

knowledge, not capital (knowledge 

intensive, not capital intensive); 

� Markets increasingly unstable 

require “organized abandonment”; 

� Management based on knowledge 

contain helps you change and not 

change to dominate you; 

� Only the well informed survive; 

� Knowledge helps in decision-making; 

� Become effective if knowledge is 

shared with others; 

Since “European Money” requires valueadded, 

management based on knowledge 

helps to increase innovation by valuing 

human potential in an organization. 


Efforts made under the current trends and 

analysis of literature reveals that became 

required a radical change in terms of method 

An organization is not just a warehouse of 

stored knowledge, but a viable and dynamic 

environment, within which there are key 

relationships and interactions that vary with 

different intensities to ensure 

transformation of knowledge for the sole 

purpose of adding value. 

That is why the purpose of our study was to 

draw attention to what is missing in an 

organization, of its objectives. 

209 

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http://sveiby.com/articles/Knowledge 

theoryoffirm.htk. 

210




DESIGN AND IMPLEMENTATION OF THE SHORT-TERM DEMAND 

FORECASTING PROCESS 

Abstract 

The majority of managers, when asked, will 

readily agree that meticulous planning and 

pro-active decision making are crucial to the 

short and long-term success of any 

organization. To that end, an undeniably 

significant portion of both high and low level 

business decisions are constantly made 

according to anticipated future demand for 

the company’s product(s). Yet, surprisingly 

few organizations dedicate any noteworthy 

attention to the actual functionality of 

demand forecasting internally – quite often, 

the demand forecasts are little more than adhoc 

side effects of other micro-planning 

activities (budgeting, sales target setting, 

acquisition/replenishment, etc.). As a result, 

plans across various business units are 

misaligned, based on poorly formulated 

assessments of the future, and altogether 

inefficiently constructed. Even worst, the 

consequent problems arising under such 

circumstances are invariably difficult to 

identify and correct. 

In the present study, we take a business 

process based approach to analyzing the role 

Eisenstat Eric; 

University of California, Irvine; 

eric.eisenstat@gmail.com 

211 

of demand forecasting within a complex 

enterprise, and propose a methodology for 

evaluating the need for forecasting accuracy 

as well as the efficient design and 

implementation of a Forecast Execution 

Process (FEP). The FEP enters the process 

hierarchy as support to the higher level 

Planning and Resource Allocation Process, 

and thereby, provides the unified core source 

of forecasted demand information for all 

business processes in the organization. The 

short-term forecasting technology is provided 

by software-based algorithms that operate on 

historical demand data, along with relevant 

control data, via well-known time-series 

econometric models. The respective software 

module may be further integrated with an 

Enterprise Resource Planning (ERP) 

software for maximum efficiency in data 

processing and communication. Aside from 

design and implementation, continuous 

process management methods targeting 

optimal performance of forecasting and 

planning in the long term, are also discussed.




INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF 

GLOBALIZATION, GLOBAL TRADE AND GLOBAL 

FINANCE 

ENEA Constanţa, 

Economics Faculty and Business Administration, „Constantin Brancusi” 

University, Targu-Jiu, România, eneaconstanta@yahoo.com 

ENEA Constantin, 

Economics Faculty of Law, „Constantin Brancusi” University, Targu-Jiu, 

România, eneaconstanta@yahoo.com 

Abstract: 

The first section of my paper outlines 

the history of the post war economy. 

The history helps to explain why and 

how international political economy (IPE) 

has become so central to the study of 

international relations. Amidst the many 

actors, processes and events in the recent 

history of the worlds economy, it is not 

obvious where one might begin to analyze 

IPE. This task is made easier by three 

traditional approaches to IPE which outline 

for us specific actors, processes and levels of 

analysis. These are the liberal, mercantilist 

and Marxist traditions which are outlined in 

the next section. More recently, IPE has 

become divided by an argument about the 

uses and abuses of "rational choice” analysis. 

What "rational choice" means and the 

argument about how it should be used are 

both explored in section there. These 

perspective and tools for studying IPE are 

then applied to help us to make sense of 

globalization and its impact on the world 

economy. Regarding globalization, we will 

examine one central question: 

Is globalization diminishing the role 

of states in the world economy? 

Key Words: Bretton Woods, General 

Agreement on Trade and Tariffs, IMF, World 

Bank, WTO, forced harmonization, high 

protective barriers, internationalization, 

liberalization, open borders, transborder 

transactions, production, products, 

supraterritorial money, banking, security, 

Euro currency. 

212 


Globalization poses new challenges 

for all states and other actors in the world 

economy. It is often assumed that 

international institutions and organizations 

will manage these challenges. We will also 

try- to answer the question "what role can 

we expect institutions to play in managing 

globalization?". We will distinguish three 

general conceptions of economic globalization 

and highlights the third, geographical notion 

of increasing 'transborder' production, 

markets and investment. This 

'superterritorial' dimension of contemporary 

world commerce is then described in more 

detail under headings of 'global trade' and 

'global finance'. Finally, globalization of 

commerce is linked to several major 

problems of injustice and insecurity in 

contemporary world politics. 

The globalization of world politics 

involves, among other things a globalization 

of economics. As Ngaire Woods has 

emphasized, politics and economics are 

inseparable within social relations. Politics 

(the distribution and exercise of power) is 

integral to economics (the production, 

exchange and consumption of resources). At 

the same time and equally economics is 

integral to politics, helping to determine 

where power lies and how it is exercised. 

Economics does not explain 

everything, but no account of world politics 

(and hence no analysis of globalization as a 

key issue of contemporary world history) is 

adequate if it does not explore the economic 

dimension. 

Countless discussions of globalization 

have highlight edits economic aspect. For

example, Milton Friedman, the Nobel Prize - 

winning economist, remarks that it has 

become possible 'to produce a product 

anywhere, using resources from anywhere, 

by a company located anywhere, to be sold 

anywhere' (cited in Naisbitt 1994: 19). 

Management consultants have ceaselessly 

extolled the virtues of global markets. A 

senior researcher with American Express 

has described global financial integration of 

recent decades as marking 'the end of 

geography'. Global governance bodies like 

the Bank for International Settlements 

(BIS), the Group of Seven (G7), the 

International Monetary' Fund (lMF) the 

Organization of Economic cooperation and 

Development (OECD), the United Nations 

Conference on trade and Development 

(UNCTAD), the World Bank Group (WBG), 

and the World Trade Organization (WTO) 

have all put economic globalization high on 

their agendas. Usually these official circles 

have endorsed and encouraged the trend, as 

have most states. 

Meanwhile many social movements 

have focused their critiques of globalization 

on economic aspects of the process. Their 

analysis have depicted contemporary 

globalization of trade and finance as a major 

cause of high unemployment, a general 

decline in working standards, increased 

inequality, grater poverty, recurrent 

financial crises, and large scale 

environmental degradation. 

In their different ways, all of these 

assessments agree that the globalizing 

economy is a key development of 

contemporary history. True, the trend is 

often exaggerated. However it is just as 

wrong to argue, as some skeptics have done, 

that claims about a new globalizing economy 

rest on nothing but hype and myth. 

Instead-as in the case of most 

historical developments - economic 

globalization involves an intricate interplay 

of changes and continuities. 

Contents: 

The nature and impact of 

globalization is the subject of profound 

debate within IPE. The term globalization is 

used to refer to at least three different sets of 

forces processes in the world economy. 

INTERNALIZATION describes the increase 

in economic transactions across borders 

which has been taking place since the turn of 

the century but which some argue has 

213 

undergone a quantitative leap in recent 

decades. We are talking about the increase of 

transactions between states reflected in 

flows of trade, investment, and capital. The 

process of internalization have been 

facilitated by inter - state agreements on 

trade, investment and capital, as well as by 

domestic policies permitting the private 

sector to transact aboard. THE 

TEHNOLOGICAL REVOLUTION is a 

second aspect of globalization, describing the 

effect of new electronic communication 

(Internet, Satellite, high - tech computers) 

which permits firms and other actors to 

operate globally with much less regard for 

location, distance, and borders. Finally, 

LIBERALIZATION describes the policies 

undertaken by states which have made a 

new global economy possible. Liberalization 

describes government policies which reduce 

the role of the state in the economy such as 

through the dismantling of trade tariffs and 

barriers, the deregulation and opening of the 

financial sector to foreign investors and the 

privatization of state enterprises. This 

includes bottle the rules and institutions 

created by powerful states to facilitate a new 

scale of transnational economic activity in 

certain sectors of the world economy. It also 

includes the policies of smaller and less 

powerful states in the system, who, by 

liberalizing trade, investment and 

production have integrated into the world 

economy. 

In IPE several competing claims are 

made about globalization. For example, 

while some people argue that globalization is 

nothing new, others posit that globalization 

is dramatically diminishing the role of the 

state. Still others claim that globalization is 

exacerbating inequalities and giving rise to a 

more unequal and unjust world. To make 

sense of these different arguments and the 

evidence of adduced to support them, it is 

worth thinking about the traditional 

approaches of IPE (liberal, mercantilist and 

Marxian) for they help to identify key 

differences in emphasis, which give rise to 

conflicting interpretations of globalization. 

For example, sceptics who deny that 

globalization is transforming world politics 

tend to focus on the 'internationalization' 

element of globalization. 

They can then draw upon evidence 

which throws into doubt whether the 

number of transactions taking place among 

states has indeed risen and make the 

argument that there is 'nothing new' in the

growing interdependence of states, By 

contrast, liberal enthusiasts of globalization 

focus on technological innovation and the 

non -political objective forces which are 

shrinking the world economy. They argue 

that this is creating a less political, more 

efficient, more unified world order. Their 

optimism and emphasis is rejected by critics 

who focus on liberalization and the role of 

states policies in shaping globalization. 

These critics highlight the role of powerful 

states in setting the rules of the new 

globalize international economy, and their 

increasing influence over the less powerful 

states. 

Is globalization diminishing the 

role of state in the worlsd economy? 

The Sceptics: 

Countering the 'global economy' view 

are a variety of sceptics who highlighted 

flaws in the argument and the evidence 

proposed by those who argue that the state 

is losing power, the proposition that states 

are under pressure to cut taxes and reduce 

expenditure is attacked by scholars who 

examine data of industrialized counties and 

demonstrate that the evidence does not back 

up this claim. Nor does the evidence suggest 

that there is a relocation of investments to 

area where there are lower wages and lower 

taxes. New research on investments 

discloses that in the new knowledgeintensive 

economy, factors such as the 

availability of skilled and semi skilled - 

labor, good infrastructure and proximity to 

market are crucial ingredients to choices of 

location. The conclusion is that the role of 

state is not eroding. To the contrary, states 

and government still have a very important 

and substantial role to play in a successful 

economy. 

"The closer we looked the shallower 

and more unfounded become the claims of 

the more radical globalists. In particular, we 

begun to be disturbed by three facts: first, 

the absence of a commonly accepted model of 

the new global economy and how it differs 

from previous sates of the international 

economy, second... the tendency casually to 

cite examples of internationalization of 

sectors and processes as if were evidence of 

the growth of an economy dominated by 

autonomous global market forces; and third 

the lack of historical depth, the tendency to 

portray current changes as both unique and 

without precedent and firmly set to persist 

long into the fixture" (Paul Hirst and 

214 

Grahame Thompson, Globalization in 

Question, Cambridge, Polity Press, 1996). 

The globalists: 

a „global economy is emerging' claim 

those who depict a world in which 

multinational trade, production, investment 

and financing moves in and out of countries 

ever more easily. The globalist tell us that as 

result, governments and states are losing 

their capacity to control economic 

interactions. This is partly because the 

quantity and rapidity of flows make it more 

difficult for governments to regulate trade, 

investments, or capital. Equally important is 

the fact that firms and investors can more 

easily take their business elsewhere puts 

new constrains on governments trying to 

retain and encourage investment. The 

argument here is that footloose modern 

business will simply exit from a country if a 

government does not pursue liberalizing 

policies which foster corporate profitability 

and flexibility. For this reason governments 

are under pressure to reduce taxes and to 

cut back state expenditure on health, 

education, pensions, and so forth. When it 

comes to regulating international business, 

governments are permitting investors 

themselves to set the rules and these private 

actors are doing so though new private 

international networks and self - regulatory 

agencies. In sum, states are losing power in 

a global economic order in which state 

borders and governments are less 

influential. This eventuality is embraced by 

those interpreting it from a liberal starting 

point. "the nation state has become an 

unnatural, even dysfunctional, unit for 

organizing human activity and managing 

economic endeavor in a borderless world. It 

represents no genuine, shared community of 

economic interest; it defines no meaningful 

flows of economic activity"(Kenichi Ohmae, 

The Borderless World: Power and Strategy 

in the Interlinked Economy, London, 1994). 

New Constrains on States 

While sceptics knock holes in some of 

the arguments about the erosion of state 

power in the face of global multinational 

enterprises, other aspects of globalization do 

constrain all states. In particular, the fact 

that billions of dollars can flute in or out of a 

country overnight sets a new constraint on 

monetary policy and open up new 

vulnerabilities in the financial sectors of all 

countries. In other words governments have 

to be very careful in managing interest rates 

and managing or floating exchange rates.

Equally they need robust domestic banking 

and financial systems. The punishment for 

poor policy is instantaneous and devastating 

Furthermore, as the Asian financial crisis of 

1997 showed, it is not only the culprit 

country who bears the punishment. The 

financial crisis in Asia highlighted the 

potential vulnerability of all countries to 

massive inflows and outflows of capital. It 

also underlined that some states suffer the 

impact of globalization more then others. 

The impact of globalization on 

different kind of states. 

The Asian crisis highlights that 

states have different capacities to respond to 

globalization. Even though all states in the 

region were affected by the crisis, their 

responses suggested that some enjoyed more 

choice or ' sovereignty' than others. 

Indonesia, Thailand and Korea turned to the 

international Monetary Fond (IMF) for 

assistance conditional on policies mostly 

defined in Washington DC. Meanwhile 

Malaysia formulated its own policies of 

adjustment and imposed policies such as 

capital controls which were greatly 

disapproved of in Washington DC. Although 

globalist and sceptics treat all states as 

equal in their arguments about glob; it is 

worth questioning tliis. One way to think 

about globalization is distinguish between 

strong states and week states. At the 

extreme end strong states are those which 

shape the rules and institutions which had 

make a global economy possible (for example 

the US shaped the Bretton Woods System). 

A more general description of strong states is 

that they can control the nature and speed of 

their integration into the world economy. 

Into this category we might place not only 

relatively strong industrialized countries. 

Yet at the same time in each of these 

countries there are high protective barriers 

in important sectors of the economy and 

serious debate about capital controls and the 

regulation of international capital. The 

capacity of these countries to control their 

integration into the world economy is 

doubtless related to their size, resources, 

geostrategic advantages and economic 

strength. However, interestingly it seems 

also to be related to their national and the 

domestic power of the state. One thing that 

all strong states have in common is that they 

guard with equal ferocity their independence 

in economic policy, foreign, policy, human 

rights and security issues. Weak states by 

contrast suffer from a lack of choice in their 

215 

international economic relations. They have 

little or no influence in the creation and 

enforcement of rules in the system and they 

heave exercised little control over their own 

integration into the world economy. For 

example in the aftermath of the debt crisis of 

the 1980s, many 'weak states' opened up 

their economies, liberalized and deregulated 

more as a result of coercive liberalization 

that of democratic policy choice. In the 1990s 

this continued with ' what an international 

economist called forced harmonization, for 

instance, in the case of trade negotiations on 

intellectual property, developing countries 

were coerced into an agreement which 

transfers 'billions of dollars' worth of 

monopoly profits from poor countries to rich 

countries under the guise of protecting the 

property right of investors distinguishing 

among states according to their capacity to 

shape and respond to globalization is vital on 

analyzing the impact on IPE. The example of 

the international financial system 

demonstrates that some states, in particular 

the United States are 'rule makers' in the 

world economy and the less powerful states 

are ‘rule takers'. 

Transborder production arises when 

a single process is spread across widely 

dispersed locations both between and within 

countries. Supraterritorial coordination 

links research centers, design units, 

procurement offices, materials processing 

installations, fabrication plants, assembly 

lines, quality control operations, advertising 

and marketing bureuax, data-processing 

offices, after-sales since and so on. A global 

production operation is described by Haas: 

"our company buys denim in North Carolina, 

ships it to France where it is sewn into 

jeans, launders these jeans in Belgium, and 

markets them in Germany using TV 

commercials developed in England". 

Through global sourcing the 

company draws materials. Components, 

machinery, finance, and services from 

anywhere in the world. Distance and borders 

figure only secondarily, if at all, in 

determining the sites. In deed a firm may 

relocate certain stages of production several 

times in short succession in search of profit 

maximization. A example of county-hopping 

is Nike, which during a five years period 

opened or closed fifty-five factories in North 

America and East Asia in response to 

changes in relative costs of production. What 

others have called global factories where 

unknown before the 1940s they did no get

major prominence until the 1960s and have 

manly spread since the 1970s. 

supraterritorial production has developed 

mainly in the manufacture of textiles, motor 

vehicles, leather goods, sports articles, toys, 

optical products, consumer electronics, 

semiconductors airplanes and construction 

equipment. 

In the same time become very 

important the international transfers of 

goods and services between transborders 

companies, in form of inter-firm trade. When 

the intermediate inputs and finished goods 

pass from one country to another they are 

officially counted as 'international' 

commerce, yet they primarily involve 

movements within a global company rather 

that between national economies. 

Much transbordcr production has 

taken advantage of what a variously called 

special economic zones (SEZs), export 

processing zones (EPZs ) or free production 

zones (FPZs). Within these enclaves the 

ruling international and provincial 

government exempts assembly plants and 

other facilities for transborder production 

from the usual import and export duties. The 

first such zone was created in 1954 in 

Ireland, but most were created after 1970, 

mainly in Asia, the Caribbean and so called 

maquiladora areas along the Mexican 

frontier with the United States. Nearly 850 

EPS were in place worldwide at the turn of 

the century. (UNDP, 1999). 

Much of the output of both 

transborder and county-based production 

has acquired a supraterritorial market in the 

contemporary globalizing economy. 

Hence a considerable proportion of 

the international trade now involves the 

distribution and sale of global goods often 

under a transword brand name. 

Consumers dispersed across many 

corners of the planet purchase the same 

articles at the same time. The country 

location of a potential costumer for, say, a 

Xerox Photocopier, or a Kellogg’s corn flakes 

is of limited importance. Design, packaging 

and advertising determine the market far 

more than territorial distance and borders. 

Like other aspects of globalization, 

supprateritorial markets have a longer 

history that many contemporary scicntists 

appreciate. For example Campbell Soup 

begun to become household names at widely 

dispersed locations in the mid 1880s from 

the outset Henry Ford regarded his first 

automobile, the Model T as a world Coca- 

216 

Cola was bottled in 27 countries and sold in 

78 by 1929. On the whole, however, the 

numbers of goods, costumers, and countries 

involved in these earlier global markets were 

relatively small. 

In contrast the global goods pervade 

the contemporary world economy. In all the 

sectors global products inject a touch of 

familiar almost wherever on earth a person 

may travel. The countless examples include 

Nescafe (sold in 200 varieties worldwide), 

Heineken Beer (drunk in 170 countries), 

Nokia mobile phones used in 120 Countries 

and so on. Today many shops are mainly 

stoked with transborder aticles. 

Other supraterritorial markets have 

developed since the 1990s through electronic 

commerce. Today global consumer can - 

equipped with a credit card and telephone, 

television and internet - shop the world from 

home. Mail order outlets and telesales units 

have undergone exponential growth, while 

optimistic projections estimate that 

commerce on the World Wide Web will 

expand from $2.6 billion in 1996 to over $ 

300 Billion in 2002 (Bacchetta, 1998,23). 

Global Finance 

Finance has attracted some of the 

greatest attention in contemporary debates 

on globalization, especially following the 

crisis in Latin America 1994 - 1995, Asia 

1997-1998, Russia 1998 and Brazil 1999. 

The rise of supaterritoriality has affected 

both the forms that money takes and the 

ways it is deployed in banking, securities 

and insurance markets. 

Supraterritorial money 

The development of global production 

and growth of global markets have each 

encouraged the spread of global moneys. It 

was noted earlier that the fixed and later 

floating exchange regimes operated through 

the IMF have aloud a number of 'national' 

currencies to enter transworld use. No 

national denomination has been more global 

in this context that the US Dollar. About as 

many Dollars circulate Inside and outside 

the USA. Indeed, in certain financial crisis 

this global money has displaced the locally 

issued currency in the everyday life of the 

national economy. Such ' dollarization' has 

occurred in parts of Latin America and much 

of eastern Europe. Since the 1970s the 

German Mark (now suspended by the Euro), 

Japanese Yen, Swiss Franc and other major 

currencies have also acquired a substantial 

global character.

Foreign exchange dealing has 

become a supraterritorial business. This 

round the clock, round he world market has 

no central meeting place. Many of the deals 

have nothing to do with the countries were 

the currencies involved are initially issued 

eventually spent. The trading itself also 

transpires without distance. Transactions 

are generally concluded over the phone and 

confirmed by telex and e-mail between 

buyers and sellers across whatever distance. 

Meanwhile shifts in exchange rates are 

flashed instantaneously and simultaneously 

on video monitors across the main dealing 

rooms worldwide. 

Trandborder money also takes other 

forms beside the national currencies. 

Gold has already circulated across 

the planed for several centuries. A newer 

and more fully supraterritorial 

denomination is the Special Drawing Right, 

issued through the IMF since the 1969. 

SDRs reside only in computer memories and 

not in pocketbooks from everyday 

transactions. 

Meanwhile other supraterritorial 

money has daily use in plastic form (ATMs, 

Smart Cards, Credit Cards). 

Supraterritorial banking : 

Globalization has touched banking 

mainly in terms of: the growth of 

transborder deposits; the advent of 

transborder bank lending; the expansion of 

transborder branch networks and the 

emergence of instantaneous transworld 

interbank fund transfers. 

Eurocurrency accounts first 

appeared in the 1950s and expanded after 

1970, especially with the flood of so called 

petrodollars that followed major rises of oil 

prices. Eurocurrencies are supraterritorial: 

they do not attach neatly to any countrie’s 

money supply. They are not systematically 

regulated by the national central bank that 

issued them. 

The supraterritorial character of 

much contemporary banking also lies in the 

instanteneity on interbank fund transfers. 

Electronic messages have largely replaced 

territorial transfers by check of draft and 

cost far less. The largest conduit for such 

movements is the Society for Worldwide 

Interbank Financial Telecommunications 

Launched in 1977 SWIFT interconnected 

over 6,900 financial institutions in 190 

countries by 1999. It carried payments with 

an average daily values of more than $5 

trillion. 

217 

Globalization has reshaped banking 

with the growth of supraterritorial deposits, 

loans, branch networks and fund transfers. 

Securities markets have gained a global 

dimension through the development of 

transborder bonds and stocks, transworld 

portofolios and electronic round the world 

trading. 

Globalization has likewise affected 

the instruments and modes of trading on 

derivatives markets. Globalization have 

changed forms of money with the spread of 

transborder currencies, distinctly 

supraterritorial denominations. digital cash 

and global creditcards. 

But the economic globalization has 

also some limits. We can highlight four main 

points: 

• The continuing key place of the 

state amidst these changes. 

• The continuing significance of 

national attachments and cultural 

diversity in the present era of 

economic globalization 

• The unevenness with which the 

globalization of trade and finance has spead 

• The continuing importance of 

territoriality in the contemporary globalizing 

economy. 

Global trade and finance have spread 

unevenly between different regions and 

different circles of people. Territorial 

geography continues to be important in the 

contemporary- globalizing economy. While 

economic globalization has weakened 

cultural diversity and national attachments 

in some respects, has promoted them in 

other transborder commerce has to date 

often widened material inequalities within 

and between countries and the states 

exercise significant influence in global trade 

and finance. 

We can say, as we showed that the 

globalization of world politics is a deeply 

economic affair. Economic globalization has 

affected different places and people to 

different extends and it has far from 

eliminated other structures of world politics 

like territory, state and nation. 

References: 

1. Bacchetta, M ;Electrinic Commerce 

and the role of WTO, World Trade 

Organisation Raport, Geneva, 1998 

2. Deutscher Bundestag: 

Globalisierung der Weltwirtschaft, 

Leske + Budrich, Opladen, 2002

3. Held D. Global Transformations: 

Politics, Economics and Culture, 

Cambrige, Polity Press, 1999 

4. Kenichi Ohmae, The Borderless 

World: Power and Strtegy in the 

Interlinked Economy, London. 1994 

5. Paul Hirst and Grahame Thompson, 

Globalization in Question, 

Cambridge, Polity Press, 1996 

6. Nuscheler, F: Entwicklung and 

Frieden im Zeichen der 

Globalisierung, Bundeszentrale fuer 

politische Bildung, Bonn,2000 

218 

7. Odell, J.: Negociating the World 

Economy, Cornell University Press, 

2000 

8. Smith, S.Baylis, J.: The 

Globalization of World Politics, An 

introduction to international 

relations, Second Edition, Oxford, 

University Press,2001. 

9. UNDP: Human development Report, 

1994 

10. Zentrum fuer Europaische 

Wirtschaftsordnung: Wirtschaft 

Heute, Bundeszentrale fuer 

politische Bildung, Bonn,2003




A BRIEFLY ANALYSE OF “NON-STATE ACTORS”- 

NGOs IMPACT ON MULTINATIONAL COMPANIES: CONFLICT OR 

COOPERATION? 

LAURA Florescu; 

University “Alexandru Ioan Cuza” of Iasi, Romania; 

e-mail:laura.florescu@ymail.com 

Abstract 

Nonprofit organizations have become 

important actors in world politics, social, 

economic, but also in the business world. 

Nonprofit organizations such as “Amnesty 

International”, “Greenpeace”, “Oxfam”, “Save 

the Children” or “World Wide Fund for 

Nature”, lead campaigns to support the 

causes of socio-economic or humanitarian. 

Many of these groups offer their services to 

improve economic and social issues 

outstanding. Recent studies (Yaziji, Doh, 

2009) indicate a rate of 400% in terms of 

increasing non-governmental organizations 

worldwide. This analysis is conducted amid 

macroeconomic crisis of 2007-2010 and 

global climate change. Ever collaboration 

between the corporate sector and civil society 

wasn’t so important, because the XXI century 

began with a concerted international 

approach to the dissemination of "mutual 

value" of capitalism not only by companies, 

customers, suppliers, but also to communities 

and the environment environment. This 

chapter is intended to define NGOs as nonstate 

actors in major world political and 

economic scene, examines the important role 

of NGOs both in the "business" and society, 

the impact of conflicting attitudes on 

multinational companies, but also possible 

trends of cooperation between these two 

entities. 

Key words: “non-state” actors, NGOs, 

multinationals, economic globalization 


Addressing non-state actors in the literature 

has increasingly become, in recent years, the 

subject of analysis and debate. Relatively 

recent date, the conceptualization of various 

219 

entities, other than nation-state, 

demonstrate the importance of the 

globalization. Amid spatial scale and density 

of global interconnection, are intertwined 

relationships between communities, states, 

international institutions, NGOs and 

multinational companies. However emerging 

so-called "world order", different from the 

state was mainly pawn in international 

relations. 

Overlapping networks thus formed and 

interact, defining the structure by both 

evolutionary constraints and power, 

reputation, influence in all sections: social, 

economic, political, and cultural. This 

structure becomes a product of both 

individual actions and the cumulative 

interaction of many agents and institutions 

worldwide. Few areas of social life beyond 

the influence of globalization, as reflected in 

specific aspects of economic, financial, 

political and cultural globalization can be 

seen as a different phenomenon, with 

multiple facets. 

Though currently, the concept of non-state 

actors in the globalized economy, despite a 

vast and growing literature is one vehicle 

that increasingly, we can not say that it is a 

solid theory, founded on systematic review of 

its defining characteristics. Moreover, few 

studies provide a consistent story about the 

drive concept, in terms of the existence of a 

new reality, the involvement of non-state 

actors in transforming the shape and 

prospects of world economy. 

Based on these facts, this paper aims to 

develop an overview of the most 

representative categories of non-state actors 

in the economy, namely NGOs and 

multinational companies, through the 

impact of NGOs on the behavior and exercise 

modality action of multinational companies.

Since last decade, pressure on NGOs began 

to pursue the multinational companies was 

based on attitudes and reactions "pro social" 

them. The current dilemma is whether 

NGOs should be screaming to face or be in 

cooperation with the characteristic attitude 

of multinational companies, oriented to 

maximize profits? 

Personal contribution is just trying to pave 

the way for a new way of analysis of nongovernmental 

organizations addressing 

these non-state entities from another 

perspective, the active players and current 

economic scene. Last two decades have led to 

the development of NGOs in the context of 

the event business-government-society 

relations and the Cold War and opening 

markets to new areas, uncharted, gave them 

enough areas for action. Meanwhile, current 

economic events allow us to conduct an 

analysis, perfectible, regarding the future of 

cooperation relations between multinational 

companies and NGOs, in the globalized 

economy. 


Making an overview of the definitions in the 

literature, we consider "non-state actors" in 

conditions of globalization are those entities, 

other than the nation state, showing a 

greater influence on the economic, political 

and social internationally. 

Higgott, Underhill and Bieler (2000) identify 

two main categories of non-state actors: the 

first category consists of private sector 

corporate actors, they, in turn, are divided 

into transnational and multinational 

companies. The second category includes 

non-governmental organizations with 

international influence. 

Although the term "non-state actors" is 

relatively recent and appears in the globalize 

economy in the early twenty-first century, 

the starting point in tracing the evolutionary 

elements of this concept is considered by 

some authors, as during of the Second World 

War (Strange, 1996). Other authors, taking 

into account the heterogeneity of non-state 

actors’ typology highlights the starting point 

for the development of a global player, with 

reference to NGOs, during the late 

nineteenth century. 

In this study we focus on two major 

categories of non-state actors, that 

multinational companies and NGOs. From 

220 

this perspective, the timing of their 

occurrence obviously is not the same. 

In the first decade of the century XXI 

century, NGOs have shown considerable 

influence in civil society. Also, there is a 

growing influence of "visible" on the bodies 

and institutions governing international law. 

As to the impact of NGOs on the global 

economy, a sound understanding of the 

actions undertaken by them is necessary, not 

only in terms of the influence that these 

actors' non-state "manifests the increasingly 

prominent globally, but also in terms of 

interaction between NGOs and large 

corporations. 

Singh (2003) believes that the conventional 

approach on the definition of "NGO" is based 

on functional aspects of the activities of the 

entire category of NGOs and, in particular 

those relating to social services. In this 

respect, criteria related to the definition of 

NGOs are limited to education and health 

services considered, usually the company's 

vulnerabilities. Thus, the functional 

definition of NGOs around the approaches 

varied philanthropic, altruistic charity. 

Structural aspects of the definition are 

divided into two categories, namely residual 

and institutional. Residual approach is 

implemented strictly temporal and 

emergency and unforeseen circumstances. 

Therefore, waste services are ad hoc and 

only used when deemed necessary. 

Subsequently, the residual approach will be 

gradually replaced by an institutional 

approach. From this perspective, NGOs 

develop activities scheduled regularly on an 

institutional basis. 

Term "NGO" dates from 1950 when the 

United Nations has attempted a definition of 

that term. Today however, the United 

Nations define NGOs any group of citizens as 

volunteers, performing a non-profit, located 

locally, nationally or internationally. 

Oriented performance of an obligation and 

led by people with a common interest, NGOs 

provide a variety of humanitarian services, 

bring citizens' concerns to governments, 

monitor policies and encourage political 

involvement in the community. They provide 

analysis and expertise, serve as early 

warning mechanisms, and help monitor and 

implement international agreements. Some 

are organized around certain specific issues 

such as human rights, environment or

health. 

However, a definition of non-governmental 

organizations is difficult due to various 

actions undertaken by them, and definitions 

will consider socio-economic and political 

events in which these non-state actors 

operate. 

Such a test "technical" definition of NGOs is 

provided by Hudson and Bielefeld, as 

follows: NGOs are organizations that offer 

(in a legal sense), relevant goods or services, 

thus having a public purpose specified, are 

organizations that prohibit distribution of 

profits to individuals, are voluntary, 

meaning that they are created, operated and 

ends its work on voluntary decision and 

initiative taken by members of a council and 

also expose the rationality of value, often 

based on strong ideological component. 

Teegen et. al. (2004) offers a more succinct 

definition, referring only to social NGOs, as 

follows: NGOs are private organizations to 

untargeted profit aimed at serving private 

interests of society by focusing on defense and 

/ or operational efforts in the social, political 

and economic such as private equity, 

education, health, environmental protection 

and human rights. 

Time of the first non-governmental 

organizations is considered, according to 

Carrie Meyer, when the first wave of 

globalization from the late nineteenth 

century and early twentieth century. Seary 

(1996) considers the first appearance of 

NGOs in the mid-nineteenth century. The 

first such international organizations 

belonged to religious and academic circles. 

Charnovitz (1997) notes that the first 

international conference of NGOs took place 

in the European and American international 

space. Many of these organizations focused 

on weather controversial trade issues such 

as slave trade and opium. Others focused on 

international issues of solidarity and peace, 

international law, environmental protection, 

etc. Charnovitz points out several events 

organized in the mid-nineteenth century, 

namely: Anti Slavery International 

Conference held in London in 1840, the 

International Peace Congress held in Paris 

in 1849, first international meeting of 

workers in 1864, the first Conference 

International Red Cross since 1863. 

As shown, the period between the late 

nineteenth century and early twentieth 

century is marked by an "explosion" of such 

international meetings, on issues of global 

221 

interest, such as international rail transport 

marine environmental protection, etc. 

Charnovitz article seeks to demonstrate that 

NGOs meetings were followed shortly, since 

that time, meetings of member governments 

of the main European countries where the 

same topics were discussed. 

Thus, concomitant development of 

communications and other technologies has 

contributed decisively since that time, to 

enhance the international activity of NGOs. 

Reform in the postal system in the 1840s 

with the development of telephone and 

telegraph systems, have facilitated 

communication between Europe's fastest. 

Although it had heterogeneous activities of 

NGOs in Europe, Canada and the United 

States have expanded in Asia, Latin America 

and the Middle East. Carrie Meyer noted 

that, in 1850, there are a number of 66 nongovernmental 

organizations (foundations, 

religious and humanitarian groups, cultural 

associations or labor market) in Europe, 

Canada and the United States; by 1910 their 

number reached 344. 

Another important period in terms of global 

expansion of NGOs was the period preceding 

and immediately following the end of the 

Cold War. 80-90 years of the last century, 

but immediately after the end of the Cold 

War, led to the development of increasingly 

strong "global civil society." The question 

that arises relates to the reason that "civil 

society" is important when referring to nonstate 

actors in general and NGOs in 

particular? In terms of business expansion 

beyond the sovereign state, "global civil 

society" is a concept similar to that of "nonstate 

actor" with the difference that civil 

society activities are carried out by non-state 

actors. 

Higgott comprehensive attempt to define 

this term and considers civil society as the 

way in which individuals manifest both 

individually and collectively, on political, 

economic, and social. Civil society, states 

Higgott, must be examined from two points 

of view: on the one hand, is composed of 

individuals or groups of individuals 

disadvantaged by the effects of globalization 

on the world economy, they protest and seek 

alternatives. On the other hand, is more 

ambitious vision that of "global civil society" 

in which these global social movements, 

taken as a whole, constitute a basis for an 

alternative to a new world order? 

From his analysis emerges the idea of

increasing importance Higgott civil society 

in the socio-economic world. The role of 

NGOs increased considerably since the end 

of the Cold War, this political event allowing 

expansion of civil society globally. 

Although of relatively recent date, a "nonstate 

actor" in the globalization of the 

economy is becoming increasingly the object 

of analysis and argument. Heterogeneity 

concept leads us to experience difficulties in 

creating an integrated approach, 

homogeneous non-state actors. On the one 

hand, we have shown non-state actors a 

strong influence in the current political and 

economic sphere. We refer here to 

multinationals operating activities "from" 

nation-state boundaries and interests. 

However, there is a close collaboration 

between state and corporation. 

On the other hand, we have NGOs, nonstate 

actors with social and political 

influence, more recently, economic. Recent 

studies forecast for the next decade a 

working relationship between these two 

categories of non-state actors. This will 

cause an inter-relationship between the 

three spheres of action: political, economic 

and social prerequisites to create uniform 

and consistent design vision for action 

among the various divergent interests: 

maximizing profits, ethical, social protection, 

etc. 

3. 

Paper Content 

3.1 NGO event in the context of 

business-government-society relations 

In the beginning of this research will 

highlight the conditions that favored the 

emergence of a significant number of 

nonprofit organizations in the past two 

decades, while the activism of NGOs is seen 

increasingly more prominent in public 

debate in legislative changes, the need to 

regulate or altering corporate behavior. 

In the last two decades the number of NGOs 

has grown considerably. Thus, if in 1993 the 

United Nations Development Program 

identified 50 000 NGOs worldwide, while the 

Union of International Associations identify 

52 000, the 2001 total "independent sector" 

(non-governmental, non-profit) was 

estimated the United States at 1.4 million 

non-governmental organizations with 

revenues of approximately USD 680 billion 

and a total of 11.7 million employees. 

222 

In terms of international development, 

current estimates indicate that over 15% of 

the total external aid is channeled through 

NGOs. Indeed, a report published by UN and 

NGO Ability Sustain notes that 

international non-profit sector with a 

turnover exceeding $ 1 trillion could be 

classified as the eighth largest economy in 

the world. Yaziji and Doh (2009) notes that 

the United States in years 70, approximately 

70% of resource flows to developing countries 

came from official development assistance 

programs, while only 30% came from 

industry private. In 2003, only 15% of U.S. $ 

102.5 billion of resource flows came from 

government assistance, while 85% of nonprofit 

sector. 

According to a 1995 report from the World 

Bank since the mid-70, NGO sector, both in 

developed and emerging countries has 

shown exponential growth. Teegen et al 

indicate that expression of civil society in 

general and civic action of NGOs, have 

broader implications for the role, scope and 

definition of corporations in the global 

economy. 

Doh and Teegen stress that, in some cases, 

NGOs replace the government's "host" role 

in negotiating the historic relationship 

between the private sector and government, 

so NGOs currently has considerable 

influence on the operation of multinational 

companies in developing countries. 

This increase in the number and influence of 

NGOs is one of the most important 

developments of society in recent decades. 

During this period there was a trend for 

dynamic debate government policies 

publicly, on changes in corporate behavior. 

Researchers have noted that NGOs tend to 

constrain corporate behavior of those 

affected. 

According to Yaziji and Doh (2009) are three 

conditions necessary for an NGO to engage 

in socially significant events, namely: 

• there is a dissatisfaction among certain 

segments of the population on social, 

political, economic or technological 

• the population must understand that this 

complaint has not been adequately 

addressed by existing political structures 

• social, economic, political, technological 

and social involvement should allow NGOs 

to be perceived as an effective means to 

address these deficiencies 

On dissatisfaction related to the economic 

system, the literature identifies three forms

of market failure, namely: social needs, 

outsourcing, influence imperfect competition. 

In developed countries, most NGOs (except 

radical) see in a market capitalist system a 

way of creating "added value" and wealth, 

the "invisible hand" of the price mechanism. 

From this perspective, the vast majority of 

NGOs consider that the capitalist system 

and companies operating within this system 

to benefit society. However, three types of 

market failures mentioned above may occur 

and may cause social costs, economic or 

environmental high; these disturbances 

generate resentment and prepare the ground 

for social movements organized by NGOs. 

Social 

needs 

A market failure is when the market will 

provide all goods and services adequate for 

the simple reason that they are not 

profitable. Market will not occur, although 

there are "social demand" types of people in 

desperate situations but lacking the 

economic means to acquire them. The most 

telling examples relate to lack of food for 

third world countries, lack of vaccines for 

diseases that affect only developing 

countries and lack of medicines for poor 

countries 

or developing countries. 

Outsourcing 

Outsourcing, another form of market failure, 

occurs when prices of goods and services 

does not reflect the true cost of their 

production. Pollution arising from 

production or use of a product is not included 

in cost of production. For example, the use of 

genetically modified organisms and carbon 

dioxide emissions from the production and 

use of fossil fuel based power sources is 

debate about the total cost of some of these 

practices from the perspective of sustainable 

development and include the replacement 

cost resources used. 

Another version of this type of distortion of 

the market relates to the indirect costs 

associated with a product or service. For 

example, manufacturers of weapons, alcohol, 

cigarettes are a source of debate within the 

NGO because of indirect costs to society. 

They consider alcohol, tobacco, weapons use, 

etc. as a "cultural pollution" and therefore a 

cost that society must pay. 

223 

Impact of imperfect competition 

When we talk we consider imperfect 

competition, primarily from products 

monopoly or monopsony. Certain firms are 

in advantageous positions to negotiate with 

partners who are not in perfect competition. 

Market failures in this case refer to firms 

that pay unfair wages to workers who not 

find other alternative for employment. 

Second, regarding imperfect competition, we 

can speak of "information asymmetry" or 

"influence those involved in a transaction." 

For example, the attacks of NGO "Baby Milk 

Action” because the company Nestle notes 

how the company sells milk powder in 

developing countries for mothers, in 

conditions of full information, should not use 

this product or would be used differently . 

Meanwhile, NGOs such as "Commercial 

Alert" or "McSpotlight" militated against 

companies that promote unhealthy snacks 

easily 

influenced children. 

Regulatory 

failures 

In the case of these three types of market 

failures, the question arises to what extent 

and, especially, who must act to remedy the 

effects of meaning. An answer could come 

from governments that have regulatory 

capacity and regulation of market failures. 

However, sometimes, legislative or 

regulatory systems may not provide 

sufficient solutions to improve market 

failures. Yaziji and Doh (2009) identify four 

reasons for which regulatory systems could 

fail 

in their attempt: 

• Inability to identify and agree on whether 

putting a "problem" in the market 

• existence of different philosophical 

approaches regarding how the government 

should intervene in market regulation 

• an imbalance in the political system 

• undue influence of certain shareholders in 

the political and resource constraints (lack of 

funds, expertise and lack of control). 

There are many problems: pollution, climate 

change, inequality of wealth spread around 

the world to which only governments, even if 

sufficient resources can not have necessary 

control to address them. This problem is 

called in literature "border issues" and 

issues that do not belong to a single country 

but by international society. Even if 

governments identify regulatory failure 

problems sometimes do not have sufficient

esources or influence to make decisions and 

act global. 

Wishing to resolve transnational problems 

posed by globalization, governments have 

joined forces and created the global 

institutions to try to combat these 

challenges. Some cross-governmental or 

supranational organizations have grown in 

importance and influence, particularly those 

related to international trade and finance, as 

well as WTO and IMF. However, some of 

them, among which the United Nations or 

World Health Organization are considered to 

be devoid of authority and resources to 

tackle global issues. These international 

associations allow transnational issues 

unresolved, given the slow deliberations 

taking place within them and, as highlighted 

Teegen et al. "many global problems are 

simply too complex and comprehensive as a 

single sector to handle them.” 

Moreover, cross-governmental organizations 

such as WTO, IMF or World Bank are 

considered necessary authority and 

resources, but can not adequately address 

market failures precisely because legislative 

or regulatory non-compliance. For example, 

in the late of 90s, several NGOs started to 

fight against what they perceived as the 

dominant economic interests, specifically, 

against the corporate interests of developed 

countries in WTO. In 1998, street 

demonstrations in Seattle during the WTO 

ministerial meeting were actually the 

moment that defined the creation of antiglobalization 

movement. 

In conclusion, there are situations where 

neither the market nor the nation-state is 

perceived as welcoming to come into the 

needs of society. This context, perceived 

regulatory failure, is actually "raison d'être" 

of NGOs. 

In this framework, the question arises what 

happens if there are failures and conduct of 

NGOs? To whom are NGOs responsible and 

what happens if acting "irresponsibly"? 

Already know that many of these 

organizations have less responsibility and 

are much less transparent than government 

organizations or companies listed on stock 

exchanges only. 

Both critics of NGOs and NGOs themselves 

are worried by this lack of responsibility. 

Opponents of certain non-governmental 

organizations have launched initiatives to 

curb the growing influence of NGOs. For 

example, the American Enterprise Institute, 

224 

in cooperation with the Federalist Society for 

Law and the Public Policy Initiative Studies 

showed a program entitled "Look at NGOs, 

by attacking the actions and statements of 

certain NGOs. 

Already internationally perceived need to 

have another set of organizations beyond the 

"market players" or the government to 

address market failures, is obvious. Teeter et 

al. argue that NGOs can fill this gap by 

finding solutions with regard to services or 

markets or regulatory institutions do not 

offer. However, the authors mention, that 

there are failures that should be covered, are 

not sufficient conditions for NGOs to become 

significant players in the world. Increasing 

impact on society and the environment 

depends on social, political and technological 

developments that may affect the ability of 

NGOs to develop "advisors" capacity. 

However, entirely new regulatory failures 

that may occur in the modern economy can 

not be considered the preserve of only 

certain categories of dispersed non-state 

actors, regardless of their good intention. 

Heterogeneity of NGOs is already known, 

but we must remember also about the 

heterogeneity of economic, political and 

social issues existing in the world. To create 

a homogenous global economic framework, 

we have brought a convergence of different 

categories of NGOs - non-state actors with 

sufficient authority and responsibility to 

influence the development of these issues 

ethical sense. Or, in a first analysis, it is 

utopian to believe that we have such a 

regulatory framework, consistent, ethical 

and globally in a short time. 

3.2 Multinational companies and NGOs: 

from conflict to cooperation 

Aspects on NGO actions against 

multinational corporations 

Simultaneously with increased globalization, 

some negative effects of multinational 

companies involved in various international 

markets have become increasingly evident. 

Meanwhile, the increased role of civil society 

has enabled NGOs to respond. 

Theoretical approach to research in this 

direction is a neo-institutional that 

highlights issues related to NGOs 

involvement in the campaign against 

multinational companies that form the 

normative de-legitimacy.

In this regard, many research projects have 

examined how organizations seek to create, 

maintain and restore legitimacy, especially 

in trying to cope institutional competitors. 

Legitimacy is, according to the definition 

provided by Suchman (1995), the quality or 

state of being perceived or understood as a 

set of standards or values about what is 

desirable, good or desirable. On the other 

hand, Scott (2001) distinguishes analytical 

and normative legitimacy defined (unlike 

cultural-cognitive forms of legitimacy or 

regulation) as a form of legitimacy that is in 

social values and is an indicator of moral 

evaluation of society, that the norms and 

values of an organization. 

However, few are now those who are 

interested in research on the history and 

inter-organizational processes of 

organizational de-legitimate campaigns. 

This process involves the initial 

identification of business attributes, the 

institutional context and analysis of a wide 

range of social factors that increase the risk 

that a firm is the target of a campaign to delegitimate. 

De-legitimate the regulatory review process, 

Doh and Yaziji states that NGOs are its 

main vectors. However, the influence of 

NGOs on Companies is indirect because they 

are non-governmental organizations and 

therefore can not directly establish laws and 

regulations aimed at corporate coercion. 

Also, NGOs lack direct financial leverage on 

companies that suppliers, customers or 

competitors of companies they own. In these 

circumstances, NGOs interrelated low in 

relation to companies. 

Consequently, the authors mention, NGOs 

induce an indirect pressure to influence 

corporate behavior by players criticism that 

the organizations that have direct influence 

on corporate behavior, judges, politicians, 

voters, consumers, employees, suppliers, 

shareholders and other categories that may 

influence economic performance of the 

company. Their influence may be manifested 

through the development of regulations, 

laws, court decisions, procurement decisions, 

refusing to do business or resolutions of the 

shareholders may restrict managers' 

decisions. Also, NGOs can influence various 

business analysts or the media which, in 

turn, show an indirect influence on player 

complaints. 

Whatever the mode of action, NGOs seek to 

influence developments and actions by 

225 

calling critical players interests, roles, 

responsibilities, values and norms. 

In this respect, the concept of non-influential 

non-state actors in the globalization of the 

economy is becoming more widely publicized, 

and the role of these organizations in a 

conflict society, becoming more important. 

Collaboration between NGOs and 

multinational companies 

NGO actions against companies, may cause 

adverse effects in the latter, by the 

additional costs of any regulatory changes, 

reducing the market size or market share, 

constraints on the behavior of shareholder 

lawsuits and, most importantly, low 

employee morale . 

The study conducted by Yaziji and Doh 

(2009) gives us a good example in this regard 

that an interview with former CEO of Shell. 

He indicates that the worst consequence of 

the actions of NGOs against Shell was not so 

low sales volume, especially as lower 

employee morale and difficulty in attracting 

other high quality employees, these issues 

directly affecting company productivity. 

It is therefore apparent that the impact of 

NGOs campaigns directed against the large 

multinational companies, although primarily 

intended as a desire for fundamental social 

change can be more extended and lead to 

deterioration of general rules of operation of 

the company, the regulatory changes, 

changes legislation or taxation or the grants 

awarded. 

Suchman (1995) identified four generic 

strategies of response from the 

multinationals. These relate to: compromise, 

ignorance, defense or counter-attack. 

The trend of cooperation between NGOs and 

multinational companies began to emerge in 

the last decade, each of the two entities for 

this collaboration in terms of benefit. NGOs 

and multinational companies are built on 

values, structures and different principles. 

For this reason, over the years, relations 

between NGOs and multinational companies 

were characterized as hostile or mutual 

distrust. This was mainly due to lack of 

shared experiences, trust and 

communication. However, lately, since the 

beginning of the current macroeconomic 

crisis, the relationship between the two 

bodies gradually turned into a working 

relationship, especially regarding social 

issues that are common for both a

epresentative body and to other. 

Doh and Yaziji structured analysis of 

collaboration between NGOs and MNCs on 

two levels: in terms of corporate cooperation 

and collaboration from NGOs perspective. 

A. Cooperation in corporate perspective 

• Strengths of NGOs in collaboration with 

MNCs 

Legitimacy 

According to a survey conducted by PR firm 

Edelman and that the same study the 

authors Yaziji and Doh, both Americans and 

Europeans, believes that NGOs are more 

credible than managers of large 

corporations. Also, a fraction of the 

population considers the work of NGOs as 

mainly oriented towards activities aimed 

directly benefit society, compared with the 

primary motivation of companies to 

maximize profits. A collaboration of the two 

entities would increase corporate reputation. 

Awareness of social forces 

While corporations operate in different 

markets, NGOs work in the sphere of justice 

and safety of living globally. Although 

apparently there are considerable 

differences between the spheres of action of 

the two entities, multinational companies, 

by working with NGOs, can understand and 

analyze socially and their involvement in the 

economic sphere. 

Separate networks 

Multinational companies have formed 

networks of customers, suppliers, 

competitors or new companies formed, while 

the NGOs networks are made up of sponsors, 

regulators, legislators, etc. These networks 

are large and thick, though most NGOs have 

minimal financial resources. MNCs-NGOs 

partnership would facilitate mutual access to 

information circulating within these 

separate networks. 

Specialized technical expertise 

In the most important NGOs work lawyers, 

political analysts and scientists. Half of the 

most influential NGO employees have 

master degrees or diplomas of law school, 

and 12-20% has a PhD degree. Most of these 

employees have knowledge that employees 

in large corporate environment is lacking. 

NGOs know the development of new 

226 

technologies analyzed in terms of 

environmental impact; these issues are not 

considered in the corporate environment. 

• Benefits can be obtained from the 

collaboration of NGOs - Macs 

Conflict between the two entities 

Although NGOs are recognized as the engine 

of confrontation, the most influential 

organizations of this type have realized 

lately that a direct negotiation between 

NGOs and multinational companies would 

be more effective to address unpleasant 

events occurred. Corporate perspective and a 

direct negotiation with NGOs would be more 

productive, one example is the working 

relationship between the "Doctors without 

Frontiers” and pharmaceutical companies to 

distribute drugs in developing countries. 

Innovation Acceleration 

In the absence of a competitive threat, most 

companies focus on improving the production 

process. Meanwhile, NGOs rather examines 

the impact of corporate practices on society 

than profitability or costs. From this 

perspective, NGOs, corporations demand 

more than the market requires. 

Collaboration between NGOs and 

corporations would lead to radical solutions 

that could improve both the environment but 

would also help to increase the 

competitiveness of companies. 

Forecast of changes in demand NGOs often 

lead social movements. They begin by 

discovering hidden problems, which then 

amplifies them. Proposed new rules and 

values might influence consumer behavior 

and then endanger the entire industry by 

changing demand. For example, genetically 

modified organisms and nuclear energy 

issues have become sensitive public opinion 

after the NGOs began campaigns against 

these ideas. Thus, maintaining close such 

organizations, which have the power to 

influence public opinion, could benefit both 

companies in developing production and 

marketing but, watching the markets. 

Training legislation 

The most important NGOs have the power to 

influence the regulatory institutions or 

legislators. Maintaining a good relationship 

with NGOs, multinational companies could 

have a much stronger influence on 

legislative developments, than if they try to

obtain advantages in terms of building 

regulations to follow only their own economic 

interests and welfare of society often 

forgotten. Both multinationals and NGOs 

can earn much more influence over 

legislators by creating a partnership of 

public - private "or a coalition"-civil society - 

private sector. " 

Setting standards in private sector 

Cooperation with NGOs provides an 

opportunity to redefine corporate sector to 

which they belong, mostly in their favor. 

They can do this by setting new standards in 

technology, as it did when DKK 

Scharfenstein developed his new model 

refrigerator. Those standards later became 

the technology of new environmental and 

labor standards that have been implemented 

by government decisions or because of 

market preferences. 

• Risks and Challenges 

While an NGO - MNC partnership is 

possible, this is not without risks. First, if a 

company interacts with an NGO, by 

extension, regulators and competitors will 

have access to information within the 

corporation. R & D projects, strategic plans 

and internal audit tests might make the 

relationship non-CNM positively, but also 

NGOs can become dangerous partners. 

Secondly, thanks to a partnership with a 

nonprofit organization, companies may be 

accused of only wanting to improve their 

image. Third, Berger et al. identify some 

foreseeable problems in collaboration 

between company and NGO namely: 

misunderstandings devote the costs and 

benefits influence on contradictions, 

contradictions of the partners, mistrust. 

B. Collaboration of NGO perspective 

Literature 

mentions the reason for which 

NGOs should promote collaboration with 

large corporations. Kalegaonkar Brown 

believes that the business-NGO 

collaboration would be beneficial to NGOs 

because they are faced with minimum 

resources and support from the business 

would bring if the decrease in government 

subsidies received. 

Doh and Yaziji believe that, despite the 

benefits of sponsorship and reputation 

earned, many NGOs are perceived as 

inflexible and inefficient, so collaboration 

227 

with the business in terms of public goods 

would result in changing this image. 

Research undertaken by Linderberg 

suggests that NGOs and private sector 

organizations have encountered difficulties 

in developing partnerships. However, he 

points out that studies undertaken in the 

next decade will reveal much more 

transnational collaboration between NGOs 

and multinational companies. 

Ashman examine some examples of 

collaboration between civil society 

organizations (NGOs) involved in business 

development in Brazil, India or South Africa. 

The author assures us that we have some 

benefits from such cooperation. 

3.3 Future collaboration between NGOs 

and multinational companies, in a 

globalized world 

Globalization is not a recent phenomenon. 

However, the speed with which markets are 

increasingly global leaves vulnerabilities, 

those "spaces" in which rules for a unified 

and fully integrated market are missing. 

Under these conditions, the expansion of 

multinational companies in different 

international markets, with a sometimes 

dizzying speed, has enabled NGOs to benefit 

from breaches created. In other words, 

different social values, political structures 

and different economic interests lead to 

irrational economic behavior and economic 

strategies of corporate heterogeneous, with 

which civil society can not agree entirely. 

The current global economic order “staged” 

the only international organization 

representing the interests of some developed 

countries or of certain multinational 

companies, not necessarily serves the 

interests of society as a whole. 

Recent research developments have 

emphasized that organizations, following a 

process of replacing, there will be new forms 

of organization. This research illustrates the 

nature of inter-relations in terms of new 

strategies and organizational structures. 

Analysts have observed, as mentioned in the 

current period, there is a trend of 

collaboration between NGOs and Mac’s, 

isolated from interactions, discrete and 

sometimes conflicting relationships and 

gradually reaching more integrated. 

Over the years, NGOs have realized that 

wasting their minimal resources and energy 

into campaigns sometimes doomed to failure.

Increasingly, multinational companies, in 

the context of globalization, have become 

increasingly sophisticated and learned to 

counteract these events by different 

methods. Noting this fact, most NGOs have 

begun to explore the possibility of working 

with the business sector in terms of dual 

perspective approach to corporate practices. 

Naturally it was the third stage of 

cooperation and joint efforts that start 

mostly from voluntary NGOs to achieve a set 

of standards of "best practices" in corporate 

sector. In the current economic conditions, 

progress towards the fourth stage of 

collaboration arose from the macroeconomic 

effects of the crisis triggered in 2007. The 

global economic crises marked a turning 

point in economic thinking at the macro level 

and therefore more and more are voices that 

want economic regulations homogeneous. In 

this regard, NGOs have found, finally, a 

niche show and desire to achieve this goal. 

In many respects, however, homogeneous 

international economic regulations, 

including the corporate sector, seems a 

utopian goal to be achieved in a short time. 

Cultural differences, different economic 

interests, the existence of accounting and 

banking standards that leave room to 

different interpretations inhomogeneous, the 

lack of international institutions to consider 

in a uniform manner and ethical 

development and implementation of these 

standards prevents NGOs to complete the 

work . 


In recent decades, the globalization of the 

economy was significant changed in terms of 

nation-state's role in the sizing process of 

economic, political and social world. 

Contemporary society is an “open-society” 

and interconnected, and in its framework, 

technology and free trade have a 

predominant role. Two decades ago, markets 

seemed inaccessible were included in the 

current global phenomenon. 

Gradually, the state's role as an independent 

entity, with strong global economic and 

political influence has diminished in favor of 

other actors appeared on the world economic 

scene. Entities such as multinational 

companies, NGOs, central banks, conducted 

both independently and closely with each 

other inter-state collaboration. 

228 

NGOs have been analyzed in terms of 

relationships manifested in the context of 

business-government-society. In the last two 

decades, the number of NGOs has grown 

considerably, with currently only the United 

States, 1.4 million NGOs with revenues of 

approximately USD 680 billion and a total of 

11.7 million employees. Against the 

existence of problems such as pollution, 

climate change, inequality of wealth spread 

around the world, NGOs have found 

expression and action area, in a context 

where there are cases where neither the 

market nor the nation state are seen as 

welcoming wine needs society. 

Regulation failures may arise in the modern 

economy can not be considered the preserve 

of only certain categories of dispersed nonstate 

actors, regardless of their good 

intention. Heterogeneity of NGOs, economic, 

political and social existing global lead us to 

believe that, on first examination, it is 

utopian to think that we have such a 

regulatory framework, consistent, ethical 

and global in a short time. Future relations 

of cooperation between NGOs and 

multinational companies in the context of 

globalization must be analyzed in terms of 

expansion of multinational companies in 

different international markets, with a 

sometimes dizzying speed, thus providing 

non-governmental organizations can benefit 

from breaches created. 

References 

Ashman, D. 2001. Civil society collaboration with 

business: Bringing empowerment back 

in, World 

Development 29 (7), p.1097-1114 

A.Y.Lewin and M.Koza 2001. Empirical research 

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229




THE RIGHT OF CONSUMPTION : THE DECLINE OF WILL 

AUTONOMY ? 

Abstract 

University Assistant Anca Nicoleta GHEORGHE 

Nicolae Titulescu University, Faculty of Law 

av.ancagheorghe@yahoo.com 

The doctrine always raised the 

problem of the state intervention in the 

area of the contractual freedom. This 

way, it was said that the state 

intervention is justified for eliminating 

the social inequality of the principle of 

the will autonomy (the state intervention 

was qualified as an expression of ’the 

tendencies of the law to socialize’, the 

state being conceived as a refree hired 

by social justice’) 1 . 

In modern economy context, it 

was concluded that for the rebirth of a 

theory fallen into disuse for several 

decades, respectively, of ’contractual 

solidarity’ 2, that assumes that at the 

basis of drawing up the contract stands 

the concilliation of the selfish interests 

of individuals who have a different 

social position through their belonging 

to a social group 3 . 

1 See C. Stătescu C. Bîrsan, op. cit., p. 

21 and the work qouted by the authors G. 

Marty, P. Raynaud, op. cit., p. 34. 

2 Regarded in the 18 th century as ’the 

elementary phenomenon of the entire social 

order’ ; see G. Farjant, Droit prive de l` 

economie. Theorie des obligations, PUF, 

Themis, 1975, p. 49; J. Carbonnier, p. 53; E. 

Gounot, p. 53; A. Weill, F. Terre, Droit civil. 

Les obligations, Precis Dalloz, Paris, 1975, p. 

52; J. Ghestin, Droit civil. Les obligations. Le 

contrat, L.G.D.J., Paris, 1980, p. 19-21. 

3 In the positive law, solidarity, the 

extention of good faith at the drafting and 

execution of the contract, through 

cooperation obligations between parties ; see 

230 

According to the dominant 

doctrinary opinion, the foundation for 

’the economic liberalism’of the contract, 

in the way it was conceived by the 1804 

lawman, does not correspond to the new 

conditions and, therefore, the principle 

of the will autonomy remained just ’an 

old myth’ 4 . 

I. Introduction 

The drawing up of the contract 

governed by the will autonomy 

principle, expresses a legal 

philosophical doctrine 3 , according to 

which contractual obligation relies 

exclusively on the parties will, a will 

that is in its turn the source and 

dimension of the rights created and of 

the obligations undertaken through its 

conscious and free manifestation. 

Thus, in the light of what has 

been shown above, the contract becomes 

the main source of the law, finding its 

E. Savaux, Le solidarism contractuel, Dalloz, 

Paris, 2005, p. 76: J. Flour, J.L. Aubert, E. 

Savaux, op. cit., p. 84-85. 

4 For a larger analysis of the evolution 

of the will autonomy principle founded on a 

minute search of philosophical basis of the 

legal act on private law, see also P. 

Vasilescu, Philosophical Evolutionism and 

Legal Reverberations (in The Relativity of 

Civil Legal Act. Landmarks For A New 

General Theory of Private Law), Rosetti 

Publishing House, Bucharest, 2003, p. 15 and 

the following.

force in the agreement of the wills 

required for its closure 5. 

As source of the rights and 

liberties related to the State, the 

contract enables the establishment of 

some entitled and useful individual 

relationships between the members of a 

community. The individual is the best 

judge for his needs and, since he can 

express his will freely, he will close only 

those contracts that protect his 

interests. Any compelling obligation 

becomes thus unjust, disregarding the 

debtor’s interests. 

At the same time, the principle of 

contractual liberty drawn on the will 

autonomy doctrine admits the 

importance of the theory of consent 

vices, ensuring through it the protection 

of a free, conscious and rational 

consent 8 . It is well-known that the 1864 

Romanian lawman has done more a 

work of translation and adaptation of 

Napoleonic legislation, determined, on 

one side by the imaturity of the 

Romanian law school and by the 

modernity and innovations of the 

French Code, but on the other side, by 

the necessity of the newly formed 

Romanian State to adopt rapidly a 

modern legislation. 

Still, we mention that the drafters 

of the 1864 Civil Code adhered only 

partially to the autonomous character of 

the individual will, despite the fact the 

theory is famous in the epoch. The will 

of parties, through conditioning, gets a 

secondary role. This way, a contract 

becomes compulsory when a superior 

5 We underline that the theory of the 

will autonomy is the doctrine used by the 

commentators of French Civil Code and of 

The 19 th Century Law Philosophy. Its origins 

lie in the canonic law and in the school of the 

natural law, but also in the influence of the 

Enlightment philosophers Jean- Jacques 

Rousseau and Immanuel Kant; see J. J. 

Rousseau, The Social Contract, The 

Scientific Publishing House, Bucharest, 1957, 

p. 28-35 and I. Kant, The Critique of 

Practical Sensibility, The Scientific 

Publishing House, Bucharest, 1972, p. 118- 

130. 

231 

norm - the law – authorises the entitled 

subjects to proclaim an inferior legal 

norm 6. 

The contract that creates, 

changes, transmits or ends civil law 

relationships will have legal value only 

in its conformity to positive law. We 

specify that, in the shadow of the 

contractual ruling postulate, the state 

has the duty to ensure the conciliation 

of the effects of the contractual liberty 

principle, made known by the 

dispositions of article 969 in the Civil 

Code, in the limits of applying this 

principle, set up by the dispositions of 

article 5 in the Civil Code: public order 

and good morals 7. 

We face a ’rethinking’ of the 

contractual liberty principle, meant to 

adjust the institution on the new social 

realities contract: the negotiated 

contracts give in way to adhesional 

ready-made contracts as well as to 

forced contracts; as a means of 

protection, contractual formalism 

registers a notable sudden change in the 

detriment of the consensualism 

principle 8 . 

II. The Contemporary Law of 

Contracts 

As interests of participants to the 

contemporary economic life head more 

and more to an emphasis on velocity 

and flexibility of the economic circuit, 

with direct effects on its efficiency and, 

on a larger scale, over the standard of 

6 See O. Ungureanu, op. cit., p. 114. 

7 See L. Pop, op. cit., p. 35; RI. 

Motica, E. Lupan, op. cit., p 31; I.R. Urs, op. 

cit., p. 215 

8 The moralizing role of the theory of the 

cause is also reconsidered in drawing up the 

contract and inclusively in ensuring the 

contractual balance; the prerogatives of the court 

of justice are enhanced, creating thus the 

premises of its interferance in the contract with 

the purpose ’of moderating the severity 

moratorium or legal prorogation of the effects of 

the contract; see P.C. Vlachide, Repetition of 

civil law principles, Nova Europe Publishing 

House, Bucharest, 1994, p. 22-23.

society existance, the necessity to 

reconsider the institution of contract (in 

order to adapt it to the new 

requirements) has become obvious. 

The state’s intervention 

materialized: whether by issuing new 

regulations (by modifying the already 

existing ones) or by sanctioning by the 

legal authority of new interpretations 

(given to legal norms formerly 

adopted) 9. 

The transformations underwent 

juridically – contractually determined a 

defeat of the will autonomy principle, 

which lately was referred to as ’the 

existance of a contract crisis’ (as it was 

conceived by then) 10. 

According to the well known will 

autonomy conception, everything that is 

contractual, it is just and legitimate. 

The statement relies on the idea of the 

presumed equality between the parties, 

while reality is different. 

A strong intervention of the state, 

through imperative norms in the 

contractual field. This intervention is 

known in the doctrine as ’contractual 

ruling’ 11. 

’Ruling’ manifestations are 

multiple, such as: 

- Extending the notion of public 

order (taking into account the 

growing 

intervention of the state in the 

economic and social life) in relation to 

the previous phase (when the notion of 

public order was limited to the politic 

and moral area of the family, of 

individual freedom, etc) by enriching it 

9 

See C. Stătescu, C. Bârsan, op. cit., p. 

19. 

10 

See: C. Stătescu, C. Bârsan, op. cit., p. 

19 and The French literature quoted . Marty, P. 

Raynaud, Droit civil, Les obligations, Sirey, 

Paris, 1961, p. 35 and the following; H. şi L. 

Mazeaud, J. Mazeaud, Lecons de droit civil. 

Obligations, Montchrestien, Paris, 1961, p. 92 

and the following; B. Starck, Droit civil. 

Obligations. Contrat, Librairies Techniques, 

Paris, 1972, p. 343-348. 

11 

For a deeper analysis of the 

consequences of the will autonomy decline; 

see L. Pop, op. cit., p. 30-34. 

232 

with the new economic aspects that 

have determined the appearance of a 

new concept: the economic public 

order 12 . In the same context, the states 

of the European Union talk nowadays 

about a European public order (which 

the contracts closed are due to take into 

account). By enlarging the notion of 

public order, a few social issues were 

also comprised (what western specialty 

literature referred to as ’social public 

order’) 13 . 

But we underline that enlaring 

the notion of public order lead to the 

narrowing of contractual freedom area 

and, therefore, of the principle of the 

will autonomy (the initial view on this 

principle being estimated as outdated). 

- predetermining by law the 

clauses that are to be included in some 

contracts, narrowing the sphere of the 

parties’ convention. Hence, by law or by 

jurisprudencial interpretations, some 

clauses, considered compulsory for some 

types of contracts, have been 

established (for example, in areas like: 

transportation, insurance, 

constructions, rental, services, etc). 

- the appearance of ’forced 

contracts’ which are compulsory to be 

closed. Thus, on certain circumstances, 

the law enforces the obligation for some 

persons to close a (certain) type of 

contract (for example, in the tenant’s 

area 14 , G. E.O. no 40/1999 forces the 

12 This side of public order gets 

manifested especially in the different systems 

of managing and ruling of the economy: the 

monetary and price policy, the nationalizing 

of some economic sectors - energy sources, 

transportation, etc – the crediting policy, the 

various economic plans, etc; see C. Stătescu, 

C. Bârsan, op. cit., p. 20. 

13 For example, measures taken by the 

state regarding the regulation of work 

contracts, lodging rental contracts, etc; see R. 

Savatier, La théorie des obligations. Vision 

juridique et économique, Dalloz, Paris, 1969, 

p. 161 and the following. 

14 Consequently: a) for premises regained 

by ex-land owners or their heirs and used at the 

date of retrocession by education units, socio-

proprietor to close a rental contract with 

the manager of the building on a three or 

five years period or in the insurance area, 

Law no 136/ 1995 that refers to the 

compulsory civil responsability for 

prejudices suffered via car accidents). 

- limiting the compulsory force of 

the contract, whether because 

sometimes its non-execution is accepted 

or because an execution is admitted in 

other terms than those initially 

established. 

The aforementioned 

manifestations rely on the concept that 

the present public order notion is no 

longer homogeneous (being completely 

different from its ’classical’ meaning) 15. 

Therefore, there is: an economic public 

order 16 , a social public order 17 and even 

a proffesional public order 18 , all being of 

cultural establishments or public institutions, the 

land owner will close, at the tenant’s request, a 

rental contract for a period of three years 

(article no 4 from the ordinance); b) for private 

premises after January 1 st , 1990 together with 

commercial corporations that owned them as 

apartments, work apartments, hostels for 

employees - socio-cultural establishments or 

public institutions, the proprietor will close at 

the tenant’s or ex-tenant’s request who 

effectively lives in the lodging, a rental contract 

for a five years period (article 5 from the 

ordinance); c) in the case of selling-buying 

contracts closed by breaking the provisions of 

Law no 112/ 1995 for regulating the legal 

situation of some premises destined for living 

and under the state’s propriety and canceled by a 

court judgement, the proprietor acknowledged by 

the legal court, will close a rental contract for a 

five years 

15 See Ph. Malaurie, L. Aynès, Ph. 

Stoffel-Munck, Droit civil. Les obligations, 

Defrenios, Paris, 2005, p. 316. 

16 Economically, the state can adopt 

legislative measures that would favour the 

development of market economy, that would be 

reflected both in the contractual liberty of 

economic operations and in the legal 

relationships between particulars. 

17 Socially, the State can interfere with 

legislative measures of protection of some 

categories of persons: employees, tenants, etc 

18 There is the tendency of ensuring the 

protection of consumers against business 

233 

legislative nature (because the lawman 

is that who determines the economic 

and social policy of the state). 

III. Conclusions 

In modern view, individual will 

develops as a privileged instrument for 

accomplishing social needs (thus 

explaining the reference to 

’voluntariate’), but unlike the previous 

period, its power is restricted to the 

respect it has to show towards the law 

(the only one that can identify and 

express the needs of the society in 

general) 19 . 

The French doctrine currently 

spokes about a ’reconsideration’ of the 

voluntariate theory, that has as basis 

the idea that ’the heart of the contract’ 

remains still the will. This way, we 

don’t talk about a coming back to the 

classical principle of will autonomy, but 

’we cannot fall out into the extreme of 

denying the important role of the will’ 20 . 

it is required a rethinking of the legal 

basis of principles that govern the 

general theory of the contract (because 

legal life can’t be conceived without the 

professionals , by imposing the interdiction of 

abusive contractual clauses the late ones 

conclude with consumers. 

19 More specifically, the individual will 

has power exclusively at the beginning and it 

has no longer any autonomy; see: J.L. 

Aubert, Le contrat. Droit des obligations, 

Dalloz, Paris, 2005, p. 27-28; J. Flour, J.L. 

Aubert, E. Savaux, op. cit., p. 86. 

20 The recent French doctrine, 

acknowleges the role and necessity of the will 

in the drafting of the contract, but this is 

considered ’a simple element among others’ ; 

the common law of contract is governed by 

three new principles:’ contractal equality, 

equilibrium and brotherhood’ (relying on this 

mechanism, the analysis of the consent is 

realised relying on the equality principle); see 

C. Ouerdane-Aubert de Vincelles, Alteration 

du consentement et efficacite des sanctions 

contractuelles, Dalloz, Paris, 2002, p. 11-31 

and the doctrine quoted by the authoress.

institution of the contract) and the 

contract has to modernize, in order to be 

an effective instrument in the process of 

rapid development of economic 

relationships that will multiply 

exponentially with the liberalization of 

exchanges, capitals and markets 21. 

The interference of the law, 

constraining the parties’s will remains 

a constant, but in our opinion, this will 

not defeat the free will manifestation, 

which is the – the essence and the 

fundament of the contract. 

References 

1. J.L. Aubert, Le contrat. Droit 

des obligations, Dalloz, Paris, 

2005 

2. Civil Code (1864) 

3. Law no. 294/2004 (Code of 

Consumption) 

4. Ph. Malaurie, L. Aynès, Ph. 

Stoffel-Munck, Droit civil. Les 

obligations, Defrenios, Paris, 

2005 

5. G. Marty, P. Raynaud, Droit 

civil, Les obligations, Sirey, 

Paris, 1961, 

6. H. şi L. Mazeaud, J. 

Mazeaud, Lecons de droit 

civil. Obligations, 

Montchrestien, Paris, 1961 

7. L. Pop, Civil law treaty 

.vol.II. The contract, 

Universul Juridic Publishing 

House, Bucureşti, 2009 

8. J.J. Rousseau, Du contrat 

social, Flamarion Publishing 

House , Paris, 1992 

9. B. Starck, Droit civil. 

Obligations. Contrat, Librairies 

Techniques, Paris, 1972 

10. R. Savatier, La théorie des 

obligations. Vision juridique et 

économique, Dalloz, Paris, 1969 

21 It was even asked: Is there a crisis of 

the contract? Can we talk about a decline 

resulted from the undermining of its 

individualist and voluntarist origins? 

Answering the above mentioned questions, 

the doctrine asserted that ’today more than 

ever, we cannot talk about a decline of the 

idea of a contract or about an undermining of 

its role and importance in the economic and 

social life’; see P. Vasilescu, op. cit., p. 54. 

234 

11. P. Vasilescu, Philosophical 

Evolutionism and Legal 

Reverberations (in The 

Relativity of Civil Legal Act. 

Landmarks For A New 

General Theory of Private 

Law), Rosetti Publishing 

House, Bucharest, 2003

The International Conference on Economics and Administration, Faculty of Business 



ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN THE 

SOCIO-ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION 

Abstract 

A universally accepted definition of 

counterfeit doesn’t exist, although there are 

different definitions of the term and the 

activities strongly related to it. The interest 

changes sometimes according to the context 

in which it is used. The counterfeit gives 

birth to a multitude of negative consequences, 

not only for the original producers, but also 

for the consumers. 

Key words: Counterfeit, legal 

regulation of the European Community, legal 

internal regulation, consequences 

1. Introduction. Brief historical 

disclosure concerning the counterfeit of 

industrial property 

In what concerns the protection of 

the design and the industry in Romania, a 

first form was established through the socalled 

“privileges” given by the rulers on a 

fixed period of time and prohibiting their use 

by the third persons. Consequently, the ruler 

Alexander Moruzi gave in 1800 a privilege to 

Stanila for a “factory near the water of 

kerchiefs, bundles, quilts, pillows, 

blankets… for 15 years starting from 28 of 

May 1800”. 

The legal regulation came later, after 

signing some international agreements. In 

our country, the first law of letter patents 

came into force on 17 of January 1906, and 

the sole title of protection of the inventions is 

the letter patent, with a validity of 20 years, 

starting from the date of the regular 

national deposit. In 1923, in the “Official 

Gazette” of the Industrial Property Office is 

published in Romanian and French the “Law 

draft concerning the industrial designs and 

GHEORGHE Carmen Adriana 1; 

Transilvania University; Brasov, Romania 

carmenghe2003@yahoo.com 

RATULEA Gabriela 2; 

Transilvania University; Brasov, Romania 

gabiratulea@yahoo.com 

235 

models”, structured in 5 chapters as it 

follows: 

Chapter I – General provisions, taxes, 

period, decline and nullity. 

Chapter II – Formalities of deposition and 

registration. 

Chapter III – Book of industrial designs and 

models. 

Chapter IV – Counterfeits, pursue and 

punishments. 

Chapter V – Final and divert provisions. 

This law draft was elaborated by the 

Industrial Property Office under the 

influence of the already adopted legislations 

in the industrially developed Western 

European countries including observance of 

the stipulations of the Paris Convention for 

the industrial property protection, approved 

in Romania in 1920. The inauspicious 

situation of Romania from that period 

wouldn’t allow for the adoption of this law. 

In 1924, The Association for 

Consumer’s Protection was founded, as a 

nongovernmental organization, apolitical 

and non-lucrative. 

Later, between the years 1970-1990, 

the State Office for Inventions and Brands 

elaborated several law drafts concerning the 

Legal protection of the industrial designs 

and models (a law project being common 

with brands), but all are blocked by the 

former N.C.S.T. (National Council for 

Science and Technology). 

In 1996 the Romanian Office for 

Copyrights is founded, which from 2002 is 

subject to the Government. 

In 2000, the Law of the copyrights 

and the Legislation concerning the

observance of property rights in certain 

actions is issued. 

2. The counterfeit in Romania– state 

member of the E.U. 

The Romanian Association for 

Fighting the Counterfeit assesses that, in 

Romania, 60% of the market products are 

counterfeited, our country being on the 

second place, after Ukraine, from this point 

of view. 

The phenomenon of counterfeit of 

products and services is widely spread on the 

Romanian market, since the counterfeit, the 

fake and the piracy are phenomena strongly 

related with the smuggling, the fraud, the 

illegal commerce. 

Romania is a consuming and 

transitory country, therefore the delinquency 

in this field develops now in the two 

commercial processes, but generally, the 

delinquent groups are involved in the 

delinquency across borders, both in 

production and distribution as well as in 

selling the counterfeited products. 

“The factors that contribute to the 

development of this phenomenon are: low 

power of buying of the consumers, their wish 

to buy brand products at low price, de low 

degree of information in what concerns the 

manner of assessment of the products and 

services’ quality”. 

Counterfeited products are present 

in the legal commerce more than in the 

illegal one. The main sources for the 

counterfeited products are the sellers of 

smuggled products, stores, market stalls, 

old-clothes markets and boutiques. 

In terms of selling the illegal 

products at sight, legally and sometimes 

with a cash voucher, their illegal features 

become less obvious, providing support to 

the ones that are aware of buying 

counterfeited merchandise. 

In Romania, most cases of 

counterfeits registered from the total 

amount of counterfeits, are in clothing and 

footwear, according to the data given by the 

Romanian Association Anti-Counterfeits of 

Romania. On the second place are the 

medicines, alcoholic drinks, cosmetics 

(especially perfumes), followed by the cell 

phones, the labor-saving devices, toys etc. 

“At date, over 80% of Romanians 

wear counterfeited footwear and over 80% of 

the existent perfumes on the Romanian 

market are counterfeited. Romania isn’t a 

236 

source of counterfeited merchandises, but a 

country of their destination”. Most of these 

products come from China and Turkey. 

From all the counterfeited and 

pirated products, the clothing and footwear 

attract more and more the attention of the 

inspectors from the National Authority for 

Consumers Protection (NACP). The products 

to which the inspectors pay attention are 

illegally using the name of some recognized 

brands, but are manufactured from poor 

quality materials that can cause allergies, 

dermatitis or other skin diseases. 

One of the reasons for which the 

fashion industry was always the target of 

the counterfeit is the fact that people want 

the latest of the fashion, and the majority 

can’t afford to buy the original product. Fore 

example, the “appetite” for designer’s bags is 

very big in America, where the Fendi bag 

has become the label of the fashion victims. 

While the large fashion companies have 

waiting lists for the clients that want to buy, 

and stores like Saks are selling only for the 

rich people, other clients discover the fakes, 

being very satisfied with these products. 

So, the fakers of clothing products, 

on being influenced by the gigantic market 

demand for the brand products “in fashion”, 

insist more and more over the luxurious 

counterfeits, and the amounts of money 

invested in the equipment of the clandestine 

factories allow them to produce articles 

which can hardly be distinguished from the 

original ones. Then they place them in 

“reputation” stores (malls, wholesale stores) 

and commercialize them. This is considered 

to be one of the new methods of money 

laundry. Nowadays, the counterfeited 

products are made at standards close to the 

original ones and are sold at high prices. In 

what concerns the quality of these products, 

it’s getting harder and harder to distinguish 

the fake from the original. If in the past the 

fake was made from poor quality materials 

or their logo was wrong written, now even 

the specialists have problems in making the 

difference. 

In conclusion, the times when the 

counterfeited products could be identified 

with the naked eye have come to an end. The 

networks involved in placing such fake 

products on the market, manufactures as the 

articles of some famous companies, have 

invested in the equipment of some factories 

that produce objects of quality close to the 

original’s one.

3. Consequences of the counterfeit 

The baleful consequences of the 

counterfeit are well known. It is enough to 

mention the damages caused by the tax 

dodging and other losses resulted from 

collecting taxes, the dangers against health 

and security and, least but not last, cheating 

the consumers. The counterfeits are one of 

the most rewarding businesses on the 

planet, international studies pointing out 

that, as a matter of fact, the underground 

economy coming from counterfeits 

represents over a quarter of the world’s 

economy. All studies show that if at a kilo of 

cannabis the profit is of 2000 euros, at a kilo 

of counterfeited CDs the profit is over 3000 

euros. The criminal risks for counterfeited 

products traffic is extremely low. Moreover, 

the unprecedented development of the 

economical technology facilitates more and 

more the theft of intellectual property 

through piracy and counterfeits. The 

dimensions of this phenomenon, as well as 

its characteristics haven’t avoided the 

European continent either. At the Western 

European level a third of the software is 

pirated and the companies producing sports 

equipment declare annual losses amounting 

to 7.5 million euros. The counterfeits are 

indirectly encouraged by the lack of official 

reaction of the states concerning the 

phenomenon of violating the intellectual 

property right. This lack of attitude from the 

authorities gives the delinquents a minimum 

risk of getting caught and pay for their acts. 

Another factor that encourages the 

counterfeits is the facility of imitate products 

nowadays, throughout the technological 

means of continuous development. Other 

factors that, although with smaller 

influence, encourage the counterfeits are: 

manifesting penury or a vacuum in 

supplying original products, fact that 

tantalizes imitation, the impossibility of a 

compelling control executed in the 

commercial network, deficient in 

personalizing the original product through 

packing and distinctive signs (the brand, 

corporate ID, packing) but also some 

technical difficulties in identifying and 

measuring the fake. What is more, 

approximately 30% of the PIB (Gross 

Internal Profit) is owned by the underground 

economy, fact that connects someway the 

237 

lack of attitude of the competent official 

institutions. Concomitantly, another baleful 

consequence refers to cheating consumers 

because of the low quality of the 

counterfeited products and their low value. 


Unfortunately, the current 

Romanian market is full of examples which 

show that the products commercialized in 

Romania are generally “not competitive” 

usually because of the quality/price relation. 

This lack of competition of the Romanian 

products only shows that, while the 

Romanians didn’t know how to impose their 

brands on the market, countries like China, 

Turkey came in Romania supported by 

everybody, not only their authorities but also 

the Romanian authorities, armed with 

marketing strategies and aggressive 

promotions. 

The main problem of the high level 

of importing counterfeited products is the 

high demand for these products, directly 

influenced by the attitude of the Romanian 

consumer. He/she knows the quality of these 

products but lets her/himself to be deceived 

because of the fact that is in fashion to buy 

fakes, especially clothing, but also because 

she /he can’t afford to buy Romanian 

products, to which the level of poverty 

contributes in first place. 

As a matter of fact, if the 

phenomenon of counterfeits does not 

decrease, as a new member of the European 

Union, Romania would have to pay from its 

budget the damages claimed by the western 

companies injured because of the 

counterfeits and this because Romania is 

regarded as a country of transit of these 

products. 

6.Proposals 

Romania couldn’t oppose the wave of 

actions that Europe and the world states 

undertake for fighting this phenomenon. 

Here’s what the Romanian authorities 

intend to do in what concerns this aspect. 

“That’s why the respect for the 

intellectual property and copyrights must 

become a part of the new generation’s civic 

culture. We want the Romanian society on 

the whole to assume this project and we 

have to succeed!

We want mixed teams, made of 

prosecutors, policemen, inspectors of 

supervising authorities, officials of the 

industries and professional associations to 

get involved in the deep investigations, that 

could discover the real sources of the pirated 

of counterfeited products. 

We expected and still expect the 

General Prosecuting Magistracy – 

throughout the central role of supervision – 

to be in the front line of these deep actions. 

It is true that the depraved subtlety of these 

phenomena impose a consolidation of the 

institutional capacities of response. 

The number of the specialists has to 

increase, but especially their survey must be 

extended and their formation intensified. 

An important support for Romania is 

the PHARE project which will assign 2.5 

million euros for this purpose. Yet, for 

Romania and other Central and Eastern 

European countries from Caucasus are and 

Central Asia, the support of the Western 

partners or the contribution to the private 

environment for consolidating the survey 

and the modern means of investigation are 

absolutely necessaries. 

References 

1. Yolanda Eminescu- Protecţia desenelor şi 

modelelor industriale. Drept român şi 

comparat- Editura Lumina Lex, 


2. D.S.Bogdan, V.Roş, O.Spineanu-Matei- 

Dreptul proprietăţii intelectuale. Dreptul 

proprietăţii industriale. Mărcile şi 

indicaţiile geografice, Editura C.H.Beck, 


3. D.S.Bogdan, V.Roş, O.Spineanu-Matei- 

Dreptul de autor şi drepturile conexe. 

Tratat- Editura C.H.Beck, Bucureşti, 

2005 

4. T.Bodoasca- Dreptul proprietăţii 

intelectuale, Editura All Beck, Bucureşti, 

2006 

5. Legislaţia proprietăţii intelectuale. Vol.I. 

Reglementări interne, Editura C.H.Beck, 

2006 

6. Gheorghe Gheorghiu, Operele audiovizuale, 

Editura Lumina Lex, Bucureşti, 

2004 

7. Organizaţia Mondială a Proprietăţii 

Intelectuale, Introducere în Proprietatea 

Intelectuală, Editura Rosetti, Bucureşti, 

2001 

8. Ligia Dănilă, Dreptul de autor, Editura 

All Beck, 2005 

238 

9. Lucian Mihai, Invenţia. Condiţii de fond 

ale brevetării, Drepturi, Ed. Universul 

juridic, 2002 

10. Chavanne A., Burst J.-J., Droit de la 

propriété industrielle, Dalloz, 1993 

11. Chisum D.S., Jacobs M.A., 

Understanding Intellectual Property 

Law, Ed. Mathew Bender, New, York, 

1999 

12. Colombet C., Propriété litteraire et 

artistique et droits voisins, ed. A VIII-a, 

Ed. Dalloz, Paris, 1997 

13. Cornish W.R., Intellectual property: 

patents, copyright, trade marks and 

allied rights, ed. A III-a, Sweet & 

Maxwell, London, 1996 

14. Bertrand, Le droit d’auteur et les droits 

voisins, ed. A II-a, Ed. Dalloz, Paris, 

1999 

15. X. de Bellefods, Droits d’auteur et droits 

voisins, Ed. Dalloz, Paris, 2002 

16. Puttemans, Droit intellectuels et 

concurrence déloyale, Ed. Bruylant, 

Bruxelles, 2000 

17. Revista Română de Dreptul Proprietăţii 

Intelectuale

The International Conference on Economics and Administration, Faculty of Business and Administration, 

University of Bucharest, Romania 


ABSTRACT 

In everyday reality, the increasingly 

accentuated concern of economic agents puts 

an emphasis on discovering measures to 

achieve a return on economic activities and to 

avoid excessive taxation, but without 

infringing the legal limits laid down by the 

legislation in force. 

Therefore offshore companies are in 

this sense the legal solution, or on the brink of 

law, towards which the majority of economic 

agents focus their attention, currently 

overwhelmed by the excessive tax obligation 

imposed by the Romanian State. 

In theory, offshore companies may be 

set up wherever in the world, but not 

everywhere it is possible to obtain tax 

advantages since companies are not exempt 

from tax merely because they are offshore 

companies, but because they are offshore 

company registered in a tax haven. 

This work aims at defining the notion 

of offshore company, the organisation and 

operation conditions and the advantages and 

disadvantages posed to such a company, 

rendering evident at the same time the gap that 

the national legislation currently has with 

respect to this type of company, overlooked by 

the Romanian lawmaker upon adopting Law 

on trading companies number 31/1990. A 

presentation of the positive, but also of the 

negative effects is attempted, trying to 

determine whether this type of company is 

OFFSHORE COMPANIES 

Teaching Assistant drd. Cristina GHEORGHE 



avocat_cristina_gheorghe@yahoo.com 

239 

beneficial and whether it should be expressly 

regulated in the Romanian legislation, along 

with the other types of recognised trading 

companies. 

Key words: offshore, company, trade, 

economic, taxation 

I. Introduction to the notion of 

« Offshore companies » 

In free translation, by « offshore » one 

understands the territory located beyond the 

shore, while the American slang assigns to the 

same term the meaning of economic activities 

and trading companies that carry out their 

activity outside the national territory of the 

State in which they have a status as resident. 

The same term, explained from the economic 

point of view, is the activity carried out in the 

exterior, performed outside the laws of the 

country the investor comes from. 

In theory, offshore companies may be set up 

wherever in the world, but not everywhere it 

is possible to obtain tax advantages. 

Companies are not exempt from tax merely 

because they are offshore companies, but 

because they are offshore companies 

registered in a tax haven. 

The term « tax haven » refers to a territory 

that offers a wide range of tax advantages to 

offshore companies registered within such 

territory. The original English term suggests

that « tax heaven » renders the idea of tax 

refuge. 

In traditional tax havens, the operation of 

offshore companies is supported by a 

legislative mechanism extremely well 

organised, meaning that in the country 

concerned laws provide favourable taxation 

conditions to offshore companies. It must be 

mentioned that by non-payment of tax the 

company concerned is not in breach of the law, 

but on the contrary, it complies with the law, 

as it is exempt, in whole or in part, from 

payment of taxes. 

Consequently, offshore companies are those 

companies that are registered in countries or 

jurisdictions where the tax legislation does not 

stipulate the levying of taxes or the taxes are 

very low as long as the companies concerned 

do not carry out activities within the territory 

where they are registered. From the point of 

view of the trade acts performed, offshore 

companies may be deemed to be foreign 

companies, since they do not yield revenues in 

the country where they have registered. 

The purpose of setting up such a company lies 

mainly in minimising the duty and in lowering 

the taxation, but by incorporating such a 

company a better risk management and a 

significant decrease of costs may also be 

achieved. In addition to the permissive 

taxation regime, these companies also benefit 

from confidentiality conditions in the event of 

an exchange control, enjoying protection 

against governmental intervention and 

against foreign political changes. 

II. Regions where offshore companies 

may be set up (and selection criteria of 

such regions) 

Currently there are over 40 regions that offer 

offshore companies various advantages related 

to the taxation regime and to confidentiality 

conditions. These tax havens, deemed to be 

traditional, are located in archipelagos (The 

British Virgin Islands), in island republics 

240 

(Republic of Nauru) or in small countries 

(Panama). The legislation of these states 

encourages foreign investors to set up such 

companies in their territories. In order to 

attract capital of foreign investors, the 

majority of serious offshore areas guarantee 

by their law the operation of these companies, 

the security of the foreign investments made, 

as well as the protection of secret information. 

For example, the Legislative Council of the 

British Virgin Islands adopted such a law in 

1984 under the name of the International 

Business Companies Act. Therefore, the 

companies registered here do not pay any 

other kind of taxes to this state other than an 

annual tax amounting to USD 300, 

irrespective of the turnover obtained. In the 

Bahamas and Belize this annual tax amounts 

to USD 100, while in Panama it amounts to 

USD 150. 

This legal measure must be considered not 

only from the standpoint of the advantages 

offered to offshore companies incorporated on 

the territory of the state concerned, but also 

from the point of view of the state that, as it 

usually is a small state with a low population, 

shall enjoy a series of advantages in its turn 

following the incorporation of these 

companies. Thus, on the one hand, offshore 

companies provide substantial revenues to 

these states as a result of the payment of 

registration duties, of re-registration and of 

other duties determined, and on the other 

hand new employments are created, given that 

the existence of law firms, of registration 

institutions, of banks registered in these 

territories, etc. is needed etc. 

Moreover it is worth mentioning that although 

offshore companies are often deemed to be 

companies exempt from tax, there are no 

companies completely and legally exempt from 

any and all tax obligation in any part of the 

world.

III. Taxation principles used in tax 

havens 

As previously mentioned, the main purpose of 

the incorporation of offshore companies in tax 

havens resides in lowering taxes and in 

benefiting from direct or indirect tax 

advantages. 

For this purpose, in registration areas of 

offshore companies the following principles are 

applied: 

a. In states where the company yields 

revenues only from abroad, such revenue shall 

be completely exempt from payment of tax, 

while the company has the obligation to pay a 

fixed annual duty, irrespective of the turnover 

and of the company profit. Such states are: the 

British Virgin Islands, the Bahamas, Belize, 

etc. ; 

b. The tax does not depend on the turnover, 

but on the registered capital of the company. 

For example, in Lichtenstein foundations have 

the obligation to pay to the state 0.1% of the 

share capital or at least 1000 Swiss francs, on 

an annual basis. 

c. Only revenues obtained abroad are exempt 

from taxes, while there is the possibility that 

these companies may carry out domestic 

economic activities as well and in this case the 

revenues yielded this way shall be subject to a 

tax based on a linear rate. For example, in 

Hong Kong, companies must separately state 

their domestic revenues within their annual 

report. 

d. Taxation based on a linear rate; For 

example, in Cyprus, offshore companies pay a 

tax of 4.25% of their net profits. 

IV. Typology of offshore companies 

The specialised literature discriminates 

between 3 types of possible companies 

registered in territories with relaxed taxation. 

These types are as follows: 

a. Holding companies; 

b. Base companies; 

241 

c. Sham companies; 

Holding companies are the companies that 

hold an equity portfolio, without performing 

themselves a business activity. They are 

incorporated in those tax havens that allow 

them the “constitution of financial sanctuaries 

sheltered from any taxation” as J.C. Martinez 

also asserted in his work “La fraude fiscale”. 

Such centres are named “offshore financial 

centres” and they supply “offshore funds”; they 

are located in countries such as Liechtenstein, 

Luxembourg, Switzerland, Monaco, Hong 

Kong, Singapore, Bermuda and they have 

multiple functions. When the tax conditions 

offered become less attractive from the tax 

regulation point of view, holdings resort to 

dissolution and transfer themselves to another 

state, more welcoming from the taxation point 

of view. 

Base companies are also registered in states 

with a relaxed taxation and do not perform 

themselves business activities, but they 

manage the treasury of the group that has 

created them, concentrating and 

administering the commercial and financial 

benefits yielded in other states with high 

taxation by the branches and enterprises 

within the founding group. 

Sham companies are those front companies 

or dummy companies that do not have their 

base in the refuge countries, but they are 

limited to a mere “mail box” temporarily 

created and attached to a bank, lawyer or 

accountant, aiming on the one hand at 

determining the profits yielded following 

certain operations carried out in the refuge 

countries and on the other hand at rendering 

more difficult the tax control of the accounting 

records of the group enterprise. 

Offshore companies may be set up either as 

companies (partnerships) having limited 

liability (Limited Liability Company), or as 

joint stock companies (Corporation), or as fund 

management foundations or trusts and may 

exercise any legal activity, without the need to 

state the purpose in the registration

documents. The only exception to this rule 

refers to the activities carried out by banks 

and insurance companies. 

Limited Liability Company is a partnership 

between natural or legal persons where 

partners are deemed to be shareholders and 

whose liability is limited according to the 

participation share in the share capital, while 

the profit is considered by the tax bodies as 

personal income and they tax it accordingly. 

This type of company is frequent in the USA 

and is subject to the “flow through taxation” 

system, which means that the company does 

not owe the tax, but the shareholders of the 

company owe such tax, unless they stipulate 

otherwise. In order for such a company to 

benefit from tax exemption in the USA, the 

following conditions must be complies with: 

a. The company shareholders must not be 

residents of the USA; 

b. The company must not carry out trade 

activities in the USA or with companies in the 

USA; 

c. The LLC must not have a permanent 

registered office, other than the one registered 

in the USA; 

In other words, the shareholders of the LLC 

must be natural or legal persons, residents of 

tax havens, since they are the ones who owe 

the tax. 

Corporation is a generic name of joint stock 

companies and their registered name may also 

include the words: Limited, Corp., Inc., etc. 

The difference between the joint stock 

companies recognised by the Romanian 

legislation and the ones recognised by the 

USA legislation lies in the fact that in the 

USA such companies may be incorporated 

without a share capital as well. 

International Business Company (IBC) is 

the type of company that is specific to the 

territories belonging to the British Crown. 

They are joint stock companies set up by 1-2 

founders who have no right whatsoever over 

the assets and liabilities of the company. The 

company is practically owned by the person 

242 

subscribing the shares, but the decision to 

issue shares belongs to the founders or to the 

persons appointed by the same. This type of 

offshore company appeared for the purpose of 

being able to continue to provide maximum 

tax protection to American clients, especially 

by guaranteeing complete confidentiality. 

Non-resident company is the least 

demanding type of offshore company and it is 

used especially in the influence area of the 

British laws. 

Exempt company is that type of company 

that is exempt from any normal tax provision, 

as it is a normal company that benefits from 

facilities granted under certain conditions 

while in jurisdictions with a normal tax 

regime. This exemption from payment of taxes 

is annually obtained on the basis of a 

statement made by the persons in charge of 

the company who undertake not to do business 

in or with companies registered in the state 

concerned, other than non-resident or exempt 

companies. 

V. Incorporation of offshore companies 

Registered name – Trade Register – in 

certain jurisdictions even appear some 

restrictions regarding the registered name; 

Share capital – in general there are no 

restrictions regarding the amount – this 

situation is specific to less developed offshore 

areas: The British Virgin Islands, the 

Bahamas, with small exceptions: Malta, 

Liechtenstein. Two types of share capital may 

be discriminated: 

a. Authorised share capital – is the amount of 

shares that the company has the right to issue 

or sell to shareholders. 

b. Issued share capital – is the amount of 

shares that the company issues and sells and 

may be different from the authorised share 

capital. 

The Trade Register must be informed about 

the increase of the share capital, by filling-in 

an information form and enclosing with the

same the resolution that authorises the 

modification of the share capital. 

Company shares – may be registered as 

bearer shares (which are not accepted by some 

banks for the purpose of preventing money 

laundering). 

General Assembly – is convened annually (at 

a maximum interval of 15 months), or more 

often under the name of Extraordinary 

General Assembly. 

Manager of offshore company – the 

problem with electing the managers within an 

offshore company is a delicate one. This is why 

people who wish to register offshore companies 

may opt for one of the following versions: 

� the person concerned acts also as manager 

and shareholder; 

� the person concerned is the manager, but 

uses named shareholders; 

� the person concerned uses named managers, 

but is a shareholder; 

� uses named persons both for the position of 

manager, as well as for the position of 

shareholder. 

Named managers and shareholders are the 

persons or the companies that in stead of the 

owner, but in the interest thereof, carry out 

certain duties within the company and 

generally the same person acts as manager 

and as shareholder. 

Advantages of using name managers: 

1. anonymity of the owner, since the same is 

not included in the records of the authorities; 

2. may manage a company exempt from taxes, 

especially if the registered office of the 

company is located where the named 

managers live. 

Managers are permanently appointed and 

may authorise any person to act as legal 

representative. The same is re-elected during 

the General Assembly. 

Company secretary – is a natural or legal 

person and is in charge of the company 

relationships with the Trade Register and 

with the governmental bodies. It is appointed 

by the managers. 

243 

VI. Offshore companies scope 

The main activity field where the offshore 

companies are used are as follows: 

International trade: by incorporating an 

import – export offshore company in a tax 

haven the reduction of the tax on profit is 

possible. The offshore company acts as 

intermediary between the manufacturing 

company and the client. It buys the goods from 

the manufacturer for a very small price (close 

to the manufacturing price) and sells them to 

the client for the market price, while the goods 

are delivered directly from the manufacturing 

company to the client and the passing of the 

goods through the offshore company is only 

theoretical, carried out based on documents. 

Of course, more often than not, the owner of 

the offshore company is also the owner of the 

manufacturing company. This way the 

offshore company (located in a tax haven) 

yields a substantial profit that shall not be 

taxed, while the manufacturing company 

registered in a “tax hell” yields a low profit or 

no profit at all. 

Investments: offshore investment companies 

may be used in order to make investments 

that shall produce large profits. Thus, these 

profits shall be kept away from high taxes. 

With the help of offshore investment 

companies, the anonymity of the real investor 

may be guaranteed. Another advantage lies in 

the fact that in the company accounts foreign 

currency may be kept without limitation, 

eliminating thus the losses caused by 

exchange rate differences. 

Real estate transactions: if an offshore 

company is the owner of a real estate property, 

upon alienating the same significant amounts 

may be saved from taxes. This is why it is 

preferable for those who have properties to 

own them through an offshore company. There 

are a series of advantages such as the 

avoidance of succession duties, of taxes 

resulting following the sale of capital 

investments.

Professional services: by payment of the 

equivalent value of consultancy services 

significant amounts may be transferred into 

the offshore company accounts without paying 

taxes. 

VII. Main advantages of the 

incorporation of offshore companies 

In order to be able to declare ourselves for or 

against the regulation of such a company in 

the Romanian legislation as well, it is 

necessary to analyse the main advantages 

provided by this kind of company. The 

advantages concerned are as follows: 

Anonymity and confidentiality – are cited 

as the main advantages of offshore companies, 

after the low taxes or even the absence 

thereof. Among the reasons that determine 

such a choice are the following: 

� in most cases offshore companies are used 

as a third party that carries out transactions 

on the local market. In this case, the 2 

companies must not have the same manager(s) 

because the same person cannot sign an 

agreement for 2 companies acting in his or her 

capacity as manager of both of them; 

� in many countries the obligation to pay 

taxes is connected with the location of the 

company management. If it is obvious that the 

managers and shareholders of a foreign 

company are registered on the local market, 

the revenues of the foreign company shall be 

deemed to be revenues of local owners and 

consequently shall be taxable; 

� business people wish to preserve their 

anonymity as regards the activities carried 

out, the profits accrued and the investments; 

� anonymity may no longer be achieved once 

the company has been registered based on its 

real owners and the documents where the 

shareholders and managers are mentioned 

have been filed. On the other hand, when the 

company is registered as anonymous and the 

owners at a certain time no longer wish this, 

the structure cannot be changed at any time; 

244 

� public has access to the files that 

comprise the share certificates, the 

incorporation documents of a company, etc. 

At world level, over 95% of the offshore 

company owners use an anonymity structure, 

while the remainder prefer an open structure. 

Employees are obliged by oath to observe the 

secrecy with respect to the names of nonresident 

beneficiaries. Only general details are 

presented now and then in order to inform the 

government and the public about the evolution 

in this field. Depending on the company 

beneficiary’s wish, the identity of the same 

may be known only by those with whom they 

work directly, such as the general manager 

and the deputy manager. 

Are subject to low taxes and helps to 

perform a better international tax 

planning. World tax jurisdictions are divided 

into two categories: the ones that have a high 

level of taxes (income tax, VAT, tax on 

salaries, tax on dividends, local taxes, road 

taxes, real estate taxes, etc.) and the ones that 

levy no tax at all or that levy low taxes. Within 

jurisdictions that do not levy taxes, such as 

the Bahamas or Gibraltar, none of the abovementioned 

tax is levied. Companies registered 

within such jurisdiction pay no such taxes. 

If we consider a low tax jurisdiction, we speak 

about the tax on company profit. A jurisdiction 

with such taxes is Cyprus, where a tax of 

4.25% is applied to the gross profit. The gross 

profit is calculated by subtracting all the 

expenditures incurred by the company in 

order to carry out its business from its 

revenues. Therefore the cost of goods sold, the 

salaries, the travel expenses, the 

accommodation and protocol expenses, the 

professional duties and commissions and so on 

and so forth shall be included. There are no 

limitations as regards such expenditures other 

than common sense. Moreover, salaries are 

not taxable. Nevertheless, other jurisdictions, 

such as the Island of Man, impose a fixed tax 

(750 pounds or 1200$ in the case of the Island

of Man) to any company, irrespective of the 

profit or loss thereof. 

As regards the international tax planning, 

international companies use offshore entities 

in order to direct their profits towards the 

same and to carry out their activity so as to 

pay as little taxes as possible. It is not a 

surprise that thousands of business people 

and companies use offshore companies for 

international tax planning, and among these 

there are companies famous around the world 

such as Pepsi Cola, Tetra Pak, Barclays RJR 

Nabisco and many others. International 

double taxation avoidance treaties and the low 

taxes offer huge possibilities to tax planning. 

Lack of exchange controls. Many business 

people try to avoid the establishment of a 

foreign headquarter where there are exchange 

controls or where the formalities regarding 

such operations are deliberately complicated. 

Offshore companies are not subject to any kind 

of exchange controls. They may receive funds 

either in cash, in any kind of foreign currency 

and they may also make payments to any 

person in any countries or may perform fund 

withdrawals without any explanation or 

document requested by the bank. 

Consequently, the company operates within a 

non-restrictive banking system. 

Offshore companies may maintain accounts in 

any kind of foreign currency, in the form of 

foreign accounts, notice accounts or fixed term 

deposit accounts, while the interests paid are 

similar to those internationally accrued. The 

funds in these accounts may be transferred 

abroad without any restriction and without 

the request for documents or permits. 

They operate within a stable economic 

and political system. Any business men, any 

investors want to carry out their activity in a 

country that displays such features. Nobody 

wants to see their money gone because of the 

change of governments, of governing system or 

because of the economic instability that may 

bring about inflation, economic recession and 

many other problems. 

245 

After the appearance of the new independent 

states of the former Soviet bloc, the economic 

restructuring process inevitably led to 

financial crises (bank bankruptcies, pyramid 

schemes, etc.), which to the population meant 

the loss of savings. 

One of the greatest advantages of Cyprus as 

offshore centre is its economic and political 

stability within a vulnerable region from this 

point of view. The civil was in the Lebanon 

offered Cyprus its first advantage in 1970, 

followed by the Gulf War in 1990 and the 

collapse of Yugoslavia. Many companies that 

arrived there to find a temporary refuge, 

stayed when they realised that this country 

offered more than that. 

They operate within a well organised and 

development banking system. This is one of 

the priorities that any offshore financial centre 

must comply with. To this the great banks of 

the world that have established their 

operating centres in these areas and have 

consequently raised the standard of 

performing this activity have contributed. 

Considering the way in which today’s 

businesses are carried out, it is unconceivable 

for an offshore financial centre not to have a 

well developed banking system. 

Possibility to diversify the objects of 

companies without any restriction. 

Offshore financial centres frequently allow the 

diversification of the objects of a company, 

operation that is not possible in the country of 

origin of the investor. Companies that face 

hard conditions and restrictions in their 

country of origin may find numerous 

commercial solutions in offshore centres, thus 

removing many of their problems. For 

example, Japanese or American banks cannot 

undertake obligations with respect to certain 

issues related to the securities prohibited by 

law in their countries and enter this delicate 

area with the help of offshore entities. It must 

be mentioned that the formalities required for 

the diversification of activity of a company are 

complied with without too much bureaucracy.

Relaxed regulations. The fear of excessive 

regulations is a major attraction towards this 

domain and is the reason why the registration 

of banks, insurance companies or sea 

transport companies has become an important 

pillar of the offshore industry. A new wave of 

financial instruments is directed towards the 

offshore domain for this reason. This wave 

includes open investment funds, payment 

instruments, Eurodollar trade. 

Much better expansion possibilities. Large 

corporations see offshore centres as 

indispensable to their expansion on new 

markets at competitive prices. For example, 

offshore financial centres dominate over a few 

international activities such as: shipping, air 

transport, financial domain and captive 

insurance companies. Lately approximately 

one million offshore companies have been 

registered around the world and many of the 

famous corporations on the world market 

operate through these centres. Here we may 

remind IBM and Microsoft in Dublin, Orient 

Express and American Airlines in the 

Bermuda, De Burs in the Island of Man, GE 

and CNN in Cyprus. Therefore a company 

shall be able to easily a market or open a 

branch or a subsidiary in a certain country 

because it shall be deemed to be a foreign 

company and shall be able to benefit from the 

facilities granted by the government of the 

country concerned. Here as example of such 

county may be Romania, which grants 

facilities to foreign investors who place their 

money into our country. 

Concealing the origin of goods by 

processing them in the free areas related 

to other offshore centres. Business people 

may conceal the origin of the goods traded with 

the help of free areas. Thus they may introduce 

goods in the free areas where they may change 

the packaging, may process them and conceal 

their origin in order for the goods to have as 

place of origin the free area and implicitly the 

country that has organised this free area and 

246 

this way goods may be more easily selected by 

consumers. 

VIII. Conclusions 

By analysing all the above-mentioned aspects 

and by ascertaining that the Romanian 

legislation has no legal provision that 

regulates such type of company, we believe 

that a legislative initiative for this purpose 

would be welcome as long as the major 

tendency of economic agents is to resort to any 

solution including the ones at the lower limit 

of the law in order to avoid overwhelming 

taxation. We believe that the legal recognition 

of this type of company would bring real 

economic benefits not only in favour of their 

owners, but also in favour of the state by 

encouraging and supporting economic 

activities and investments in all activity 

sectors. 

References 

� Adams C., (2003), A Historian Looks at Tax 

Haven, http://www.freedomandprosperity.org/; 

� Bişa Cristian, Costea Ionuţ, Capotă Mihaela, 

Dăncău Bogdan, (2005) Utilizarea paradisurilor 

fiscale. Între evaziune fiscală legală şi fraudă 

fiscală, BMT Publishing House, Bucureşti; 

� Corundeanu Carmen, (1998), Sistemul fiscal în 

ştiinţa finanţelor, Editura Codecs, Bucureşti; 

� Dauphin C. (2002), Ghidul cu adevărat practic al 

paradisurilor fiscale; 

� Gobbe F., (2002), L’impact des paradis fiscaux sur 

les pays en developpément, Gresea-Echos; 

� Haslerud Gjermund, (2004), The Growth of Tax 

Havens – A Theoretical Perspective and an 

Empirical Analysis, disponibil la 

http://www.sgir.org/conference2004/papers/; 

� Hines James R., (2004), Prosperă paradisurile 

fiscale?, Univ. of Michigan & NBER; 

� Mănilă A., (2004), Companiile offshore sau 

evaziunea fiscală legală, Ed. AllBeck, Bucureşti; 

� Mitchel Daniel J., (2004) The Economics of Tax 

Competition: Harmonization vs. 

Liberalization,http://www.heritage.org/research/feat 

ures/index/ChapterPDFs/chapter2.HTML ;

� Peillon Vincent, Armand de Montebourg, (2002), 

Les paradis fiscaux, Lecture croisée du rapport 

d’ATTAC et du Rapport Parlementaire; 

� Vonica Romul Petru, (2000), Drept comercial – 

partea general, Editura Lumina Lex, Bucureşti; 

� www.incorporateoffshore.org/Offshore/offshorellc.htm 

� www.offshoreinfo.com/bvi.htm 

� www.laveco.com 

� http://en.wikipedia.org 

247




THE BALANCE OF PAYMENTS AND THE EXTERNAL DEBT. SPECIFIC 

PROBLEMS IN ROMANIA. 

GIURGIU Adriana; 

University of Oradea, Faculty of Economic Sciences, Dept. of International Business, 

Romania; 

email address: adrianagiurgiu@gmail.com 

HAŢEGAN D.B. Anca; 


Romania; 

email address: anca_dodescu@yahoo.com 

NEGREA Adrian; 


Romania; 

email address: ngr_adrian@yahoo.com 

Abstract 

The economic growth that is based on 

internal demand has different effects on the 

evolution of the exchange rate, on how is used 

- for investments or consumption -, 

facilitating access to credits, materialized in 

the expansion of the governmental credit, 

based on the future growth of the revenues, 

and on the increasing competition among 

credit institutions. The rapid growth of the 

both private and governmental credit, led to 

an increase in the consumption credit. In 

Romania, the monetary policy has the 

capacity to reduce the pressure coming from 

the internal demand, by applying an interest 

rate. As a result, the investor perceptions 

about Romania may change, leading to 

massive capital outflows, sharp currency 

depreciation and rising prices. 

In 1990, 1992, 1996, 1998, 2001 and each 

year after 2003, the non-sustainability of the 

current account deficit, could support that, in 

these years, Romania recorded excessive 

current account deficits. To the increase in 

trade deficit has contributed a greater 

volume of imports of consumer goods, capital 

goods and fuels. Lack of a functional export 

strategy gave the foreign firms that have 

foreign direct investment in Romanian 

economy to determine the profile of the 

country's exports. Furthermore, Romania is 

placed last at the innovation chapter, of all 

the EU countries. So, we can appreciate that 

248 

Romania relies more on technology transfer 

made by foreign capital firms. 

Thus, this paper tries to summarize the 

specific problems encountered by the balance 

of payments and the external debt in 

Romania, after 1990. 

Key words: BoP sustainability; external 

debt; foreign investments; foreign trade; 

international operations. 


In order to debate the current specific 

problems of the Romanian economy from the 

perspective of the country’s Balance of 

Payments (BoP) and external debt, we 

should refer first to the general economic 

situation of Romania after 1990, with a 

major focus on the last years. In this 

purpose, this introductory part our paper 

will present the hypothesis of our further 

analysis, such as pertinent remarks upon 

the general economic climate of Romania. 

We do find the research topic our paper of 

great importance, because it tries to explain 

the Romanian paradox: although there is an 

external deficit, the level of international 

reserves has grown almost in every year of 

the analyzed period, with a greater pace 

after 2000 (according to the policy of NBR 

adopted in 1999, consisting in consolidating 

the level of international reserves). Thus, the

paper explains that this situation is possible 

because the cover of the external deficit was 

made through foreign direct investments 

and external loans. Furthermore, the vast 

sum of reserves is explained by the inflow of 

foreign direct investments and portfolio and 

the revenues from privatization. Moreover, 

in the Romanian economy in the past couple 

of years, the credit expansion took pace, 

although in 2009 this suffered a contraction 

due to the economic crisis. This represents a 

problem, because these credits were destined 

for consumption. The consumption appetite 

of the local population can be seen in the 

loans, but also in the imports of nonproductive 

goods. 

The answers to the problems raised in this 

paper resulted from the researches pursued 

within the project financed by NCPM of 

Romania (project achronim: SVACEX; 

contract 92-073 /2008), with the following 

objectives: 

- analysing the Romanian balance of 

payments’ accounts and the sub-accounts, 

which are responsible for the existence of the 

external deficit; 

- emphasising the main features of the 

current account evolution in Romania, in 

order to establish the causes of its external 

deficit; 

- emphasising the main elements which 

influence the sustainability of the current 

account deficit; 

- emphasising the impact of the BoP’s 

evolution on the country’s foreign debt; 

- the analysis of different specialized 

indicators revealed by the existent 

literature, such as the indicators of dynamic, 

structure and foreign debt. 

2. Literature Review and Theoretical 

Background 

This paper relies onto the research 

developed in the Ph.D. thesis of the main 

author, Dr. Adriana Giurgiu, which was 

defended in 2007 at the Bucharest Academy 

of Economic Studies, published thereafter 

within the Economica Publishing House, and 

continued through the research project 

financed by NCPM of Romania (project 

achronim: SVACEX; contract 92-073 /2008), 

and managed by the same author (please, 

visit http://steconomice.uoradea.ro/svacex). 

The indices and data used in present paper 

resulted from the calculus made based on 

official data, as well as on statistical data 

249 

published by reffered sources. The data are 

presented in the Table 1, included below. 

Table 1: General and specific economic 

indicators of Romanian Balance of 

Payments, external trade, and debt, 

1990-2009 

Source: The annual and monthly reports of the 

National Bank of Romania, and own 

computations 

*) unavailable data 

Note: XIP are the exports of goods of the 

manufacturing industry in the year that the

indicator is calculated. The annual growth of 

every indicator is calculated based on the 

formula: (Xm–Xm-1)*100/X m-1, were Xm represents 

the variable in the current year, and Xm-1 

represents the indicator from the last year. 

Thus theoretically, the economic growth that 

is based on internal demand has different 

effects on the evolution of the exchange rate, 

on how is destined to investments or 

consumption. On the evolution of Romania 

in the last couple of years (economic growth 

based on consumption and a growing 

external deficit), the national currency 

should register an acute depreciation, 

determining a rise in the local prices. Giving 

the facts that Romania wants to join the 

euro-zone in the next 4-5 years, a growing 

inflation contravenes the objectives taken by 

the NBR to hold the prices at a stable level, 

and to attain the nominal criteria of 

convergence. So, the measures adopted by 

the NBR constitute one of the causes of the 

appreciation of the national currency in 

between 2005-2007, along with the inflow of 

foreign direct investments, revenues from 

privatizing. 

Romanian authorities have not understood 

the current account deficit as a real risk in 

the last years, and therefore several 

economic policies that stimulated the 

increase of our country’s deficit have been 

implemented. Among the reasons that 

explain the actual level of Romania’s current 

account deficit, there can be found the need 

for investment and consumption capital. 

In the last couple of years, the current 

account deficit had the internal demand as 

the main cause, backed by: 

- Relaxation of the revenue policy after 2005, 

higher salary in those sectors that were 

experiencing temporary migration of 

workers, widening the work force deficit, 

wage pressures (when elections take place). 

One of the most vulnerable sector that 

experiences wage pressure is the textile 

sector, that holds an important but 

decreasing share in the total of the 

Romanian exports. 

- Facilitating access to credits, materialized 

in the expansion of the governmental credit, 

based on the future growth of the revenues, 

and on the increasing competition among 

credit institutions. 

The rapid growth of the both private and 

governmental credit, led to an increase in 

the consumption credit. Instead, it is 

250 

possible that the increase of wages in the 

public sector is responsible for these effects, 

because of a lack in governmental policies 

oriented on productive investments. 

Identifying some viable solutions that can 

melt the rapid growth of this type of credit is 

difficult. Raising the interest rate in order to 

limit the inflation pressures could encourage 

even more the credit in a foreign currency, 

and this can affect those who already have a 

high degree of loans. Another solution could 

come from the credit institutions, meaning 

that the rise of credit would be in the same 

field with the management capacity of the 

phenomenon, and with the actual and future 

level of the capital and provisions. 

As a result in the increase of the aggregate 

demand, the external deficit can become 

unsustainable. If these theories are not dealt 

with in the coming period, we can confront 

ourselves with a change of heart from the 

investors’ point of view, manifested by a 

redraw of foreign capital 

On the other hand, according to the World 

Bank analysts, this kind of evolution does 

not necessary incur a financial crisis. Their 

explanation is based on Portugal’s situation, 

where the economic expansion supported by 

loans before the accession was followed by 

years of stagnation and slow economic 

growth, but not by a banking and currency 

crisis. 

The risk of releasing such currency flow 

rises with the global carry trade speculations 

(operations type carry trade are realized on 

the Forex market, and they represented the 

buying of a currency that has a high interest 

rate, and selling the one with a low interest 

rate; the one who uses this type of strategy 

intends to obtain a profit speculating the 

differences between the interest rates). The 

existence of this phenomenon had been 

determined not only by financial 

liberalization but also by the technological 

progress. Theoretically, a flexible exchange 

rate must assure the independence of the 

monetary policy, and an increase of expected 

inflation should induce a depreciation of the 

national currency. In reality, the global 

carry trade is a speculative short term 

operation, with the help of which liquidity 

exports can be operated: the increase of 

interest rate represents an instrument for 

stopping the inflation factors, which is 

helpful for exchange rate nominal 

appreciation. If a country maintains its 

interest rates at high levels it can lead to

increased short term capital inflows (in the 

years 1970-1980, devaluation represented an 

efficient way to improve the competitiveness, 

when this measure was sustained by some 

restrictive macroeconomic policies (fiscal and 

monetary). Though, the capital mobility 

wasn’t so high like nowadays, and it has 

permitted some positive results in the 

economy. 

Through the adopted monetary policy, the 

National Bank of Romania (NBR) tries to 

maintain the prices’ stability, to prevent 

their raise, and also to stop the local 

currency artificial appreciation. 

In Romania, the monetary policy is 

transmitted through the exchange rate 

channel, as a response to the high level of 

economic liberalization and to still 

undeveloped financial systems. The capital 

inflows increase the efficiency of this 

channel, insuring a low short term inflation 

rate through the contraction of the imports 

prices, but also through its effects on the net 

exports and on demand. Although it is 

favorable on short term, the excessive use of 

this mechanism risks to become dangerous 

because it can deepen the external 

imbalances and can increase the 

vulnerability of capital flow reversibility. 

In Romania, the monetary policy has the 

capacity to reduce the pressure coming from 

the internal demand, by applying an interest 

rate. The real interest rates, with an 

effective impact over the financial position of 

the bank clientele, have been highly positive 

in the case of active interest rates, but 

predominant negative on the liabilities side. 

The low return on investments in bank 

deposits explains the moderate growth 

rhythm of savings. This situation of 

mediocre return on investments of bank 

deposits explains why the credit channel 

does not function at the corresponding level 

in Romania. 

The fiscal policy of a country always 

constitutes a reason of concern, because it 

was lax, contributing to the economic 

imbalances in the last years. There was also 

a tendency of increasing the consumption 

costs instead of those for investments, 

deteriorating the perspectives for a long 

term growth. Moreover, the future incomes 

for the budget are expected to decline in 

2010, as a result of tempering Romania’s 

economic growth. If the tendency of the last 

years is followed, and the fiscal deficit is let 

again to deteriorate, than the public debt 

251 

would rise, and the macroeconomic 

confidence would begin to fall, having a 

negative impact in the analysis taken by the 

rating agencies, making it hard for us to 

borrow money. 

In Romania, monetary, fiscal and exchange 

rate policies were not correlated so that their 

combined action would have the purpose of 

achieving external balance. Also, in order to 

reduce the external deficit, the accent was 

set on the exchange policy, trying to 

maintain a continuous real depreciation of 

the national currency against foreign 

currencies in which contracts are signed. 

In the last couple of years, there was an 

increased currency inflow in Romania. EUR 

or USD from foreign investors were 

attracted by the high returns, comparing 

with those existing at international level, 

from Romanians who went to work abroad 

(which registered a high dynamic and a 

seasonal character) or from investment 

funds (from EU) were transformed in LEI, 

that were “laying” in the market, 

determining the artificial currency 

appreciation (between 2005 and 2007), 

because the economy didn’t had the capacity 

to absorb them. The absorption of this 

capital without affecting the macroeconomic 

equilibrium represents a problem. 

With the entry into the EU and thus 

respecting the European regulations 

requirement, eliminating subsidies for 

survival, exemptions or reductions of 

liabilities and penalties, the state is forced to 

decrease their involvement in the economy, 

in favor of market mechanisms that promote 

performance. 

On the other hand, large inflows of foreign 

currency (produced after 2003) can lead to 

macroeconomic imbalances and 

vulnerabilities, which may trigger a crisis 

with negative effects on price and financial 

stability, disturbing the NBR activity and 

affecting the real economy. 

As a result, investor perceptions may 

change, leading to massive capital outflows, 

sharp currency depreciation and rising 

prices. In this situation the authorities may 

impose, according to economic theory, 

restrictive fiscal and monetary policies, 

resulting in the compression of the aggregate 

demand, recession and unemployment, lower 

corporate profitability. In a small country, 

that conduct will be reflected more in the 

current account deficits than in curbing 

inflation.

The biggest risk is that without any security 

and filtering method assumed by markets 

and because of the failure of authorities to 

slow the economic growth by fiscal 

restrictions, could lead imbalances to 

accumulate and later to the collapse of the 

market. 

3. Balance of Payments. Specific 

Problems in Romania 

In 1990, 1992, 1996, 1998, 2001 and each 

year after 2003, the non-sustainability of the 

current account deficit, could support that, 

in these years, Romania recorded excessive 

current account deficits. Is economically 

rational for such deficits to exist, but not so 

large. In addition, there is a risk that the 

current account deficit continues to increase 

due to the international crisis that acts to 

reduce our country's partners trading 

demand. 

Trade deficit with the Russian Federation 

contributes to the formation of Romanian 

trade deficit in a downward trend from 1999 

until now, from a majority share to 12% in 

2008, due to reduced imports of mineral 

products, whose main provider for our 

country is the Russian Federation. For one 

country, this percentage is high, indicating 

the dependence of Romania of mineral 

products and natural gas from the Russian 

Federation. Though imports from this 

country are convenient in terms of distance 

and transport cost implication, the present 

world configuration makes dependency a 

major threat for the business sector in 

Romania, it can be a tool of economical and 

political "blackmail". Finding alternative 

energy resources and upgrading the 

extraction sites in our country, developing 

partnerships with other suppliers of gas and 

mineral products are the long term 

sustainable solutions. 

To the increase in trade deficit has 

contributed a greater volume of imports of 

consumer goods, capital goods and fuels. 

While the first group of products remains 

very low for exports, the other two categories 

contribute to the exports in order to 

counteract the increased imports. If this 

trend continues, the balance of consumer 

goods will become the main cause of the 

worsening trade balance. 

The deterioration of the trade balance comes 

from the agricultural sector, Romania being 

a net importer of agricultural products, 

252 

given that our country has an untapped 

agricultural potential, recording an exclusive 

reliance of the agricultural production on 

weather conditions due to poor development, 

lack of appropriate level of modernization. 

Trade balance risks remain and we can 

expect deterioration because of the reduced 

exports, given that not only our main 

partner, the EU has economic problems, but 

other countries in the world too, as the 

international crisis expand. 

The negative values registered by the trade 

balance as part of GDP show that the 

external trade effect on the internal 

economic process has been important in 

Romania, because it decreased in the 

analyzed period. After 2004 it reached 

concerning levels that imposed a close 

monitoring of the trade balance evolution 

and also adopting different measures for 

preventing this from becoming a national 

income spillover effect. 

Analyzing the Romanian exports structure 

we can observe that although the main 

percent of our exports since 2005 is held by 

the group of products with a high processing 

level and high technological complexity, 

„Machinery, equipments and 

transportation”, with all this increase, in 

2006 it has not exceeded the value reached 

in 1990, thus representing a negative 

warning for our country’s external trade 

evolution. This situation is due to 

machinery sectors’ instability and to the 

delayed restructuring and technological 

processes. We can also notice that medium 

technological complexity and low processing 

degree goods „Textiles, confections and 

footwear” hold an important percentage of 

Romanian exports, although they decreased 

since 2002, after the increases registered 

before. The explanation for increased exports 

of this goods could be the work force low 

prices, knowing that this industry uses this 

production factor. We continue exporting 

raw materials and partially-made goods 

traditionally produced in our country two 

decades ago and low added value and 

technological complexity goods that have low 

prices, situation that reflects our economic 

situation in general and our industrial 

situation in particular. We are talking about 

“Metals and goods produced from metals” 

and “Wood products, furniture and paper”. 

These products do not offer us important 

competitive advantages on the international 

markets, but the comparative advantages

could be maintained through price policies 

and less through quality and productivity. 

The low added values obtained through our 

exports do not offer the needed imports 

financial support, nor help the producers. 

Qualitative and quantitative development of 

exports, is contrary to the limited expanding 

economic power of Romania, unsatisfactory 

pace of restructuring the real economic 

sector, the insufficient level of available 

resources and the low ability to attract them, 

while the industry has decline in a long 

period of time and producing largely with 

inefficient technologies; low capacity of 

specialization by product category, which 

prevents the passage of the quantitative 

development of Romanian exports; chronic 

inability to specialize the production 

capacity of the economy of our country to 

respond rapidly to stimuli of the changes in 

exchange rate and foreign demand; high 

domestic production costs, poor 

infrastructure, information barriers, 

underdeveloped financial institutions, 

financial regulations and legislative 

instability. These facts explain the large 

share of intermediate and consumption 

goods of the Romanian exports, capital goods 

representing only a small proportion of 

exports for our country. 

Lack of a functional export strategy gave the 

foreign firms that have foreign direct 

investment in Romanian economy to 

determine the profile of our country's 

exports. Furthermore, Romania is placed 

last at the innovation chapter, of all the EU 

countries. 

However, although Romania is far from the 

stage where development should be based on 

innovation, we cannot say that such a 

transformation system hasn’t got the germs. 

The majority of the technology used in 

Romania is imported. We rely more on 

technology transfer made by foreign capital 

firms. And the technology brought by the 

foreign firms is not the latest generation, it 

does not have innovation potential, and in 

addition, there is insufficient capacity to 

assimilate it. In Romania, the degree of 

technological diffusion is small, while the 

postproduction development and innovation 

is almost null. As a result of reduced labor 

costs, Romanian exports are price 

competitive, and not by the contribution of 

innovation. 

In the analyzed period, it can be noticed that 

the group with the highest percentage in the 

253 

Romanian exports is the one of “Machinery, 

equipments and transportation”, which 

represents high processing and technological 

complexity degree goods. The importance of 

this group increased over the analyzed 

period, evolution explained by the Romanian 

economy technical restructuring. We can 

also notice another groups’ importance with 

high processing degree „Chemical and 

plastic goods”. Thus more than a half of our 

imports are goods with a high processing 

and technological complexity degree, 

showing the Romanian economic 

development level and also generating 

problems of the trade balance. 

The imports evolution as a part of GDP 

reflects that starting with 1999 the national 

production is 38% completed by imports in 

2008 (FOB imports). Thus we can notice the 

high dependency of our national production 

on imports, a situation generating negative 

effects of the trade balance, of our country’s 

debt degree and of our sustainable economic 

development. 

The “Tourism services” balance has changed, 

registering high deficits maintained on all 

the analyzed period on the account of the 

Romanian tourism that lacks its 

development, specialization and employees 

training, the offered services quality, 

undeveloped access infrastructure and 

investments in accommodation capacity. All 

these reasons and the high prices practiced 

in our country compared with those outside, 

determined the residents to spend their 

holidays elsewhere. Romania has special 

natural resources, some of them unique in 

Europe, but that are not valued 

Over the period 1990-2009, the earnings in 

the chapter "Income from other equity 

investments (interest)” have low values, no 

growth prospects, and those payments will 

be increased continuously, reaching values 

higher than those of the earnings, which 

explains the situation that Romania 

encounters today, that our country gets 

foreign loans, and gives very little or none, 

most loans that Romania charges interest 

are those granted before 1990. 

We have to consider the fact that the risk of 

the “Income” balance contributing to the 

increase of the current account deficit is 

increasing, because we can notice an 

increase in repatriated profits, dividends 

from FDI, interest rates paid for external 

loan, in accordance with a reduction of the

labor income inflows compared with the 

preceding years. 

The increasing of "current transfers" slowed 

in 2007 due to the evolution of remittances, 

given the problems encountered in the labor 

market in Spain and Italy. This trend is 

exacerbated by the crisis in Europe resulting 

in a slowdown of those economies where the 

Romanians work, especially in the 

construction sector, which may lead to the 

return of Romanian workers from abroad. 

Remittances sent by Romanians that leave 

the country and work abroad, may be 

capped, and then decrease as they and their 

family reunify. In addition, Romania's 

contribution to EU budget and that most 

funds raised from the Union are recorded on 

the capital account will result in reducing 

the positive contribution of current transfers 

to counteract current account deficit. 

Adverse effects may arise from the use of 

remittances; research conducted indicating a 

possible negative effect on the trade balance 

and the employability of the workforce, due 

to stimulating imports. It has also affected 

the real estate market, real estate prices 

increasing, thanks to a large part of this 

money being spent on the real estate market 

in Romania. 

In 2007, FDI inflows continued orienting to 

the industry sector, but in a slower pace 

than that of the non-tradable goods, that 

leads to a decrease or moderation of 

Romanian exports. Although this process is 

normal in the context of recovering the 

disparities, a concentration of resources 

allocation to untradeable sector can generate 

boom and bust type of growth, because the 

FDI are not exclusively oriented to high tech 

sectors. Moreover, as the percentage of 

financial flows to the non-tradable goods 

sector increases, the economy’s reorientation 

flexibility grows. Analyzing our country we 

can notice that both negative influences 

reached high levels. Moreover, the nontradable 

sector contribution to the GDP 

formation is decreasing slow, its growth 

rhythm being outran in the second half of 

2007 by the one of tradable goods. 

The constant exceeding balance of “Loans 

and long term credits received” show that 

Romania’s external debt grew every year 

after 1989. 

We can observe an important raise of „Loans 

and short term credits received” position, 

starting with 2003, thus determining a short 

term external debt increase. 

254 

We also noticed a strange evolution of the 

„deposits” position. Thus, „Deposits held by 

non-residents in Romania” has a less intense 

evolution compared with the one of „Deposits 

held by residents outside the country”, 

except few years when either the credit or 

debit was higher. In Romania the capital 

exits were liberalized starting with 2003, 

which leads us to the next question: How 

could this evolution be explained? 

The almost permanent exceeding „Statistical 

discrepancy” position shows the fact that the 

financial entries have been bigger than those 

officially registered. How could something 

like this be explained? A possible 

explanation could be the Romanian workers’ 

remittances and the money they send 

unofficially back to their families. This 

surplus could also be explained by 

underground economy. 2002, 2003, 2007 and 

2008 are the exceptions over the analyzed 

period and the „Statistical discrepancy” 

balance shows a deficit. 

Although this positions values in „General 

Total” of the Romanian balance of payments 

are small enough so the information offered 

by this statistical indicator can be trustfully 

and a faithfully mirror of our country’s 

economic international relations, there are 

several years when those percentages are 

high enough, that can lead to questioning 

this macroeconomic aggregate. 

We also noticed a discrepancy between the 

balance of payments credit values and its 

debit values, according to the NBR 1990 – 

2004 annual reports, probably owed to some 

errors. 

Starting with 1997, the current account 

deficit financing has realized primary from 

foreign direct investments that shows a high 

sustainability of the short term current 

account deficit. But the medium term 

sustainability of this financing structure is 

questionable, keeping in mind that FDI in 

Romania represent earnings from 

privatization, revenues that will reduce in 

the following years due to the a limited 

number of assets, thus causing the increase 

of our country’s vulnerability. 

FDI in products with a high processing 

degree are very important. Moreover, foreign 

investors complain about the complexity of 

the financial sector, the low level of taxation, 

poor infrastructure, public policies’ 

instability, public administration 

bureaucracy and corruption. The contracted 

credits also participated to the covering of

the current account deficit. The high 

percentage of capital inflows, taking the 

shape of external credits that cover the 

current account deficit imposes a serious 

analysis of the microeconomic risks and 

macroeconomic implications, from the 

external debt sustainability. The problems 

that can increase the external debt on 

medium and long term manifest with the 

help of the exchange rate, its sudden 

depreciation would lead to an increase of 

external financing costs. 

When the capital entries are used to finance 

the balance of payments deficit and for the 

external credits interest rates payment, the 

external debt accumulation takes place. 

4. External Debt. Specific Features of 

Romania. 

The discrepancy between the mechanism of 

allocating resources and the economic 

performance, adjusting by forced the balance 

of the economy due to the slow process of 

privatizing the state sector, lack of a legal 

and institutional framework, simple and 

effective for the function of the private 

sector, together with slow and insufficient 

structural reforms have led to a structural 

imbalance of the Romanian economy, which 

led to a wider and a perpetuation of 

significant current account deficits and the 

consolidated budget of the state, generated 

by an economy that consumes more than it 

produces. Closely linked with a reduced rate 

of internal accumulation, the cover of these 

deficits and internal absorption for 

consumption and investment were made by 

using foreign savings, which, in case of 

Romania did not take the better shape. 

Perpetuating deficits (budget and current 

account) attached external constraint, 

increasingly significant scale. 

The fluctuation of the national currency is 

reflected in the modification of the external 

debt, expressed in national currency, with a 

direct impact over the budget equilibrium ;I 

over the external trade balance 

The flow of Romania’s debt has registered a 

rising rhythm over the whole period. 

Giving the fact that more than 58% from the 

public debt is externally financed, a 

situation that does not exist in other 

developed countries, demonstrates the 

fragility of the national economy. In these 

conditions, the problem of sustainability 

should concern more and taken in action 

255 

aver the political discussions of the 

macroeconomic environment 

The moment we entered on the private 

market in order to attract capital, 

represented the lack of a coherent 

management concerning the external debt. 

There is a tendency in channeling resources 

to non-exportable services, and the 

diminishing foreign credits for the industry, 

that produces exportable goods. So the 

nonguaranteed external debt contributes 

less to the export sector. 

Another problem comes from the short term 

external debt, private, that has multiply 

quickly since 2003, approaching the level of 

the external debt for the medium and long 

term. 

This increase in the external debt has 

associated high risks, because this debt must 

be paid back. This trend can cause an 

increase in the fluctuation of the exchange 

rate (phenomenon that happened in the 

second part of 2007, spring and summer of 

2008). 

The devaluation of the national currency 

makes these credits even harder to pay back. 

This will affect the ranking given by the 

rating agencies for Romania, making it even 

harder. 

The steep rise of the level of our short term 

external debt represents a major risk for the 

disinflation process. 

The increase of the short term external debt 

is risky because in the real sector this kind 

of debt belongs to companies without activity 

that generate other currency revenues, and 

the banking sector has already financed an 

important part of their loaning activity.). 

The increasing pace of the external debt 

percentage in GDP represents a warning 

that imposes a serious monitoring of the 

indicator and also adopting a coherent debt 

strategy, integrated in the country’s 

macroeconomic policies. The increasing pace 

of the general external debt overcomes the 

GDP dynamics that leads to the conclusion 

that the external debt is not used in an 

effective way, does neither generate profit, 

nor economic growth, and instead it has 

other destinations, amongst the inefficient 

consumption. 

On the other hand, the raise of the external 

debt in the same time with the increase of 

the trade balance and current account’s 

deficit leads us to the next question: are the 

external loans used properly, or they are 

used to finance the imported consumption

goods? The information published by the 

national and European statistics shows us 

that we are right. 


In conclusion, the problems with the 

evolution of the external debt in our country 

refers to the growing short term debt as a 

percentage in the total external debt, and 

that of the non-guaranteed debt in the 

medium and long term debt; at the 

outpacing of the critical level of the external 

debt rate service in 2005, and 2009; the 

accelerating rate of the importance of the 

external debt in exports, and the high degree 

of the short term external debt service in the 

total amount of the external debt service. 

Another problem is the high growth rhythm 

of the short term debt in comparison with 

the medium and long term debt, after 2000. 

The risks of this evolution are strengthened 

by the unsatisfactory growth rate of the 

Romanian exports, which are not capable of 

sustaining an accelerated debt process. 

Moreover, the growth of the international 

reserves doesn’t sustain the growth rhythm 

of the short term debt. 

It can be stated that in the period after 1990, 

Romania has witnessed a growth based on 

debt, emphasizing on some imbalances, but 

we do hope that our research and its 

conclusion will serve as documentation basis 

and work instrument for further studies 

about the complex problem of BoP imbalance 

and external debt. 

References 

Aristovnik Aleksander. 2006. How sustainable are 

current account deficits in selected transition 

economies?, MPRA (Munich Personal RePEc 

Archive) Paper No. 1976; 

Aristovnik Aleksander. 2006. Current account 

sustainability in selected transition countries, 

William Davidson Institute (University of 

Michigan) Working Paper Number 844; 

Banca Naţională a României. 1990-2008. 

Balanţa de plăţi şi poziţia investiţională 

internaţională a României, Rapoarte anuale; 

Banca Naţională a României. 2009-2010. Raport 

trimestrial asupra inflaţiei,; 

Banca Naţională a României. 2009, 2010. 

Buletine lunare; 

Caves Richard, and Frankel Jeffrey, Jones 

Ronald. 1996. World trade and payments, An 

introduction, HarperCollins Publishers Inc.; 

CCórdoba, G Fernández de, and Kehoe, T. J. 

2000. Capital Flows and Real Exchange Rate 

256 

Following Spain's Entry into the European 

Community. Journal of International Economics. 

Vol 51. pp 49-78 

Dumitru, Ionut. 2008. O evaluare a 

sustenabilităţii deficitului de cont curent în 

România, Conferinţa “Tinerilor economişti” 

Deficitul contului curent – corelaţii cu indicatori 

economici şi abordări structurale, BNR, 

septembrie 2008, Bucureşti; 

Giurgiu, Adriana. 2008. Comerţul intraeuropean. 

O nouă perspectivă asupra comerţului exterior al 

României (Intra-European Trade. A New 

Perspective onto the External Trade of Romania), 

Bucharest: Economica Publishing House 

McGettigan, D. 2000. Current Account and 

External Sustainability in the Baltics, Russia, 

and Other Countries of the Former Soviet Union, 

IMF Occasional Paper, No. 189 

Reisen, H. 1998. Sustainable and Excessive 

Current Account Deficits, OECD Technical 

Papers, No. 13 

Roubini, N., and Wachtel, Paul. 1999. Current- 

Account Sustainability in Transition Economies, 

in: Balance of Payments, Exchange Rates, and 

Competitiveness in Transition Economies, Kluwer 

Academic Publishers, pp. 19-93




INFLATION TARGETING, LONG-RUN INFLATION EXPECTATIONS 

AND THE EFFECTIVENESS OF MONETARY POLICY 

Abstract 

This paper examines the questions whether 

inflation targeting improves the effectiveness 

of monetary policy. Particularly we focus on 

what Mervyn King, the Governor of the Bank 

of England, calls the “Maradona theory of 

interest rates”: if the commitment of the 

central bank to keeping inflation low is 

credible and financial markets expect the 

central bank to change its official interest 

rate in response to various economic shocks, 

the monetary authority can influence the 

path of the economy without making large 

Erika I. GULYAS 

Trinity University, San Antonio TX 

Erika.gulyas@trinity.edu 

257 

moves in official interest rates. In our 

analysis we draw on the experience of the 

United Kingdom, one of the pioneers in the 

adoption of inflation targeting regime and 

emphasize the implications for the conduct of 

inflation targeting monetary regime in 

Eastern European countries (the Czech 

Republic, Poland, Hungary, Romania and 

Slovakia). 

Key words: inflation targeting, credibility, 

monetary policy effectiveness, long-run 

inflation anchor.




Abstract: 

UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT 

TECHNOLOGICAL REGIMES 

HERMAN Radu; 

Faculty of Administration and Business, 


Ph.D. Attendent, Academy of Economic Studies from Bucharest; 

raduhermann@yahoo.com 

This paper attempts to study the firms 

behavior within industries, being influenced 

by the type of analyzed technologies. Different 

author’s proved that certain patterns of firm’s 

behavior form, regarding to a mix of 

opportunities, approach, degree of knowledge 

accumulation and the capacity of learning 

from firms. Evolutionary school paid 

attention to the aspects of firm’s behavior. 

The evolutionary economists believe that 

firms have a certain behavior that can be 

understood with the help of some cognitive 

elements in psychology and the results of an 

evolutionary process that cannot be known 

ex-ante. They have to make different 

strategies in an entrepreneurial technological 

regime (with a low opportunity cost of 

adopting technologies) compared to a 

technological regime for routine (with a high 

opportunity cost of adopting technologies). 

Key words: Technological regimes, Firm 

survival, Technological change, Evolutionary 

perspective, Firm productivity. 

Introduction 

What matter does the paper cover? 

New technologies are shrouded in 

uncertainty and the firms that want to 

implement them and the firms that think in 

the long run will invest in Research and 

Development in order to learn their 

configuration. This is a reason why firms 

258 

need considerable resources so as to adopt a 

technology with a high opportunity cost of 

learning, because there is the risk for the 

firms of not exploiting the results through 

profit. The stock of knowledge on relatively 

old technologies is greater - the opportunity 

cost of adopting known technologies is lower 

- and firms are tempted to think in the short 

run, meaning that they want to exploit the 

technologies faster, through profit. There 

were identified two technological regimes in 

Schumpeter’s books : a regime of creative 

destruction (Schumpeter Mark I) and a 

regime of creative accumulation 

(Schumpeter Mark II). This study aims to 

understand: 

a.Firm’s behavior in the technological regime 

with creative destruction; 

b.Firm’s behavior in the technological regime 

with creative accumulation. 

Why is the studied matter important? 

The study of these aspects shows a great 

importance for an industrial policy maker. 

Taking into consideration the homogeneous 

behavior of all firms - independent of the 

technology used in production - it could 

affect both the firm’s performance at an 

individual level and the level of productivity 

in the industry. Both in empirical studies 

and in real economy can be noticed a certain 

high degree of heterogeneity among firms, 

due to the technology used, to the 

organizational structure, to the human 

capital structure and to the degree of 

exposure to international competition etc. It 

is important to understand the causes that 

lead to a better learning of the configuration 

of technology by some firms in the same 

conditions of the market, which were the 

factors that lead to the improvement in firms

performances, and also how the companies 

act in these conditions. The market decides 

which firm has learnt better, by rewarding it 

through some rents or penalizing it by losing 

the position on the market, or in the worst 

scenario by leaving the market. 

How does the author intend to answer to 

this matter? 

In this study, I will try to show that the 

firms behavior is heterogeneous within 

industries, being significantly influenced by 

the type of analyzed technologies. Although 

uncertainty is present in firms, when the 

behavior of firms is studied within 

technological regimes, certain patterns stand 

out and differ depending on the mix of 

opportunities, approach, degree of 

knowledge accumulation (for a certain 

technology) and on the capacity of learning 

from firms. For these reasons, firms 

behavior is not homogeneous within 

industries but some patters are created and 

those patters can be studied with the help of 

economic instruments. 

What is the relation between the paper and 

the already existent specialized literature? 

Evolutionary school has paid attention to the 

aspects of firms’ behavior. The results of an 

evolutionary process cannot be known exante, 

some mathematical models of 

simulation by evolutionary scenarios are 

being used. Firms have a certain behavior 

that can be understood with the help of some 

cognitive elements in psychology. Firms 

have similar characteristics to human 

beings, they learn about the new 

technologies (concepts being used such as: 

learning by practicing, and learning by 

using) they learn by trial and error and 

sometimes they cannot adapt, sometimes 

they cannot grow in size and they are not 

able to survive the market selection. 

Several studies show that some behavior 

patterns of firms are created when different 

technologies are studied and these patterns 

are called “technological regimes”. 

Researchers structured two technological 

regimes which they called: the regime with 

“creative destruction” and the regime with 

“creative accumulation” (Nelson and Winter 

1982), (Malerba and Orsenigo, 1995). 

259 


Firms face uncertainty and they do 

everything they can to diminish this 

uncertainty. However they have to make 

choices about the type of technology used, 

about the quality of work they wish to 

engage, about the production processes, 

about the distribution system etc. Firms can 

not rank all the alternatives they have at 

their disposal and they can not know the 

effects of these decisions – as claimed by the 

neoclassical economics - because there is a 

high level of asymmetry of information 

regarding the new technologies. Firms face 

economic options on the type of technology 

they wish to implement and the mechanism 

of market selection is the only one that can 

determine ex - post which technology was 

more efficient. In their actions, the 

economists who belong to the evolutionary 

current brought solid arguments in order to 

show that the economic agents are 

characterized by a limited rationality, a 

rationality that is characterized by different 

informational asymmetries from which they 

learn by experimentation and mistake. 

Dosi (1997) defined technology as being a 

“set of knowledge” both “practical” (related 

to some specific problems) and theoretical 

(which could be applied to some contextual 

issues), and he also defined it as being 

created by certain methods, procedures, past 

experiences and physical equipment. 

For these reasons, the results of the 

evolutionary process can not be known exante, 

because there are certain gaps in the 

firm’s stock of knowledge regarding the use 

of certain technologies. In order to reduce 

those gaps, the firms invest in Research and 

Development, experimenting (for example 

the prototypes) with the new technologies. 

Another way of saying this, the firms see in 

some new technologies, some opportunities 

they consider they could capitalize on profit 

and they start to invest financial and human 

resources in order to take advantage of these 

opportunities but only by market selection 

(competitors and consumers) it can be 

decided which investments were opportune 

and which were not. 

Paper content 

In Rosenberg’ s (1982) opinion, technology 

means “certain knowledge which make 

possible the achievement of a greater

quantity of output”, and a higher quality 

output obtained from a certain quantity of 

resources”. From the economic point of view, 

it is certain that when the production 

process is improved, the production costs are 

decreasing and the firms obtain a higher 

profit, while maintaining steady the sales 

prices and the quantity of products sold in a 

certain period of time, ceteris paribus. 

Several empirical studies showed that there 

is a strong connection between the adoption 

of new technology and the increase in firms 

productivity. Firms have a great interest in 

adopting new technologies with a well 

prepared human capital. 

But the adoption of new technology implies 

some theoretical and practical difficulties 

reflected in a combination of “opportunities”, 

“conditions of approach” and “degree of 

accumulation of technological advances”. 

(Malerba and Orsenigo, 1995) 

1.Opportunities 

Clearly, when the firms perceive certain 

opportunities to gain profit they allocate a 

part of the resources to start taking 

advantage of opportunities. Firms perceive 

differently the opportunities of adoption of 

new technologies because of the 

exploitation’s possibilities on both vertical 

and horizontal sides. In order to understand 

how the firms exploit these opportunities, we 

need some elements from the innovation 

theory. Many technologies, for example the 

licenses, cannot be directly transformed into 

production processes because the firms need 

to make some adjustments, which can be 

new for the people and which are simply 

called innovation. Several studies show that 

firms must constantly innovate in order to 

be competitive. For example, supposing that 

a company notices from its studies that a T 

technology can increase its productivity in 

the short run, but the firm does not have the 

stock of knowledge needed in order to adopt 

that technology in an efficient production 

process. If there are two production 

processes available in the market P1 and P2, 

however, a company may choose not to buy a 

license for any process, because from the 

firm’s evaluation those processes are not 

efficient from an economic point of view. The 

company sees an opportunity of adoption of 

new technology in an original way, and after 

this activity, appears another production 

process P3, which represents a 

“technological innovation”. The same 

260 

procedure is valid in the case of obtaining 

“product innovation”. 

In all this process of new technologies 

implementation, the firms accumulate 

knowledge and competence which gives 

them a heterogeneous character. A lot of 

technological opportunities do not appear 

alone, they have to be identified by the 

firms.[….] The innovative capacity consists 

in the identification of the opportunities but 

also in the achievement of new 

combinations, that means combining 

creativity with the existing factors in a more 

efficient way. 

It remains to be discussed which will be the 

sources of generating the opportunities. 

Metcalfe (1995) shows that the evolution of 

an industry is characterized by the 

permanent appearance of technological 

opportunities. There is a stochastic process 

of learning and also a permanent 

modification of the economic structure of 

industry. Technologies are characterized by 

informational asymmetries, and at the same 

time the firms are characterized by limited 

rationality. The industry environment is 

turbulent, it is characterized by the entries 

of new firms which see different 

opportunities of investments but at the same 

time there is a number of firms which leave 

the market because of the fact that they did 

not manage to survive. Audretsch (1991) 

shows that there are certain elements 

related to the sector of analyzed economy, 

that the opportunities vary depending on the 

scale economies, on the capital intensity and 

on the innovation rate of firms. 

To look even deeper, science increases the 

opportunities for innovation and it also 

represents a source of identification of 

opportunities in general. First of all, science 

is the one that provides new possibilities to 

develop the technologies. So, firms that 

invest in scientific research have a better 

understanding of technologies made by 

others and they can develop themselves new 

technologies. A scientific discovery provides 

lots of technological opportunities but firms 

extend more these opportunities when they 

adapt them to their contextual needs. 

Technology is not instantaneous adopted 

within firms and an additional benefit of the 

scientific activity is the certification 

possibility of some innovations which 

increase more the technological 

opportunities. For example, after some 

scientific research regarding the

improvement of some electronic components 

of an audio accessory (seen as a technology) 

it was obtained an audio license which 

represents an accumulation of knowledge 

within the technology of audio equipment. At 

the same time, another company buys that 

license and when the production begins the 

company achieves an innovation of the audio 

equipment, which consists of its 

miniaturization. 

Scientific progress generates a set of 

knowledge that can be used for making new 

technologies and this set of knowledge 

cannot be totally learnt by a company. 

Science provides opportunities of improving 

through market and some knowledge 

generated in firms (not the tacit ones) will 

lead to an increase in the existing set of 

knowledge in an industry. In other words, 

firms that will enter that industry will be 

able to assimilate a part of the technological 

knowledge, but they will not be able to 

encompass the entire stock of knowledge 

because some of them remain tacit in 

companies , in technologies or in human 

capital. The inclusion of knowledge in firms 

that start their activity in these industries, 

implies costs reflected in research and 

development expenditure and in specialized 

staff expenditures. 

So, the distribution of technological 

opportunities for firms is not random, it 

largely depend on: 

1.The characteristics of production activities 

in the firm’s sector. 

2.The distance reflected in the difference in 

the stock of knowledge compared to the 

group of most intensive innovating firms. 

3.The difficulty in assimilating this stock of 

knowledge. 

2.Conditions of approach 

The conditions of approach are the ability of 

innovative firms to internalize gained profit 

from an innovation, and their capacity to 

protect themselves from imitators. 

Many economists consider innovation as 

being a rent. The firms that innovate can be 

exploited through profit. By obtaining a 

more efficient production process, from a 

technical point of view, firms can do various 

adjustments of products sales prices in order 

to obtain a much more bigger market share. 

By reducing production costs, companies 

gain an additional profit because of this 

temporary innovation, but they also gain 

261 

some financial resources that they can invest 

in order to search for other rents. By 

obtaining a product innovation, the firm 

creates a market on a certain period of time 

in which it benefits from an over profit of 

monopoly. In other words, the benefits are 

temporary, influencing the firm’s profits 

through the position it has of monopoly 

renters. But, obtaining these profits signals 

competitors to enter that industry, and some 

will try to imitate that innovation in order to 

have benefits themselves. 

As noted earlier, firms are always in a 

search for opportunities, and these 

innovations are an attraction for their 

investments. The element that makes a 

difference in firm’s inclination to invest in 

Research and Development is the degree of 

exclusion of the innovation. Due to 

knowledge accumulation in an industry 

(referring to a certain technology) any 

technology involves a public good component 

and a private good component. The 

innovative firm is interested in investing in 

Research and Development as a private good 

component in order to hold a larger share. 

As the public good component of a 

technology increases, the firm’s interest in 

spending money on innovation decreases 

more, because the resulting knowledge will 

be easily learnt by the competitors. Most 

technologies have the characteristics of a 

good which is only partially exclusive 

because some components of the technology 

can be imitated, but some knowledge about 

that technology will remain tacit in firms. 

The firm invests more when it does not 

internalize all the benefits obtained through 

innovation, because other firms take 

advantage of its efforts. As the capacity of 

exclusion of an innovation increases (private 

good component) firms gain more and more 

through the benefits brought by the 

investment in Research and Development. 

The license has the most exclusive character 

of an innovation and it guarantees to the 

firm some future commercial contracts from 

a legal point of view, but at the same time it 

stimulates the firms to invest in Research 

and Development. By having a license (legal 

monopoly) firms have a guarantee that they 

will be able to internalize a significant part 

of the profit. In the case of having a license, 

the degree of approach of the benefits 

generated by the investments in research is 

high because the firm can obtain profit with 

low risks.

Dosi, Marengo an Pasquali (2006) defines 

the conditions of approach as being “those 

properties of technological knowledge and 

technical artifacts of markets and of the 

legal environment that permit innovations 

and protect them to varying degrees, as rentyielding 

assets against competitors 

imitation”. In order to reduce the 

uncertainty faced by that firms, some of 

them make a number of internal rules 

(strategies) that they intend to follow. When 

they make the strategies, they intend to 

follow them for a certain period of time. The 

consistent compliance with these strategies 

involves giving up other opportunities and 

because of this, firms search for mechanisms 

through which they can protect their 

innovations, meaning those instruments 

through which they can draw lots of benefits. 

Some instruments through which the 

innovations can be protected, are: patents, 

secrecy, lead time, complementary 

capabilities and learning curves. 

As the firms they try to use simultaneously 

as many instruments of approach as they 

can. Their competitive advantage consists of 

the stock of tacit knowledge about 

technologies, they intend to internalize a 

great part of their improvement. Supposing 

that a firm has a certain license, it buys 

some licenses, achieves a certain innovation 

and engages specialists in this domain, all 

these results will have to be protected 

because of the imitators. The rents obtained 

by having some tacit knowledge are 

temporary and if firms intend to invest in 

competitive advantages, they need to apply a 

mix of measures of approach. The measures 

are some relative costs compared to the costs 

of imitation. The ability to exploit the rents 

in the future increases when there are 

applied the correct measures of approach. 

For the competitors, the process of imitation 

is a costly process because by trial and error 

they have to absorb in an efficient way ( 

from an economic point of view, costs > 

benefits), the stock of tacit knowledge held 

by the innovator. 

So, from the innovator’ s perspective it is 

important for them to have a stock of tacit 

knowledge as high as possible, in order to 

increase the opportunity cost of learning for 

the imitator. We can see that there are 

technologies with a high degree of 

opportunity and technologies with a low 

degree of opportunity for the firms that want 

to adopt those technologies. 

262 

3. Degree of knowledge accumulation 

The conditions of accumulation show in an 

economy the degree in which a new 

technology can be built on an existing 

technology, and in a firm these conditions 

show the innovative firm’s probability to 

continue to innovate. (Malerba and 

Orsenigo, 1995) 

Some technologies, as for example the 

electronic computers provide major 

opportunities for innovation. Within the 

manufacturing industry of electronic 

computers there is an accumulation of 

knowledge and innovations regarding that 

technology but at the same time there is an 

accumulation of knowledge and innovations 

in the firms that develop their activity in 

that industry. After the invention of the 

electronic computer, the uncertainty 

regarding some future investments made by 

firms has diminished, and the firms started 

to search for innovations opportunities in 

this technology, both vertical and horizontal. 

They began to invest in Research & 

Development, in this way starting a process 

of knowledge accumulation. As the stock of 

knowledge in the industry and in the firms 

increases, the number of opportunities for 

future investments is also increasing. The 

knowledge about the new technologies is 

assimilated asymmetrically by the firms. 

But the accumulation of knowledge is not a 

chaotic process of encompassing the 

information into the firm. 

Once the firms start to invest in researches 

for a certain technology, the researches are 

made on certain directions of research 

established within firms and that has as a 

result knowledge accumulation in certain 

research directions. This process can be 

understood with some economic 

instruments, being developed after certain 

patterns. 

Firms behavior in the evolutionary 

perspective 

Evolutionists claim that the economic agents 

have an imperfect agreement regarding the 

environment in which they develop their 

activity and they are in this way 

characterized by a limited rationality 

because of some uncertainties they face. 

Even if they have the same stock of 

information, they want to generate different 

knowledge, this way increasing the degree of 

novelty (innovations) in the economic system

(Hanusch and Pyka 2007). They will discover 

new technologies and new forms of 

organization but as a whole these things will 

be achieved by certain behavior patterns. 

Starting from this assumption, the empirical 

studies researched: 

a. The ways through which firms from 

different sectors learn about the new 

technologies and how they adapt scientific 

progress There are several types of learning 

processes in a firm, depending on the way of 

learning – consistent strategies of learning 

within research laboratories, learning by 

using, learning by practicing and by 

interacting with the clients etc. - some 

patterns of learning can be systematized and 

they can be represented by some “maps”. 

(Dosi, 1997) 

b. The existence of some directions and 

evolution rates of technological changes. 

From several studies there can be noticed 

some relatively ordered patterns of technical 

change in both spaces of input coefficients 

and product characteristics grounded in 

rather invariant, incrementally augmenting, 

knowledge bases, every now and then 

intertwined by major discontinuities in both 

the sources of knowledge and the directions 

of change”. (Dosi, 1997) 

Besides the existence of certain patterns, 

meaning the observed process which is not 

completely random, the evolutionists claim 

that this process is similar to the evolution 

of biological organisms. The evolutionary 

process is dynamic and irreversible and it is 

characterized by periods of radical changes - 

which can be associated with the appearance 

of the revolutionary technologies - but also 

by periods of smooth evolution, which can be 

associated with some known technologies. 

That is why the results of the evolutionary 

process cannot be known ex-ante and that is 

why continuous production functions cannot 

be used for estimating the level of 

production. In order to understand the 

production process, mathematical models 

can be used to simulate various scenarios 

through which some evolutionary maps are 

elaborated. Firms have a certain “ behavior” 

which can be understood with the help of 

some cognitive elements in psychology. As 

the time passes, more knowledge about the 

new technology is accumulated. Economic 

agents have to experiment in order to 

accumulate a stock of knowledge about the 

new technologies and about the environment 

263 

in which they take actions. In the 

competition among firms regarding the 

ability to learn and accumulate knowledge, 

some of them cannot survive market 

selection. The capacity of learning cannot be 

known ex-ante, even if some estimates can 

be made concerning the quality of goods and 

services obtained through the complete 

amortization of the capital. 

A production capital is consumed in several 

production cycles and it can be measured by 

the total flow of services (all harvests) which 

will be brought by its physical use in 

production. This means that the flow of 

services is a physical quantity of products 

(estimated for services) which can be really 

measured through continuous production 

function (the physical quantity of the 

services flow should not be compared to the 

capital value on the market, which vary 

depending on the market prices and on the 

consumers preferences). (OECD manual, 

2001) At the same time, there is a stock of 

knowledge about the technology that is not a 

part of the capital, which is used by firms in 

the production process and which cannot be 

modified with continuous functions. This 

stock of knowledge is the source of the 

technological changes highlighted through 

inventions and innovations which can 

change in a huge proportion the structure of 

the economic activity. Even if coefficients 

can be used to modify the production 

function output, this does not mean that the 

production factors will be proportionally 

influenced. 

The specialized literature of technological 

changes makes a difference between the 

technology that is part of the production 

capital and the technology that is not part of 

the production capital. The encompassed 

technological changes are improvements in 

the quality of the harvest obtained by the 

equipment used in production and a firm can 

benefit from the technological change 

through the acquisition of that equipment. 

The encompassed technology in the capital 

good but also the obtained products are easy 

to follow through market mechanism, which 

represents a system of rewards and 

penalties through a selection from many 

available alternatives. 

The parameters of some production 

functions are easy to estimate, but much of 

the economic significance it is lost because of 

the impact, wrapped in uncertainty, of the 

technological knowledge that is not part of

the production capital. The market is the 

only entity who decides which firm has 

learnt better by rewarding it through 

various rents or penalizing it through higher 

costs or in the worst case by getting it out of 

the market. 

So, firms are forced to learn (learning by 

practicing, learning by using, research and 

development) permanently about 

technologies and about the market turbulent 

environment in order to survive and to 

increase in size; firms learn ‘noisily” and the 

ones that do not manage to adapt are forced 

to leave the market. Due to these aspects the 

market is characterized by entries and exits 

of firms. 

Firms behavior in the technological 

regimes 

Malerba and Orsenigo (1995), identified two 

technological classes that he called 

“Schumpeter Mark I” (or a regime with a 

creative destruction) and “ Schumpeter 

Mark II” (or a regime with a creative 

accumulation ). He associated in his study 

the Schumpeter Mark I model with the 

mechanical industries and traditional 

sectors, and Schumpeter Mark II model with 

the chemical industry and the industry of 

electronic technologies. The author shows 

that the firms innovation pattern differ 

among technological classes, but the 

patterns are the same among countries 

(U.S.A, United Kingdom, Italy, France , 

Germany, Japan ) for each technological 

class. The structure of the two technological 

regimes is given by the mix of opportunity 

conditions, the conditions of approach, 

accumulation and ways of learning in 

companies. Depending on the technological 

regime, firms different behaviors have been 

noticed. Creative destruction regime is 

characterized by high opportunities and low 

approach which favor the entry of new 

innovating firms due to low opportunity 

costs of innovations; at the same time, the 

degree of knowledge accumulation is low in 

the firms, and that is why the innovations do 

not persist in many firms. Creative 

accumulation regime is characterized by 

high opportunities, approach and 

accumulation which allow the increase in 

the stock of tacit knowledge in firms and in 

this way, the increase in persistent 

innovation; at the same time due to the 

increase in the stock of tacit knowledge in 

firms, the innovation opportunity cost for the 

264 

new companies is very high. Research and 

Development expenditure for the 

assimilation of the great stock of public 

knowledge in the industry and for the 

recovery from the gap between them and the 

experienced firms, is very high (Malerba and 

Orsenigo 1995). 

The technological regime of creative 

destruction (called entrepreneurial regime) 

is characterized by “the technology which is 

available to everyone, by the technological 

changes which are a random process made 

by a homogeneous population of firms which 

have a certain probability of exploiting the 

technological opportunities”, where the entry 

and the exit of firms have an important role 

because there is a mechanism that facilitate 

innovation and adoption of new technologies 

leading to a reallocation of resources from 

the less efficient firms to the efficient one. 

(Brusoni, Cefis and Orsenigo, 2006) 

Jovanovic (1982) shows that the entry in the 

creative destruction regime is preferred by 

the small firms because it is a strategy 

through which they minimize losses in case 

of failure, but at the same time they are 

forced to grow in size (scale economies) in 

order to survive for a long period of time. 

Few firms manage to survive in the long 

run, meaning that only a few firms will 

succeed in accumulating a significant stock 

of tacit knowledge. This explains the fact 

that the entry and the exit of firms in the 

market is a process of trial and error. Firms 

do not have the time and the resources 

needed (Research & Development) in order 

to assimilate the stock of knowledge in the 

industry (technology) but neither the critical 

stock of knowledge that can ensure them to 

obtaining rents. That is why they prefer to 

buy new technologies embedded in capital 

and the innovative new firms from an 

entrepreneurial regime are associated with a 

new technology embedded in capital 

(Meaning that a newly founded company is 

innovative if it has bought an equipment 

which has embedded a new technology 

because it did not have time to accumulate 

tacit technologies that are not embedded in 

capital). At the same time, a significant 

number of old firms leave the market when 

new firms are founded, because of the 

obsolescence of technologies embedded in the 

capital of old firms. 

In the technological regime of creative 

accumulation” there is a strong tacit 

component that is specific to individual

firms. Innovation results from the 

accumulation of technological competences 

by a firm. Technological competences specific 

to firms are cumulative, meaning that the 

generation of new knowledge is based on 

what was learnt in the past, and the 

accumulated competences constrain future 

technological performances of the firm. In 

time, the firm’s specific tacit knowledge 

represents entry barriers in that industry. A 

small number of large firms come to 

dominate the market by a stable oligopoly. 

(Brusoni, Cefis and Orsenigo, 2006) In this 

regime, firms invest a lot in R&D in order to 

accumulate a larger stock of tacit knowledge 

and to keep their dominant position on the 

market. That is why the entry rate of new 

firms in this technological regime is 

significantly lower. Technological changes 

and the innovation rate are concentrated in 

a small number of firms and in order to 

obtain an innovation in these industries they 

need a relatively greater volume of 

knowledge, firms having a significant 

comparative advantage in comparison with 

the huge competitive firms and in 

comparison with the small new founded 

firms. Due to great stocks of knowledge in 

the industry, large firms will have a high 

level of entry fixed costs given by the R&D 

expenditures, needed for the recovery from 

the knowledge gap on technologies. The 

opportunity cost of adopting technologies is 

high in this technological regime, that is why 

the decisions of innovation are taken rarely 

because of the significant losses in case of 

failure . 

Conclusions 

Firms have to choose the technological 

regime in which they will develop their 

activity. They have to make different 

strategies in an entrepreneurial 

technological regime (with a low opportunity 

cost of adopting technologies) compared to a 

technological regime for routine (with a high 

opportunity cost of adopting technologies). In 

this way, the behavior of the firm can be 

stated in the two technological regimes: 

1. In the technological regime with creative 

destruction, also known as the 

entrepreneurial regime (or Schumpeter 

Mark I) firms are in general homogeneous 

and they prefer to start their activity as 

small firms because they want to minimize 

their losses in case of failure. In order to 

265 

survive for a long period of time, they have 

to grow fast in size so as to benefit from the 

scale economies. Their entry and exit on the 

market is a process of trial and error. 

Generally, they do not have the time and 

neither the resources needed in order to 

accumulate a critical stock of tacit 

knowledge to innovate, that is why they 

encompass the technical progress through 

the acquisition of production capital which 

include the embedded technology. Firms that 

enter on the market and that have the latest 

technologies eliminate a part of the existing 

firms due to their obsolescence of technology. 

2. In the technological regimes of creative 

accumulation, firms are heterogeneous due 

to the large stock of tacit knowledge they 

possess. Besides the technical progress 

embedded in capital, firms in this regime 

give great importance to the technical 

progress that is not embedded in capital in 

order to keep their dominant position on the 

market and to build solid entry barrier for 

the firms that want to enter the market. The 

firms behavior is a strategic one, in which 

they have the time and they allocate the 

resources needed in the process of deeply 

learning of the existent technologies but also 

in reaching new technologies. The complete 

understanding of technologies is seen as 

some rents for the firms, and for the 

competitors it is a high opportunity cost of 

learning the great stocks of knowledge in 

this domain. 

Future researches can be made on the 

people’s behavior when they intend to sign 

economic agreements. The contract can be 

associated with a technological regime in 

which the people’s behavior and their 

strategies can be different depending on the 

alternatives they have. Within their 

alternatives, they can meet contracts which 

can be associated with a technological 

regime with creative destruction or they can 

encounter contracts which can be associated 

with a technological regime with creative 

accumulation.

This article is a result of the project 

„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. 

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The International Conference on Economics and Administration, Faculty of Business 



ECONOMIC GROWTH, LABOR PRODUCTIVITY AND TECHNICAL 

PROGRESS: THE HISTORICAL LIMITS OF BAUMOL´S UNBALANCED 

GROWTH MODELS. 

ALAIN Herscovici; 

Degree´s Master 

Universidade Federal do Espírito Santo (Brazil) 

alhersco.vix@terra.com.br 

Abstract 

The debate on deindustrialization assumes, 

generally, that domestic industry is a leading 

sector and produces positive externalities for the 

whole economy. This paper will partially refute 

this these. Since the early 1990’s, most of the 

developed and emerging economies have been 

subjected to two paradoxes: the first one, the 

paradox of Solow, which calls into question the 

relationship between ICT investment and 

productivity gains, and the second one, the 

paradox of Gordon, showing that productivity 

gains in the ICT sector do not propagate to all 

other sectors . 

Following both a theoretical and an empirical 

approach, such relationships are analyzed from 

the viewpoint of the various models of unbalanced 

growth built by Baumol, which express the linear 

relationship between growth, technical progress, 

labor productivity and industrial sector. Then, I 

will highlight the limits of such models and I will 

provide elements for an alternative 

explanation. Ultimately, the real problem is to 

investigate the economic nature and the role that 

services, including the various forms of intangible 

capital, may play in the new dynamic of growth. 

Key words: Key-words: Economic growth- 

Intangible capital – Labor productivity- 

Solow´s paradox. 

Introduction 

1)This study aims at examining the problem 

of deindustrialization from the development 

of different forms of intangible capital, i.e. 

the so-called new economy. – mainly 

characterized by the activities related to 

knowledge and information. This paper will 

analyze relationship between technical 

progress, gains in labor productivity and 

economic growth, which most of the 

267 

macroeconomic analyses posit. This involves 

studying the explanatory value of Kaldorian 

cumulative logics used to explain economic 

growth, and questioning the linearity of 

this relationship. 

For this purpose, I will use different models 

of unbalanced growth built by Baumol (1967 

and 1992). These models express, from a 

simple formalization, the linear 

relationships that exist between technical 

progress, productivity gains, and economic 

growth, i.e. they emphasize the crucial role 

of industry in the process of long-term 

growth. I will thus study the macroeconomic 

implications caused by meso and 

microeconomic changes related to the 

production of intangible assets 1 . 

I will show why and to what extent these 

different models can explain the stylized 

facts that characterize the Post-Fordist 

phases of capitalism, especially the Solow 

and the Gordon’s paradoxes 

(Nordhaus, 2002). The first one emphasizes 

the fact that the increase of investments in 

Information Technology (ICT) does not 

correspond to an increase in labor 

productivity, the second one claims that 

about half of productivity gains is performed 

in the producing ICT. 

2)From a theoretical point of view, the 

deindustrialization allows identifying two 

problems: one concerns the methods of value 

added creation, and the other regards the 

level of employment and income distribution 

that matches it: 

3) In the first part, I will analyze the 

feedback model built by Baumol and Bowen 

(1992), which explains the mechanisms from 

which technical progress is endogeneized, 

1 See Herscovici (2009).

and confront the theoretical results derived 

from this model with the stylized facts that 

characterize the current phase of capitalism. 

In the second part, I will highlight the limits 

of such explanation and propose an 

alternative analysis, based on a 

reformulation of these macroeconomic 

relations. 

I) Baumol's analysis: the different 

models of unbalanced growth 

1) The endogenization of labor 

productivity gains 

1.1 The extension of the 1967 model 

Baumol uses the results of the 1967 model, 

and writes the following equations: 

y1 = cL1e rt , y2 = bL2 (1) 

AC1 = wL1/y1 = w/c.e rt 

and AC2 = wL2/y2 = w/b (2) 

w/b 

AC2/AC1= _____ = c.e rt /b (3) 

w/c.e rt 

yi represents the production of sector i, w the 

wage rate, Li the amount of labor used by 

sector i, b and c positive constants; ACi 

represents the unitary (or average) cost 

evaluated in labor. Index 1 relates to the 

productive sector, index 2 relates to the 

unproductive sector, and index 3 to the 

asymptotically stagnant sector. 

In this model, Baumol considers that w 

represents the average wage rate practiced 

(1992, p. 245), so unlike the 1967 model, the 

increase in wage rate is no longer indexed to 

the productivity increase taking place in 

the productive sector. 

Baumol will add a third sector, the 

asymptotically stagnant 

sector, characterized by the fact that it uses 

inputs from the other two sectors, in 

constant proportion (Baumol and Wolff, 

1992, p. 251): 

y13/y3 = k1, y23/y3 = k2 (4) 

268 

The average cost of production of this sector 

is equal to: 

AC3 =k1 C1 + k2 C2 = k1. w/ e rt + k2. w/b 

(5) 

AC3 ≈ k2. w/b, when t →∞ 

The changes in the average cost of sector 3, 

asymptotically stagnant, are the same as 

those of the stagnant sector. Thus, from the 

moment that in certain activities there is a 

stagnant and a productive component, over 

time, the costs of this sector tend to evolve as 

the costs of the stagnant sector. This 

evolution is explained as follows: while the 

fall in the cost of input coming from the 

productive sector offsets the increasing cost 

of unproductive input, the average cost 

decreases. However, there will necessarily be 

a point in which the cost of productive input 

gets close to zero, while the cost related to 

the unproductive component continues to 

increase indefinitely with time. From this 

point, the costs of the asymptotic sector 

evolve the same way as the costs of the 

unproductive sector. 

AC3/AC1 ≈ k2 / b. c e rt 

(6) 

The study of industries that use these two 

types of inputs illustrates this trend: in the 

case of the computer industry, the costs of 

hardware, i.e. the productive component, 

decrease while the costs of software, labor 

intensive, increase. The labor costs increase 

in terms of total costs, which is explained by 

the presence of a stagnant 

component. Similarly, in television activities, 

while the relative weight of technical costs is 

decreasing (broadcasting), the costs of 

programs increase, following the logic of the 

stagnant sector (Herscovici, 1994). In short, 

we can conclude the following: (a) the 

differential cost between soft and hardware, 

increases with time, because the programs 

are labor intensive (b) in the long term, the 

total cost of this sector will evolve in the 

same way as the cost of the stagnant sector. 

1.2 The model with feedback and 

endogenization of labor productivity gains 

Then, Baumol will relax the hypothesis in 

which the relative share of inputs of sector 3 

is constant (k1 and k2 constants). He will

also assume that the sector of Research and 

Development (R&D), which “produces” 

technical progress, can be assimilated to a 

stagnant industry, and that its production 

depends on the price elasticity of demand 

from other sectors. Finally, the mechanism 

that he constructs implies that the gains in 

labor productivity are determined 

endogenously. 

Yi = fi (Y) Ci-Ei (7) 

Yi represents the production of the sector i, 

and Y the total output;-Ei represents the 

price elasticity of demand of sector i. 

Equation (7) means that, for a short time, 

the income effect can offset the price effect 

regarding the increased demand of sectors 2 

and 3. 

The value of the expenditures on goods of 

sectors 1 and 3 can be represented by the 

following equation: 

Value of y3 AC3.y3 AC2 y3 

_________ = ____ _ ≈ _____ . ____ 

Value of y1 AC1. y1 AC1 y1 

k2 Ce rt y3 

≈ ______ . ______ (8) 

b y1 

Equation (8) shows that when t increases, 

y3/y1 has to decrease; the production of 

sector 3 increases relatively less than the 

production sector 1. Thus, in the neoclassical 

tradition, there is perfect substitutability of 

factors of production, according to their 

relative prices. 

rt represents the rate of growth of labor 

productivity outside the R&D sector; y3, the 

production of R&D; and p3, the price of 

R&D. 

rt+1 = a + by3t (9) 

Productivity, on the whole economy, depends 

directly on the production of R&D, with a 

one-period lag. 

p3t+1-p3t/p3t = vrt+1 (10) 

The production of R&D, which Baumol calls 

Information, is a labor-intensive activity. 

Consequently, the labor costs and the prices 

269 

depend directly on the productivity gains 

achieved in the rest of the economy. 

Finally, prices are determined from the labor 

costs. The function of demand for 

information is as follows: 

y3t+1 - y3t/y3t = -E (p3t +1 - p3t) / p3t(11) 

The demand for information depends 

directly on the price of this information, and 

the elasticity price of demand for 

information is negative. 

From (9), (10) and (11), we can write: 

y3t+1 = y3t(1 – E.v.a) – E.v.b.(y 2 3t) (12) 

Depending on the value of the parameters, 

equation (12) shows that the evolution of 

information production, i.e. y3t can become 

chaotic (Baumol and Wolff, 1992). From 

equation (9), we can deduce that these 

oscillations produce oscillations of 

y3t. Therefore, it can be assumed that 

economic growth depends on the growth of 

labor productivity. These changes in the rate 

of productivity growth correspond to parallel 

changes in the rate of GDP growth. 

The mechanism of feedback produces these 

endogenous fluctuations: the increase in the 

production of information is reflected by an 

increase in labor productivity in the whole 

economy (equation 9). In turn, this increase 

in productivity of the economy will increase 

the prices of information (equation 10), 

which leads to a drop in demand for 

information (equation 11). From there, the 

same mechanisms operate in 

reverse. Regarding the 1967 model, there is 

an effective endogenization of the growth 

rate of labor productivity. Nevertheless, it is 

important to note that the possibility of the 

system to endogenously generate fluctuations 

and to become chaotic comes from the fact 

that the price elasticity of demand for 

information is negative. 

2) Baumol’s analysis versus Solow and 

Gordon’s paradoxes? 

2.1 The localized effects of technical progress 

Table 1 highlights the fact that 

approximately half of the factor productivity 

gains take place in the ICT sector. These 

data confirm the analysis of Gordon (2000):

contrary to Baumol’s model, the sector that 

produces the technological innovation is not 

asymptotically stagnant. Rather, it performs 

half of the productivity gains of the entire 

economy. At this level, the problem is to 

study the nature and impact of aggregated 

externalities produced by the ICT sector. 

Table 1: Contribution of different sectors to 

the growth of total factor productivity (in% 

per year for the U.S. economy) (in 

attachments) 

2.2 The externalities generated by technical 

progress 

i) The data in Table 2, underscore the fact 

that ICT does not generate positive 

externalities to manufacturing 

activities. Instead, this type of correlation is 

found with regard to service activities. 

ii) In the ICT sector, it is already possible to 

observe a dichotomy between the industries 

of material (hardware) and services. The 

component connected to the production of 

hardware performs important labor 

productivity gains, but it generates little 

value. On the other hand, the stagnant 

component performs smaller productivity 

gains, but represents a greater relative 

share of GDP. This may explain the 

nonlinear relationship that exists between the 

growth rate of labor productivity and the 

growth rate of GDP (Table 3). 

Table 2: The global effects of technical 

progress (in attachments) 

The observation of these data allows us to 

formulate some questions: 

i) The role of ICT-using services is essential 

to explain the gains in labor productivity: 

they are large network services used as 

inputs and that generate externalities whose 

social and geographical appropriation 

modalities are highly differentiated. 

ii) One of the main macroeconomic 

consequences is that the sectors related to 

ICT cannot not be regarded as a leading 

sector (in the Schumpeterian sense), which 

can promote a new long phase of 

expansion. Their potential in terms of 

increase in labor productivity and GDP 

growth rates depends on the nature of the 

270 

externalities they generate, on the forms of 

appropriation of these externalities, and on 

the IPR system that currently limits these 

types of appropriation (Herscovici, 2007 ); 

iii) In Fordism, the spillover effect of 

technical progress was related mainly to the 

industrial and manufacturing activities. In 

contrast, post-Fordism is reflected by a 

change in the nature and role of service 

activities, a decrease in industry weight, and 

a change in the nature of technical progress 

and in its modalities of propagation. 

As shown in Table 2, the increase in 

productivity in the industry can be conceived 

as an autonomous technical progress, a 

process which does not depend directly on 

ICT. 

Table 3 Economic growth and growth of 

labor productivity: the case of the United 

States (in% per year). (in attachments) 

The nature of the externalities generated by 

this type of technical progress and their 

potential effects in regard to economic 

growth depend on the following factors: 

i) The IPR system and the limitations its 

modification imposes in terms of social 

appropriability are reflected by a small 

impact of the externalities produced by 

technical progress (Herscovici, 2007); 

ii) the institutional variables, as conceived in 

the regulationist or the neo-schumpeterian 

approach, have an important role: they 

define the specific ways employed to 

endogeneize externalities and the different 

effects of technical progress. 

Consequently, as shows table 3, with regard 

to these qualitative evolutions, it is not 

possible, anymore, to build, in a 

macroeconomic level, a linear relation 

between the growth of labor productivity and 

the DGP growth. 

2.3 The historical limits of the Baumolian 

models 

2.3.1 The R&D sector does not produce 

private commodities – these commodities 

must be conceived as public goods. As such, 

they are neither rivals nor exclusive: (a) the 

indivisibility of consumption is reflected by 

the fact that they can be consumed in their 

entirety by various economic agents 

simultaneously; (b) They produce positive 

externalities, and may be appropriated by 

agents who do not pay for the right to use

them (Arrow, 2000). In this respect, the 

theories of endogenous growth emphasize 

this specificity. 

Given these characteristics, it is not possible 

(a) to establish a linear relationship of 

inverse proportionality between price 

changes and decrease in quantity demanded 

(b) or between the amount "produced" and 

the aggregated effects. Thus, the 

mechanisms that correspond to the 

endogenization of r and Baumol’s feedback 

relationship are not enforced. 

2.3.2 There have been major changes in the 

forms of competition and in the economic 

nature of goods and services: competition is 

no longer price competition, but quality 

competition. In this regard, some economists 

conceived it as variety competition (Pascal 

Petit, 2005). Attempts to incorporate 

qualitative components in the construction 

of aggregates goes in the same direction 2 . In 

a more general way, the relationship between 

costs and prices is not decisive concerning 

competitive dynamics.This contradicts the 

whole architecture of the different models 

built by Baumol. 

2.3.3 Contrary to the hypothesis adopted by 

Baumol, expenditures on R&D commodities 

and service factors are not substitutable. In 

terms of industrial organization, these costs 

represent a means to build barriers to entry, 

and they are irreversible. Ultimately, the 

presumed reversibility of these expenditures 

meets the conditions for formulating the 

contestable markets, notably, the absence of 

sunk costs. 

2.3.4 Finally, in regards to the modification 

of the IPR system and the income 

distribution modalities, the labor 

remuneration that produces innovation, i.e. 

information, is directly linked to rentier 

logic, and not to a wage one. The 

"information and knowledge economics" is 

characterized by the increasing socialization 

of knowledge production, according to the 

cumulative character of this type of 

production.. 

The economic valorization of such production 

is particularly uncertain, in the sense that it 

is not regulated from a logic of costs, 

whether it is in terms of equalization 

2 Hedonic prices, for example, and all the tentative 

in term of price and quantities, to incorporate 

qualitative indicators. 

271 

between marginal cost and marginal 

product, or in terms of labor costs. So, this 

invalidates Baumol’s assumptions once 

again. 

II) Elements for an alternative analysis 

1) Some historical and methodological 

remarks 

In industrial capitalism, the creation of 

value, or wealth, can be explained by the 

social labor applied to the production of 

commodities. Economic growth is 

measurable and depends directly on the 

gains in labor productivity. Unlike in the 

post-industrial capitalism, the historical 

forms of creation and appropriation of value 

have changed: the production of wealth, 

more specifically in the form of knowledge 

and information, is highly socialized. It is 

not possible to quantify the amount of direct 

and indirect labor required to produce a 

particular good or service. 

The increased use of information and 

knowledge in the different services and 

products and in the different production 

processes result in a heterogeneity of labor, 

in a diversification of supply and its 

qualitative characteristics, and in a 

segmentation of the demand. 

i) The GDP, in the way it is currently 

conceived, is no longer able to measure the 

wealth produced. The qualitative component 

is underestimated. According to some 

assessments, the production of the 

immeasurable sectors represents 70% of 

total production (Griliches, 1994). The 

measure of labor productivity is the object of 

the same type of distortion. 

ii) Given the heterogeneity of the different 

labor processes, it is no longer possible to 

establish a linear relationship between 

productivity gains and output growth (see 

table 3).In this respect, it is interesting to 

note that the very methods of income 

distribution have changed: 

(a) due to a lack of definition of the objects 

on which the IPRs act (Herscovici, 2007), it 

is no longer possible to assimilate the income 

from production factors to its contribution to 

product, as defined by the traditional 

neoclassical framework. 

(b) On the other hand, Kaldor’s logic is not 

verified: the growth of output is not 

necessarily reflected by an increase in global 

productivity. On the contrary, as shown by 

the different statistical data, technical

progress and increased labor productivity 

are limited and do not spread to all the other 

sectors. 

In regards to the heterogeneity of the 

different factors of production, especially 

capital and labor, we can observe changes in 

the modalities of income distribution: the 

relative share of non-wage income in GDP 

(financial capital, monopoly rents associated 

with ownership of IPR) increases in all 

countries. 

Ultimately, we need to place the problem 

concerning value creation, as highlighted in 

the hard-software dichotomy (see Table 2). 

Value creation is not implemented in 

industrial production, but in the production 

of intangible commodities. This enables us to 

provide a different interpretation of 

deindustrialization: the decreasing weight of 

industry in GDP cannot be explained by the 

decrease in industrial activity in itself, but 

from the fact that the average value created 

in this sector is decreasing. The increase in 

production volume does not correspond to a 

relative increase in the value thus created 

(Oreiro, op. cit, p. 2). 

2) An alternative formalization 

2.1 The hypotheses 

We will consider the following three sectors: 

sector 1 is the stagnant sector in the sense 

defined by Baumol; sector 2 is the industrial 

sector (excluding the production of 

hardware), and sector 3 is the one that 

produces the ICT goods and services. 

Hypothesis 1: There is an autonomous 

technical progress, which is translated into 

an increase in labor productivity in sectors 2 

and 3. 

Hypothesis 2: The goods and services of 

sector 3 are public goods. 

The economic implications are the following: 

(a) the presence of externalities means that 

there is not an inverse relationship between 

price changes and changes in the amounts 

demanded; (b) the cost structure is such 

that average costs decline with consumption 

and that marginal cost is decreasing – prices 

are not determined by costs. 

272 

Hypothesis 3: Depending on the dynamics of 

the markets, the costs of R&D are 

irreversible. It is not possible to substitute 

the investments in R&D by other factors of 

production. At a microeconomic level, this 

hypothesis corresponds to the complexity of 

assets, or to an increased 

endogenous specificity of these assets 

(Saussier, Yvrande-Billon, 2007). Such 

investments are irreversible (Williamson, 

2002). 

Hypothesis 4: the competition takes place 

partly out of prices 

Hypothesis 5: The valorization of goods and 

services of sector 3 is random. 

We cannot build a production function in 

which the amount produced depends on the 

quantity of labor used. Labor is not 

homogeneous, and the randomness of 

valorization does not permit such a linear 

relationship. 

Hypothesis 6: The growth rate of wage is 

determined by the average growth rate of 

labor productivity across the entire economy, 

r; only part of the productivity gains are 

passed on to wages. Moreover, the relative 

share of wages in GDP decreases, to the 

benefit of financial gains, profits and income 

related to intellectual property and 

innovation. 

2.2 The relations of the model 

2.2.1 The functions of production 

Y1t = a L1t (1) 

Y2t = b L2t e r2t (2) 

Y3t = c L3t e r3t /Ω (3) 

ri represents the growth rate of labor 

productivity in sector i, r represents the 

average growth rate of labor productivity in 

the economy, and Ω, the random component 

on the valorization of output of sector 3. A 

series of industry studies show that the 

randomness of valorization is part of the 

strategies developed by different actors and 

is translated into an over-cost and/or an 

underproduction (Herscovici 2009, Nelson 

2003).

2.2.2 The evolution of costs 

Supposing that xi, yi and zi represent the 

technical coefficients of each sector, i.e. the 

amount of inputs that come from 1, 2 and 3. 

The average costs are as follows: 

We rt (L1t + y1L2t + z1 L3t) 

C1 = __________________________ (4) 

a.L1t 

We rt ( L2t + x2 L1t + z2 L3t) 

C2 = ___________________________ (5) 

b. L2t.e r2t 

W e rt L3t/Ω 

C3 = ____________________________ (6) 

c. L3t e r3t . n 

n represents the number of consumers, the 

production of knowledge and information is 

characterized by the fact that the average 

cost decreases with the number of 

consumers. 

C1 increases with time, as shown in 

equation (4). The evolution of C2 depend on 

r2; if r2 is greater than or equal to r, C2 

decreases or is constant. 

Following the analysis of Gordon, we have 

r3t > rt, consequently, C3 decreases. This 

decrease can be offset by an increasing 

randomness from Ω, and this is necessarily 

translated into an increase in transaction 

costs (Herscovici, 2009). 

we rt [L3t/ Ω ] 

C3/C1 = ______________ 

c. L3t e r3t . n 

a.L1t 

x _____________________ (7) 

we rt (L1t + y1L2t + z1 L3t) 

At the aggregate level, if the increase in Ω is 

less than er3t, C3/C1 decreases. 

The value of Y3/Y1 = 

Y3/Y1. C3 / C 1. (8) 

If the second term on the right decreases, 

the first one has to increase, so Y3/Y1 

increases. 

273 

2.2.3 The relationship between the 

production of information and productivity. 

The characteristics of public goods of 

Information and Knowledge do not allow 

establishing (as does Baumol) a linear 

relationship between (a) the variation in 

prices and demand information, or (b) 

between the production of information and 

increased productivity in 

all economy. Externalities and their modes 

of internalization based on the definition of 

the IPR system, represent a key variable. 

Thus, the more open the IPR system, the 

greater the aggregate effect of these 

externalities, and the higher the growth rate 

of labor productivity (Nelson, 2003). 

The fact of considering that, in sectors 2 and 

3, the technical progress is autonomous 

shows clearly that (a) contrary to the 

analysis of Baumol, the technical progress is 

not endogenous; (b) there is not a linear 

relationship between the production costs of 

this technical progress and production of 

innovations; and (c) due to the fact that the 

technical coefficients are constant, the price 

of innovation does not explain the level of its 

demand. 

2.2.4 The determinants of growth in overall 

productivity of labor 

We can define different forms of technical 

progress in relation to gains in labor 

productivity (Nordhaus, 2002, p. 215). 

i) an autonomous technical progress, defined 

in an exogenous way, i.e. outside the model. 

ii) The Baumol effect, i.e. the relationship 

between the growth of productivity gains in 

the sector and its relative share in total 

product. If the relative share of sectors with 

low (high) productivity increases with time, 

global productivity gains of the economy will 

decrease (increase), as well as output 

growth. This mechanism corresponds to the 

model of 1967. 

iii) An effect that measures the variation in 

productivity from the relative weight of 

inputs, i.e. an induced effect. This effect can 

be induced from a decrease in the value of 

inputs and/or the modes of internalization of 

externalities produced by these inputs. 

With regard to industry, technical progress 

is largely autonomous. There is no 

correlation between the use of ICT and

changes in labor productivity. The 

comparison between the EU and U.S. shows 

clearly that the Baumol effect was negative: 

a lower relative weight of industry accounts 

for a positive differential in productivity. 

Concerning services, the induced effect 

explains the productivity gains and the 

Baumol’s effect – the component that uses 

ICT sees its productivity increase as well as 

its relative weight. 

Thus, the impacts of the new economy on 

productivity are twofold: (a) an autonomous 

and intra-sectorial technical progress 

deriving from the Baumol effect; (b) the 

technical progress that has induced a 

positive effect on the services. 

These data demonstrate that the Baumol’s 

effect (disease costs) has reached its limits. 

The sectors whose share of the GDP 

increases are those who have the biggest 

increases in the labor productivity growth 

rate (Nordhaus, 2002, p. 228). The sector of 

services now partially internalizes the 

externalities produced by the technical 

progress. This can be explained both by the 

changing nature and function of this sector 

and by the changing nature of technical 

progress. 

r = Ф (ri, yi/GDP, δij/yi) (10) 

ri represents the autonomous technical 

progress of sector i; yi/GDP represents the 

relative share of that sector in total output; 

and δij/yi represents the technical progress 

induced by the use of inputs that come from 

industry j, or the externalities generated by 

this sector. This approach is fundamentally 

different from Baumol’s analysis. (a) part of 

the technical progress that is reflected in an 

increase in labor productivity is determined 

regardless of knowledge production; (b) the 

increase in global productivity can be 

partially explained by labor productivity in 

the ICT sector; and (c) the global 

productivity depends on the effects induced 

in different sectors and on their relative 

weights. 

According to some assessments during the 

period, the new economy would be 

responsible for one third of the total increase 

in productivity (Nordhaus, 2002, p. 229). 

This can be explained by the relative 

weakness of the ICT sector and the impact 

limited to 26 % of GDP. Thus, two thirds of 

the productivity gains are related to 

exogenous technical progress. 

274 

Technical progress can be compared with the 

Schumpeterian grapes innovations, as they 

are determined in an exogenous 

way. Nevertheless, the pivotal role of these 

sectors is questionable. The weight of the 

dynamic sectors in the GDP accounts for 

only a little over 30% and the modes of 

internalizing externalities are highly 

selective. 

Finally, the productivity gains achieved in 

the new economy seem limited. The average 

productivity gains are not more important 

than those that characterized 

Fordism. Moreover, the relative share of the 

component that experiences the highest 

productivity gains (hardware) is a weak part 

of GDP, while the stagnant component 

represents a twice as important relative 

part. This can be explained by the specific 

modalities of valorization of knowledge 

production ("logic of prototype"), and it 

emphasizes the limits of the new economy as 

a source of productivity gains in the long 

term. 

Conclusion 

In light of the macroeconomic modifications 

produced by the development of this "New 

economy", one could say that the industry 

can no longer be conceived as a leading 

sector. Thus, it does not produce a 

cumulative causation able to sustain a longterm 

growth. This type of analysis is no 

longer able to explain the current phase of 

the capitalist economies. They do not 

incorporate the major changes relating to 

methods of production, to modalities of 

appropriation of technical progress, and to 

its economic nature. 

The mechanisms used to build these models 

are characteristic of fordism fase: (a) 

demand growth is overall implemented by a 

redistribution of productivity gains for labor; 

(b) a large and undifferentiated 

appropriation of the externalities produced 

by technical progress, based on a relatively 

open IPR system; (c) in the sphere of nondifferentiated 

offers, competition takes place 

on a price basis. 

Today, changes in the nature of productive 

labor, of the externalities generated by 

technical progress, of modalities of 

competition, and of valorization allow us to 

question the explanatory value of economic

growth models and tools built for measuring 

the main economic aggregates. This type of 

problem highlights the lack of linearity 

between the different aggregates, the 

difficulty in building these aggregates, and 

the historicity of the methods used to 

construct such models. 

Bibliography 

Ark B. van , Inklaar R and McGuckin R, 2002, 

“Changing Gear”, Productivity, ICT and Services 

Industries: Europe and the United States, 

Research memorandum GD-60, Groningen 

Growth and Development Center, December 

Arrow K, 2000, " De la rationalité de soi et des 

autres dans un système économique", Théorie de 

l´Information et des organisations, Edité et 

présenté par Thierry Granger, Paris, Dunod, 

2000: 233-50. 

Baumol W., 1967, "Macro-economics of 

unbalanced growth: the anatomy of urban crisis" , 

American Economic Review, 6/1967. 

Baumol W., and Edward N. Wolff, 1992, 

"Feedback Between R & D and Productivity 

Growth: A Chaos Model", in Cycle and Chaos in 

Economic Equilibrium, Jess Benhabib, Princeton 

University Press. 

Gordon R., 2000, “Does the New Economy 

Measure up to the Great Innovations of the Past”, 

Journal of Economic Perspective. 

Griliches, Z., 1994. “Productivity, R&D, and the 

Data Constraint.” American Economic Review 84, 

no. 1 (March): 1-23. 

Herscovici, Alain, 1994, Economie de la Culture et 

de la Communication. 1. ed. Paris: L'Harmattan. 

----------------------, 2007, Capital intangível e 

Direitos de Propriedade Intelectual: uma análise 

institucionalista. Revista de Economia Política, 

São Paulo, v. 27, p. 54-76, 2007. 

----------------------, 2009, Économie de la 

connaissance, Droits de Propriété Intellectuelle et 

coûts de transaction : limites des procédures de 

négociation privée et modalités de régulation 

alternatives.. In: Forum de la régulation, 2009, 

Paris. Actes du Forum, 2009. 

Nelson R., 2003, The Market Economy, and the 

Scientific Commons, Laboratory of Economics and 

Management, Sant’Anna School of Advanced 

Studies, Pisa, Working papers Series n.24. 

Nordhaus William, D, 2002, Productivity Growth 

and the New Economy, Brookings Papers on 

Economic Activity, Vol. 2002, No. 2. (2002), pp. 

211-244. 

275 

Oliner and Sichel, 2000, The Resurgence of 

Growth in the Late 1190s: Is Information 

Technology the Story, Federal Reserve Board. 

Oreiro,JoséLuis,2009, esindustrialização: 

conceituação, causas, efeitos e o caso brasileiro, 

acessed in 25/01/2010: 

http://jlcoreiro.wordpress.com/2009/12/22 

/desindustrializacao-conceituacao-causas-efeitose-o-caso-brasileiro/. 

Petit, Pascal, 2005, Croissance et richesse des 

nations, La Découverte, Paris. 

Saussier Stéphane, Anne Yvrande-Billon, 2007, 

Économie des coûts de transaction, La 

Découverte, Paris, 2007. 

Williamson Oliver E, "The Theory of the Firm as 

Governance Structure: From Choice to Contract", 

Journal of Economic Prospectives – Volume 16, 

Number 3 - Summer 2002 (2002): 171-95.

Attachments 

Table 1: Contribution of different sectors to the growth of total factor productivity (in% per 

year for the U.S. economy) 

Global factors 

1974-1990 1990-1995 1996-1999 

Growth productivity 0,40 0,57 1,25 

- Computers 0,12 0,13 0,22 

- Semiconductors 0,08 0,13 0,41 

- Other sectors 0,20 0,30 0,62 

Olinet and Sichel (2000) 

Table 3 Economic growth and growth of labor productivity: the case of the United States 

(in% per year). 

DGP growth Growth of labor 

productivity 

1975-1982-2 3,0 0,7 

1982-3 1990-4 3,7 1,6 

1991-1-1999-4 3,5 2,0 

A partir de 1995 4,2 2,6 

Digital Economy, http://wwww.commerce.gov 

276

Table 2: The global effects of technical progress 

Labor productivity growth % GDP 

1990-95 1995-2000 (2000) 

EU US EU US EU US 

Total Economy 1,9 1,1 1,4 2,5 

ICT using 

Industrys 3,1 -0,3 2,1 1,2 5,9 4,3 

Non ICT using 

Industry 3,8 3,0 1,5 1,4 11,9 9,3 

ICT using 

Services 1,1 1,9 1,4 5,4 21,1 26,3 

Non ICT using 

Services TIC 0,6 -0,4 0,2 0,4 44,7 43,0 

ICT producing 

industry 11,1 15,1 13,8 23,7 1,6 2,6 

ICT producing 

services 4,4 3,1 6,5 1,8 4,3 4,7 

From van Ark B., Inklaar R and McGuckin R, 2002 and personal elaboration 

277




COMPETITIVENESS - CONCEPT and METODOLOGY 

Authors : Nicoleta Hornianschi 

hornianschi@yahoo.com 

JEL CLASIFICATION P27 - competitive advantages, measurement, methodology,ITC 

Abstract : The approach to the procedures of 

measurement of competitive advantages both at 

the industrial sector level and at the company 

level is justified by the fact that some tools and 

forms of expression of competitiveness are valid 

for the two levels. Industry (as industrial 

sector) in defined as total number of producers 

of identical and replaceable goods services; 

what is true for a company is also true for an 

industry. 

Most of the studies designed to 

competitiveness, published in the last years 

combine the problem of external balance with 

the internal performances, enunciating some 

definitions like “growth without trade 

imbalances” (Competitiveness Policy Council, 

1994, Schumacher et al., 1995). The World 

Economic Forum, at Geneva and the Institute 

for Management Development in Lausanne 

use a few hundred objective and subjective 

indicators in order to estimate if a country 

creates, proportionally, more income, from the 

participation on the world market, than its 

competitors. All these approaches regarding 

the competitiveness of a country have in view 

to find a comprehensive definition which shall 

connect the competitiveness to the final 

objective of the economic activity, respectively 

the maximization of welfare 

The works on competitiveness elaborated on 

national plan (CNS, 1990; Dăianu, 1992; 

Hornianschi 1994, 1998; Voiculescu D., 

Mereuţă C., 1998, Iancu A, 1999; Hornianschi 

and collective 1999; Iancu, A, 2000; Russu C, 

2001; Cojanu V. 2001 etc.) and, especially 

those existent ion international plan (see 

bibliography) can be divided in three distinct 

categories, according the entity at whose level 

there is concentrated the analysis, namely: 

278 

firm competitiveness, industry(industries) 

competitiveness, or competitiveness of nations. 

The studies on competitiveness of nations 

(“competitiveness of nations” or “country 

competitiveness”) started in the ’40 years. The 

most representative work in the field is the 

commercial flow theory (Ohlin, 1952; Leontief, 

1953) which has its roots on the classic 

ricardian theory of the comparative 

advantage. The comparative advantage 

theory which argues that the endowment with 

factors of a nation determines its enhanced 

competitiveness as compared to other nations 

has been outclassed long time ago, falling into 

desuetude due inclusively to the economic 

realities that infirmed it. It cannot explain a 

situation seen by everybody today: globally 

there are many resource-rich countries but 

with a poor economy and vice versa. In the 

present world where the raw materials, the 

capital and even the labor force are mobile, 

becoming thus transnational, endowed with 

factors, it cannot determine alone the 

enhanced competitiveness of nations. 

The main objective of the project aims the 

elaboration of a national model for the 

formalization and the evaluation of the 

competitive advantages of the Romanian 

sectors and enterprises and the application of 

the model for a strategic positioning of the 

Romanian companies on the national and 

European market. The work intends also to 

identify the directions for an optimal 

capitalization of the competitive advantages of 

the Romanian enterprises and the 

consideration of the most efficient ways for 

creating new competitive advantages and 

conquering new markets. This approach 

includes logically the evaluation of wages and 

productivity, as well as the evaluation of the 

social and environmental standards that may

influence the competitiveness level. 

Many authors of some reference works in the 

field of competitiveness presume, implicitly, 

that as regards the competitiveness, at the 

level of the company the dispute is settled. The 

companies that survive are competitive, and 

those who come out the market are not. But, 

in reality, the companies exist and act in very 

various cost, technology and profit rate 

conditions (see Aiginger and Pfaffermayr, 1997 

and the specialty literature regarding the 

persistence of profit differences). Some 

companies settle equal prices with medium 

costs, other amplify their innovation or the 

monopoly rent. One may ask: is this second 

group of companies more competitive than the 

first? A middle way between the two extremes 

has been proposed in the framework of an 

American report (President’s Commission on 

Industrial Competitiveness Report, USA, 

1985): a company is competitive if it is able to 

produce goods and services of superior quality 

or with lower costs as compared to its internal 

or external competitors. Taken ad literam this 

“statement” contains also the implicit 

assertion that the company found at a medium 

level, from quality and costs point of view is, 

by definition, uncompetitive. 

It is, also, a series of authors who deny 

the importance of this concept, especially for 

the economic areas with free fluctuation, of the 

exchange rate (Cooper, 1961; Suntum 1986) 

and evidently, this happens because there 

are not incomes that may be lost due to the 

external balance deficit, in a world with a 

mature market. Here the prices and the 

incomes always adjust, the resources are used 

completely and the balance of payment 

equilibrium is stable. Even certain political 

men and empirical authors who accept the 

existence, on medium term, of a trade balance 

disequilibrium as a predictable fact are 

diminishing from various reasons the 

importance of this problem. 

All these approaches regarding 

competitiveness of nation propose to find a 

comprehensive definition which shall connect 

the competitiveness to the final objective of the 

economic activity, respectively the 

maximization of welfare. 

The second perspective on competitiveness 

focuses at the level of the companies (Chandler 

279 

1990); Womach et al. 1990). The fundamental 

argument is that at the level of the nation the 

competitiveness is generated by the internal 

companies, so that the specific factors of the 

companies that lead to competitiveness should 

be identified. The specialists in strategy and 

international business are trying to analyze 

the competitiveness determinants from this 

macroscopic perspective. For example, one of 

them focuses on the comparative study of the 

Japanese and American companies, trying to 

identify the problems in the case of the 

American ones and the advantage sources, in 

the case of the Japanese ones. The results are 

suggesting that the American companies are 

disadvantaged as compared to the Japanese 

ones on two plans: that of the bureaucratic 

system and that of the manager-employees 

relationships. Moreover, the activity of the 

first ones is based on the little flexible system 

of mass production and their R-D activity and 

the products design doesn’t have a real 

relation with the proper production. The 

Japanese companies have established, as a 

rule, on long time, harmonious relationships 

with, their own workers, situation meet at the 

companies from USA (Dertousos et.al.1989). 

Wheelllwright (1987) points out the fact that 

the American companies ignored the 

importance of the processing sector, directing 

too much their efforts towards the services 

sector, for example the banking services, that, 

through their intrinsic nature, generates, as a 

rule, high and rapid benefits. Similar 

conclusions can be drawn also from the studies 

accomplished by Womack et. al.(1990) and 

Clark and Fujimoto (1991) on the American 

and Japanese automobile industry. 

The “competitive firm” theory points out 

implicitly the fact that the achievement of 

“competitiveness at national level” is not based 

strictly on the simple existence of the 

respective country’s specific factors (the well 

known “factors endowment” of the 

comparative advantage theory), but it is 

hardly influenced by the specific factors of the 

companies that being strongly rooted in the 

economic reality, are capitalizing the first. 

The new studies on competitiveness benefit by 

a much more systemic approach through the 

integration of the two categories of factors 

mentioned above – those who are specific to

the country and those who are characteristic o 

the companies – in the industrial 

specialization analysis. 

The Porter’s model is composed of 4 

determinants of the nation advantages: the 

favorable economic environment; The firm 

strategy and competitiveness; the integrated 

and connected industries and the products and 

services demand. The force of this model 

consists of the fact that it includes factors 

specific to the company, industry and nation. 

By introducing the industry concept in the 

model, Porter integrates both the outlooks of 

competitiveness: the microscopic one and the 

macroscopic one. As a matter of fact, his model 

has been initially conceived with the view of 

exploring the economies of the advanced 

countries that have finished the industrial 

revolution cycle. Yet, at mondoeconomic scale, 

more than 160 nations from the 185 that are 

members of the United Nations Organization 

are in the stage of ”underdevelopment” or “in 

course of development”, being so out of the 

blessings of these four factors. In order to 

develop, the respective economies need a 

model that should not only explain them what 

kind of factors they should have but also to 

foresee ”who” and “how” could create these 

factors Starting from this finding, there has 

been proposed (Dong-Sung Cho, 1998) a new 

competitiveness model, more complex, the so 

called “Model of the 9 factors of international 


We consider that in the scientific debate on 

the competitiveness concept it is fundamental 

the specification of its approach angle, namely: 

a. If we see these things in the light of 

creating, maintaining and developing 

the competitive advantages that 

finally lead to competitiveness, the 

only place where this process develops 

is the activity area of the economic 

operators, the productive area. The 

company, and only the company, is the 

only economic entity that may provide 

competitiveness; 

b. If we will tackle competitiveness 

from the point of view of the level and 

measuring possibilities, the situation 

is completely changed because, 

although achieved only at the level if 

the company, competitiveness spreads, 

280 

through its effects, towards the 

superior aggregation levels, so that it 

can be more or less accurately 

evaluated, according to the coverage 

area, the instruments used, and the 

effects perceived at the level of the 

national economy. 

Methodology 

The approach to the procedures of 

measurement of competitive advantages both 

at the industrial sector level and at the 

company level is justified by the fact that some 

tools and forms of expression of 

competitiveness are valid for the two levels. 

Industry (as industrial sector) in defined as 

total number of producers of identical and 

replaceable goods services; what is true for a 

company is also true for an industry. 

In the last years, the re-organisation of 

companies for activity modernisation and 

competitiveness improvement has been closely 

connected with the introduction and expansion 

of ITC, in the form of e-business applications; 

the most remarkable ones have been the 

following: Enterprise Resource Planning 

(ERP), Supply Chain Management (SCM) and 

Customer Relationship Management (CRM). 

To them one should add e-procurement (or 

online procurement) and e-marketplaces. 

The firts model of evaluation of the effects is 

based on the cross regression of a simple 

production function in which the capital stock, 

labour inputs, organisational change variables 

and control variables regress by value added. 

The organisational change is achieved by three 

reorganisations for ensuring the increasing 

participation of the employees in the 

company’s activity: more responsabilities at 

the lower organisational levels, team work and 

self-responsible teams. The three functions are 

aggregated as an independent factor – 

reorganisation – within a factor analysis. 

The reorganisation effects, that stimulated the 

amployees participation in management, were 

estimated by means of Cobb – Douglas 

production function, where the dependent 

variable is value added, and the explanatory 

variables are: capital, number of employees, 

reorganisation, investment in ITC and 

continnous training of perssonnel, to which 

other control variables are added. The impact 

of the „reorganisation” factor on productivity

was determined by means of a Cobb-Douglas 

production function for cross-section 

equatioins. 

The second model of estimation is based on 

variable instrumental regressions, if the 

results yielded by the first model are 

influenced by the endogeneity of the 

organisational changes (reorganisation factor). 

Under such conditions, it is advisable to 

consider external tools that intuitively explain 

the selection of variables within the analysed 

unit and provide the necessary statistical 

characteristics. 

If the endogeneity of the decisions of the unit 

that makes organisational changes is properly 

reflected by the selected variables, the 

estimation of the cross-section production 

function might be distorted, since other 

explanatory variables, especially capital and 

labour, are endogenous. The endogeneity of 

these variables, as wel as other variables, in 

the production function may be determined by 

the fact that the factors not varying in time 

are not considered – technological changes, 

management quality or industrial relations – 

may influence the explanatory variables and 

value added. 

Our approach concerns, in the context of the 

Association Agreement and accesion to the 

EU, the industrial pools, which, in general, are 

subject to free movement of customs duties 

between Romania and the EU. Nevertheless, 

the trade between the two parties will surelz 

face non/tariff trade barriers (NTB), more or 

less significant, such as oligferent technical 

standards, preferential public procurement, 

customs procedures, etc. These non-tariff trade 

barriers, supposed not to be entirely removed 

(at least in the near future) cause the 

fragmentation of markets and protect the 

domestic producers against foreign 

competition. 

At the same time, we base our approach on the 

idea that the higher the coefficient of intraindustry 

trade between countries (Grübel 

coefficient) is, the closer the development 

levels of those industries are and the higher 

the complementarity level is. 

Identification of sensitive sectors 

The analysis of the competitiveness of the 

processing companies in based on the concept 

of „sensitive sectors” defined of the sectors 

281 

which are the most protected by NTB and the 

sectors permitting that such barriers maitain 

considerable proce discrepancies between 

countries. It is worth underlining that the 

term „sensitive” refers to sectors which are 

strongly affected by integration and posivitely 

or negatively impacted. 

Of course, all economic sectors, not only the 

sensitive ones, will be sooner or later, directly 

od indirectly, affected by the growing 

European economic integration and will 

further require structural adaptation. 

In our opinion „non-sensitive” sectors are to 

low NTB sectors. The sectors with moderate 

tariff barriers are classified as „sensitive” or 

„non-sensitive” by market segmentation 

indicators, in corroboration of basic indicators 

such as concentration degree and potential of 

scale economics. 

To select the sensitive sectors, several studies, 

including EU studies, suggest several criteria 

such as level of non-tariff barriers, rate of 

import penetration, price disperssion among 

the number countries and potential of scale 

economics. Still, they finally use the NTB level 

and price dispersion. 

Evaluation of competitiveness 

After identifying the sensible sectors, we 

proced to the next analysis stage for 

evaluating the advantages of the companies 

working in the above sectors on the basic of a 

set of empiric performance indicators. 

According to the basic principle of evaluation 

of sectoral competitiveness, the sectors with 

high performance by the above factors are able 

to develop in the new, more competitive 

environment of the European Single Market. 

The analysis of the competitiveness of the 

selected sectors requires three steps, as 

follows: 

Step 1: The analysis of historical 

trands of performance is not detailed in this 

paper, because it has been approached in 

many studies made ny the Institute of 

Industrial Economy (see Bibliography) in the 

last ten years, but the conclusions will be 

presented in this paper. Of course,the stress in 

laid on the last years, because of data 

availability; the evolution prior to 1990 is less 

relevant as regards the market economy. 

Step 2: The analysis of structural 

changes and export performance of Romanian

processing companies represent the second 

step. As the results are generally known, they 

will be considered within the methodology. 

Further, we detail the analysis of 

static and dynamic performance, while the 

diagnosis elements specific to the two steps of 

the anthologyy will considered for the 

assessment of the competitiveness of the 

national companies, in order to identify 

possible ways to turn the competitive 

advantages to good account. 

Performance indicators regard to rates 

of import coverage by export, inside and 

outside the EU, and two indices of 

specialisation of export and production; the 

four indices – individually or combined – could 

revead the comparative advantage of various 

processing industries, as well as their 

competitiveness level. 

Step 3: Analysis of static and dynamic 

performance based on the levels of four indices 

and the evolution of three of them between 

1990-2005. 

We may conclude that the Romanian 

processing industry in still confronted, after 15 

transition years, with the industrial 

companies failure to innovate. Only large 

industrial companies seem to be able to 

innovate, unlike small and medium 

companies. But they still need to make 

significant financial and innovative efforts for 

launching the Romanian processing industry 

in the EU market. 

The innovative potential of the EU 

countries – continously stimulated and 

developed by an adequate R&D policy and 

considerable investment – was the determinat 

factor of intensification of the trade in hightechnology 

products (computers and office 

equipment, electronic equipment, 

telecommunication equipment, 

pharmaceuticals, electric and non-electric 

equipment, aerospatial equipment) that is 

export and import of highly R&D intensive 

products (intensity is expressed by the share of 

expenses on RDI in total value of production). 

In 2000, the share of export and import of 

high-technology products in total foreign trade 

of the EU countries reached, at least in some 

countries, significant levels, which reflects the 

high technological potential, resulted from 

preat investment in R&D. 

282 

Export of high-technology products of 

high value added is very efficient and proves a 

country’s capability to carry out high – level 

research (to be turned to good account in 

foreign markets) and to innovate efficiently. At 

the same time, import of such products may be 

complementary to export, since the inflow of 

new products and know-how in the importing 

country may stimulate the development of 

other sectors. In this respect, Ireland is an 

illustrative example, as it is the country with 

the highest import and export of hightechnology 

products in the Community area. 

Also other countries with a consolidated 

tradition in the science and technology field 

and a high innovative potential – France, the 

United Kingdom, Finland, the Netherlands – 

have a high share of high – technology export, 

which is an indicator of international 

competitiveness of knowholge-based economy. 

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284

The International Conference on Economics and Administration, 

Faculty of Business and Administration, University of Bucharest, Romania 


ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT 

COMPANIES IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT 

THE GLOBAL LEVEL 

IAMANDI Irina-Eugenia; 

Bucharest Academy of Economic Studies; 

Faculty of International Business and Economics; 

irina_iamandi@yahoo.com 

CONSTANTIN Laura-Gabriela; 



constantinlauragabriela@gmail.com 

CERNAT-GRUICI Bogdan; 



cernatbogdan@yahoo.com 

Abstract 

Considering the increased importance of the 

ecological dimension for the thorough 

debated sustainable development in the 

international forums, the purpose of the 

present research paper is to emphasize the 

importance of waste management in order to 

consolidate the investment decisions of 

sustainable or responsible corporate 

investors, that have to align social and 

ecological requirements to their financial 

rationales. The objectives pursued by the 

authors reflect the scope of analysing the 

performance of the most sustainable waste 

management companies at the global level. 

The research conducted envisaged the 

modelling of the volatility of the SG Global 

Waste Management Index, considered to be 

the most appropriate one for the scientific 

purpose of the paper. 

Key words: Sustainable Investment, Waste 

Management, Société Générale Global Waste 

Management Index, Garch Model, Risk 

Minimization 


Nowadays, one of the most stringent 

concerns that have found a receptive 

audience in many parts of the world refers to 

the sustainability of natural resources. As 

285 

evidence of environmental challenges – such 

as global climate change or depletion of 

natural resources – continue to grow, it is 

likely that sustainability issues will be 

raised by financial institutions, especially 

those exposed to property loss or product 

liability. Given this backdrop, Gluck and 

Becker (2004, 3) consider that the 

impressive number of studies attempting to 

answer the question of whether “social 

responsibility” or “sustainability” improves 

or detracts from investment performance is 

not surprising at all, especially taking into 

account the high number of conducted 

researches that found positive correlations 

between social/ecological performance and 

financial performance (see, for example, 

Guenster et al. 2005). 

Linking social/ecological performance with 

financial performance represents the 

pragmatic interest of investors, but, at the 

same time, corresponds with the main 

purpose that society has at large, meaning 

sustainable development. 

The ecological dimension of sustainable 

development is frequently associated with 

waste management, as an end-of-use part of 

the production process. 

Following this specific line of thinking, the 

present paper covers the matter of analysing 

the performance of waste management 

companies and their significance for the

sustainable investors interested in 

minimizing risks associated to their 

investment decisions. As already mentioned, 

the studied matter is important in the 

context of sustainable development, 

especially for the responsible investors 

trying to align their financial objectives with 

the ecological and social objectives that 

society indirectly imposes to them. For 

answering to the emphasized topic, the 

authors will present relevant data regarding 

sustainable investment, waste management, 

Société Générale Global Waste Management 

Index and the corresponding companies in 

the index, but also will model the volatility 

of the SG Global Waste Management Index. 

The authors intend to delineate the general 

background of the presented topic, especially 

considering the scarceness of scientific 

articles aiming to achieve similar research 

objectives, although the practical importance 

of the subject is increasing each day. 


For encompassing the research objective and 

results of the present paper, two main 

aspects should be previously defined and 

briefly analysed: Sustainable Investment and 

Waste Management. The most important 

information in the specialized literature is 

presented, although the dynamics of the 

present topic leads to the impossibility of 

exhaustively analysing the secondary effects. 

Sustainable Investment: 

European Investment Sustainable Forum 

(Eurosif 2008, 6) frequently uses terms such 

as social, ethical, responsible, socially 

responsible and sustainable investment in 

order to encompass the full meaning of 

socially responsible investments (SRI) as a 

main form of corporate social responsibility 

(CSR) implementation. The constant within 

these above mentioned terms is represented 

by the concern of sustainable or responsible 

investors with long-term investment, 

meanwhile supplementary environmental, 

social and governance (ESG) issues are 

important criteria in determining long-term 

investment performance. 

Eurosif (2008) considers that the vast 

domain of sustainable and socially 

responsible investments could be divided 

into three main areas, broadly described by 

Iamandi and Constantin (2009, 63-65): 

responsible investment (RI), socially 

286 

responsible investment (SRI) and sustainable 

investment (SI). At the same time, Eurosif 

(2008) continues to use the term “SRI” as the 

comprehensive acronym for the three above 

mentioned areas of this field, but having the 

direct meaning of “Sustainable and 

Responsible Investment”: “a generic term 

covering ethical investments, responsible 

investments, sustainable investments, and 

any other investment process that combines 

investors’ financial objectives with their 

concerns about environmental, social and 

governance (ESG) issues”. SRI describes an 

investment strategy which seeks to 

maximize financial return and social good. 

Responsible Investment (RI) is an area 

developing particularly among the 

institutional investors and remains most 

connected to the mainstream financial 

community. Responsible investors take into 

account the long-term influence of extrafinancial 

factors such as environmental, 

social and governance (ESG) issues in their 

investment decision-making. They integrate 

ESG factors into their stock portfolio 

analysis and management, bringing together 

social and sustainability indicators with 

traditional financial analysis. 

Socially Responsible Investment (SRI) is an 

important area for the retail financial sector 

and may incorporate ESG issues as well as 

criteria more closely linked to a values-based 

approach. It can involve the application of 

pre-determined social or environmental 

values to investment selection. Investors 

choose to exclude or select particular 

companies or sectors to invest in because of 

their impact on the environment or 

stakeholders. 

Sustainable Investment (SI) is a growing 

area where investors align their investments 

with emerging environmental and social 

realities, because of their financial and 

sustainable returns prospects. This area 

brings together those in the financial sector 

committed to the sustainability imperative 

along with those interested by the 

investment opportunities that the ongoing 

shift in regulations and market practices are 

creating. 

In a specialized report prepared for the 

World Federation of Exchanges, Siddy (2009, 

2) considers that the term sustainable 

investment currently covers a range of 

concepts and niche asset classes, from 

carbon trading and clean technology 

investment to the use of environmental,

social and governance (ESG) information in 

portfolio construction and voting policies. 

Taken as a whole, sustainable investment is 

a dynamic, expanding and global market 

worth several trillion US dollars and 

participants include highly influential 

pension funds and money managers, 

investment banks, as well as many specialist 

boutiques. This market trend is mirrored in 

many of the world’s publicly listed 

companies and their strategic management 

of issues such as climate change, clean 

technology, labour standards and human 

rights. More importantly, companies and 

their investors recognise that factors like 

these can be essential to innovation, 

productivity and market growth as well as to 

risk management and brand value. The new 

opportunities associated to sustainable 

investments include improving information 

efficiency through sustainability indices, 

disclosure guidance, specialist listing and 

trading platforms. 

Socially responsible investors favour 

corporate practices that promote 

environmental stewardship, consumer 

protection, human rights, and diversity, but 

avoid businesses involved in alcohol, tobacco, 

gambling, weapons, nuclear industry and/or 

abortion. Because many investors consider 

that the effects of climate change and waste 

management represent a significant 

business and investment risk, SRI has 

become lately increasingly defined as a way 

to promote environmentally sustainable 

development. 

Analysts consider that socially responsible 

investments can be made in distinctive 

companies or by appealing to a socially 

conscious mutual fund or exchange-traded 

fund (ETF). Mutual funds and ETFs offer an 

extra-advantage, because investors can gain 

exposure to more companies in many sectors 

with a single investment. According to 

Székely and Knirsch (2005, 633), 

institutional investors analyze corporate SRI 

and rank companies according to four main 

criteria: negative screening (the exclusion of 

certain companies or industrial sectors from 

investment portfolios on the basis of their 

inability to meet various social, ethical and 

environmental criteria; e.g.: the armaments, 

nuclear power and tobacco industries); 

positive screening (actively including 

companies in investment portfolios on the 

basis of their strong performance on social, 

environmental or ethical issues; e.g.: 

287 

environmental policy, corporate codes, 

management systems and respect for human 

rights and working conditions); engagement 

(the use by investors of solid dialogue with 

boards or other management representatives 

with the aim of altering corporate behaviour 

in relation to social, environmental and 

ethical issues; e.g.: a lack of policy on climate 

change, pricing of medicines in developing 

countries); shareholder activism (the 

exercise of shareholder powers through 

general protest voting at annual meetings 

and through the support of SRI-related 

shareholder resolutions; e.g.: voting against 

resolutions to approve a company’s report 

and accounts if it does not report on its 

environmental performance). 

There are a large number of specific SRI 

products and instruments and the most 

important of them are the following: ethical, 

social and green funds – mutual funds that 

select portfolios using ethical, social and 

environmental criteria; pensions funds – 

that invest part of their funds according to 

corporate social responsibility criteria; 

sustainability indices – Dow Jones 

Sustainability Index (DJSI), Financial Times 

Stock Exchange for Good (FTSE4Good), 

Domini Social Index 400, Ethibel etc., that 

have an important role in the relationship 

between funds allotted to SRI and their 

corresponding financial performance; listing 

processes – that should offer complete and 

relevant information to investors in order to 

evaluate the potential of companies 

(Iamandi and Constantin 2009). 

Waste Management: 

As previously mentioned, the use of 

environmental, social and governance (ESG) 

criteria in portfolio selection represents one 

of the new opportunities of the present 

business environment, meanwhile waste 

management has become one of the most 

important factors for promoting 

environmentally sustainable development. 

In this way, when analysing their 

investment options, financial investors have 

a propensity in considering the waste 

management companies, as a clear indicator 

of future risk minimization associated to 

their core activity. 

Waste Management (WM) is the collection, 

storage, transport, processing, recycling or 

disposal and monitoring of waste materials, 

from ordinary household waste to the waste 

generated at nuclear power plants. The term

usually relates to materials produced by 

human activity, and is generally undertaken 

to reduce their effect on health, the 

environment or aesthetics. Moreover, waste 

management is also carried out to recover 

resources from it. Waste management can 

involve solid, liquid, gaseous or radioactive 

substances, with different methods and 

fields of expertise for each of them. 

Developing effective waste management 

strategies is critical for nations all over the 

world, as many forms of waste can develop 

into a major problem when they are not 

handled properly. Numerous firms provide 

waste management services of a variety of 

types, and several governments also regulate 

the waste management industry for safety 

and efficacy. 

There are a number of concepts about waste 

management which vary in their usage 

between countries or regions. Some of the 

most general, widely-used concepts include: 

The Waste Hierarchy refers to the “3 Rs” – 

Reduce, Reuse and Recycle – which classify 

waste management strategies according to 

their desirability in terms of waste 

minimization (see Figure 1). The waste 

hierarchy remains the cornerstone of most 

waste minimization strategies. The aim of 

the waste hierarchy is to extract the 

maximum practical benefits from products 

and to generate the minimum amount of 

waste. 

Extended Producer Responsibility (EPR) is a 

strategy designed to promote the integration 

of all costs associated with products 

throughout their life cycle (including end-oflife 

disposal costs) into the market price of 

the product. EPR is meant to impose 

accountability over the entire lifecycle of 

products and packaging introduced to the 

market. This means that firms which 

manufacture, import and/or sell products are 

required to be responsible for the products 

after their useful life as well as during 

manufacture. 

“Polluter Pays” Principle is a principle where 

the polluting party pays for the impact 

caused to the environment. With respect to 

waste management, this generally refers to 

the requirement for a waste generator to pay 

for appropriate disposal of the waste. 

288 

Figure 1: The Waste Hierarchy 

Source: 

http://en.wikipedia.org/wiki/File:Waste_hierarchy.svg 


As previously stated, the purpose of the 

current research paper is to analyse the 

performance of the most sustainable waste 

management companies at the global level 

and to identify their role in consolidating a 

more sustainable business environment. 

This type of performance is usually 

comprised in a waste management index, 

whose methodology and components are to 

be described in the present section. 

GARCH Model: 

In order to perform the analysis of the global 

waste management index and, more 

specifically, to model the serial dependence 

of volatility, the GARCH (generalized 

autoregressive conditional heteroscedasticity) 

time series technique will be used. GARCH, 

then, is a mechanism that includes past 

variances in the explanation of future 

variances. The time series is heteroscedastic 

when its variance varies with time. 

The GARCH models were introduced by 

Bollerslev (1986) and generalized Engle’s 

(1982) earlier ARCH models to include 

autoregressive (AR) as well as moving 

average (MA) terms. 

From the various GARCH models, within 

this paper we will use the widely known 

EGARCH mechanism, with leverage terms. 

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SG Global Waste Management Index: 

The financial performance of waste 

management companies – expressed in a 

series of indices developed by specialized 

financial institutions – is one of the main 

aspects that corporate investors take into 

account when considering the possibility of 

investing in this type of companies. 

Therefore, in order to study this sector from 

a financial perspective, the analysis will 

focus on one of the Société Générale (SG) 

sponsored sustainable indices aimed at 

reflecting the waste management sector 

worldwide, mainly the total return SGI 

Global Waste Management index, that is 

calculated and published by Standard & 

Poor’s, a division of the McGraw-Hill 

Companies, Inc (the “Index Calculation 

Agent”). The rationale of investing in this 

sustainable index is emphasized through the 

following three pillars: representativeness (it 

tracks the performance of the largest 

companies within the industry), a secular 

global issue (waste is a GDP play, especially 

within the context of the globalization of 

trade and the exponential growth of 

developing countries) and other numerous 

supportive factors (such as population 

growth in the less developed countries, 

environmental pressures globally, increased 

privatization of waste-related activities, 

rising energy and commodity costs or the 

limited space for landfills). 

As it is stated on the SG indices website, this 

index comprises the most representative 

companies that have as main activity the 

collection, transport, processing and 

recycling or disposal of waste. The index is 

invested 7% prevention/minimization, 42% 

treatment, 20% recycling, 17% energy 

recovery and 14% disposal. This sectoral 

breakdown is expected to be fairly stable 

short-term, and yet may vary according to 

changes in the industry dynamics. 

Waste Management Companies in the 

Index: 

Société Générale assesses the index 

composition every six months and factors 

like liquidity or other tradability constraints 

are also considered. The number of stocks is 

subject to change; currently there are thirty 

companies included, of which five and their 

weights in the index are worth mentioning: 

Waste Management Inc. (USA) – 16.22%, 

Republic Services Inc. (USA) – 16.01%, 

Veolia Environnement (France) – 14.85%, 

289 

Stericycle Inc. (USA) – 8.45%, and Sims 

Metal Management Ltd. (Australia) – 5.69%. 

In addition, it is invested 58% in North 

America, 32% in Europe and 10% in the rest 

of the World. 

1. Waste Management Inc. (USA) is the 

leading provider of comprehensive waste and 

environmental services in North America. As 

of December 31, 2009, the company served 

nearly 20 million municipal, commercial, 

industrial, and residential customers 

through a network of 367 collection 

operations, 355 transfer stations, 273 active 

landfill disposal sites, 16 waste-to-energy 

plants, 134 recycling plants, and 111 

beneficial-use landfill gas projects. 

2. Republic Services Inc. (USA) is one of 

the main USA providers of services in the 

domestic, non-hazardous solid waste 

industry, offering waste collection services 

for commercial, industrial, municipal, and 

residential customers through 400 collection 

companies in 40 states and Puerto Rico. The 

company also owns or operates 242 transfer 

stations, 213 solid waste landfills and 79 

recycling facilities and it serves millions of 

residential customers under terms of 

contracts with more than 3,000 

municipalities for waste collection and 

residential services. Republic Services Inc. 

also serves some commercial customers 

throughout its expansive service area. 

3. Veolia Environnement (France) is the 

world leader in environmental services. With 

operations on every continent and more than 

336,013 employees, the company provides 

customized solutions to meet the needs of 

municipal and industrial customers in four 

complementary segments: water, 

environmental services, energy services and 

passenger transportation. Veolia 

Environnement recorded revenue of 36.2 

billion Euros in 2008. 

4. Stericycle Inc. (USA) is a business and 

consulting services company specialized in 

protecting people and reducing risks, having 

more than 459,000 customers worldwide. 

Stericycle provides services such as: medical 

waste disposal and sharps disposal 

management; product recalls and retrievals; 

OSHA compliance training; pharmaceutical 

recalls and medical device returns; 

hazardous waste disposal; healthcare 

integrated waste stream management; 

pharmaceutical waste disposal; medical 

safety product sales, and high volume 

notification services. The company operates

in the USA, United Kingdom, Ireland, 

Canada, Mexico, Argentina, Chile, Portugal 

and Romania. 

5. Sims Metal Management Ltd. 

(Australia) is the largest metals and 

electronics recycler in the world, as well as 

in North America and Australasia. The 

company has over 230 locations on 4 

continents and over 5,500 employees, and it 

operates two primary businesses: Sims 

Metals Recycling and Sims Recycling 

Solutions. Sims Metals Recycling is the 

world’s largest metals recycler, with 

operations encompassing the buying, 

processing and selling of ferrous and nonferrous 

recycled metals in five countries, 

including the United States, Australia and 

the United Kingdom. Sims Recycling 

Solutions is a global e-recycling business, 

with established operations in the United 

Kingdom, Continental Europe and North 

America and a developing presence in the 

Asia-Pacific region, offering a comprehensive 

and cost-effective recycling service for “end 

of life” and redundant electrical and 

electronic equipment, devices and materials, 

ranging from product assessment to 

recycling. 

4. Modelling the volatility of the SG 

Global Waste Management Index 

The data considered within the study are 

represented by the values of the above 

mentioned index for the 31 December 2001 – 

29 April 2010 period (downloaded from the 

SG Indices website). Though the index was 

launched on the 13 th of April 2007, there are 

also available previous data resulted from 

backtesting. The study was performed by 

using the Matlab computational package. As 

one can notice from Figure 2, the raw time 

series is a non stationary process. Therefore, 

within the analysis we considered the 

returns series, exposed in Figure 3, that is a 

stationary time series. 

The following stage within the modelling 

process consisted in checking for correlation 

in the return series. With this scope, there 

were computed and plotted the sample 

autocorrelation (ACF) and the partialautocorrelation 

(PACF) functions for the 

return series with the respective upper and 

lower standard deviation confidence bounds, 

Figure 4 and Figure 5, respectively. As the 

ACF and the PACF depict the broad 

correlation characteristics of the returns, 

290 

from these figures there is indication that 

one needs to use a correlation structure in 

the conditional mean. 

Figure 2: SGI Global Waste Management 

Index Value 

120 

110 

100 

90 

80 

70 

60 

50 

SGI Global Waste Management-Daily Price 

40 

2000 2002 2004 2006 

Date 

2008 2010 2012 

Figure 3: SGI Global Waste Management – 

Daily Returns 

Return 

0.15 

0.1 

0.05 

0 

-0.05 

-0.1 

-0.15 

Daily Returns 

-0.2 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Date 

Figure 4: Sample Autocorrelation Function – 

Daily Returns of SGIGWM 

Sample Autocorrelation 

1 

0.8 

0.6 

0.4 

0.2 

0 

-0.2 

ACF for Raw Return Series 

-0.4 

0 2 4 6 8 10 

Lag 

12 14 16 18 20 

In order to emphasize the qualitative check 

for correlation in the raw returns series, we 

used two hypothesis tests, mainly Ljung- 

Box-Pierce Q-test, whose null hypothesis 

states the no serial correlation, and Engle’s

ARCH test, that checks for ARCH effects in 

the series. The H output, for both tests 

(verified for up to 10, 15 and 20 lags), 

indicates the rejection of the null hypothesis 

and implies the presence of serial correlation 

(Table 1), as well as the evidence for the 

presence of heteroscedasticity (Table 2). 

Figure 5: Partial Autocorrelation Function – 

Daily Returns of SGIGWM 

Sample Partial Autocorrelations 

1 

0.8 

0.6 

0.4 

0.2 

0 

-0.2 

PACF for Raw Return Series 

-0.4 

0 2 4 6 8 10 

Lag 

12 14 16 18 20 

Table 1: Ljung-Box-Pierce Q-test – Returns 

H pValue Stat CV 

1.0000 0.0000 235.2190 18.3070 

1.0000 0.0000 260.1586 24.9958 

1.0000 0.0000 281.1549 31.4104 

Table 2: Engle’s ARCH test – Returns 


1.0000 0.0000 958.0041 18.3070 

1.0000 0.0000 1004.8993 24.9958 

1.0000 0.0000 1039.6270 31.4104 

In addition, in order to check for correlation 

in the squared returns, there was computed 

and plotted their ACF, which also suggests 

significant correlation and persistence in the 

second-order moments (Figure 6). 

In addition, we verified the null hypothesis 

of no significant correlation in the squared 

returns (tested for up to 10, 15, and 20 lags 

of the ACF at the 0.05 level of significance) 

and the results showed that we can reject it 

(Table 3). 

291 


Daily Squared Returns of SGIGWM 


0.8 

0.6 

0.4 

0.2 

0 

ACF of the Squared Returns 

-0.2 

0 2 4 6 8 10 

Lag 

12 14 16 18 20 

Table 3: Ljung-Box-Pierce Q-test – Squared 

Returns 


1.0000 0.0000 2745.4527 18.3070 

1.0000 0.0000 2906.2148 24.9958 

1.0000 0.0000 3129.5005 31.4104 

Consequently, we estimated the following 

ARMAX (1, 1, 0) / EGARCH (1, 1) model, 

whose parameters are displayed in Table 4. 

Table 4: Parameters estimates 

Parameter Value 

Standard 

Error 

T 

Statistic 

C 0.00042 0.00042 1.0157 

AR(1) -0.87458 0.16191 -5.4016 

MA(1) 0.85836 0.17155 5.0036 

K -0.17902 0.02886 -6.2030 

GARCH(1) 0.97883 0.00318 307.5723 

ARCH(1) 0.16529 0.01050 15.7382 

Leverage(1) -0.04653 0.00644 -7.2172 

As can be noticed from Table 4, AR (1) and 

MA (1) parameters have similar size. 

Therefore, when rewriting the mean 

equation in backshift operator notation, the 

autoregressive and moving-average 

polynomials come close to cancelling each 

other (Box, Jenkins, and Reinsel 1994, 263- 

267). This supported the use of the simple 

EGARCH (1, 1) model (Table 5). 

Table 5: Parameters estimates 

Parameter Value 

Standard 

Error 

T 

Statistic 

C 0.00023 0.00022 1.0529 

K -0.18331 0.02915 -6.2876 

GARCH(1) 0.97831 0.00321 304.0722 

ARCH(1) 0.16862 0.01037 16.2543 

Leverage(1) -0.04712 0.00655 -7.1854 

As can be noted in Figure 7, volatility 

clustering is present in the residuals 

(innovations), the lower graph illustrating

the heteroskedasticity present in the filtered 

residuals. 

After the filtering of the model residuals 

from the return series, the next stage 

consisted in standardizing the residual with 

the conditional standard deviation. From 

Figure 8, one can notice that innovations 

seem generally stable, displaying little 

clustering. 

Innovation 

Standard Deviation 

Innovation 

Figure 7: Residuals and conditional 

standard deviations – Fitted model 

0.2 

0.1 

0 

-0.1 

Innovations 

-0.2 

0 500 1000 1500 2000 2500 

0.08 

0.06 

0.04 

0.02 

Conditional Standard Deviations 

0 

0 500 1000 1500 2000 2500 

4 

2 

0 

-2 

-4 

-6 

-8 

-10 

Figure 8: Standardized residuals 

Standardized Reziduals 

-12 

0 500 1000 1500 2000 2500 

As can be noted in Figure 9, the 

standardized residuals are now i.i.d. In 

addition, by comparing Figure 10, 

representing the ACF of the squared 

standardized, with Figure 6, representing 

the ACF of the daily squared, one can notice 

that the EGARCH model compensates 

sufficiently for the variation in volatility. 

292 


Standardized Residuals 


0.8 

0.6 

0.4 

0.2 

0 

ACF of the Standardized Residuals 

-0.2 

0 2 4 6 8 10 

Lag 

12 14 16 18 20 

Figure 10: Sample Autocorrelation Function 

– Squared Standardized Residuals 


0.8 

0.6 

0.4 

0.2 

0 

ACF of the Squared Standardized Residuals 

-0.2 

0 2 4 6 8 10 

Lag 

12 14 16 18 20 

The last phase of the analysis consisted in 

quantifying the correlation of the 

standardized residuals and the presence of 

ARCH effects. 

Table 6: Ljung-Box-Pierce Q-test – 

Standardized Returns 


0.0000 0.7780 6.4282 18.3070 

0.0000 0.9029 8.4830 24.9957 

0.0000 0.9331 11.4673 31.4104 

Table 7: Ljung-Box-Pierce Q-test – Squared 

Standardized Returns 


0.0000 0.1366 14.8763 18.3070 

0.0000 0.1150 21.7325 24.9958 

0.0000 0.2753 23.2791 31.4104 

Table 8: Engle’s ARCH test – Standardized 

Returns 


0.0000 0.1303 15.0486 18.3070 

0.0000 0.0928 22.6083 24.9958 

0.0000 0.2200 24.5302 31.4104

Therefore, the results of the Q-test and the 

ARCH test (displayed in Table 6, Table 7 

and Table 8) indicate the rejection of their 

null hypothesis and, consequently, the postestimation 

analysis confirms the sufficient 

explanatory power of the identified 

EGARCH model. 


Considering the propensity of sustainable or 

socially responsible investments in the last 

years, as a prerequisite of risk minimization 

investors are searching for in a globalizing 

world, the ecological dimension of the above 

mentioned investments became more 

important than ever, being usually 

associated with sustainable development. 

This is the general background for 

nourishing the development of waste 

management at the global level, by granting 

special attention to the business and 

financial performance of waste management 

companies. 

The results of the present study emphasized 

that for the global waste management index 

the calibrated EGARCH (1, 1) sufficiently 

explained for the volatility in the series. 

Therefore, as further directions of research, 

starting from the present paper that aimed 

and performed the treatment of the volatility 

with an EGARCH model, the authors will 

consider the more advanced technique of 

bootstrapping, while considering the filtered 

historical simulation, to evaluate the market 

risk characterizing the global waste 

management equity sector. 

In addition, the authors will focus the 

research on other indices that track the 

performance of the sustainable industries. 

References 

1. Bollerslev, Tim. 1986. “Generalized 

Autoregressive Conditional Heteroskedasticity”. 

Journal of Econometrics 31: 307-327. 

2. Box, George, Jenkins, Gwilym M., and 

Reinsel, Gregory. 1994. “Time Series Analysis: 

Forecasting and Control”. 3 rd ed. Upper Saddle 

River, NJ: Prentice-Hall. 

3. Engle, Robert F. 1982. “Autoregressive 

Conditional Heteroskedasticity with Estimates of 

the Variance of United Kingdom Inflation”. 

Econometrica 50: 987-1007. 

4. European Investment Sustainable Forum 

(Eurosif). 2008. European SRI Study 2008. Paris: 

NTC, 

http://www.eurosif.org/publications/sri_studies. 

293 

5. Gluck, Kimberly, and Ying Becker. 2004. 

“Guest Editorial: Can Environmental Factors 

Improve Stock Selection?”. Journal of Asset 

Management vol. 5 (no. 4): 220-222. Henry 

Stewart Publications. 

6. Guenster, Nadja, Jeroen Derwall, Rob Bauer, 

and Kees Koedijk. 2005. “The Economic Value of 

Corporate Eco-Efficiency”. Paper presented at 

2005 Academy of Management Conference, July 

25, in NY, USA. 

7. Iamandi, Irina-Eugenia, and Laura-Gabriela 

Constantin. 2009. “Addressing Socially 

Responsible Investments through Alternative 

Risk Transfer Solutions at International Level”. 

The Romanian Economic Journal 33 (year XII, 

no. 3/2009): 61-93. Bucharest: ASE Printing 

House, 

http://rejournal.eu/Portals/0/Arhiva/JE%2033/JE 

%2033%20-%20IAMANDI%20CONSTANTIN.pdf. 

8. Siddy, Dan. 2009. Exchanges and sustainable 

investment. World Federation of Exchanges, 

http://www.worldexchanges.org/sustainability/WFE-ESG.pdf. 

9. Székely, Francisco, and Marianna Knirsch. 

2005. “Responsible Leadership and Corporate 

Social Responsibility: Metrics for Sustainable 

Performance”. European Management Journal 23 

(no. 6): 628-647. Oxford: Pergamon-Elsevier 

Science Ltd. 

10. Republic Services Inc. website, 

http://www.republicservices.com/contactUs.asp. 

11. Sims Metal Management Ltd., 

http://www.simsmm.com/. 

12. Stericycle Inc. website, 

http://www.stericycle.com/. 

13. Veolia Environnement website, 

http://www.veolia.com/en/. 

14. Waste Management Inc. website, 

http://www.wm.com/wm/about/corporate_profile.a 

sp. 

15. www.mathworks.com/access/helpdesk/help/to 

olbox /econ/f8-82329.html. 

16. http://www.sgindex.com/index.php?country= 

EN 

17. http://www.sgindex.com/admins/files/other/sg 

index/files/524.pdf. 

18. http://www.sgindex.com/admins/files/other/sg 

index/files/4116.pdf. 

19. http://www.sgindex.com/services/quotes/detai 

ls.php?family=19. 

20. http://en.wikipedia.org/wiki/Waste_managem 

ent. 

21. http://www.wisegeek.com/what-is-wastemanagement.htm.




REPUTATION RISK: DETERMINANTS AND IMPLICATIONS 

IANOLE Rodica 

Faculty of Social and Administrative Sciences, “Nicolae Titulescu” University, 

Romania 

Email: ianole.rodica@gmail.com 

Abstract 

SANDU Mihaela 

Faculty of Administration and Business, University of Bucharest, Romania 

Email: mihaela9sandu@yahoo.com 

The main objective of the paper is to explore 

some of the main triggers of the reputation 

risk and its main implications for the 

business area. The structure of the paper 

follows the line of a review of relevant 

literature, where the upshots frame the need 

for a holistic view of the topic, in socioeconomic, 

cultural and environmental terms. 

Key words: reputation, reputation risk, 

social responsibility 


Warren Buffet’s saying, „it takes 20 

years to build a reputation and 5 minutes to 

destroy it”, is probably one of the most wellknown 

references, and also among the most 

intriguing, regarding reputation. This 

characteristic of extreme fragility 

immediately rises, from the early beginning, 

the necessity of managing it with great care 

and consideration. 

On the one hand, from an individual 

point of view, reputation can be considered 

part of our identity, as defined by others. On 

the other hand, as part of the intangible 

capital of a firm, this asset has gained 

greater and greater importance during the 

last period of time, responding to the needs 

of various stakeholders: the investors, the 

employees and the public (Botelho, 2004). 

The importance of reputation at an 

organizational level, and thus of properly 

dealing with the associated risks, can be 

traced with the help of many studies and 

surveys. For example, the research made by 

the Economist Intelligence Unit in 2005 

(White Paper “Reputation: Risk of risks, 

294 

2005) questioned 269 managers, asking 

them to forecast how each category of risks 

can affect their business. The answers 

awarded have placed reputation risk on the 

first position of the top, with 52% 

prospective damages, followed by 

technological and personnel risks, in the 

same proportion of 41%, and then by the IT 

risk – 35%, market risk – 32%, and credit 

risk – 29%. 

In this context, our paper aims to 

accomplish a brief overview of the multiple 

perspectives existing on defining and 

managing reputation risks. The second 

section focuses on the reputation 

determinants, while the goal of the third 

section is to depict its implications over the 

financial performances of organizations, but 

also over their social, ethical and 

environmental results. 

2. Determinants of corporate 

reputation risk 

Sometimes agnomen the “Cinderella 

asset”, the reputation risk can arise from a 

variety of sources (Fombrun, Gardberg & 

Barnett, 2000), which we will briefly portray 

in this chapter. 

Firstly, and most probably, the 

reputation risk may result from operational 

risks or from risks of a financial nature. 

However, the affected areas are usually 

those expressed rather by social and ethical 

threats, and not only simply putted in 

monetary or financial problems. This not 

changes the fact that investors tend to judge 

companies as better opportunities of 

investment according to their financial 

performances, correlated also with a high 

reputation rating, (Shefrin, 2001). The logic

they follow is quite simple: if the investment 

proves to be profitable, investors will 

continue to invest, will attract foreign 

capital and will remain loyal, otherwise not. 

A second category of important 

determinants is constituted today, more 

than ever before, by the stakeholders who 

became very interested in the environment 

and the society. Thus, companies must be 

vigilant in respect to these issues. One of the 

main responsibilities of managers, in this 

case, is to meet regularly with key 

stakeholders and reach an agreement on the 

process and expected results. 

To illustrate the continuous challenges 

the companies have to face, it is enough to 

recognize the development of various 

communication channels that facilitates the 

rapid circulation of useful information but 

also of gossip. Bad news can go all over the 

world in only 5 minutes over the internet. 

That’s why communication is on top of most 

risk managers’ agenda. Thus, the company 

should maintain close relation with media 

and have a powerful public relations (PR) 

department or, at least, a good PR 

consultant. In a period of crisis, the person 

that communicates with the press must be 

preferable from the top management of the 

organization. The degree of openness and 

sincerity reflected in his speech can either 

solve the problem or, by contrary, deepen the 

reputation gap. 

Moving further, we reach other business 

partners like clients and suppliers: “it’s a 

buyer’s market”, said Derek Mander, head of 

financial and risk management for Bank of 

Ireland Securities Servicies (White Paper 

“Reputation: Risk of risks, 2005). Moreover, 

he reinforces that in the past it was easier to 

meet the client’s service standards than 

nowadays when clients have so many 

options and they are more likely to simply 

change their service provider. That is why 

any violation of rules, as any deviation from 

any unreasonable price increase may affect 

the business relationship with customers. 

Situated at the other end of the value 

chain, we cannot neglect the suppliers. In 

order to no generate into a risk, they must 

be fair, must meet their commitments to 

provide good quality material, and must 

comply with the deadlines and terms 

imposed by the contract. 

All these collaborative relationships rely 

on relational forms of exchange 

characterized by high levels of trust (Doney 

295 

& Cannon, 1997). This is, in our opinion, a 

key issue for reputation: the company trusts 

its suppliers, the clients trust the company 

and the society is trustworthy in the 

performed exchanges and activities, for the 

general well-being. 

3. The large spectrum of 

reputational implications 

To begin the implications’ case with a 

strong and objective tone, we will bring into 

the scene the quantitative perspective which 

tells us that 63% of a company’s market 

value is attributed to reputation (Weber 

Shandwick/KRC Research, 2006). The same 

study reveals that over the past 5 years 

three-quarters (79%) of the world’s number 

one most admired companies lost their 

crowns in their respective industries. 

Under these circumstances, the first 

aspect to point out is clearly related to the 

financial status, more precisely the benefits 

of a good reputation and the costs of a bad 

one. Larsen (2002) argues that this is the 

central reason that makes companies 

preocupied with managing their reputation, 

even if it is agreed that “financial statements 

are woefully inadequate in terms of 

assessing and managing corporate 

reputation” (Cravens, Oliver & Ramamoorti, 

2003, p. 203) 

Nonetheless, extending this more or less 

obvious causality effect, we find ourselves in 

the large perimeter of social and ethical 

implications. For example, corporate social 

responsibility (CSR) is a concept that has 

increasingly gained notoriety, attracting the 

interest of both public and private entities: 

“there has been a shift in the breadth and 

nature of the perceived responsibilities of 

companies to the societies in which they 

operate (…) Companies are now forced to 

make decisions concerning the type and 

degree of responsibilities they have to 

stakeholders, such as local communities, the 

natural environment, and employees. 

Furthermore, these responsibilities must be 

balanced against those they have to financial 

interest groups such as investors and 

creditors” (Brammer & Pavelin, 2004, p.704). 

It is worth stating at this point the 

impact of a bad reputation in deepening 

information asymmetry issues. In general 

outsiders don’t know as much about a 

company as insiders, so a good reputation, 

often emphasized by social responsibility

actions, alleviates and allow customers to 

make a choice. Another fact to underline is 

that reputation evolves more slowly that a 

firm’s image because it is tied more closely to 

consistent actions. In this light, a positive 

implication would be that it can serve as a 

reservoir of goodwill in time of crises 

(Rochette, 2007). 


To sum up, reputation is a critical 

intangible asset that can be a good indicator 

of past performance and future prospects. 

The most satisfactory conclusion that we 

can come to, after analyzing some of the 

prevalent perspectives on reputation risk, is 

the necessity of a proactive organizational 

behavior, truly assimilated in the 

corporation’s identity. 

The present short paper represents just 

an introductory stage for future research of 

investigating the importance of reputation 

building and risk management, setting the 

framework for possible inquiries regarding 

the national business landscape. 

References 

1. Botelho, G. (2004), “Building and 

Rebuilding Reputations: Executives Face 

Challenges in Post-Scandal World”, 

retrieved from 

http://www.cnn.com/SPECIALS/2004/glo 

bal.influentials/stories/overview/ on 17 th 

March 2010 

2. Bramer, S. & Pavelin, S. (2004), 

“Building a good reputation”, European 

Management Journal Vol. 22, No. 6, pp. 

704–713 

3. Cravens, K., Oliver, E. & Ramamoorti, S. 

(2003), “The Reputation Index: 

Measuring and Managing Reputation”, 

European Management Journal Vol. 21, 

No. 2, pp. 201–212 

4. Doney, P. & Cannon, J. (1997), “An 

Examination of the Nature of Trust in 

Buyer-Seller Relationships”, The Journal 

of Marketing, Vol. 61, No. 2 pp. 35-51 

5. Fombrun, C.J., Gardberg, N.A. & 

Barnett, M.L. (2000), “Opportunity 

Platforms and Safety Nets: Corporate 

Citizenship and Reputation Risk”, 

Business and Society Review, 105:1, pp. 

85-106 

6. Larsen, D. (2002), “Determining the 

relationship between investor relations 

and reputation”, paper presented at the 

6 th International Conference on 

296 

Corporate Reputation, Identity and 

Competitiveness, Boston . 

7. Rochette, Michel (2007), “Reputation 

risk”, retrieved from 

http://www.soa.org/files/pdf/lsprng07- 

001-rochette.pdf on 1st 8. 

of April, 2010 

Shefrin, H. (2001),”Do investors expect 

higher returns from safer stocks than 

from riskier stocks?” The Journal of 

Psychology and Financial Markets , No. 

2, pp.176 – 181 

9. Turner, M. (2004), “Reputation risk and 

governance”, Risk management topic 

paper No. 6 

10. Weber Shandwick/KRC Research, (2006), 

‘Safeguarding Reputation’, November 17, 

retrieved from 

http://governancefocus.blogspot.com/2006 

/11/nearly-80-percent-believeresponsible.html 

on 15th March 2010 

11. ***Economist Intelligence Unit, White 

Paper “Reputation: Risk of risks, 2005, 

retrieved from http://www.onlinereputationmanagement.org/images/WhitePapers/risk_reputation_report_onlinereputation-management-solutions.pdf 

on 

29 th March 2010




AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF 

ECONOMY ON ROMANIAN THEATRE PRODUCTION 

IANOLE RODICA 


Romania 

Email: ianole.rodica@gmail.com 

CARAIMAN CARMEN 


Romania 

Email: caraiman_carmen@yahoo.com 

Abstract 

The main objective of the present paper is to 

explore the possible correlations between the 

economic system and culture, more precisely 

theatre production. The intricate relationship 

reveals its significance during two different 

economic and political systems (the 

totalitarian regime that Romania 

experienced between 1947 and 1989, as well 

as the democratic regime that our country 

has experienced since 1989). To reach its 

goals, our paper will take into consideration 

specific facts regarding Romanian cultural 

and economic life during the two analyzed 

periods: legislative framework, financial 

resources allotted to cultural life, inner issues 

of production and theatre audience. The 

study is primarily an exploratory one, 

wishing to underline the influence of 

economy upon cultural production and the 

integration of culture as an important factor 

that shapes human and economic behavior. 

Key words: cultural economics, theatre 

production, Romanian playwrighting, 

consumer society. 


A key element of what is called 

nowadays the post-autistic movement in 

economics, suiting the purpose of reopening 

economics for free scientific inquiry, is 

represented by the recognition of culture. 

All economic and social activities are, 

without doubt and necessarily, embedded in 

297 

culture, and this profoundly shapes human 

behavior. Influencing preferences, imposing 

obligations or creating social identities, all of 

these are consequences which may impact on 

economic behavior. 

As a field of research, cultural economics 

is a young but quite well established one: it 

has an association – ACEI, founded in 1973, 

a journal – first published in 1977, an 

international conference – first held in 1979, 

and, most important of all, a growing body of 

literature (Throsby, 1994). 

From the perspective of cultural 

economics, culture is perceived as a 

potentially profitable activity, constituted of 

a set of offers existing on the consumption 

market materialized through its products 

(plays, films, books, paintings, sculptures, 

songs a.s.o.) addressed to various types of 

consumers (the public interested in cultural 

life) that are influenced in their choices by 

cultural policies, as well as by their 

educational background, profession, social 

position, mass media etc. 

The importance of such implications has 

been long ignored within the Romanian 

society, more or less in a conscient manner. 

Our paper attempts to establish the 

influence of the economic system upon 

theatre representation, while identifying the 

way financial resources are alloted for this 

cultural activity, the specific types of 

products (plays represented on the stage) 

that are promoted by stage directors 

(sometimes deliberately, sometimes under 

the pressure of the political regime), as well

as the general characteristics of the 

interested consumers (the theatre public). 

To accomplish our goal, we have made 

referrence to the Romanian cultural market 

during two different political regimes: 1947- 

1989 (the totalitarian period), respectively 

1989 up to the present (the democratic 

period). Moreover, we will also underline the 

paradigmatic transformation brought once 

with the instauration of the 

overconsumption society. 


The official foundation of the cultural 

economics branch seems to lay on the study 

of Baumol and Bowen (1966). Through 

“Performing Arts: The Economic Dilemma” 

they did not only emphasize the role of the 

arts sector in the economy, but they also 

impose the important concept of the “cost 

disease”. This consists of a wage increase in 

jobs that have not experienced an increase of 

the labor productivity, which totally goes 

against what classical economics postulates. 

In the original study, the authors give the 

example of a Beethoven string quartet. The 

number of musician needed to play it has not 

changed during time, and, by consequence, 

the productivity of the perfomance has not 

increased. At the other end, of course their 

salaries have increased. 

Next to the public or merit good 

characteristics attributed to art, this specific 

cost structure represents one of the 

aknowledged arguments of economists that 

art does not operate well on the market 

(Snowball, 2008). 

However, in the last 40 years, a 

substantial literature has developed in order 

to analyze the issues in the arts and culture 

with the help of economic tools. According to 

Blaug, demand and supply, industrial 

organization, labor markets, firm behavior 

(including the cost disease) and public 

subsidies are among the most discussed and 

expanded topics in the area (Blaug, 2001). 

Klamer (2003, p. 3) argues that, “the 

dominant economic paradigm seriously 

hampers discussion of values among 

economists” because it is too focused on the 

idea of utility and rational choice theory. 

Based on the concept of revelead 

preferences, the classical approach is that 

consumption and production, which 

determine market price, are an effective way 

of valuing a good without having to observe 

298 

or discuss the reasons behind the choices. 

Yet people often make choices that bear a 

mixed relationship to their own preference. 

A large literature from behavioral economics 

and psychology finds that people often make 

inconsistent choices, fail to learn from 

experience, exhibit reluctance to take into 

consideration information. 

A possible answer to this issue is 

sugested by Throsby who alleges that 

cultural value and economic value have a 

positive relationship. Thus, even if we 

recognize that economic value is not 

sufficient to capture cultural value, the two 

could be highly correlated, since both values 

are “formed by a negotiated process akin to a 

simple market exchange” (Throsby, 2001, p. 

281). 

Meeting the above though, Streeten 

(2006, chapter 13, „Culture and Economic 

Development”, in the Handbook of the 

Economics of Art and Culture) claims an 

improvement in the general perception over 

the cultural impact on economic 

development, explained through a shift in 

thinking from a goods-centered to a humancentered 

view of the development process. 

This aspect is part of the larger and holistic 

paradigm in which economic, social, cultural 

and environmental systems are seen as 

interrelated. Having this in mind, we will 

outline in the following chapters the parallel 

evolutions of the economic and cultural, 

theatre-industry related factors in Romania. 

3. Act one: theatre under the 

communist regime 

This chapter plays the role of a 

consistent inquiry into the past in order to 

better understand the impact of political 

regulation over culture and the patterns of 

consumption and behavior induced to 

theatre audience by the communist system 

between 1947 and 1989. 

The forced inclusion of the Romanian 

State in the Soviet sphere of influence 

brought significant changes in our society at 

all levels: economic, political, social and 

cultural. 

For the left-wing ideology, the attempt to 

”create” a new ideal man and society implied 

a process of deleting and re-interpreting the 

spiritual and cultural heritage of our nation 

with a view to correspond to the Soviet 

political directions.

After our country was trapped in 

Russia’s political sphere of influence, at the 

end of the Second World War, the creative 

spirit that animated Romanian culture 

during the capitalist inter-war period was 

almost entirely anihilated. In fact, the 1950’s 

represent the most serious decline in our 

cultural life, for art and literature were 

emptied of their aesthetic value and 

transformed into propaganda means. 

However, the ”obsessive decade”, as the 

1950’s are often referred to, was followed by 

a period of ideological thaw starting with 

April 1964. After this year, Romanian 

cultural life began to diversify its offer (e.g. 

books and plays were no longer 

written/represented only for political 

reasons, but also for aesthetic purposes). In 

consequence, after April 1964 Romanian 

culture breathed a new atmosphere and it 

enjoyed a sense of partial revival and 

freedom of expression. Nevertheless, 

beginning with 1971 (after Ceausescu’s visit 

to China), cultural production was again 

severely constrained in order to correspond 

to the directions imposed by the communist 

party. 

Theatre did not remain outside political 

pressure. The legislative frame that 

regulated the organization and functioning 

of cultural activity proved to be rigid, 

restrictive and abusive, as Article 16 of the 

Armistice Convention – concluded between 

the Romanian Governmen and the UN 

governments on the 12th of September 1944 

– demonstrates: ”Printing, import and 

dissemination of periodicals and nonperiodicals, 

as well as theatre 

representations and film broadcasting in 

Romania (...) shall be approved by the Soviet 

High Command i ”. (Marian Popescu, 2004: 

81, our translation) 

Under the cenzorship surveillance, 

theatre – as in fact all cultural and artistic 

life – was cleansed of any ideological model 

that could have reminded of the bourgeoisie 

regime. In this context, the plays 

represented on the stage were no longer 

important for their aesthetic value or 

innovative topic, but rather for their 

propagandistic echo: ”As an art exclusively 

dedicated to the masses, through its very 

artistic particularities, theatre regained – 

within the new social reality – the function 

of a moral school and a combative weapon.” ii 

(Collective author, 1956: pag. 29, our 

translation). This is an important insight 

299 

because it clearly suggests the changed 

nature and primary function of the cultural 

goods. In othe words, political pressure 

transformed plays from cultural products 

into ideological instruments. 

Centralized economy implied that the 

state budget was the only financing source 

for any form of cultural activity and for the 

performance of any creation act. 

Consequently, the money necessary for 

distribution, salary payment, set purchasing 

etc. was limited to the sum alloted by the 

state for theatre performings. On the other 

hand, theatre faculties were also financed by 

the state budget which settled the problem 

of the workplaces, too, by strictly imposing a 

fixed number of vacant seats for students in 

the area. Quantitatively reflecting the issue, 

according to Mihai Vasiliu (Vasiliu, 1995), at 

the end of 1989, in Romania there were 42 

theatres and 23 puppet theatres. 

Another important aspect to discuss is 

the fact that, during the communist period, 

the stage director had the role to adapt the 

dramatic text in order to correspond with the 

criteria imposed by cenzorship. On the other 

hand, some stage director tried to 

subversively transmit a political message 

(which otherwise would have been 

impossible to be communicated to the 

audience – see Lucian Pintilie’s and Liviu 

Ciulei’s innovative vision as stage directors). 

In fact, the stage directors played a 

significant role in orienting the audience 

towards a certain type of discourse that was 

not only admissible (according to the 

cenzorship criteria), but also entertaining 

and provoking (in the eyes of the audience). 

The discourse promoted by stage directors 

was cleansed of vulgar speech, moral in its 

message and it also implied a serious 

concern for aesthetic value and quality. 

Actually, the high standard of 

professionalism that characterized 

Romanian theatre life in the 60’s, 70’s and 

80’s is nowadays widely recognized and 

appreciated. 

The relations established between 

playwrights – cenzorship, stage directors – 

cenzorship, as well as between actors-stage 

directors – audience should not be regarded 

in an isolated way, but rather as 

interdependent. In fact, the complicity 

created between stage director-actors and 

the audience was a way of avoiding the 

gloomy and narrow reality characteristic of 

the totalitarian times. Thus, the double

discourse became prominent in stage 

representation, basically by means of an 

allusive vocabulary and symbolism 

(identifiable especially at visual and 

typological level). 

As Clayton Hamilton pointed out, 

theatre could not be possible outside its 

audience which decodes the artistic message 

transmitted by a play and it assesses its 

cultural value. Thus, being one of the most 

”popular” forms of art, dramatic discourse is 

inevitably obliged to adapt itself to its 

audience’s preferences and tastes: “The 

drama is the only art, excepting oratory and 

certain forms of music that is designed to 

appeal to a crowd instead of to an individual. 

The lyric poet writes for himself, and for 

such selected persons here and there 

throughout the world as may be wisely 

sympathetic enough to understand his 

musings. The essayist and the novelist write 

for a reader sitting alone in his library /…/. 

But it is different with a play. Since a drama 

is, in essence, a story devised to be presented 

by actors on a stage before an audience, it 

must necessarily be designed to appeal at 

once to a multitude of people. We have to be 

alone in order to appreciate the Venus of 

Melos or the Sistine Madonna or the Ode to 

a Nightingale or the Egoist or the Religio 

Medici; but who could sit alone in a wide 

theatre and see Cyrano de Bergerac 

performed? The sympathetic presence of a 

multitude of people would be as necessary to 

our appreciation of the play as solitude in all 

the other cases. And because the drama 

must be written for a crowd, it must be 

fashioned differently from the other, and less 

popular, forms of art.” (Hamilton, 1910: 30- 

58). This close linkage to the public, thus 

consumers, confers theatre a special place 

upon the other arts. As we have underlined 

before, the shaping of the audience’s 

tastes/preferences was possible in the former 

regime by means of a double role played by 

stage directors in relation to the cenzorship 

and to the spectators. 

To look at this in another way, we can 

say that during the communist period we 

have experienced the promotion of a 

restrictive and context-imposed model of 

culture. The market value, methaporically 

speaking, was centrally assessed and it was 

reflected through the established number of 

theatres, representations and workplaces in 

this area. The inner value of the cultural 

experience was also polished within a rigid 

300 

morality and thinking principles, the same 

for everybody, in which overtones could be 

expressed only by subversive representation 

and writing techniques that were used by 

both stage directors (besides Liviu Ciulei 

and Lucian Pintilie, we should mention 

Cătălina Buzoianu, Andrei Serban, Silviu 

Purcărete, Alexandru Tocilescu, Ion Cojar 

a.o.) and playwrights (Marin Sorescu, Teodor 

Mazilu, Dumitru Solomon Ion Băiesu, D.R. 

Popescu a.o.). 

The liberty of the market and the liberty 

of thought and expression, brought by the 

1989 revolution, have imposed a new 

paradigm for culture, through direct and 

indirect triggers, discussed in the next 

section. 

4. Act two: democracy enters the 

scene 

Culturally speaking, the democratic 

regime set up in our country after December 

1989 meant regaining the freedom of speech 

and artistic creativity, while simultaneously 

implying a sense of discontinuity in cultural 

performances, which was partly determined 

by the modification of the stage director 

canon (Popescu, T.C., 2009, p.5) – a direct 

consequence of Romania’s re-defining its 

new political, economic, social and cultural 

reality. 

Romania’s free market economy has led 

to a slow, but inevitable modification of 

theatre management, products, market and 

producer-consumer relation. Ten years after 

the December 1989 events, the famous 

theatre critic Marian Popescu noticed: ”After 

1989, the younger generation was caught in 

a difficult transition: the theatre institutions 

have not changed in their structures, while 

subsidies have been significantly reduced. 

Pressures of the new market economy hit 

theatres in a hard way and creative space for 

alternative theatre remains very limited.” 

(Popescu, M., 2000, p. 13). 

The slow improvement of Romanian 

theatre life can be partly explained by a 

natural resistence to new – a situation 

characteristic particularly for theatre, which 

functions on a complex interdependent 

equation: author – stage director and actors 

– audience. If we take into consideration 

that the positions of author/stage 

director/actor used to be thoroughly 

controlled and cenzored in the previous 

political regime to such an extent that each

of the three positions was constrained to 

adopt specific strategies of survival for 42 

years, we can infer the high degree of 

resistence to change that the former theatre 

structures still manifest. On the other hand, 

at present there is a numeric preponderence 

of state theatres over private ones. 

Nowadays in Romania there are 59 state 

theatres (financed by the state budget, 

having employees with an ensured 

permanent contract), of which 7 are national 

theatres. At the same time, we can remark 

an important number of private theatre 

companies that have been set up in 

important towns in our country (in 

Bucharest: La Scena, Teatrul Luni de la 

Green Hours, Teatrul Act, Teatrul 

Metropolis, Compania „Passe Partout Dan 

Puric", Teatrul Incomod, Prometheus, 

Laptaria Enache, Union, Galeriile Sigma, 

Desant, Compania Teatrala D"Aya, 

Compania Teatrul Meu - condusa de Grigore 

Gonta, Compania Independenta Off-Off, 

Compania Teatrala Civic Art si Cafe D"Eco, 

Compania INOROG ART; in Piatra Neamt: 

Compania Draga Olteanu Matei, in Iasi: 

Teatrul de Buzunar Grumazescu, in Cluj: 

Teatrul Imposibil; in Târgu Mures: Teatrul 

Ariel and Teatrul ”74”; in Brasov: Teatrul 

Joint etc.). Private theatres represent a 

cultural alternative to state ones, yet 

competition between the two could be 

described as not advantageous for the former 

category. 

In the state-private theatre equation, 

the former category appears as privileged – 

thanks to its direct access to the state 

budget, the availability of theatre buildings 

(which means that no money is necessary to 

be spent for renting) and its large audience 

(in today’s Romania, people still tend to 

regard cultural state institutions with more 

trust especially thanks to their long 

tradition and richer repertory). On the other 

hand, private theatres may depend on hired 

public buildings/spaces for which they must 

pay an important amount of their income. 

According to Miron Manega (Manega, 2008) 

a third of the income obtained after one 

stage representation must be paid by private 

theatres to the budgetary theatres in order 

to cover rent expenses. 

In nowadays Romania, the legislative 

frame regulating cultural activities is 

flexible – in the sense that it may be adapted 

to corespond to the existing needs of cultural 

institutions and its employees. Yet, criticism 

301 

formulated against the present cultural 

legislation (the one regaring theatre, in 

particular) is constant and abundant in the 

studies made on theatre life, which bring 

into evidence more discontent than 

satisfaction on the part of the artists and 

theatre producers. Theatre employees 

(directors, actors and technicians), as well as 

dramatic critics, repeatedly draw attention 

on the wrong legal approach concerning the 

salaries calculation for work performed on 

the stage. (see Alice Georgescu, 2010; 

Cristina Modreanu, Dorina Lazăr, 2007; 

Dana G. Ionescu, Horatiu Mălăele, 2010). 

Cultural policies have become a major 

concern not only for state institutions, but 

also for NGOs. In this respect, we should 

mention the constant effort of UNITER (The 

Romanian Theatre Union – a professional, 

apolitical, non-governmental and non-profit 

organization, constituted by the free 

association of theatre producers) to develop 

Romanian theatre. This Union supports the 

development of Romanian theatre and tries 

to make national cultural patrimony known 

at international level by means of the 

projects and activities it develops every year. 

These activities and projects include: the 

UNITER Prizes Ceremony, The Artists’ 

House Project (meant to enhance theatre 

pensioners’ living standard), The National 

Campaign Artists for Artists, The Young 

Actor Ceremony, The National Theatre 

Festival (with international participation), 

The Best Romanian Play of the Year, The 

Unitext Publishing House, The E-Mobility 

Programme. 

The new free market economy has also 

made room for the creation of private 

theatre faculties – that represent an 

alternative (how efficient this is will be 

proven in time by their alumni) to the state 

ones. Consequently, the number of theatre 

graduates is large and this represents a 

major cause for the small number of 

workplaces existing on the labour market for 

theatre graduates. 

As far as the theatre audience is 

concerned, we can notice a reconfiguration of 

its composition and preferences. Starting 

with 1990 the abundant information 

available in our society has re-shaped the 

theatre audience in a serious way. This 

situation would have been impossible before 

1989, when sources of information were 

scarce and cenzored and there existed a 

single authorized theatre repertory. The

esult of this process is that the theatre 

audience has split into various groups that 

can hardly be identifiable as belonging to the 

category of theatre consumers only. This 

situation was also seriously generated by the 

competition brought to stage performances 

by other cultural products (films, television 

programmes and Internet databases) that 

are very cheap and may be regarded by art 

consumers as alternatives to average priced 

theatre representations (average priced in 

relation to the medium income in Romania, 

which is about 150 EUROS; a theatre ticket 

normally varies between 15 RON and 35 

RON, that is, approximately, between 4 and 

9 EUROS). For a more comprehensive 

image, we can advance also some data 

regarding the average of 8.3% as 

consumption expenditures on recreation and 

culture, of the total household consumption 

expenditure, at the European Union level. In 

2005 our country ranked last but one, with a 

half percentage of the EU average 

(Consumers in Europe, p 310) 

In the former regime, theatre was 

regarded as a form of refuge from an 

unbearable reality and it was the most direct 

way to address to the public (thanks to the 

communicative function of theatre). In fact, 

before 1989 culture, in general, was 

perceived as a form of resistence (Theodor 

Cristian Popescu, 2009: pag. 16) to political 

ideology, hence the privileged place that 

theatre artists enjoyed during the 

totalitarian period. Nowadays, many famous 

actors are forgotten or manage to survive on 

a very small income (the monthly pension). 

As Cristina Modreanu points out in an 

article in Ziarul Financiar (Cristina 

Modreanu, 2010), the initiative of local 

councils has proven generous as to the 

building of new theatres – a result of the 

good use of the local money and 

consequently of the decentralization process 

applied in public administration. The 

renowned theatre critic makes reference to a 

theatre-studio built in Cluj by the Magyar 

Theatre (in December 2009) and a theatre 

built in Timisoara – known as Sala 2 

(finished at the beginning of 2010), which 

benefits of a mobile stage. New buildings are 

under construction in Râmnicu Vâlcea and 

Sf. Gheorghe. 

In the new political and economic 

context, most of the Romanian stage 

directors and playwrights have come up 

with an innovative artistic vision. The plays 

302 

directed by Victor Ioan Frunză, Mihai 

Măniutiu, Alexandru Dabija, Cătălina 

Buzoianu, Dragos Galgotiu, Tompa Gábor, 

Sorin Militaru and Radu Afrim impress the 

audience through originality and 

professionalism. On the other hand, drama 

writers have published plays that were 

performed in the country and abroad with 

more or less success, some of them forcing 

the language limits to a serious extent, 

provoking criticism and discontent on the 

part of theatre consumers. In the new 

generation of playwrights, Matei Visniec is 

the most appreciated and known author 

thanks to his prolific and valuable texts (of 

which we mention: Tara lui Gufy, piesa de 

teatru, Bucuresti, 1992; Angajare de clown, 

piesa de teatru, Bucuresti, 1993; Si cu 

violoncelul ce facem?, Frankfurt, 1994; 

Buzunarul cu paine, piesa de teatru, Lyon, 

1994; Trei nopti cu Madox, Belgia, 1995; 

Povestea ursilor panda auzita de la un 

saxofonist care avea o iubita la Frankfurt, 

piesa de teatru, Lyon, 1995; Teatru 

descompus sau Omul-lada-de-gunoi, Paris, 

1995; Caii la fereastră, piesa de teatru, 

Paris, 1996; Paparazzi sau cronica unui 

apus de soare avortat, Paris, 1996; Ultimul 

Godot, Lyon, 1996). Besides Matei Visniec, 

Dumitru Solomon (Repetabila scenă a 

balconului – 1996, Zăpezile de altădată – 

2003, Arma secretă a lui Arhimede – 2003 

etc.), Alina Nelega (Amalia respiră adânc – 

2005, Decalogul după Hess – 2006), Vlad 

Zografi (Isabela, dragostea mea – 1996, 

Oedip la Delphi – 1997, Regele si cadavrul – 

1998, Viitorul e maculatură – 1999, Petru 

sau petele din soare – 2007), Saviana 

Stanescu (Apocalipsa gonflabilă – 2000, 

Waxing West – 2007 etc.), Stefan Caraman 

(Colonia îngerilor – 2007, Aeroport – 2008 

etc.), Geanina Carbunariu (Stop the Tempo – 

2004, mady-baby.edu – 2005 etc.), Andreea 

Vălean (Eu când vreau să fluier, fluier – 

1997, Ultimul joc de Taroc – 2004 etc.) and 

others have created original and aesthtically 

valuable plays. 

5. Act three: what has the 

consumer society to say about 

theatre? 

In order to better understand nowadays 

the approach to the theatre industry, we 

have to consider innerent the question posed 

in this section’s title. To answer it, let us

start with the core philosophy of our 

contemporary society: to be or to have? 

The modern individual doesn’t know any 

other way to live than by possesion and by 

consumption. To believe you can retain the 

real through an image, to fill in a content 

through a simple cover, to posses things 

through signs and signs through things, this 

is the common description of the 

consumption society, in total opposition with 

a contemplation society. (Brune, 2003). 

The type of culture that is permeated by 

consumerism is often referred to as a 

consumer or a market culture, including the 

norms and values of the consumer society. 

The cornerstone of this culture is 

represented by the symbolic aspect of goods 

and services. In other words, we consume 

goods not primarily for their use-values but 

for their sign-value. 

Going back to the classical forms of 

culture, and especially theatre, let us 

envisage how the framework of market 

culture affects them. 

As different studies show it, the 

theatregoing experience is a complex one, far 

from a simple measurement of innate tastes, 

which implies long learning periods (Levy- 

Garboua & Montmarquette, 1996). But 

nowadays society doesn’t have anymore the 

patience of fostering long learning periods 

and thus the tendency of people to abandon 

cultural practices, like theatregoing, for the 

fast identification with their consumption 

objects: luxury automobiles, designer 

clothing, or expensive jewelry. The consumer 

society has developed a breathless 

relationship with time, totally rejecting the 

importance of reflection and proposing a life 

in the accelerated culture of our own 

creation (see Carl Honore, 2008, for a witty 

critique of the cult of speed). 

Another core issue to discuss at this 

point is emulation and the general trend of 

consumers to emulate those who are above 

them in the social hierarchy. Unfortunately, 

this constitutes into another argument 

against theatregoing, because the 

contemporary celebirty icons of the 

Romanian society, and not only, are largely 

engaged to the market culture. It is worth 

mentioning also the power of conformity and 

groupthinking, as asserted by social 

psychology: „A mode of thinking that people 

engage in when they are deeply involved in a 

cohesive in-group, when the members' 

strivings for unanimity override their 

303 

motivation to realistically appraise 

alternative courses of action” (Janis, 1972, 

p.9). The groups and individuals presented 

as successfull are mostly part of the same 

category of parvenus, and the fact media 

acclaims them to be a good example to 

admire and to follow, is the equivalent of the 

accomplices from the Asch line experiment 

(Asch, 1955) that induces a conform answer 

with the imposed social norms. 

In this respect, lifestyle, the choice of 

products and the desire for certain goods, is 

understood not only as a simple function of 

high or low income but considered to be 

generated from the habitus, the way that the 

perception of the social world is structured. 

This leads us to the conclusion that social 

distinction can be acquired as the result of 

socialization into a way of life, the ‘habitus’. 

This pursuit of distinction is a “pure, 

pointless expenditure” says Bourdieu (1984), 

which shores up cultural capital, enhancing 

social status and prestige, but taking time 

and taste, discernment. 

This approach seems to confirm the 

ideea that consumerism promotes different 

manners of acquring distinction, than those 

implied by theatre. A quantitative 

illustration offered by the Eurostat report, 

”Consumers in Europe”, states that many 

recreational and cultural goods cannot be 

considered as essential consumer goods, but 

rather as luxury purchases (holidays, 

cultural services, recreational and sporting 

services): „it is perhaps unsurprising, 

therefore, that a steadily increasing 

proportion of household consumption 

expenditure was spent on recreation and 

cultural activities as household income rose” 

(Consumers in Europe, p 311). 


A first conclusion that can be drawn is 

that Romanian theatre is facing a series of 

difficulties from which it was protected 

before 1989. We should not deduce from this 

statement that the totalitarian regime was 

the key to solve the existing theatre 

problems. On the contrary, we appreciate 

that out of the present controversies and 

discontents that are generated by the 

inclusion of culture in the free market 

economy, Romanian theatre will find its way 

and depart from what the famous theatre 

critic, Miruna Runcan, has come to call - ”the 

Romanian theatre model”, a phrase referring

to our theatre’s dependence on the previous 

or contemporary foreign/national cultural 

innovations (Runcan, 2000). 

Nonetheless, we believe it is not 

recommendable to ignore the consequences 

of the new consumer culture and the” hip or 

rebel consumer”, who attempts to express 

his or her individuality through consumer 

choice. As a second conclusion, and also a 

reverse implication, the exploration of the 

past cultural patterns can bring some light 

over our present socio-economic model of 

affluence and consumption. 

To sum up, cultural economics and the 

analysis of culture dynamics, through its 

different ways of expression – 

institutionalized or not, play an important 

role in better understanding the society we 

live in. 

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17 

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305




MODELING ONLINE CONSUMER BEHAVIOR THROUGH ONLINE 

SHOPPING EXPERIENCE: THEORETICAL ISSUES 

Abstract 

The aim of this paper is to provide a 

literature review of the concept of “web 

experience”, also known as “online shopping 

experience”, through the analysis of scientific 

literature findings over the last decade. The 

objective of this paper is twofold: first it 

intends to provide a clear understanding of 

current state of literature regarding the web 

experience and its implications in influencing 

online consumer behavior and second it is 

supposed to set the grounds for further 

theoretical and empirical research that could 

incorporate the web experience into online 

consumer models. The paper will manage to 

meet its objectives by highlighting the most 

important controllable factors by the online 

vendors which can affect online consumer 

behavior. 

Key words: online consumer behavior, web 

experience, website functionality, website 

content, online trust 


On December 31 st 2009 there were 1.8 billion 

Internet users and a world internet 

penetration of 26.6% (Internet World Stats). 

As the internet penetration rate increases, 

so does the online retail sales. The U.S. 

Census Bureau of the Department of 

Commerce announced $32.4 billion online 

retail sales for the second quarter of 2009, 

indicating an increase of 2.2% from the first 

quarter. Moreover, online retail sales 

continue to grow steadily: a recent Forrester 

ICONARU Claudia; 

PhD Attendant 

The Bucharest Academy of Economic Studies 

iconaru.claudia@gmail.com 

MACOVEI Octav-Ionut; 

PhD Attendant 

The Bucharest Academy of Economic Studies 

octavmaco@gmail.com 

306 

Research forecast indicates that U.S. online 

sales will continue to increase with a 10% 

annual growth rate through 2014. (Forrester 

Research, 2009). According to the same 

source, Western Europe online retail sales 

are expected to increase 1% faster than U.S. 

online retail sales, which means a 11% 

annual growth rate, reaching $156 billion 

through 2014. Although online retail sales 

grow at a steady rate, more and more 

consumers have made at least one online 

purchase. A Global Nielson Consumer 

Report reveals the fact that a global average 

of 86% of the interviewed people has at least 

one purchased over the internet and 55% 

made a purchase less than one month ago. 

Analyzing these statistics, one could assume 

that besides the fact of experiencing at least 

once a purchase over the internet, the 

frequency of online shopping is still low. 

Through this paper we will focus on a better 

understanding of online consumer behavior 

towards online shopping acceptance and 

continuance. We will analyze only those 

factors influencing online consumer behavior 

that can be controlled by the vendor in terms 

of delivering a quality web experience to 

customers. Delivering a quality web 

experience is highly associated with the 

vendor’s competitive advantages. 

Researchers suggest that increased online 

retail sales are due partially to superior 

online shopping experience offered by ecommerce 

firms (Kotha et al. 2004, p. 109- 

110). Due to its huge implication in 

generating online sales, all vendors should

try to ensure optimal online shopping 

experience for their customers. 

The vendor can exercise control upon many 

factors such as website’s features: 

functionality (usability and interactivity), 

content (aesthetics and marketing mix) and 

online trust. Each of these factors will be 

addressed in an attempt to offer a 

comprehensive review of the literature and 

to set grounds for further research. Both 

researchers and practitioners agree that the 

quality of online shopping experience affects 

the online consumer behavior, as shall be 

discussed in the next section, literature 

review. 


Online consumer behavior has been an 

interdisciplinary subject of intense research 

during the last decade. The first studies 

attempting to explain online consumer 

behavior were published in the late 90s (Li, 

2002, p. 509). Research papers on online 

consumer behavior are to be found in a 

variety of journals and conference 

proceedings, covering the fields of 

information systems, marketing science and 

related disciplines (Constantinides, 2004, 

p.113). Although significance progress has 

been made towards an integrated model of 

online consumer behavior, academic 

literature is still fragmented, most studies 

focusing on a single variable or group of 

variables that influence online consumer 

behavior. Among the first attempts toward a 

unifying framework that captures all the 

important factors explaining online 

consumer behavior was the study of Cheung 

et al. Through a literature review, the 

authors found five main groups of factors 

influencing online consumer behavior, as 

follows: online consumer characteristics, 

environmental influences, product or service 

characteristics, medium characteristics and 

online vendor/intermediary characteristics 

(Cheung et al, 2003, p. 200). These groups of 

factors can be further classified as 

uncontrollable factors – online consumer 

characteristics and environmental 

characteristics and controllable factors – 

product or service characteristics, medium 

characteristics and vendor/intermediary 

characteristics (Constantinides, 2004, p.112). 

Online consumer characteristics refer to 

demographic factors, internal individual 

factors and behavioral characteristics while 

307 

environment characteristics can be grouped 

into social variables, cultural or community 

variables and other environmental variables 

such us available information, legal 

restraints or situational factors. (Turban et 

al. 2008, p.172). 

Besides those factors that cannot be 

controlled by vendors, there are controllable 

factors towards each marketing practitioners 

can exercise control. Marketers can influence 

the online buying decision process by 

offering a proper online shopping experience, 

which is a combination of elements going 

beyond the traditional marketing mix 

(Constantinides, 2004, p.112). The online 

shopping experience or the web experience 

was most concentrated upon functionality 

and aesthetics specifications of an online 

store (Chang et al. 2005, p. 549). As we shall 

discuss in this article, there are several 

other components of online shopping 

experience: trust building and marketing 

mix. 

3. Main components of online shopping 

experience 

Literature review shows a high interest in 

studying the factors which influence the 

online consumer behavior, especially those 

factors upon which control can be exercised 

by the vendor. The controllable factors can 

be manipulated in order to offer an 

extraordinary online shopping experience 

and gain a competitive advantage on the 

internet (Novak et al. 2000, p. 23). 

Regarding the attempt of grouping the 

controllable factors influencing the consumer 

behavior that forms the online shopping 

experience, researchers have reached a 

consensus. Therefore, online shopping 

experience is formed by five main building 

blocks and their related sub-categories: 

functionality with usability and interactivity 

subcategories, trust building, aesthetics and 

marketing mix (Lorenzo, 2009). Each 

component will be discussed further in this 

paper. 

4. Online store functionality 

Online store functionality includes a set of 

functional features and functions in order to 

meet the users’ needs. 

The online store functionality can affect 

consumers’ perceived credibility of the 

website. According to the Web Credibility

Project Research of Stanford University, 

good impressions of website’s functionality 

factors results in increasing credibility 

towards the online vendor or owner of the 

website (Fogg et al. 2002, p.46) 

The most important features of online store 

functionality factors are: the website 

usability and interactivity (Constantinides, 

2004, p.114). 

4.1 Usability: Website usability or web 

usability have been defined as the ease by 

which a website can be used in terms of 

search and navigation (Abel, 2003). 

- Search: Jakob Nielsen, also entitled 

“the guru of web page usability” claims that 

search is one of the most important user 

interface elements of any large website (User 

Information Technology, useit.com). 

According to his studies, the primary task of 

users when visiting a website is to use the 

search button in order to retrieve 

information. Fewer are those users that 

follow the links until finding the eligible 

information. According to a Stanford 

University Study, the biggest complaint of 

the interviewed people was the poor search 

facility. (Fogg et al. 2002, p.47) 

- Navigation: Along with the primacy 

of search, website usability requires a good 

navigation structure which can facilitate 

user’s movement through the information 

architecture. Navigability represents the 

sequencing of pages, well organized layout 

and consistency of navigation protocols 

(Palmer, 2002, p. 156). 

A study of Jupiter Research (2006) 

addressing the retail website performance 

confirmed past academic research, ease of 

navigation and website search facilities as 

being key factors that influence online 

consumer buying decision. The most 

important key factor revealed by the study 

was the ease of navigation, being indicated 

by sixty-five percent of the interviewed 

online consumers. 

- Other usability factors: There are 

however other components of web usability, 

such as: convenience (associated with easy 

and fast internet browsing), accessibility 

(associated with high SERP – search engine 

results page), website speed of loading and 

information architecture (Constantinides, 

2004, p.118). 

Navigability through arrangement, 

sequence, links, layout, website speed 

through initial access speed and speed of 

display between website’s pages, website 

308 

content through the amount of information, 

variety of information, word count and 

content quality were identified as some of 

the key metrics influencing the success of 

websites (Palmer, 2002, p. 163). 

Website usability can be evaluated using an 

HTTP proxy for tracking the pages visited by 

users, mouse tracking using client-side 

scripting and even eye movement tracking 

(Atterer, 2006). Evaluating the website 

usability can provide practitioners with a set 

of principles and common practices for 

designing efficient online stores. 

4.2 Interactivity: The website interactivity 

is another key factor contributing to overall 

online shopping experience. Website 

interactivity has two forms: interactivity 

with the online vendor (customer service, 

interaction with the vendor’s personnel and 

website customization) and interactivity 

among website users (Constantinides, 2004, 

p.118). 

Customization (the ability to customize the 

website’s look, feel and content) and 

responsiveness (feedback and response 

features) influence the success of websites 

(Palmer, 2002, p. 155). If websites success 

was to be measured by website popularity, 

then playfulness and reciprocal 

communication would be other salient 

factors contributing to online shopping 

experience (Chen, 2004). 

5. Online trust 

The construct of online trust has been 

considerably studied due to its complexity 

and its multi-dimensional character (Urban 

et al. 2009, p. 180). Online trust is another 

building block influencing online consumer 

behavior, associated by researchers with the 

long-term success or failure of online 

vendors. Online trust is a broad concept, 

referring to trust in the online environment 

(Johnston, 2004, p. 221). The trust in online 

environment means the consumers’ trust in 

the website and the internet, as a 

technology. 

Online trust and TAM: Considering the 

website an information technology, 

researchers applied TAM (Technology 

Acceptance Model) in order to verify the 

positive relation between a consumer’s trust 

using an online store and his /her attitude 

and intention toward using the online store. 

It resulted that online shopping experience 

depends not only on the operational

characteristics of websites, but also to a 

greater degree on consumer trust towards 

websites (Tang, 2005, p. 7). Therefore, the 

website is viewed as a standpoint of building 

consumer trust (Bart et al. 2004, p. 4). 

A more recent study of Urban et al. 

highlights the advances in online trust 

research, providing a general framework of 

online trust: as stated previously, the 

website affects online trust which in turn 

influences the online shopping experience. 

Online customers learn from positive past 

online shopping experience and build trust 

towards the website. Never the less, they 

spread e-wom (word-of-mouth) to other 

consumers through social networks (Urban 

et al. 2009, pp. 180-181). 

Urban et al. study reinforced past researches 

that considered online trust a mediating 

variable between site characteristics and 

online sales. 

Website’s characteristics can influence: 

- the perceived financial risk (the fear 

of incurring financial losses) 

- information risk (the fear of personal 

information being exposed or misused) 

(Constantinides, 2004, p.118-119). Therefore, 

the website privacy and security elements 

are the most important drivers of online 

trust. Bagdoniene et al. confirmed past 

studies, underlying that the biggest barrier 

to shop online is still the perceived risk of 

security of their private information and 

disconfirmed past studies emphasizing that 

payment system security is no longer a 

threat among online consumers (Bagdoniene 

et al. 2009, p.373) 

Recent studies brought evidence of the 

existence of other elements that influence 

online trust: corporate reputation (Lu, 2009, 

p.420) and website design (Urban et al. 

2009, pp. 181-182), the later emphasizing 

that online consumer is more than privacy 

and security. 

6. Online store aesthetics 

Lavie et al. provide considerable insights to 

understanding the role and evolution of 

“aesthetics” in human-computer interaction: 

until the beginning of the new century and 

short after, website design was mainly 

focused on usability. After that, an increased 

awareness of aesthetics is manifested 

through academic research and practice. 

More and more studies suggested that 

aesthetics is a strong factor influencing the 

309 

pleasure experienced by user, in strong 

correlation with the perceived website’s 

usability (Lavie et al. 2003, pp. 276-277). 

Aesthetic factors were classified as: 

- “classical aesthetics” (orderly and 

clear design, strongly related to usability) 

- “expressive aesthetics” (creative and 

innovative design that breaks conventions) 

(Lavie et al. 2003). 

Recent studies are concerned with 

developing new web metrics for predicting 

positive aesthetic impression and user 

preference of websites design: objective 

factors (symmetry, order, complexity) and 

subjective factors (familiarity, novelty) 

(Papachristos, 2009, pp.119-122) 

7. Marketing mix 

The online marketing mix influences directly 

the online shopping experience through: 

product, price, promotion, website’s 

characteristics and last, but not least, 

fulfillment. (Constantinides, 2004, pp. 114- 

115). In addition to traditional 4P’s of the 

marketing mix, Constantinides identified 

another element: fulfillment which is formed 

by: fast and flexible delivery, order tracking. 

8. Online shopping experience and the 

theory of flow 

The theory of flow was often referenced 

when studying online shopping experience. 

First introduced by M. Csikszentmihalyi, the 

flow is a state of mind experienced by 

individuals fully involved in an enjoyable 

activity (Pace, 2003, p. 327). The main 

constructs directly affecting the flow 

experience are: web skills, control during 

web interaction, challenge and arousal, 

telepresence and time distortion (Novak et 

al. 2000, p. 25). While users' web skills 

cannot be influenced by the vendor, the 

control variable perceived by the users, 

which refers to web user’s ability to navigate 

through the website and the website’s 

response to his inputs, can be improved. 

Telepresence, which refers to the online 

environment’s ability to appear more real or 

dominant than the physical environment, 

can also be manipulated by online vendors. 

The importance of users experiencing flow 

when buying from online stores is crucial for 

a proper online shopping experience. In his 

study, Pace identifies some of the 

distractions that can terminate the web flow

experience: poor website design interface 

and design elements such as inappropriate 

colors or cluttered page layout, lengthy 

response time, disorganized content, 

inconsistent navigation cues or pop-up 

advertisements (Pace, 2003, p. 351). All the 

building blocks of the web experience and 

their sub-categories should engage users in 

experiencing flow. 

There is another element capable of 

delivering experiential value to websites’ 

users, the play. Researchers showed that 

play is a crucial variable linking the flow 

theory to online consumers’ attitude 

formation. Attitudes towards the online 

vendor may appear enhanced when 

consumers experience an engaging, 

enjoyable online experience (Mathwick, 

2004, pp.325 and 330). Following the same 

path, Lit et al discusses a broader term than 

flow which affect web experience: enjoyment. 

Enjoyment has three dimensions: 

engagement in an activity (strong related to 

focus), a positive affect (strong related to 

feelings of pleasure, happiness) and 

fulfillment of some need or desire (Lin et al. 

2008, p.43). According to the same source, 

website’s engagement, sensation and 

reaction has a positive and direct effect on 

web usage. 

9. Final consideration on online 

shopping experience 

A recent study of Lorenzo et al. tested the 

model of five building blocks of online 

shopping experience, initially proposed 

theoretically by Constantinides and 

concluded the following: 

- All five categories of factors 

influence (usability, interactivity, trust, 

aesthetics and marketing mix) influence 

significantly the online consumer 

preferences, 

- All factors except interactivity are 

significant predictor of purchasing decision, 

- Website’s usability has the most 

significance in influencing online consumer 

preferences and behavior, 

- Marketing mix and aesthetics (the 

inclusion of promotions, low prices, pleasant 

colors) influence the consumer’s preferences 

in a smaller portion than usability and trust. 

The major conclusion of the study was that 

web experience influences the choices of 

online shoppers, which confirms previous 

literature ((Lorenzo, 2009). 

310 


This article examined different groups of 

factors affecting the overall online consumer 

shopping experience and their importance 

for influencing online consumer behavior. 

The classification of factors into five main 

building blocks was first introduced by 

Constantinides after conducting a literature 

review of academic papers prior to 2004. 

Fewer were the attempts to integrate all the 

controllable factors affecting the online 

consumer behavior, rather most of the 

academic papers focused on single 

subcategories or categories of factors that 

Constantinides indentified. Taking into 

account recent academic papers related to 

controllable factors that affect the online 

consumer behavior, we intended to bring a 

clear perspective on the current state of 

literature, rather fragmented than unified. 

Further research should take into 

consideration other controllable factors 

influencing the online consumer, such as 

flow and related constructs. 

Furthermore, a framework of online 

shopping experience could be developed and 

applied to an integrated model of online 

consumer behavior. 

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190




THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD 

GOVERNANCE AT LOCAL LEVEL? 

Abstract 

Good governance and good public 

administration are essential aspects of 

democracy. The ability to distribute society’s 

resources, curb the abuse of power and 

corruption and guarantee equality of all 

persons before the law is fundamental to a 

well-functioning society. 

The starting point of this research has been the 

hypothesis that our new commitment to 

“governance” norms is interlocked with the 

emergence of a new model (or new models) of 

legitimate political action and state regulation. 

One of the stimulating challenges of recent 

political history is the embodiment in 

supranational institutions such as those of the 

EU of a general concept of (good) “governance”. 

This concept, however, raises a number of 

questions related to its legitimacy. On the one 

hand, classical democratic ideals commit us to 

the respect of popular voice, no matter the 

direction it takes, provided it is compatible 

with broadly defined human rights. On the 

other hand, abuses of political power as well 

as common economic and technological 

challenges leave one with a feeling of urgent 

need for international or supranational 

organization, or at least coordinated network 

actions. 1 

Good governance measurement 

indicators 

The quality of governance is divided into six 

categories aimed at capturing how 

governments are selected, monitored, and 

replaced; a government’s capacity to formulate 

and implement sound policies; and the respect 

1 See conclusions of the conference held at Merton 

College, Oxford University, 11’th March 2006 

Cristi Iftene, PhD, Researcher 

312 

of citizens and the state for the institutions 

that govern them. The six measured indicators 

are: (a) voice and accountability; (b) political 

stability and lack of violence; (c) government 

effectiveness; (d) regulatory quality; (e) rule of 

law; and (f) control of corruption. We can 

remind here also the instruments enounced by 

Professor Xavier that we already have spoken. 

The decentralization process 

Decentralization and the development of 

democratic local governance continue quietly 

to sweep the world. A wide variety of countries 

are increasing the authority of local 

governments and working to make them more 

responsive and effective. The prime 

motivations behind these reforms vary. Some 

countries are emerging from dictatorships 

seeking to disperse power among smaller 

governmental units. Others are reducing the 

size of the central government as part of a 

transition to a more efficient market economy. 

Many others seek to increase public 

involvement and accountability in government 

decision-making. Where one country is 

responding to donor pressures for popular 

reform, another is hoping that the poor 

performance of the national government can 

be overcome by allowing local governments to 

provide fundamentally local public services. 

Since, in most cases, decentralized systems of 

government have three different levels of 

government (a national level, a regional level, 

and a local level), in general, decentralization 

implies devolution of power (which may 

include the transfer of resources, 

responsibilities for public services, or decisionmaking 

authority) away from the central 

government to political and administrative 

jurisdictions below the center. For some, this 

means the transfer of authority and 

responsibility for public activity from the

central government to “sub-national,” or the 

provincial- or state-level governments. To 

others, it is devolution to district, municipal, 

and other local government-including the 

lowest possible rung of local government. To 

still others, it is devolution to quasiindependent 

organizations, and to ancillary 

local community-based self-governing 

organizations and NGOs. 

Even where democratic development is not a 

central consideration, in those countries where 

genuine reform has occurred, there are 

openings for continued democratic change. 

Decentralization promotes democracy in 

myriad ways according to Western liberal 

tradition. By bringing government closer to 

citizens, decentralization allows people to 

participate more effectively in local affairs, 

including identification of community 

priorities. Local leaders can be held 

increasingly accountable for decisions that 

affect citizen’s lives. Citizens and their elected 

leaders gain experience in the practice of 

democracy. 

Decentralization signifies the dispersion of 

central government power, increased 

opportunities for responsive leaders or 

previously marginalized groups to enter 

politics, and increased attention to local 

concerns. With decentralization, local 

decisions can be tailored to local needs, 

allowing scarce resources to be generated and 

expended with greater efficiency and public 

services to be provided more effectively. Taken 

together, as local government performance 

improves, these changes can enhance the 

legitimacy of the democratic system. 

Decentralization is by no means always a 

positive experience. The process carries a 

number of potential disadvantages as well. It 

can produce territorial inequality as wealthy 

localities take advantage of their new 

autonomy to push further ahead of low-income 

areas. 

Increased local authority may in some 

communities allow elites to dominate local 

politics. Decentralization can threaten 

territorial integrity if it gives rise to separatist 

demands and, especially when financial 

oversight of local officials is weak, it can lead 

to increased corruption. Local service delivery 

313 

may deteriorate where financial and 

administrative capacity is weak. 

Democracy and Governance in particular is 

explicitly concerned with decentralization as a 

political process and with its impact on a 

nation’s democratic development. 

As countries decentralize and call on their 

local governments to respond to their 

communities and to more effectively deliver 

services, we can wonder: How can we improve 

the democratic system through 

decentralization reforms? 

Decentralization gives the local governance 

system the opportunity to become increasingly 

democratic. It helps position local officials to 

work for the benefit of the community at-large. 

Evidently without decentralization, the 

development of democratic local governance is 

much more difficult. 2 

As decentralization opens avenues for the 

development of democratic local governance, 

local governments gain the authority, 

resources, and skills; make responsive choices 

with citizen input; and operate effectively and 

accountably. 

Elements of good governance at local 

level 

Parting from the below two reports we will 

develop the elements of good governance at 

local level. 

In its report, Governance for Sustainable 

Human Development, the UNDP 

acknowledges the following as core 

characteristics of good governance. 

1) Participation 

2) Rule of law 

3) Transparency 

4) Responsiveness 

5) Consensus orientation 

6) Equity 

7) Effectiveness and efficiency 

8) Accountability 

9) Strategic vision 

Accordingly, the key dimensions of governance 

identified by the World Bank were: 

1) Public sector management, 

2 Descentralization and democratic local governance 

programming handbook, Centre for democracy and 

governance, Technical publication series, Washington 

DC, May, 2000

2) Accountability, 

3) Legal framework for development, and 

4) Transparency and information. 

Local democracy 

Local democracy has been mainly perceived as 

an administrative issue defined in the narrow 

framework of administrative and financial 

autonomy and simplified in a general 

dichotomy with the central government 3 . 

In the European political science literature 

problems of democracy and democratization 

have been one of the most popular research 

issues but local democracy remained quite 

neglected. The notion of “local democracy” 

appeared mainly as an item of political 

discourses and propagandas except for a few 

works in which it generally indicated an 

enhanced autonomy for local governments. 

Subjected to a strong administrative tutelage 

as well as very limited economic resources and 

expected just to provide basic public services, 

local governments are believed to suffer 

significantly from the centralist state 

tradition. 

In such an administrative tradition, local 

democracy has been naturally perceived in 

direct reference to the central government and 

thus corresponded roughly to the 

administrative and financial autonomy of local 

governments, particularly that of 

municipalities. Trapped on such a narrow 

stage, the enhancement of local democracy 

was reduced to an isolated power struggle 

between the central and local players in which 

citizens have no significant role to play. 

Challenges of local democracy 

There are challenges to be met before political 

and social democracy can be achieved in local 

government. 

The development of democratic local 

governance requires increasingly responsive, 

accountable, participatory, and effective local 

government. That is, it calls for improved local 

government-citizen interaction, the 

strengthening of media reporting on local 

government and community affairs, and 

building an active, more pluralistic civil 

society. 

3 http://ejts.revues.org/index1103.html 

314 

The following points are common in 

strengthening local government 

responsiveness, accountability, and 

effectiveness. 

Creation of opportunities for citizens to 

interact and to express point of views 

and priorities for local services 

Service is at the heart of local government 

performance and, if it meets the expectations 

of citizens, builds a sense of ownership that 

underlies democratic governance. Establishing 

open processes for gathering citizen input on 

service priorities, standards, fees, and 

satisfaction gives citizens the opportunity to 

voice their views and take responsibility as 

active participants in the progress of their 

community. In addition, it provides the local 

government with data from those who finance 

and rely on the services for informed decisionmaking 

4 . Such interaction is essential to 

democratic local governance. In many 

developing world societies, citizen’s 

involvement and the public official’s 

expectation of community involvement is 

traditionally weak or nonexistent, often 

characterized by passivity or intimidation. The 

objective is to get local officials to seek out and 

eventually expect public participation. The 

locality needs to become involved, expect 

results from its elected leaders, and develop a 

collective sense of community. Over time, 

through continual learning-by-doing, 

democratic governance can develop. 

Access to public information 

Information dissemination is the currency of 

local government-community relations. 5 Local 

4 

http://apply07.grants.gov/apply/opportunities/instructi 

ons/oppRFA-511-08-015-instructions.DOC 

5 Decision 1702/2001/GG of the European 

Ombudsman, states that good administrative practice 

or the principle of good administration demands that 

applications be examined in the light of the 

requirements to which they are subjected by the rules 

in force; likewise, applicants must be kept informed 

about the decisions the administration adopts in their 

regard, all the more so if such information is 

requested by applicants; dealing with applications 

within a reasonable time is also part of these same 

principles, as is the right to be heard before an 

adverse decision is taken.

policies, laws, and traditions that govern 

public records, meetings, and citizens access 

rights can be reformed without enabling 

national legislation. Local officials can take 

the lead in this area by setting standards, 

instituting policies, training staff to 

implement them, and informing the public of 

their new rights and how to exercise them. 

Many local governments in developing 

democracies have demonstrated their capacity 

to develop standing information mechanisms 

city hall press centers, citizen information and 

service centers, annual budget summary 

publications, and, increasingly, web site 

applications. 

Strengthening communication and 

information mechanisms at the local level can 

be less onerous than tackling access issues 

through national-level legislation. Local 

practices developed in targeted jurisdictions 

can be scaled up and widely disseminated 

through local government or professional 

associations, civil society organizations, and 

news media unions. 

Widespread local adoption of these practices 

may reinforce or catalyze national-level 

efforts. 

Developing responsive and accountable local 

government requires an informed public. Local 

officials must inform the community about 

local affairs and about their efforts to address 

citizens concerns 6 . Citizens, in turn, must have 

access to information to be able to act on their 

interests. In many developing countries, in 

large part because the media are poorly 

developed or are dominated by particular 

groups of interests, transparency is extremely 

weak. Neither local government officials nor 

their constituents fully appreciate the value of 

information to local affairs. The promotion of 

active, independent media to cover local affairs 

can help address the lack of transparency. 

6 Decision 1767/2001/GG concludes that it is good 

administrative practice to reply to citizens letters 

within a reasonable time, and that failure to do so 

constitutes an instance of maladministration 

315 

Create the support for participatory 

procedures allowing citizen input on 

decisions regarding resource allocation 

and planning 

Access to information is important because it 

allows citizens to keep a watchful eye on 

government behavior. Perhaps even more 

significantly, it permits citizens to learn about 

government plans or actions that may be 

critical to their interests. Therefore, 

governments need to improve the quantity, 

quality and timeliness of the information that 

they make available to citizens and civil 

society organizations. In particular 

information about budgets, financial reports, 

bills, laws, and tenders for contracts, 

recruitment opportunities and government 

services must be available to the public 7 . 

The development and use of procedures for 

citizen’s input on major local government 

decisions: the annual budget, land use, and 

construction build trust between local officials 

and citizens. This also helps improve decisionmaking 

reduce opportunities for corruption, 

and build consensus on critical community 

issues. The budget process, for example, is a 

practical entry point that provides an 

opportunity to introduce or reinforce existing 

participation mechanisms, such as 

neighborhood meetings, focus groups, and 

public hearings, partnership with different 

specialized NGOs and the news media to 

inform citizens on budget issues and 

opportunities to get involved. Demonstrate to 

local government officials how participation 

can elicit useful information that helps them 

make tough budget decisions approaching 

participation at the local level is less 

cumbersome and likely to be more effective 

than at the national level. People are more 

likely to participate if the issues involved, as is 

usually the case locally, affect their daily lives. 

Participatory processes as well can be tested 

in a limited number of target jurisdictions and 

encouraged to spread to a larger area. 

7 Decision 331/2002/(SM)GG, also states the 

principle of good administrative behaviour likewise 

requires that decisions be taken within a reasonable 

time; Decision 914/2002/ADB holds that the same 

principle (as above) requires letters to be answered 

and decisions taken within a reasonable time

The existence of an active, pluralistic civil 

society is believed to be closely related to the 

successful emergence of democratic practice. A 

healthy civil society can help shape and focus 

the energies of concerned citizens and ensure 

public accountability to the community. In 

many developing countries, however, civil 

society is weak, and characterized by 

clientelism and a predominance of 

individualistic interests. 

Building local government’s capacity to 

work effectively with the news media 

The news media can serve as both a 

government watchdog and a partner in 

sharing clear, accurate, useful, and timely 

information about government services, 

issues, decisions, and opportunities for citizens 

to participate in decision-making. The media 

and local government in new and emerging 

democracies have a strong basis for 

partnership: They are simultaneously 

developing the skills they need to function 

effectively in their new environment. The 

government has information the media want 

and need. 

Encourage minorities groups to 

participate in local government 

Decentralization may open opportunities for 

these groups and their leaders to participate 

in local affairs for the first time. Training and 

other assistance can help bring them into 

public life, and can be an important first step 

to a larger programming effort. 

Increasing Government responsiveness 

to citizens at the local level 

Decentralization of government authority and 

responsibility can increase the competence and 

responsiveness of public agencies by reducing 

the burden on those at the center and allowing 

those most affected by an issue to make 

decisions about it. It enables citizens who are 

most directly concerned to influence decisionmaking 

by putting the source of the decision 

closer to them. The main focus of many 

programs to support democratic 

decentralization is on encouraging the 

devolution of authority to elected local 

governments that are directly accountable and 

therefore primarily responsible to local 

316 

citizens; improving the effectiveness and 

openness of local governments; and increasing 

community involvement in local government 

decision-making and service delivery. 

Create more effective and democratic 

internal management systems 

Improvement in internal management 

systems is a requirement of an effective and 

autonomous legislature and a demonstration 

that it has the capacity to manage its own 

business. 

Such systems require enabling regulations 

and procedures which allow the legislature to 

operate effectively and democratically. 

“Effective management” depends on 

administrative and secretarial support, and 

might be reflected in agendas being published 

and salaries paid on time; and library and 

reference services, and electronic and other 

information systems being available and used, 

as demonstrated by better informed debate 

and legislative initiatives. “Democratic 

management” requires that all parties, 

majority and opposition, and where relevant, 

gender or community (minority ethnic or 

language or religious group) representatives 

receive equivalent resources and support. 

Efficient and democratic internal management 

of the legislature is an essential precondition 

to representation of the public, competent 

policy analysis and formulation, and to serving 

as an effective political counter-balance to the 

executive branch. 8 

We can find also other challenges of the local 

democracy in his road to ensure good 

governance like: 

1. Promoting partnerships among local 

governments, civil society 

organizations, the private sector, and 

other groups 

2. Strengthening the local government’s 

role in Policymaking 

3. Expansion of local revenue-generating 

authority 

8 Handbook of democracy and governance program 

indicators, Center for Democracy and Governance, 

august 1998

4. Creation of a national training and 

policy/program analytical capacity for 

local officials 

Conclusions 

To be successful at promoting the development 

of democratic local governance, we must first 

think hard about what effective 

decentralization and good local governance 

might look like 9 . What characteristics do we 

want to see in a developing system? What is 

the ideal? Of course, major changes do not 

occur overnight, and each country context is 

somewhat distinct. Moreover, generalizing 

across all the countries of the world and across 

their varied political histories and cultures is 

by no means an exact process. The following 

should not, therefore, be viewed as a single 

goal for all countries to reach. Indeed, each 

country will move forward on its own terms. 

We present the main characteristics of 

effective decentralization, democratic local 

governance, and effective local government 

capacity. In an ideal scenario, the national 

government has shifted a significant measure 

of new authority to the local level. The 

government has clearly demonstrated the 

political will to decentralize. Reforms to the 

constitution or legal code have been enacted. 

These reforms, moreover, are being 

implemented in accordance with the law or at 

least in a gradual but steady fashion in 

response to the new legal mandates or 

regulations. 

In the administrative area, under the ideal 

scenario the central government is granting 

local government clearly defined 

responsibilities that significantly concern 

communities and generate public interest in 

local affairs. Local governments are being 

accorded functions of fundamentally local 

scope. Local governments are doing more than 

merely cleaning streets; they are taking on a 

variety of non-traditional service 

responsibilities, such as assuring primary 

health care, basic education, public security, 

public utilities, environmental protection, and 

building regulation. In the financial realm, the 

central government is taking action to ensure 

that the local system has access to the 

9 http://stateofnature.org/democracyPromotion.html 

317 

resources to match its new functions. This is 

occurring through increased (or less 

conditioned) inter-governmental transfers 

and/or according local government’s new local 

revenue-raising authority. Central 

government officials also demonstrate 

increased concern for the development of 

locally generated revenue, for preventing 

inefficient or corrupt use of new local 

resources, and for finding alternative means, 

such as credit markets, for local governments 

to secure financing. Where local governance is 

democratizing, local governments are 

increasingly responsive to and interactive with 

the community. They are more participatory, 

transparent, and accountable to local 

residents. Services are increasingly provided 

in response to citizen demand and priorities.




IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE ECONOMY 

Abstract 

“New Economy” requires organization to 

focus on human-centered paradigm. This 

implies, under the pressure of new demands, 

redefining the ways of structuring the 

humans in the organization’s relationship 

with its environment by giving priority to 

social and human dimension. 

Great importance in achieving performance 

in an organization has the following factors: 

the skills, values, explicit knowledge, 

processes and organizational practices, along 

with intellectual capital. 

In this context, through this article, we aim 

to answer questions such as: What is an 

organization? Why is it there? For what 

reasons does it exist? 

Key words: business organization, 

knowledge economy, organizational analysis, 

efficiency, effectiveness. 


Gareth Morgan is the promoter of 

“metaphoric line of approach” in 

organizations. Morgan believes that using 

metaphors is like the awareness of needing 

to learn to face with ambiguity, complexity 

and paradox of reality in organizations. Each 

metaphor provides a certain perspective on 

organizational life, allowing us to see beyond 

the appearances. The metaphors or the 

images of organizations work together, face 

or complete each other, creating a real 

interactive and dynamic kaleidoscope 

JOIA Radu-Marcel; 


radu.joia@univnt.ro 

DUMITRU Paula; 


pauladumitru@univnt.ro 

BABONEA Alina-Mihaela; 


alinababonea@univnt.ro 

318 

integrated as an expression of organizational 

complexity 1 . 

This study is very important because it 

shows the different approaches of the 

organization. We tried to analyze the 

different approaches of the business 

organizations by using specialized 

references. A great number of articles from 

the reference literature treats in a 

responsible manner that the organizations 

face complex aspects, hard to solve and even 

dangerous. In this way, we try to offer 

solutions for the companies, to help them 

improve their management and to avoid 

difficulties. 


The main source of inspiration for this 

article is Morgan G.’s study, “Images of 

Organizations”, where the author, a 

promoter of “metaphoric line of approach”, 

describes his own beliefs regarding the 

economical issues in business organization. 

He uses the metaphoric expression for 

highlighting the main problems the 

organizations faces with. He emphasizes a 

top quality management; this idea is also 

promoted in Leavitt H.’s book, “Managerial 

Psychology” that uses its own model to 

present key elements – structures, 

technologies, objectives, members, functions 

and activities - . The central part of Levitt’s 

rhomb is taken by objectives in the 

organizational system. The main two sources 

are completed by an excellence model,

analyzed in Peters Th. and Waterman R.’s 

book, “In Search of Excellence: Lessons from 

America's Best-Run Companies”, that 

underlines the great importance of efficiency 

and effectiveness in order to achieve 

organizational success. We also used a 

Romanian source in order to state that this 

subject has been also approached in the 

companies. 


Morgan shows that the one and the same 

organization is in the same time, several 

different things: 

1) The organization is a designed, 

assembled and functionalized design 

as a "scheme" to make clear rational 

targets; 

2) The organization is a “body”, a 

natural and opened system, that 

always adapts in order to survive 

and fight for existence with other 

organizations; 

3) The organization is a political field 

where different groups and interest 

coalitions fight, and the internal life 

in the organization represent a mix of 

conflicts, alliances, negotiations, 

lobbies, sabotages, influences etc; 

4) The organization is a mechanism of 

dominations, an exercising power 

and control system, of distribution of 

privileges and fixation of servitudes; 

5) The organization is a cultural 

phenomenon, a little society, with 

very personal values, beliefs, 

mentalities, ideologies and rituals, 

that define “the organizational 

personality” and further it 

determines how the real organization 

is perceived and interpreted, how are 

things or events organized and 

planned; 

6) The organization is “a brain”-in 

order to work properly, it should 

pick-up and process information and 

to develop knowledge. As a real 

brain, the organization learns, 

observes, lies, forgets, invents, 

memorizes, analyses etc in order to 

survive and develop; 

319 

7) The organization is “a psychological 

prison” - the processes and the interorganizational 

behaviors and the 

relationships between the 

organization and its environment are 

the expression of the members in the 

organizations, the results of 

psychological processes, even if they 

are conscious or unconscious, 

individual or collective. 

These images reveal the richness, multivalent 

and multidimensional nature of 

organizational dynamics. Organizational 

schemes, Member of functions, internal 

regulations, documentation, accounts etc. In 

other words, formal gears in organizations 

are just "the top of the iceberg", the apparent, 

visible organization. "Under water" but it 

carries a lot of power, philosophy of success, 

"pulse" psychological perspectives, axiological 

orientations, cognitive processes, 

communication dynamics that fill with life 

formal structures. Organizations are always 

something more than they seem. Performance 

management is therefore a process of 

discovery and understanding of the 

organizational “hidden” parties. Morgan's 

metaphors are, in this sense, an excellent tool 

for knowledge. 

Models of organizational analysis 

There are a lot of theories, models and 

theoretical developments in management, but 

we chose to analyze “Leavitt’s rhomb”, an 

organizational model which is a social and 

technical system and Le Moigne’s model of 

organization. Both have been successful in 

the literature in this domain. 

These models make it possible to analyze 

organizations, despite their diversity and 

complexity, tackling them according to a set 

of common elements that are found in all 

forms of organization. The principle is the 

foundation on which the concept of these 

models tries to explain how they are "built" 

and how the organization relates to its 

operating environment, but also provides 

clear answers on the causes and ways to 

ensure organizational effectiveness. 

Graphic illustration of Harold Leavitt model 

is the following 2 (figure 1):

Technologies 

Structures 

Objectives 

Functions and 

activities 

Fig. 1 “Harold Leavitt model” 

Members 

In this model, unifying the organizational 

element is the primary objectives. They have 

a double significance. First, the objectives 

are the organization's raison d'être, why it 

exists or more rigorous in terms of systems 

theory, a specific organization function 

purpose of the system. Secondly, the 

objectives can be defined as desired endstate 

organization that allows their use as 

criteria for assessing organizational 

effectiveness. Nature and the aspirations 

embodied in the objectives determine the 

characteristics of other elements of the 

organization: 

The functions and activities are tasks, works 

and operations of the organization that is 

must be performed to achieve objectives. The 

relationship between objectives and 

functions / activities is captured by making 

the operational principle, a fundamental 

principle of formal organization, rational - to 

maintain stability and efficiency; it is 

necessary that each organization is built 

around the activities that are undertaken to 

achieve the objectives and only then it 

should be centered on individuals or groups 

that are going to perform these activities. 

Recent developments of the concept of 

efficiency 

Thomas Peters and Robert Waterman 

subjected to a critical examination the 

formal and the rational analytical tools of 

management. As Simon and March before 

them, Peters and Waterman drew attention 

to the inherent limits of these approaches: 

they are effective in stable environments and 

320 

in relation to relatively simple problems, 

allowing strict control of processes 

characterized by continuity, linearity and 

repeatability. The purpose of these 

techniques is the preservation of a situation 

considered optimal. The underlying idea of 

these streamlined and narrowed approaches 

is the intolerance towards any error or 

deviation from a course considered “normal”. 

But when the life organization takes place in 

a dynamic environment and consists of many 

challenges and discontinuities that require 

flexibility, imagination, creativity, 

experimentation and action, rational-formal 

management tools can become prohibitive 

and inhibitory mechanisms. In these 

situations, the key to organizational 

effectiveness can be found in non-rational 

aspects, informal, intuitive and rebel against 

the existing order. Peters and Waterman 

noted that management is a complex activity 

and its rational-formal methods - 

organization charts, budgets, financial 

statements, schedules, performance 

standards, procedures and formal rules, etc... 

- Are essential, but may not be the only 

benchmarks for governor. It also needs 

information about the quality of 

organizational intervention area. Using the 

model of organizational excellence, Peters 

and Waterman seek to reconstruct the 

balance between approaches based on 

relationships and formalized techniques and 

management approaches such as 

particularistic, qualitative, heuristic, and 

phenomenological. 

Organizational excellence is, in the authors 

of this concept, the cumulative effect of the 

action of the following characteristics of the 

organization 3 : 

1. action orientation; 

2. customer orientation; 

3. high-quality benefit through a complex 

and appropriate reasoning of the 

organization members; 

4. encourage autonomy and 

entrepreneurship; 

5. organizational structures and simple 

and relaxed mechanisms; 

6. focusing on key activities in which the 

organization is performing; 

7. rigor and appropriate dosing flexibility 

in the mix of centralizationdecentralization; 

8. support the key values that foster 

loyalty, professionalism, dedication

and creativity of the organization 

members; 

Also, Peters and Waterman are the authors 

of a strategic model that allows the systemic 

analysis of the key elements involved in the 

development and restructuring of the 

organizations. This model, widely known, is 

enshrined as the “7S model”, which comes 

from seven factors (seven words that in 

English begin with the letter S) and which in 

the concept of Peters and Waterman, 

exercise a decisive influence on 

organizational dynamics: strategy; skills; 

shared value; structure; systems; staff and 

style (figure 2). 

Skills 

Structure 

Systems 

Staff 

Strategy 

Fig. 2 “7S model” 

Shared value 

Style 

In the initial phase change, is set the 

organization's strategy which shows the 

priorities in resource allocation, the work 

and organizational skills to achieve 

competitive advantage arising. In other 

words, the strategy provides the answer to 

the question “Where, why and how the 

organization will engage in competitive 

fight?” 

The next step is to determine the 

organization's strengths and skills necessary 

for successful promotion strategy. Further is 

set the needed changes to determine other 

factors. 

Assuming that the organization has 

developed a clear vision and coherent 

strategy to follow, it must select the main 

organizational skills able to support the 

implementation strategy. If the strategy 

suggests ways to adapt the organization to 

its environment and exploitation of the 

potential competitive, the skills analysis 

facilitates finding practical way of 

implementing the strategy. Skills must be 

developed so that their operation strategy to 

321 

ensure success. Distinctive core competence 

is the interface between strategy and new 

image of the organization, determining 

changes in other “S”. 

Shared values and ethical standards of 

organization members circumscribe to the 

organizational culture. They relate to things, 

events, actions and conditions considered 

important for the organization survival and 

effectiveness. In other words, they show 

what is “good” and what are “bad”, what to 

do and what not to do, what to be 

encouraged and discouraged. 

The structure consists of interdependencies 

between parts of the organization, reflecting 

their functional and hierarchical 

specialization and the communication flows, 

the decision-making authority and the 

responsibility distribution. 

Systems are, in 7S model, management and 

operating mechanisms that support the 

internal order: processes and operational 

workflows and their adjustment 

mechanisms. 

The “staff” factor refers to the profile 

management team needed to promote their 

organization's strategy. This issue does not 

depend on individual capacities of the 

managers, but on the know-how and 

organization's collective intelligence. 

Management style has two dimensions: 

personal style act of exercising leadership 

and symbolic actions. Style forms depending 

on how managers' personal conduct and 

signals are examples of implementation of 

the organization staff. 

7S model is not a detailed action guide or a 

complex collection of infallible recipes for the 

organization development, but a model that 

provides an integrative and holistic 

organized human system. His cognitive 

value is precisely that it clearly indicates the 

“search areas" for solutions to the most 

important problems of organization, while 

leaving sufficient intellectual freedom to 

formulate the final response. 


Concepts and methods that have dominated 

thinking and practice management for more 

than a century - strict division of tasks, 

formal authority, chain of command, 

structure, control, loyalty, discipline, 

coordination, incentives and sanctions - will 

cede ground to new approaches and 

conceptual frameworks. Management will

equire new symbols to indicate the sources 

of efficiency and competitiveness. Future 

management models should be an expression 

of “kaleidoscopic thinking”, as Rosabeth 

Moss Kanter argues, that guide the 

organization to change permanently and use 

inexhaustible opportunities offered by 

human imagination and creativity. The new 

symbols should help address certain 

categories and unconventional solutions to 

stimulate exploration beyond traditional 

boundaries, to develop the ability to 

establish links and create synergies, to help 

invent new combinations. 

Knowledge and intelligence are becoming 

more and more important factors of 

organizational dynamics and the intangible 

values of the organization are the words of 

this power 4 . The same author has identified 

three key values of intangible nature, 

embedded in the “3C” model: 

1. concepts or the results of continuous 

innovation and assimilation of the best 

methods, practices, technologies and 

ideas; 

2. competencies understood as 

operational skills, particularly in 

serving clients, skills formed through 

a process of lifelong learning, selection 

and institutionalization of best 

practices; 

3. connections established by developing 

partnerships between the organization 

and various elements of its 

environment in order to build an 

integrated system, flexible one, based 

on communications in order to connect 

the “inside” with the “outside” of the 

organization, facilitating access to 

opportunities and innovations. 

Competitive organizations direct their 

human potential to investigate new and 

significant ideas. Such organizations couple 

their internal communication networks to the 

business partners systems to generate 

knowledge and recovery. 

The “3C” provides an example of a systemic 

and high quality approach by highlighting 

the importance of communication to internal 

and external interdependencies, the 

importance of the information as coagulating 

principle in any type of organization. 

The following features are specific to the 

most managerial problems of modern 

economic organization 5 : 

1. they are complex interweaving of 

factors, causes and effects relations, 

322 

and therefore are difficult to define 

and structure; 

2. they are the result of “game” of power 

and interests by generating 

competition and conflict; 

3. they generate change resistance from 

groups or organizational areas; 

4. they involve psychological and moral 

issues, often degenerated into 

opportunistic behavior; 

5. they entail costs, often nonquantifiable, 

and different allocations, 

that arise distributional conflicts or 

pragmatically problems; 

6. they are not isolated, but they 

manifest in complex interactions 

between different aspects of 

organizational life 

7. their solution rarely dealt with within 

the true-false dichotomy, being “good” 

or “unsatisfactory” according to the 

reactions of various departments or 

interest groups within the 

organization; 

Concepts and management tools are not 

neutral value, they do not generate practices 

to serve equally well on everyone in the 

organization. Before being a “social 

technology”, management is an ideology, a 

vision that expresses a particular interest, a 

practice that maintains a certain structure of 

power distribution in the organization. Any 

organization is political fields faced bear 

interest groups, values, beliefs, aspirations 

and attitudes different mentality. From this 

perspective, the organization is presented as 

a mechanism of domination, namely as a tool 

to exercise power and control. Practices, 

policies and management systems in an 

organization reflect the interests of small 

groups namely the groups holding power. 

Management can be regarded as legitimate 

by the control and coordination of the 

organization only if such conflicts of interest 

are explicitly recognized, and the search for 

solutions is institutionalized. 

References 

1. Kanter R.M., Kaleidoscope Thinking, in 

Cowdhoury S. (coord.) Management 21C, 

London, Pearson Education Limited, pp. 

256-261. 

2. Leavitt H., Managerial Psychology, 

University of Chicago Press, 1972.

3. Morgan G., Images of Organizations, 

London, Sage Publications, 1986. 

4. Peters Th., Waterman R., In Search of 

Excellence: Lessons from America's Best- 

Run Companies, Harper & Row, 1982. 

5. Tămaş S., Prospectiva socială, Editura 

Victor, Bucureşti, 1998, p. 19. 

1 Morgan G., Images of Organizations, London, 

Sage Publications, 1986. 

2 Leavitt H., Managerial Psychology, University 

of Chicago Press, 1972. 

3 Peters Th., Waterman R., In Search of 

Excellence: Lessons from America's Best-Run 

Companies, Harper & Row, 1982. 

4 Kanter R.M., Kaleidoscope Thinking, in 

Cowdhoury S. (coord.) Management 21C, London, 

Pearson Education Limited, pp. 256-261. 

5 Tămaş S., Prospectiva socială, Editura Victor, 

Bucureşti, 1998, p. 19. 

323




Abstract 

MONETARY POLICY AND THE FINANCING OF ROMANIAN 

COMPANIES 

IN THE CURRENT CRISIS 

VALENTIN Leoveanu 

Teaching Assistant, University of Bucharest, Romania 

v.leoveanu@yahoo.com 

The link between the monetary policy and its 

impact on the financing of the companies was 

a much-debated subject during the time but 

the actual financial crisis has revealed new 

aspects. For Romania, the current external 

climate puts his mark through: the 

worsening perception of risk, including the 

association with regional developments; 

contraction of foreign sales markets; 

difficulties in external financing; doubling 

the risk of liquidity and solvency at the 

microeconomic level. The NBR monetary 

policy in 2009 was characterized by a 

downward trend of interest rate and a 

reduction in the rate of reserve requirements 

related liabilities. There are two 

vulnerabilities in banking fueled by global 

economic and financial crisis: credit risk and 

liquidity risk. In this respect, the NBR 

intervened to maintain the functionality of 

the money market, using a wide range of 

instruments. In spite of monetary policy 

decisions, the growth rate of credit to the 

companies continues to decrease due to 

increase the risk aversion of banks. A 

negative interference upon the slowdown in 

lending to businesses have had the 

government by enhancing its financing needs 

to budget. In order to regain the trust of 

banks, Romanian companies must go 

through a process of adaptation to new 

conditions of crisis, transformation and 

restructuring activity. 

Key words: monetary policy, monetary 

market instruments, financial stability, 

credit conditions, cost of credit. 

324 


This paper aims to do an overview of the 

features of the period that cross the 

Romanian economy, particularly monetary 

policy conducted by the National Bank of 

Romania (NBR) and the influence it has on 

banks lending to Romanian companies. 

Crisis that crosses Romania is not a 

temporary economic crisis, but especially a 

structural crisis due to the fact economic 

growth in previous years was based on 

domestic consumption financed from 

external resources and the real estate boom, 

as amplified by fiscal and budgetary procyclical 

policies. 

Causes of economic crisis in Romania were 

structured and summarized in "The End of 

Illusion Economy" by Liviu Voinea: the 

premature liberalization of capital account; 

accelerated growth in consumption based on 

short-term external financing; delays in 

structural reforms in economy; reduced 

capacity to absorb financing of structural 

funds; fiscal and budgetary pro-cyclical 

policies. 

It is well known that during economic crises, 

credit conditions established by banks tend 

to worsen for all agents in the economy. In 

these circumstances, the Keynesian 

macroeconomists agreed upon the 

application of an expansionary monetary 

policy because this helps avoid a deep 

recession and the risks of a credit crunch. 

That type of monetary policy leads, through 

appropriate tools, to an increase in money 

supply in order to decrease the interest rate. 

This decrease in interest rates will lead to 

increased investment and volume growth in 

aggregate demand. 

Related to credit, monetary policy influences 

it as an exogenous factor through interest

ate and certain coefficients. It is considered 

that the interest rate is the main instrument 

of open market policy, which aims to 

maintain monetary variation within certain 

limits and relative exchange rate stability. 

Using the coefficients in monetary policy 

aims to maintain an optimal ratio between 

deposits and loans in order to avoid the 

inflationary credit operations by multiplying 

money. 

Credit is a monetary creation so that the use 

of scriptural currency is determined by the 

needs and the will of indebtedness of 

economic agents. 

The size of the interest rate on loans must be 

correlated with subsequent refinancing costs 

on the money market, taking into 

consideration the possibility of calling on the 

resources of the National Bank. 

The article starts from the current economic 

situation of Romania and highlights 

monetary policy decisions and actions 

undertaken by the National Bank in order to 

show that the current period requires a 

reassessment of the perception of monetary 

policy by businesses. 

In this respect, they can say monetary policy 

became more transparent, predictable, really 

representing a lever to support decisions at 

the enterprise level. Nowadays business is 

more ready to understand monetary policy 

and its instruments used to mitigate 

economic shocks. 

Monetary policy impact on business health is 

an important one, because monetary policy 

has an indirect contribution to economic 

growth and increasing employment of 

workers, by setting cost of money. 

The economic agents take into consideration 

the effects of monetary policy as 

opportunities regarding behavioral and 

management actions. 

Monetary policy has alerted and mobilized 

businesses in terms of their ability 

concerning their capacity of decision 

confronting variables like interest rate and 

exchange rate and gave them flexibility and 

power of adaptation against changes in 

financial markets. 

By the monetary policy actions, high-level 

decision makers also attempt to form a 

specific behavior of agents in terms of 

increasing the ability of company 

management. 

As result, a particular importance is how 

businesses plan their financing activities, 

ensuring their long-term funding sources 

325 

and short-term depending on credit 

conditions. 

Borrowing costs, which includes interest 

rate, and operation fees and bank charges 

for lending negative, hamper the activity, 

with a significant share in total expenditures 

of a firm. 

The article tries to highlight some important 

issues in this respect: how monetary policy 

evolved as the effects of the global financial 

crisis upon the Romanian economy, how 

influenced monetary policy the financing 

decisions taken by companies and which 

actions they can take them to face the 

challenges of financing through bank credit. 


The link between the monetary policy and 

its impact on the financing of the companies 

was a much-debated subject during the time 

but the actual financial crisis has revealed 

new aspects, especially for Romania whose 

situation is apart. 

The paper “Monetary policy and the 

financing of firms” by Fiorella de Fiore, 

Pedro Teles and Oreste Tristani (2009) try to 

response the question “How should 

monetary policy respond to changes in 

financial conditions?” It is taken into 

consideration a simple model where 

companies are subject to macroeconomic 

shocks that may force them to default on 

their debt. It is well known that companies’ 

assets and liabilities are denominated in 

nominal terms and predetermined when 

shocks occur. 

Therefore, monetary policy can affect the 

real value of funds used to finance 

production. More than that, monetary policy 

affects the loan and deposit rates. An 

important result of the paper is that the 

optimal response to an exogenous reduction 

in internal funds, which amounts to an 

increase in companies’ leverage, is to reduce 

the nominal interest rate, if the nominal rate 

is not at its zero bound, and to engineer a 

short period of controlled inflation. 

The policy responses have the advantages of 

reducing the adverse consequences of the 

shock on bankruptcy rates. Another 

important conclusion of this paper is that a 

simple Taylor-type rule would produce 

significantly different economic outcomes 

from those prevailing if policy is set 

optimally. It is stressed that under a Taylor

ule bankruptcy rates would increase during 

recessions. 

Under the title “Responses to monetary 

policy shocks in the East and the West of 

Europe” by Marek Jarocinski (2009), the 

author make a comparison of responses to 

monetary policy shocks in the euro area 

countries before the EMU and in the New 

Member States from central-eastern Europe. 

The aim is to understand how different 

characteristics of these groups of countries 

affect their monetary transmission. 

The results suggest that, when considering 

the differences between central-eastern and 

Western Europe, we need to go beyond the 

rule that monetary policy is less effective in 

less financially developed countries. An 

important feature of the New Member States 

economies is the higher inflation level and 

variance that they have experienced in the 

past years. 

In their paper “Credit frictions and optimal 

monetary policy”, Vasco Curdia and Michael 

Woodford (2008) consider a model where 

financial frictions matter for the allocation of 

resources, because of the heterogeneity in 

households’ spending opportunities. They 

show that credit spreads arise because loans 

are costly to produce, but they are linked to 

macroeconomic conditions through a flexible 

reduced-form function. 

Lucian Croitoru in his article "Monetary 

policy in 2010" make an analysis of possible 

actions undertaken by the National Bank to 

achieve the objectives of monetary policy, 

taking into account Romania's accession to 

the euro area around 2015. He shows that a 

key challenge for monetary policy is to 

achieve the inflation target while 

minimizing risks to financial stability. 

3. The crisis’ effects upon the Romania’s 

economic situation 

The deterioration of the international 

economic and financial environment has 

continued to manifest also in 2009 and 

future developments are marked by great 

uncertainty. 

In the developed countries, the response of 

central banks and governments was 

unprecedented in order to counter the effects 

of the crisis. Fiscal and monetary policies 

have become highly expansive. 

Key measures taken by central banks were: 

a) rapid and significant easing of monetary 

policy, 

326 

b) increasing the amount and frequency of 

operations to ensure market liquidity and 

c) expand the base of eligible collateral and 

liquidity supply’s maturity. 

Cooperation between the world's major 

central banks has become increasingly close 

and monetary policy actions more correlated. 

The more reduced influence of monetary 

policy led to greater emphasis on fiscal 

policy. 

Although, measures taken by governments 

have concerned either support the banking 

system through recapitalization, government 

guarantees and acquisition of toxic asset or 

stimulate aggregate demand by increasing 

government investment, tax cuts, programs 

to stimulate purchase of new vehicles, 

subsidies for employers, etc. 

Despite these efforts, credit conditions have 

maintained restrictive, and the aggregate 

demand and employment in many countries 

continued to deteriorate. The difficulties of 

non-financial companies to obtain financing, 

and contracting demand amid the wealth 

effect of balance and have negative 

consequences on output. 

The world economy has weakened 

considerably the growth rate to even a 

slowdown in 2009. 

The IMF has become a financial 

organization more and more involved in 

solving problems facing a number of 

countries, from the developed to the 

underdeveloped. Financial support was 

provided too many emerging countries, 

particularly those in Central and Eastern 

Europe (Hungary, Ukraine, Latvia, Poland 

or Romania). 

Monetary and fiscal policy measures have 

been supplemented by extending protection 

to depositors. EU regulations have been 

amended on deposit guarantee schemes: 

minimum guarantee limit increased to 

50.000 (to reach up to 100.000 euro at the 

end of 2010), co-insurance was abandoned 

and the term of the payout was reduced. 

EU is pending a proposal to revise capital 

requirements for banks, for the purposes of 

better management of large exposures, 

liquidity risk, the risk for securitized 

products, and better supervision of group’s 

cross-border banking and an improved 

quality of bank capital. 

Economic crisis affects real convergence, to 

the extent that emerging economies will 

shrink much stronger than the euro area.

The rate of recovery the gaps between the 

Central and Eastern European countries 

and EU-15 countries had mixed 

developments: in Romania or the Czech 

Republic slowed, became negative in some 

countries (Latvia, Estonia and Hungary), 

while in other cases accelerated (e.g. 

Poland). 

In the present crisis circumstances, the 

reduced economic activity lead to 

disinvestment and rising unemployment, 

which endangers the process of real 

convergence in the medium and long term. 

For Romania, the current external climate 

puts his mark through: 

a) the worsening perception of risk, 

including the association with regional 

developments, 

b) contraction of foreign sales markets, 

c) difficulties in external financing, 

d) doubling the risk of liquidity and solvency 

at the microeconomic level. 

The transmission of external conditions in 

the economy, through such channels, affects 

more strongly the financial system in 

Romania, where the dominant role is holding 

by banks. 

First, the deterioration of market confidence 

to the countries of Central and Eastern 

Europe, including to Romania, has 

influenced the dynamics of the cost of 

financing and the exchange rates of the 

currencies in these countries. 

Secondly, the contraction of foreign markets 

affects Romanian export companies, which 

are an important part in bank portfolios. 

Thirdly, external financing became more 

difficult and more expensive, reflecting 

increased risk aversion of foreign creditors 

and fierce competition on resources 

generated by governments. 

Finally, persistent global crisis leads to a 

reduction in economic activity, including the 

exit of firms out of the markets. 

A new vulnerability is an economic 

contraction, which equates to the worsening 

financial position of companies and 

increasing unemployment, with negative 

repercussions on the particular financial 

system, particularly the banks. On the other 

hand, the current account deficit - which in 

previous years was a serious challenge for 

banking - diminishes relatively quickly and 

thus affects less financial stability. 

Another new challenge for financial stability 

is home banking itself: reducing access to 

327 

finance internal (and external) can create 

serious constraints on corporate debts. 

The economic slowdown is already a reality 

for Romania, so uncertainty remains on the 

horizon resumption of economic growth. 

International comparisons suggest that, in 

terms of global crisis, countries with high 

growth rates tend to go through decrease of 

scale. 

Attracting financial resources from 

international financial institutions are, from 

this perspective, a welcome step. Increasing 

public investment and the competitiveness of 

Romanian companies are desirable targets 

for sustainable economic growth. 

As economic branches, construction and real 

estate - by dynamic place in the economy 

and dependence on external and internal 

financing - prove sensitive and important 

areas for financial stability. 

4. The NBR monetary policy during 

crisis 

The NBR’s monetary policy was developed 

on prudential coordinates in terms of 

liquidity and exchange rate and was 

characterized by the re-launching attempt of 

lending companies and population. The 

Central bank key interest rate last year 

dropped five times from 10.25% to 8%. In 

addition, the central bank lowered the 

reserve requirement to 15% of liabilities in 

lei and 25% of liabilities in international 

currencies. Latest decision on lowering 

reserve requirements was taken in 

November 2009, when the central bank 

decided to reduce them from 30% to 25% for 

liabilities in foreign currencies. The decision 

came following the postponement of the 

third installment of Romania's foreign loan 

from the IMF. In early February this year, 

the National Bank lowered key interest rate 

half a percentage point to 7%. This level has 

not been reached in October 2007. 

The banking sector continued to record good 

indicators of financial health, and well 

capitalized, although the financial results 

have shown decreases in profits and even 

losses. Analysis of the stress test indicates a 

good absorption capacity of moderate shocks. 

There are two vulnerabilities fueled by 

global economic and financial crisis: credit 

risk and liquidity risk. Since the last period 

of 2008, is recorded the sharpest 

deterioration in loan portfolio quality, 

mainly reflecting the slowing of economic

activity and a depreciation of the domestic 

currency rate. However, despite more rapid 

worsening of the loan portfolio in the last 

period, the overall quality of these portfolios 

is positive fit in the European context. In 

addition, coverage with provisions of bad 

loans from balance sheets of credit 

institutions in Romania is higher than that 

reported by several EU countries. 

Since the last quarter of 2008, the impact of 

the financial and economic global crisis on 

the Romanian banking sector manifests by 

indirect channel, namely that of external 

liquidity and the deterioration of macroeconomic 

conditions. 

The worsening of global liquidity reflects in 

particular the increasing financing costs and 

risks related to their short maturity. 

Short-term external debt of banks 

represents a potential threat, which seems 

to be reduced in terms of commitment from 

the parent banks of major nine credit 

institutions with foreign capital to help 

maintain their exposure to Romania. 

The main concern linked to the reduced 

liquidity refers to its impact on future 

growth of credit and the potential negative 

impact on credit risk, but Central Bank 

interventions had as effect the improvement 

of banking system liquidity. 

In addition, the risk of less favorable 

developments, external shocks or internal 

causes were significantly attenuated by 

external funding agreements with the IMF 

and the EU and other foreign financial 

institutions and by applying a consistent set 

of macroeconomic and structural policies. 

In addition, the central bank aimed to avoid 

excessive volatility in the exchange rate and 

ensure smooth operation of the interbank 

money market operation and the conditions 

needed for the continued intermediation 

process during 2009. 

The central bank provided an adequate 

amount of liquidity through the active use of 

open market operations, in particular repo 

transaction. Banks have attracted cash by 

calling credit facilities. 

Appearance fears about a possible reduction 

in funding banks parent bank subsidiaries 

increased distrust between them. In this 

respect, the NBR intervened to maintain the 

functionality of the money market, using a 

wide range of instruments (repo 

transactions, swaps, reducing reserve 

requirements). 

328 

The efficiency of central bank interventions 

could be improved by enlarging the area of 

operations that is providing liquidity in the 

market, such as extending the maturity and 

diversification of eligible collateral of the 

monetary policy operations. 

Loan agreements negotiated with the 

International Monetary Fund and European 

Union and with the World Bank and other 

international financial institutions, intend to 

give financial support to the government's 

economic program in order to strengthen 

macroeconomic and financial situation. 

The Agreement with the IMF and EU aim 

directly to adjust the external deficit, with 

positive direct effect on the exchange rate 

and thus the financial position of companies, 

population and the banking sector. 

Banks that undertake to maintain exposure 

to Romania during the program and increase 

their own funds to ensure solvency over the 

10 percent would not have to raise its 

required reserves for subordinated loans 

provided by shareholders or international 

financial institutions. 

Other measures of the Agreement include 

the transition arrangements to regulate the 

minimum level of capital at 10 percent and 

the adoption - in a medium time horizon (1.5 

- 2 years) – of the accounting standards for 

credit institutions by the Financial 

Standards International Reporting 

Standards (IFRS). 

In these conditions, the NBR monetary 

policy in 2009 was characterized by a 

downward trend of interest rate and a 

reduction in the rate of reserve requirements 

related liabilities. 

This type of monetary policy was primarily 

motivated by prefiguring event, short-term 

inflationary effect of adjusting excise duties. 

Equally, monetary policy decisions were 

based on the adverse impact on inflation 

exerted by increased risks related to fiscal 

and income policies in the context of tension 

of the internal political environment in late 

2009. 

The most important risks that have 

influenced monetary policy in the last period 

of 2009 and early 2010 were: 

a) risk of exceeding the programmed level of 

budget deficit and postpone measures to 

adjust the structure of public spending and 

fiscal consolidation foreseen in 2010 and 

2011; 

b) risk of increasing difficulty of financing / 

refinancing the deficit and public debt,

including possible disruption due to the 

performance of loans with financial 

institutions and international institutions; 

c) predictable deterioration, in this context, 

of the perception of economic and financial 

domestic environment, of the perspectives on 

the Romanian economy likely to fuel 

pressure on national currency depreciation 

and inflation expectations implied. 

Another important argument of lowering the 

interest rate monetary policy was the recent 

improvement of the leu exchange rate 

behavior and expectations regarding its 

future evolution. 

Decisions on monetary policy interest rate 

have been adopted in terms of increasing 

firmness by NBR management of liquidity in 

the banking system. 

NBR has adjusted the volume and frequency 

of repos representing their average level of 

about one third of the value recorded in late 

2009 and maturity of these operations has 

been temporarily diminished, having values 

between 2 and 7 days. 

Money market yields have broken downward 

trend and were placed over the largest range 

in the upper part of the interest rate corridor 

defined by the central bank's standing 

facilities, and emphasizing volatility. 

The range of short-term interest rates then 

dropped to lower values, reaching its 

monetary policy interest rate fall. Evolution 

of the situation was due to the relative 

liquidity relief. 

Yields on longer maturities continued their 

upward trajectory, which was entered in late 

September, according to the need for 

substantial increase of budget deficit 

financing in late 2009, and increased 

uncertainty of credit institutions upon the 

evolution of liquidity conditions. 

Starting from these premises, the growth 

rate of credit to the private sector continue 

to decrease, thus placing itself for the first 

time in eight years and a half on a negative 

level (-1.4 percent). 

The downward trend characterized both 

loans in national currency, whose dynamics 

was reduced to minimum in the last half 

past eight years and loans in international 

currencies, so the percentage variation came 

for the first time in the last nine years and a 

half, in the negative trends. Slowdown of 

lending to companies trend continued to be 

relatively more alert than lending to 

population trend. 

329 

The main features of the lending show 

growing risks: 

a) Currency risk is very important. 

Borrowing in foreign currency is 70 percent 

of the total (December 2008), higher for 

companies. This value is even higher if loans 

were accounted for foreign credits. In such 

conditions, a non-fragmented evolution of 

the exchange rate is essential to maintaining 

financial stability. 

b) Companies hold almost two thirds of total 

borrowing and a better diversification for the 

three categories of lenders (domestic banks, 

foreign creditors and IFN). 

c) Borrowing is particularly medium and 

long term (78 per cent of total borrowing). 

On the horizon's long life span of the loan, 

the real economy will meet major structural 

changes (including in the context of entry 

into the euro area). 

d) Increase in financing costs and 

uncertainties about the economic situation 

are the main factors that have reduced 

demand for loans from companies, 

regardless of their size. 

e) Developments in the money market in the 

second half of 2008 and 2009 reflected the 

gradual restriction of liquidity, but central 

bank tries through interest rate policy to 

improve these conditions. Interest rates 

remained high (above the rate of monetary 

policy) in 2009. The effects were sent to 

market and credit granted by banks, which 

had a negative impact on corporate 

financing. 

5. The influence of monetary policy on 

financing of Romanian companies 

The company's financial situation has 

remained relatively good in 2008 and their 

ability to absorb moderate shocks. 

Deterioration of economic activity in late 

2008 that continued in 2009 made it difficult 

the debt service to banks, small and medium 

enterprises having the highest risk. 

The reliance by companies on short-term 

financing is a weakness in the sector, 

especially in terms of more restrictive 

lending from banks that could limit these 

credit lines. 

Companies that have received foreign direct 

investment can withstand relatively better 

any shocks produced by current crisis, but 

not significantly different from the rest of 

the economy (cost-effectiveness and 

efficiency of capital expenditure are higher

than average wages in the economy, but the 

arrears rate is weaker). 

The increase of that type of investment in 

the economy is not the sole factor to 

determine a faster real convergence process 

in conditions of crisis. 

The access to external financing became 

more difficult and more expensive because: 

a) there is a reluctance of international 

lenders to provide new liquidity, 

b) governments worldwide have started to 

compete vigorously with private sector 

resources and 

c) some rating agencies have worsened the 

perception of risk for Romania (levels below 

investment grade). 

Romanian companies and financial 

institutions applied consistently in 2008 for 

external loan: the amount was EUR 13.7 

billion (growth of external debt), 

approximately the volume of domestic bank 

credit. 

The slowdown of the non-government credit 

growth was due to decrease the supply of 

credits, regarding: 

a) liquidity problems existing in 

international markets, which have affected 

the banks with international business that 

own subsidiaries in Romania, 

b) reducing the excess liquidity that 

characterized the past Romanian banking 

system, 

c) increase the risk aversion of banks. 

Concerning the demand for loans, the most 

important inhibitor factors were: 

a) the increase of the cost of credit, 

b) the depreciation followed by appreciation 

of domestic currency and uncertainties 

related to its evolution, 

c) the negative perspectives related to 

economic growth and unemployment. 

Although the pace of deterioration in loan 

portfolio quality is very alert and very 

careful monitoring advertising from both 

banks, as well as the supervisory authority, 

the volume of arrears is maintained at a 

relatively low level. 

Despite these developments, the quality of 

credit portfolios Romanian banks is better 

than banks in some EU countries, due to 

situation and the fact that Romanian banks 

have held the portfolio of toxic assets, the 

effects of international financial crisis and 

global recession have been felt since the last 

quarter of 2008. 

Lending standards have tightened, 

especially for SMEs. Long-term loans from 

330 

banks are perceived as having a high risk, 

which could affect investment financing. 

The main factors that limit access to credit 

are: negative expectations regarding general 

economic situation, increasing the risk 

associated with the industry the company 

operates, increasing the share of 

nonperforming loans in the portfolio of 

banks and ascending risk associated to the 

collateral / guarantee. 

Credit terms have also become cautious; 

these may include: requiring additional 

collateral, reducing the maximum maturity 

of loan and increase the premium required 

for riskier loans. 

In these conditions, the main challenges 

identified in bank lending to companies are 

highlighted below. 

The renewing credit lines for businesses 

could be reduced. After the most of 2008, the 

liquidity offered to the companies was 

abundant; the year 2009 was characterized 

by a sudden reversal of banks offer. 

The effect has not been the particular 

disapproval of renewal credits, but in 

reducing the maturity and increasing the 

collateralization of exposures. 

Banks aim was to have access to as much 

liquidity as possible and to protect against 

further damage in a more serious economic 

situation, with impact on borrowers capacity 

to repay its debts. 

The banks perception across the credit risk 

of the companies deteriorated, which make 

their financing expensive. Firms in the real 

estate, construction, transport, communications, 

even tourism are highlighted as the 

most risky. By size, SMEs are considered the 

companies that have the highest risk. 

Bad loans have a concerning dynamic. Until 

September 2008, the rate of arrears has 

increased moderately, whilst maintaining 

the benign values. Subsequently, the rate of 

increase in the rate of arrears is important 

for companies in all sectors of the economy 

(but less pronounced in real estate and 

manufacturing), both for SMEs, as well as 

for corporations. 

Arrears rate on loans in record the sharpest 

currency dynamics (from 0.4 percent in 

September 2008, to 2.3 percent in March 

2009). 

The concentration of bank loans arrears 

increased in some sectors. Banks focuses on 

real estate and construction sectors at the 

expense of manufacturing. Moreover, the 

share of loans to the first 10 companies,

although it is significant for each sector of 

the economy, has higher values in all the 

sectors mentioned. 

Bank loans granted to companies was 

primarily ensured by real estate (about 75 

percent of total loans, in March 2009). 

Rates arrears for these loans have made a 

significant leap last year (most important for 

loans in foreign currency). 

There are different behaviors of nonpayment 

between the unsecured and secured 

loans with mortgages: the rate of arrears is 

about the same (2,6-2,8 percent in 2009). 

The balance of outstanding loans reached 

affected but at 9.4 percent in 2009 

(compared to 3.2 percent in December 2007), 

so the arrears rate has prerequisites to grow. 

The risk of lending companies is dispersed 

among Romanian banks, which is good 

think. Discipline in payments has 

deteriorated strongly in the second half of 

2008: the number of major incidents of 

paying increased by 165 percent and its 

value has tripled (in the period December 

2007 - April 2009). 

Companies that generate that kind of 

problems to their business partners have 

also difficulties in honoring the debt service 

to banks (over 60 percent of the outstanding 

from such debtors). These companies become 

increasingly important for financial stability: 

owning more than 8 percent of the value 

added in the economy, they accumulate more 

than 10 percent of bank loans. 

The companies’ access to bank financing has 

improved in 2008, as well as that of the 

population. The number of companies that 

received loans from financial institutions 

(domestic or foreign) reached 16 percent (of 

all companies active in Romania in March 

2009, compared to about 8 percent in 2005). 

The small number of the companies that 

borrow show a decrease in financing could 

have significant negative consequences. 

Commercial and real estate firms would 

experienced the most acute impact of 

lowering the access to finance, because they 

use the bank resources more intensively 

than they create added value. The difficulty 

of maintaining external financing would 

affect the strong real estate and 

manufacturing companies. 

SMEs make up over two thirds of credit 

granted by Romanian banks (in terms that 

contribute only about 50 percent in making 

VAB). These companies have good access to 

external financing (45 respectively 53 

331 

percent of foreign debt on medium and long 

term and short-term credit). 

The structure of the creditors of the real 

economy is relatively diverse: 

Domestic banking sector is the main sponsor 

(66 percent). In the current conditions of 

reduced access to external resources, it is 

possible that the role of the local banking 

sector to grow. Financing the real economy is 

done by credit cash, but credit to finance 

inventories and equipment have become to 

some extent important. 

Foreign creditors provide more than one fifth 

of total financing. Until now, there has been 

a stable source of financing (the share was 

maintained constant in recent years at 

around 21 per cent). The amounts were only 

available for companies (population owns 

only 0.08 percent of total external financing). 

IFN provides 12 percent of domestic total 

funding. Most of the resources are directed 

to the companies (77 percent). 

A negative interference upon the slowdown 

in lending to businesses has had the 

government by enhancing its financing 

needs to budget. Government - through the 

Ministry of Finance – offered to the banks 

bonds at an attractive interest rate than 

that obtained by company’s loans. 

Thus, bank resources were diverted in the 

direction of state funding in place to ensure 

the necessary resources to maintain and 

develop the business activity. 

It pointed out that state funding by banks is 

not targeted to finance public investment, 

but only to cover short-term needs. 

Financing public investment, especially the 

infrastructure, could have had an effect of 

involvement of private companies in the 

economic cycle and thus to increase 

employment, to ensure price stability and 

GDP growth. 

As a result, financing companies through 

banks is restricted due to influences coming 

from both external and internal country 

environment. 

On the other hand, the private sector in 

Romania, especially the Romanian 

companies must go through a process of 

adaptation to new conditions of crisis, 

transformation and restructuring activity. 

The costs cutting without changes in 

innovating products and without changes in 

the way of thinking and acting of employees 

cannot be a viable way to restructure a 

company. The process of transformation, 

that firms should adopt, would require:

defensive adaptation (reducing the size of 

business, increased productivity), strategic 

reorganization (new products, new market 

niches) or organizational change ((changing 

organizational culture). Only in this way, 

they can regain confidence and banks can 

gain access to bank financing sources. 


The National Bank of Romania conducts its 

monetary policy in order to have positive 

effects on performance of economic agents: 

a) tried to revive economic growth, which 

was a support for actions of economic agents; 

b) managed excess demand and liquidity 

crisis in the previous period to ensure a 

healthy economic growth and avoid an 

overheating economy, which had positive 

repercussions on the impact of the crisis on 

the Romanian economy; 

c) provided health and strengthening the 

banking system, trying to pathways the 

banks towards the real economy through 

increased competition, diversification of 

products and more flexible lending rules; 

d) acted to increase the volume and depth of 

the currency market in order to ensure 

unimpeded access of traders to this, both for 

commercial and financial; 

e) created the conditions for economic agents 

direct accessibility to external financing and 

has created alternatives to optimize the 

financial cost of business. 

References 

1. Carlstrom, C.T., and T. Fuerst, 2001, Monetary 

Shocks, Agency Costs and Business Cycles, 

Carnegie-Rochester Series on Public Policy, 51, pp. 1- 

27 

2. Croitoru, L., 2010, Politica monetara in 2010, 

Business Standard 

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

Frictions and Optimal Monetary Policy, Mimeo, FRB 

New York 

4. De Fiore, F. and O. Tristani, 2008. Optimal 

Monetary Policy in a Model of the Credit Channel, 

Mimeo, European Central Bank 

5. De Fiore, F. Teles, P. and O. Tristani, 2009. 

Monetary Policy and the Financing of the Firm, 


332 

6. Jarocinski, M., 2009, Responses to Monetary 

Policy Shocks in the East and the West of Europe, 


7. Pop, N., 2008, Virtuti ale politicii monetare, 

Expert, Bucuresti, pp. 87-93 

8. Voinea, L., 2009, Sfarsitul economiei iluziei. Criza 

si anticriza. O abordare heterodoxa, Publica, 

Bucuresti, pp. 63-65 

9. Woodford, M, 2003. Interest and Prices, Princeton 

University Press




“WIKIHEALTH” FOR PUBLIC HEALTH MAPPING 

LITAN Daniela; 

Academy of Economic Studies, 

Faculty of Cybernetics, Statistics and Informatics Economics, 

Bucharest, Romania; 

litan_daniela@yahoo.com 

MOCANU (VIRGOLICI) Aura-Mihaela; 

Academy of Economic Studies, 

Faculty of Cybernetics, Statistics and Informatics Economics, 

Bucharest, Romania; 

mocanuaura@yahoo.com 

Abstract 

Diseases, epidemics, pandemics... in word: 

health problems. The national, european or 

international authorized institutions register 

daily the reported new cases and use new 

information technologies such as 

geographical information systems in their 

health strategies. But, since we live in an 

uncertain world, the citizens often prefer not 

declaring or hiding as much as possible that 

they suffer from a certain disease. The 

reasons are easy to identify: the possibility of 

losing their workplace, of being rejected by 

the society or the mere refuse of accepting the 

health problem which has appeared and the 

reasons may continue. Therefore, the 

statistics of the authorized institutions are 

not totally correct. However, in order to assist 

the national and international institutions 

or/and to inform the population, we suggest 

to bring web 2.0 concepts in health as well, so 

our proposal would be that the citizens use a 

website called “Wikihealth” for exchanging 

health knowledge. This website gives the 

possibility of adding, under anonymous 

protection, the information regarding the 

diseases the user or the persons who are close 

to him/her are facing / have just faced. 

Key words: health; GIS; e-Government; 

information system; collaborative portal. 


Health is the most precious wealth for each 

individual and for each nation of this world, 

333 

that’s why every government realized even 

from antiquity that it has to assure public 

health, meaning mainly: epidemiology, 

biostatistics and health services. 

The United Nations' World Health 

Organization defines health as a state of 

complete physical, mental and social wellbeing 

and not merely the absence of disease 

or infirmity [1]. 

Media has been playing an important role in 

national and international public health 

programs. Once the Internet was available, 

more and more programs have been 

promoted using this technology. In the 

evolution of world wide web it can be 

identified: web 1.0, first concept of web used 

in the first years after the Internet was 

launched, and web 2.0, concept which was 

launched several years ago which has 

changed the role of the Internet user. In web 

2.0, the user is no longer just a reader of 

some static web pages, the user becomes 

creator of web pages, of knowledge on the 

web. Now, it is common for each Internet 

surfer to have a blog, to write about his 

knowledge in a certain area on collaboration 

sites such as Wikipedia or upload GPS 

traces creating free road maps for the entire 

world. Collaboration web sites, online wikisystems 

and social online networks have 

changed the way in which we interact with 

each other and the way we exchange 

knowledge. 

Because information seems to come faster to 

individuals with these new technologies, 

meaning, in fact, a global network of people

who can exchange knowledge in an easy 

way, we believe it will be a must to include 

them in public health programs. 

Usually, information regarding health 

problems, comes from the government. 

Recently, we hear every day on television 

official statistics with how many flu H1N1 

infected people are, how many deaths due to 

this virus, but it will be great to have a 

virtual place, an online map-based 

discussion forum that enables Internet users 

to submit place-based comments and 

respond to contributions from other 

participants, where we can read personal 

opinions of some people who really have 

been infected or have been suspects. Of 

course, this will not replace official 

information regarding diseases, or our visit 

to the doctor, but this new approach can 

avoid mass panic and can make us informed 

citizens. 

2. Public Health and GIS 

Geographical Information Systems (GIS) are 

defined by Open Geospatial Consortium 

(OGC) as information systems used to 

capture, store, verify, integrate, manipulate, 

analyze and visualize geospatial data (data 

regarding geographic location of a certain 

object on the Earth). The correlation 

between place and diseases has been 

empirically made for many years, but GIS 

technology and statistics now provide us 

scientific methods to analyze the influence of 

geographical locations on people’s health. 

The combination of analytic methods and 

computing technologies that GIS 

incorporate, facilitates spatial analysis and 

visualization of tabular information. Spatial 

analytic techniques, such as proximity 

estimations and cluster analysis, hot spot, 

density analysis are built on statistical 

methods that incorporate distance and 

direction measurements to generate 

spatially accurate maps and graphic reports 

[2]. GIS technology is used primarily to: 

� Track and manage infectious diseases; 

� Determine geographic accessibility of 

health services; 

� Identify geographic health disparities 

and vulnerable populations; 

� Locate health and social care facilities 

and services; 

� Recommend health policy and public 

protection; 

334 

� Identify potential health threats to life 

and safety; 

� Conduct research on community health 

status; 

� Add geographic intelligence to the 

medical record; 

� Collect and verify community health 

data; 

� Conduct monitoring and evaluation of 

health interventions and programs [2]. 

The spread of disease, especially infectious 

disease, is unavoidably spatial. Public health 

experts have described infection moving 

from individual to individual following a 

network of contacts within a population 

through local or even global transmission 

[3].Using GIS the health organizations 

generate maps showing case distribution at 

multiple scales (e.g., world, country, 

regional, provincial, and district levels) and 

predict which populations are most 

vulnerable based on their proximity to risks. 

With GIS, the spread of infectious disease 

becomes more visible through temporal 

animation of maps and network analysis. 

The Statistical Research and Applications 

Branch staff has an active research program 

in the area of Geographic Information 

Systems, the statistical analysis of spatial 

and temporal patterns of cancer, and data 

visualization [4]. In addition, staff consult 

across the Division on the analysis and 

presentation of geographic data and help 

coordinate extramural Geographic-Based 

Research in Cancer Control and 

Epidemiology. The Geographic Information 

Systems Web site has additional information 

on GIS technology and NCI's uses of it. 

Examples of current projects are: 

� prediction of the numbers of new cancer 

cases for every US county and state, 

based on hierarchical statistical models 

of cancer patterns in SEER counties; 

� analysis of the spatio-temporal patterns 

of the age at first birth in the US and 

examination of the impact of these 

changing patterns on breast cancer risk; 

� development of the State Cancer Profiles 

system, Web-based dissemination of 

cancer and risk factor statistics 

primarily for public health professionals; 

� development of improved methods to 

explore and display spatio-temporal 

patterns of cancer rates and their 

association with sociodemographic and 

behavioral factors;

� collaboration with other agencies and 

universities on a Digital Government 

Initiative NSF grant to improve the 

quality of federal statistical graphics; 

� improvements in methods to detect and 

display clusters of high cancer rates. [4]. 

The Integrated System for Public Health 

Monitoring of West Nile Virus (ISPHM- 

WNV) is a real-time geographic information 

system for public health surveillance of West 

Nile virus and includes information on 

Corvidae, mosquitoes, humans, horses, 

climate, and preventive larvicide 

interventions. It has been in operation in the 

province of Quebec, Canada, since May 2003. 

The ISPHM-WNV facilitates the collection, 

localization, management and analysis of 

monitoring data; it also allows for the 

display of the results of analyses on maps, 

tables and statistical diagrams [5]. 

The Public Health Mapping and Programme 

was originally developed by World Health 

Organization (WHO) and UNICEF in 1993 

to boost efforts to eradicate guinea worm 

disease, which affects the isolated, rural 

poor, through the use of GIS. The system 

allows the computer-assisted visualization of 

disease foci, the monitoring of newly infected 

or reinfected villages, the identification of atrisk 

populations, and the highly targeted, 

cost-effective distribution of interventions. It 

is an example of how technologies developed 

to accelerate the control of one disease can 

expedite the control of others [6]. 

GIS displays have been used to show a clear 

relationship between clusters of emergent 

Hepatitis C cases and those of known 

intravenous drug users in Connecticut. 

Causality is difficult to prove conclusively – 

collocation does not establish causation – but 

confirmation of previously established causal 

relationships (like intravenous drug use and 

Hepatitis C) can strengthen acceptance of 

those relationships, as well as help to 

demonstrate the utility and reliability of 

GIS-related solution techniques [1]. 

3. Spatial Analysis Methods in Health 

Research 

The common spatial techniques used in 

health research are described in [7]. They 

include disease mapping, clustering 

techniques, diffusion studies, identification 

of risk factors through map comparisons and 

regression analysis. 

335 

Disease mapping 

Mapping disease includes mapping point 

locations of cases, incidence rates by area, 

and standardized rates. Thematic Maps 

show the spatial distribution of a wide 

variety of qualitative and quantitative 

information. In fact, almost any subject that 

can be expressed as a geographical 

distribution can be mapped. In practice, if 

the data is stored in a spatially-enabled 

database, for example PostgreSQL/PostGIS, 

a thematic map can be generated as 

described in [8] showing the number of 

infected persons with a certain disease by 

county, like presented in Fig. 1. 

Figure 1. Number of infected persons with a certain 

disease by county. 

This method is not rigorous but it can help 

analysts to identify patterns and to 

investigate them with further analysis. 

Detection of clusters 

A cluster, in epidemiology, is a number of 

health events situated close together in 

space and/or time. 

Spatial SQL, which is used in Oracle, 

Manifold, MapInfo, and PostGIS can 

replicate virtually every classic ESRI 

command using spatial SQL and, can do 

very sophisticated spatial analysis (join 

count, modifiable area unit problem, quadrat 

analysis, nearest neighbor, variogram 

creation) using a single declarative 

statement that includes spatial constructs 

with SQL. 

� Point patterns. The objective of 

examining point patterns is to recognize 

when events are systematically organized or 

structured compared with events distributed 

at random [7]. The simplest pointpattern 

analysis is visual inspection of a dot map

which displays a geographic distribution of 

events (Fig. 1). Statistical tools, such as 

variance to mean ratio, may be needed to 

evaluate subjective impressions. 

� Nearest neighbor analysis uses interevent 

distances to develop impressions of the 

strength of the clustering of point data. 

In practice, we can use SQL statements in 

spatial databases in order to retrieve 

neighbors of a certain geospatial object. For 

example, in PostgreSQL, an open source 

spatial database, the below SQL statement 

gives you the nearest 5 neighbors from a 

reference row with gid = 1. 

SELECT g1.gid As gref_gid, g1.description 

As gref_description, g2.gid As gnn_gid, 

g2.description 

FROM sometable As g1, sometable As g2 

WHERE g1.gid = 1 and g1.gid g2.gid 

ORDER BY 

ST_Distance(g1.the_geom,g2.the_geom) 

LIMIT 5; 

Oracle Locator and Oracle Spatial, 

proprietary spatial database, does have an 

SDO_NN and SDO_NN_DISTANCE 

functions. 

SELECT g1.name FROM sometable g1, 

sometable g2 

WHERE SDO_NN(g1.geometry, 

g2.geometry) = 'TRUE' 

AND ROWNUM

4. Issues with GIS for Public Health 

There are also concerns or issues with use of 

GIS tools for public health efforts such as: 

� privacy and confidentiality of 

individuals. Public health is concerned about 

the health of the population as a whole, but 

must use data on the health of individuals to 

make many of those assessments, and 

protecting the privacy and confidentiality of 

those individuals is of paramount 

importance. Use of GIS displays and related 

databases raises the potential of 

compromising those privacy standards, so 

some precautions are necessary to avoid 

pinpointing individuals based on spatial 

data. [1]; 

� statistical inference based on 

aggregated data can lead researchers to 

erroneous conclusions, suggesting 

relationships that in fact do not exist or 

obscuring relationships that do in fact exist. 

This issue is known as the Modifiable Areal 

Unit Problem. For example, New York public 

health officials worried that cancer clusters 

and causes would be misidentified after they 

were forced to post maps showing cancer 

cases by ZIP code on the internet. Their 

assertion was that ZIP codes were designed 

for a purpose unrelated to public health 

issues, and so use of these arbitrary 

boundaries might lead to inappropriate 

groupings and then to incorrect conclusions. 

[1]; 

� present-day GIS fails to provide 

appropriate tools for epidemiology. Two 

needs are most pressing. First, we must 

reject the static view: meaningful inference 

about the causes of disease is impossible 

without both spatial and temporal 

information. Second, we need models that 

translate space-time data on health 

outcomes and putative exposures into 

epidemiologically meaningful measures. The 

first need will be met by the design and 

implementation of space-time information 

systems for epidemiology; the second by 

process-based disease models.[9]; 

� the lack of suitable GIS data sets is a 

major impediment to the growth of GIS in 

certain areas of the planet such as Africa; 

� it was not proven yet the costeffectiveness 

of GIS in the health arena. 

337 

5. E-Government Information System 

Type Face to Face with “WikiHealth” 

All the technologies used in public health 

stretegies such as web 2.0, geographical 

information systems or spatial analysis have 

to be merged into a so called e-government 

information system in order to benefit by 

their synergy. The implementation of 

software products based on e-Government 

concept bring along a number of benefits 

both for the citizens and the public 

institutions: much easier access to 

information and documents for citizens, 

avoiding the queues in front of the counters 

and avoid working with the public for the 

public institutions’ employees. Therefore, an 

information system of e-Government type 

has a large number of daily visitors, and the 

creation of a new module, which we propose 

to name “Wikihealth”, could improve the 

statistics concerning the citizens’ health at 

national or international level. 

It is known that the main advantages of the 

e-Government information systems are: 

reducing the corruption, increasing the 

transparency, offering more comfort, 

increasing the revenues and / or the lowering 

the costs. By implementing the “Wikihealth” 

module within an e-Government information 

system type, the area of the above 

mentioned advantages expands, including: 

� information on the population’s state 

of health in different geographical areas; 

� the information will be viewed both 

as reports, by the citizens, and as maps: local 

or national ones, depending on the criterion 

selected by the user (disease category, 

disease, age and / or year); 

� the citizens will be able to post the 

information under the anonymous protection 

so that there will no longer exist the fear of 

being identified later; 

� new risk areas will be detected, for 

example in case of epidemics. 

Wikihealth - practical approach 

As in any “wiki” type website the user is the 

one who posts the information which will be 

validated or corrected, to the extent this 

thing can be done, by the website 

administrator or by a person who will be in 

charge with such a task. We shall go on 

presenting below our proposal concerning: 

the database design and then the

implementation and use of a “Wikihealth” 

website type. 

1) Proposal for database design 

The starting point of the project were the 

relational databases, which contain the 

following tables: 

� Users: This table contains data on 

users who have created an account 

in the application in order to post 

information; 

� Diseases_category: This table 

contains data on disease categories 

defined in the application, either by 

the website administrator or by the 

users; 

� Diseases: This the users; 

� Countries: this table lists the names 

of all countries of the European 

continent (in the case of our 

experiment); 

� Ill_persons: This table contains 

information on sick people, the 

information being added by the users 

of the website. 

Description of entities and attributes of each 

entity: 

� Users: 

- User id: Numeric, 5 

- Country id: Numeric, 5 

- Username: Character, 50 

- Password: Character, 50 

- Email: Character, 30 

- Name: Character, 50 

- Birthday: Date 

- Gender: Character, 1 

� Disease_category: 

- Disease category id: 

Numeric, 5 

- Add by: Numeric, 5 

- Category name: Character, 

50 

� Diseases: 

- Disease id: Numeric, 5 


Numeric, 5 


- Disease name: Character, 50 

� Countries: 


- Country: Character, 50 

� Ill_persons: 

- Ill person id: Numeric, 5 

338 


Numeric, 5 



- Date see case: Date 

- City: Character, 50 

- School: Character, 50 

- Age: Character, 30 

- Gender: Character, 7 

- Add date: Date 

In the following figure we present the 

conceptual scheme of the database, made by 

using the above entities: 

Figure 2. Conceptual scheme of the database 

2) Proposal for the implementation and 

use of a “Wikihealth” type website 

The “Wikihealth” module, within the e- 

Government information system type, as far 

as the interface with the users is concerned, 

will be built on a “friendly” website structure 

and it will be easy to use even by less 

experienced citizens in the “world of 

informatics”. 

a) New Account or first time use of the 

module "Wikihealth" 

As we wrote above, the information on a sick 

person will be posted anonymously. However, 

the user who wants to post the information 

will need to create an account in the 

application (Fig. 3), where it is not 

compelling to fill in the field “Name” from the 

“New Account” form.

Figure 3. The window that allows the creation of a new 

user account in “Wikihealth” 

b) New case or adding a new sick 

person 

Once the user has logged on the website 

“Wikihealth”, he will be able to access the 

window through which one can add a new 

seen case (information on a new sick person), 

“New case” (Fig. 4). The compelling 

minimum information which must be added 

are: 

� the country where the case was seen; 

� the category of disease to which belongs 

the new case that the user wants to add; 

� the month and the year when the sick 

person was seen. 

Figure 4. The window that allows adding a new event in 

“Wikihealth” 

It can often occur that a category of diseases 

is not defined in the “Wikihealth” system or 

a disease name does not exist, but, as in any 

339 

system of “wiki” type, the user must have 

the right to define the category of disease 

(Fig. 5) or to have the possibility of adding 

the name of a new disease (Fig. 6). 

Figure 5. The window that allows adding a new 

category of diseases 

Figure 6. The window that allows adding a new disease 

name 

c) Statistics or the possibility to view 

the information in the “Wikihealth” module 

Within the experiment that I have carried 

out, I allowed the possibility of adding new 

cases of sick people only from countries of the 

European continent. 

As users are introducing information in the 

“Wikihealth” module, these can be also 

viewed, primarily as maps, according to 

certain selected criteria. The criteria 

proposed by us are: 

� per years (all diseases) – Fig. 7; 

� per disease category; 

� disease per name; 

� per age (all diseases).

Figure 7. Proposal for viewing the information 

introduced by the users in the “Wikihealth” module 

This report (Fig. 7) can be very easily and 

intuitively interpreted: one can see on the 

map of Europe that the countries are 

separated and differently colored and under 

each country there is a number. This number 

represents the number of sick people or of 

those suffering from a certain disease; the 

information can be viewed according to the 

criteria introduced by the user (disease 

category, disease, age, year). 


The advantages of the implementation of the 

“Wikihealth” module in an e-Government 

information system type, are both obvious 

and important: 

� profiles of geographical areas where the 

risk of epidemics or the emergence of 

some categories of disease is high can be 

obtained, complex spatial analysis can 

be further implemented; 

� the problems a particular community is 

facing can be easily highlighted; 

� the efficiency and quality of the services 

provided by local medical institutions 

can be indirectly assessed; 

� the citizens can learn from the 

experience/knowledge of each other. 

Health monitoring has been traditionally a 

time-consuming and costly process. So, there 

is an urgent need to develop a system that is 

capable of performing wide-area health 

monitoring automatically and autonomously 

to users who are usually mobile and situate 

in a low bandwidth, high latency, 

asynchronous transaction, unstable 

connection environment. In addition, the 

system also needs to accommodate the 

situation that wide area health monitoring 

data is stored and distributed in 

heterogeneous local servers [10]. 

References 

[1] Wiki.GIS.COM, “GIS and Public Health”. 

http://wiki.gis.com/wiki/index.php/GIS_and_P 

ublic_Health 

[2] “Geographic Information Systems and 

Pandemic Influenza Planning and Response”, 

ESRI, 380 New York Street, Redlands, CA 

92373-8100 USA. 

http://www.esri.com/library/whitepapers/pdfs/ 

gis-and-pandemic-planning.pdf 

[3] Dionne C.G. Law, Rachel A. Wilfert, Mapping 

for Surveillance and Outbreak Investigation, 

(Focus on Field Epidemiology, vol. 5 no. 2, 

2009). 

340 

[4] National Cancer Institute , U.S. National 

Institutes of Health. 

http://srab.cancer.gov/about/areas/gis_spatial. 

html 

[5] Pierre Gosselin, Germain Lebel, Sonia 

Rivest, Monique Douville-Fradet, The 

Integrated System for Public Health 

Monitoring of West Nile Virus (ISPHM- 

WNV): a real-time GIS for surveillance and 

decision-making (International Journal of 

Health Geographics 2005, 4:21, 2005). 

[6] Oracle corporation. http://www.oracle.com 

[7] Dale A. Moore and Tim E. Carpenter, Spatial 

Analytical Methods and Geographic 

Information Systems: Use in Health Research 

and Epidemiology, (Epidemiol Rev, vol. 21, 

no. 2, 1999). 

[8] Aura-Mihaela Mocanu (Vîrgolici), Manole 

Velicanu, A Study on GIS interoperability 

based on OGC Web Map Service (The Ninth 

International Conference on Informatics in 

Economy, May 2009, The Bucharest Academy 

of Economic Studies, 2009), 645. 

[9] Geoffrey M. Jacquez, Spatial analysis in 

epidemiology: Nascent science or a failure of 

GIS?, (Journal of Geographical Systems, 

Volume 2, Number 1, 2000), 91-97. 

[10] Chuan Jun Su, Mobile multi-agent based, 

distributed information platform (MADIP) for 

wide-area e- health monitoring, (Computers 

in Industry, no. 59, 2008 - ISI Thomson), 55– 

68. 

[11] Daniela Liţan, E-Government – fundamental 

background and implementations, (The 

Ninth International Conference on 

Informatics in Economy, May 2009, The 

Bucharest Academy of Economic Studies, 

2009), 449. 

[12] [JOYC09] Kerry Joyce, To me it’s just another 

tool to help understand the evidence: decisionmakers’ 

perceptions of the value of 

geographical information systems (GIS), 

(Health & Place, no. 15, 2009), 831–840. 

[13] ASP.NET Chart and Charting for .NET. 

http://www.dotnetcharting.com




SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE 

RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS 

Associate Professor PhD LUCA Oana 

Technical University of Civil Engineering Bucharest, Romania 

oana@utcb.ro 

PhD Student MARINESCU M.A. Desiree 

Academy of Economic Studies, Bucharest, Romania 

desiree_marinescu@yahoo.com 

Associate Professor PhD GAMAN Florian 

Technical University of Civil Engineering Bucharest, Romania 

gflorin@utcb.ro 

Abstract 

The present paper presents an exciting 

subject to be discussed and studied from the 

perspective of increasing quality of housing 

in the large residential estates in Romania by 

setting up sustainable rehabilitation 

scenarios applying available European 

funds/ structural funds within the country. 

Although some restrictions most notably 

with regard to housing remain, the fact that 

urban policy is now part of the mainstream 

of EU structural policy is one of the major 

changes in the new financial perspectives. 

Key words: rehabilitation, sustainable, 

residential, European / structural funds 


Current functional status of the existing 

large residential estates in all major cities in 

Romania brought into attention serious 

questions on quality of life of beneficiaries of 

such housing. Designed as dormitory-cities, 

in the spirit of a centralized economy, 

directing the way of life for millions of 

people, these residential estates have 

become places where grey is specific to both 

human lives and buildings, equipments, 

utilities, green spaces, roads and not least 

the social-cultural facilities. 

There is no single component of these 

estates which is not encumbered by such 

341 

failures, thus the environment is favourable 

to increased crime and social alienation. 

The pulled alarm signals determined few 

interventions limited to initiatives related to 

creation of attics, energy rehabilitation, 

establishment of parking places, 

consolidation of buildings, rehabilitation of 

utilities branches and setting up of 

individual connections with associated 

measurement equipment. 

But... the interventions were limited to 

these actions. A drop in the ocean! The 

initiatives have not been extended, even 

though national programs supported by 

regulation were elaborated, but without 

sufficient financial allocation. Moreover, 

renovation of social infrastructure (cultural 

centers, libraries, clubs, venues etc.) was out 

of question, beside the fact that it is a 

significant factor in social inclusion and fight 

against alienation feelings, particularly 

common in large urban areas. 

All these aspects lead us to tackle the 

rehabilitation of the large residential estates 

by taking successive partial rehabilitations 

starting with the basic element – living area. 

A scenario can be established applying 

the financial support of European funds 

whose purpose is sufficiently well defined. 

However, these funds do not cover the 

whole range of existing problems, motivating 

us to search for new financing options for 

rehabilitation projects of large residential 

estates.


The literature review as presented in 

this section covers European research 

projects on large scale estates rehabilitation: 

RESTATE – Restructuring Large Scale 

Housing Estates in European cities, 

SUREURO – Sustainable Refurbishment 

Europe, LUDA – Improving the Quality of 

Life in Large Urban Distressed Areas, the 

article of Mateu Turró, Gianni Carbonaro, 

Brian Field “Innovative methods for 

financing urban development: The European 

Union contribution” from the Journal of 

Urban Regeneration and Renewal and a 

study conducted by International Energy 

Agency. 

RESTATE a European research project, 

was carried out from 2002 until 2005 and 

studied the current situation and future 

prospects of large housing estates in 

European cities. It was concluded that an 

integrated approach for policy making based 

on a strategic plan could contribute to better 

outcomes. 

SUREURO was a large European 

research project which provided 

management tools for sustainable and 

consumer oriented refurbishment of post 

war housing areas in Europe. It was 

developed in 2000-2004 by an international 

consortium of 29 partners from 9 European 

countries. The main results consist in the 

strategic management tools designed for 

housing companies and decision makers 

(government) in order to integrate 

sustainability and tenant participation in 

rehabilitation processes management. 

LUDA was a research project of Key 

Action 4 “City of Tomorrow & Cultural 

Heritage” financed by the programme 

“Energy, Environment and Sustainable 

Development” within the Fifth Framework 

Program of the European Union. The overall 

goal of LUDA is to contribute to quality-oflife 

improvements in large urban distressed 

areas by providing a systematic strategic 

planning and development approach. 

The article of Mateu Turró, Gianni 

Carbonaro and Brian Field “Innovative 

methods for financing urban development: 

The European Union contribution” from the 

Journal of Urban Regeneration and Renewal 

describes the financing of projects in the 

context of urban renewal and regeneration 

with their specific aspects that partly 

342 

explain the progressive development of a 

common European urban policy agenda 

based on the pursuit of development of more 

“sustainable cities and communities”. The 

paper briefly describes the recent evolution 

of European Union (EU) urban policy and 

the incorporation of integrated urban 

development as a priority for Structural 

Funds support in the 2007–2013 

programming period. A second major change 

is the incentive to use non-conventional 

financial mechanisms to fund EU programs, 

aimed at putting into practice the 

sustainable communities’ idea. 

A study conducted by the International 

Energy Agency raises the issue of the 

extreme cost needed for effective energy 

saving solutions in the high-rise housing 

sector. The report identifies various barriers 

which prevent the occupants from 

maintaining and refurbishing the high-rise 

housing stock to the level of comfort and 

energy performance that meets the longterm 

expectations. Based on a number of 

case studies and pilot projects, the benefits 

of incorporating energy saving measures as 

part of the widely needed overall 

refurbishment are evident. 

Frank Wasssenberg’s paper “High-rise in 

Europe: analysis and challenges” traces the 

“careers” of high-rise in different market 

conditions, not least through the massive 

political shift in Central and Eastern 

Europe. The paper answers to questions 

related to adjustment of high-rise housing to 

changing demands over the past 30 or 40 

years and also the current profile of highrise 

in fifteen countries, convergences and 

divergences. The paper ends with future 

prospects for this most dominating, most 

direct and most visible result of urban 

planning across Europe. 


The Framework Document for 

Implementation of the Regional Operational 

Programme (ROP) limits the application of 

Structural Funds to individual projects. 

Individual projects are funded only after the 

approval of an integrated plan for urban 

development. The integrated plan must 

include individual projects of at least two 

categories/types of activities of: a) 

rehabilitation of urban infrastructure and 

improvement of urban services, including 

urban public transport, b) sustainable

development of the business environment, c) 

rehabilitation of social infrastructure, 

including social housing and improvement of 

social services. It is compulsory that plans 

include activities of “rehabilitation of urban 

infrastructure and improvement of urban 

services, including urban public transport”. 

The individual projects are focused on: 

- B.1. “Rehabilitation of urban 

infrastructure and improvement of 

urban services, including urban 

transport”, having as eligible 

activities “urban public 

infrastructure” if the project 

applicant proves the ownership of 

the land/building or the lessee of the 

land/building, for a period of 

minimum 10 years. 

- B.3. “Rehabilitation of social 

infrastructure, including social 

housing and improvement of social 

services” having as eligible activities 

renovation of multi-family social 

housing (renovation of common parts 

of multi-family buildings, including 

refurbishment of main structural 

parts of the building – roof, façade, 

including the doors and windows, 

staircase, inside and outside 

corridors, entrance and their 

exteriors, elevator; technical 

installations of the building; energy 

efficiency actions etc.) if the project 

applicant proves the ownership of 

the land/building or the lessee of the 

land/building, for a period of 

minimum 10 years. 

Dissatisfaction resulting in applying to 

these funds is perceived because one of the 

eligibility requirements is that the applicant 

is the owner of the land/building or this is 

the case of buildings/blocks that are in state 

or local administration property (4-6% of all 

apartments), as consequence have a social 

housing nature and therefore does not refer 

to the blocks of flats belonging to the 

associations of owners. 

In some countries of European Union the 

approach is totally different. 

For example, in the Czech Republic 

there is no official definition of social 

housing. However, the one under elaboration 

comprises the following types of social 

housing: 

- housing used for accommodation of 

that part of population which is 

under the risk of social segregation; 

343 

- housing acquired using public 

financial sources or with state direct 

support (e.g. housing subsidised by 

the Ministry for Regional 

Development or by the State 

Housing Development Fund, 

respectively housing built by 

municipalities without government 

grants); 

- other flats or family houses if their 

total floor area would not overpass 

the given threshold, e.g. 150 m 2 in 

case of family houses and 90 m 2 in 

case of flats. 

(Source: SAVE Programme Project) 

In the same time, in Czech Republic, the 

Integrated Operational Plan includes 

Priority 3 “National Support for Regional 

Development” with Measure 3.3 

“Improvement and regeneration of declining 

urban housing”, having as eligible activities 

the following: 

- refurbishment and regeneration of 

the blocks of flats (collective panel 

houses); 

- implementation of measures 

increasing energy efficiency in 

buildings; 

- refurbishment of buildings used for 

social housing. 

The eligible beneficiaries are the 

municipalities and the building owners. 

(Source: Russe, May 2007) 

In Bulgaria, the Priority 1 of the 

Regional Development Operational 

Programme “Sustainable and integrated 

urban development”, specify at the Operation 

1.2 “Housing” the following eligible 

activities: 

- renovation of the common parts of 

multi-family residential buildings as 

follows: refurbishment of the 

following main structural parts of 

the building (roof, façade, 

windows/doors on the façade, 


corridors, entrances and their 

exteriors, elevator); technical vertical 

installations (water supply, sewage, 

electricity, heating, communications, 

fire hydrants) of the building;; 

- energy consumption audits and 

energy efficiency measures for all 

projects related to housing, 

mentioned above (e.g. thermal 

insulation, replacement of 

woodwork, local installations

connected to central heating 

systems, gas supply connecting 

pipelines or alternative renewable 

energy sources); 

- delivery of modern social housing of 

good quality for vulnerable, minority 

and lower income groups and other 

disadvantaged groups etc., through 

renovation and change of use of 

existing buildings owned by public 

authorities or non-profit operators; 

The eligible beneficiaries for these 

actions include beside the public authorities 

or non-profit corporate bodies (for example 

non-profit social housing organisations) the 

associations of owners of multi-family 

residential buildings, which would resolve 

failures related to large residential 

complexes. 

The above aspects presented above lead 

us to emphasize more strongly the need to 

create a scenario applicable in Romania 

based on existing rules. 

Thus, taking as basic unit the living area 

subprojects can be prepares, on objects that 

can allow independent applications of ROP 

provisions (version April 2007): 

B.1. “Rehabilitation of urban infrastructure 

and improvement of urban services, 

including urban transport”, which include 

the following eligible urban public 

infrastructure activities: 

- development and/or rehabilitation of 

urban public infrastructure and 

utilities (public lighting, water, 

sewerage, electricity, gas, phone, 

broadband networks, etc); 

- creation and/or preservation of green 

and recreation spaces (public 

gardens, parks, urban furniture, 

container, waste, etc); 

- creation and rehabilitation of urban 

public spaces: urban streets, 

sidewalks, public squares, 

pedestrian areas, bridges, passages, 

level crossing, foot bridge, etc; 

- completion and/or renovation of 

abandoned buildings and their 

preparation for new economic and 

social activities; 

- the demolition of badly deteriorated 

buildings and/or structures, which 

don’t belong to the national cultural 

heritage and the arrangement of 

deteriorated/ unused lands, for the 

construction of public use buildings 

and green spaces; 

344 

- purchasing of information and 

communication equipment for an 

increase access of citizens to the 

public services; 

- traffic management systems 

(infrastructure works and 

endowment with specific equipment 

for traffic management). 

Regarding the transport and the 

mobility of inhabitants, among the eligible 

actions are the following: 

- extending and/or upgrading 

tramway network and trolley 

infrastructure as well as related 

infrastructure; 

- construction and/or arrangement of 

special lanes for buses and/or 

cycling, 

Certainly, the beneficiary must prove the 

public ownership of the object, as well the 

other eligibility criteria. 

B.3. “Rehabilitation of social infrastructure, 

including social housing and improvement of 

social services”, which include the following 

eligible activities: 

- Renovation of multi-family social 

housing - Renovation of multi-family 

residential buildings (excluding 

areas within the flats), including: 

o refurbishment of main 

structural parts of the 

building, roof, façade, 


corridors, entrance and their 

exteriors, elevator; 

o technical installations of the 

building; 

o energy efficiency actions; 

- Purchasing of equipments necessary 

for increasing security and 

preventing crimes (surveillance 

systems, etc). 

Priority axis 2 of ROP “Improvement of 

regional and local transport infrastructure”, 

with Key area of intervention 2.1 

“Rehabilitation and modernization of county 

roads and urban streets network”, including 

construction/rehabilitation of ring roads 

proposes as eligible activities the following: 

- rehabilitation and modernization of 

the urban streets network (category 

I, II and III), as well as the category 

IV streets network from tourism 

resorts; 

- modernization and extension of the 

utilities network existing within the

oad (water, wastewater, electricity, 

gas, phone network). 

Another area of intervention that could 

be addressed by local governments to use 

European funds for rehabilitation of large 

residential estates is the included in the 

Priority Axis 3 of ROP “Improvement of 

social infrastructure”, with Key area of 

intervention “Rehabilitation, modernisation, 

development and equipping of pre-university, 

university education and continuous 

vocational training infrastructure”, including 

eligible activities for: 

- reconstruction, extension, 

consolidation of buildings (all type of 

infrastructure for compulsory 

education, except for the technical 

and vocational campuses). 

The proximity to educational units 

(nurseries, kindergartens, schools) is one of 

the reasons for which a residential place is 

agreed by most its inhabitants. These are 

largely cases near or within residential areas 

that could contribute to the smooth 

development of the area. 

Another possibility for financing 

infrastructure rehabilitation in residential 

areas is the Sectoral Operational 

Programme for Environment (SOP 

Environment) that describes the different 

types of projects eligible for priority axes: 

- Axis 1 “Extension and modernization 

of water and wastewater systems” in 

various cities and counties, which 

would include existing infrastructure 

in residential areas; 

- Axis 2 “Development of integrated 

waste management systems and 

rehabilitation of historically 

contaminated sites” which include 

integrated waste management 

systems in some counties; 

- Axis 3 “Reduction of pollution and 

mitigation of climate change by 

restructuring and renovating urban 

heating systems towards energy 

efficiency targets in the identified 

local environmental hotspots” which 

can contribute to rehabilitation of 

supply networks for hot water and 

heating in residential areas. 

The Sectoral Operational Programme for 

Administrative Capacity Development (SOP- 

ACD) can finance related projects within 

Priority Axis 1 “Structural and process 

improvements of the public policy 

management cycle”, Intervention Domain 1.3 

345 

“Improve organisational effectiveness”, with 

only 2% contribution of the applicant. 

- Development and provision of 

training programmes (including 

preparation of curricula and 

teaching materials) in areas relevant 

to public administration, such as 

public procurement, ECDL, 

languages, projects development, 

tendering and project management 

etc. 

Public servants, especially those in the 

directorates of the project management and 

European further integration can participate 

in these types of training and achieve needed 

skills. 

In addition to the above available funds, 

another support instrument which is mainly 

focused on exchange of experience between 

cities of all EU Member States is URBACT 

II Programme 2007-2013. URBACT is an 

European exchange and learning 

programme promoting sustainable urban 

development. It has a budget of 

approximately 68 million Euro co-financing 

from the European Regional Development 

Fund (ERDF) is 78.62%. 

The activities included in this 

programme cover interregional cooperation 

within the European Territorial Cooperation 

Objective of the EU Cohesion Policy. OP 

URBACT II could assist in the preparation 

of projects developed within national 

programmes (Sectoral Operational 

Programmes and Regional Programme). 

Thus, it can support the preparation of 

bankable projects for urban regeneration/ 

rehabilitation of large residential estates. 

The Priority axes are: 

- Priority axis 1 “Cities, engines of 

growth and jobs” and include 

measures such as entrepreneurship 

promotion, innovation improvement 

and enhancement of knowledge 

economy, employment and human 

capital development; 

- Priority axis 2 “Attractive and 

cohesive cities” and include measures 

such as integrated development of 

degraded areas and those under 

current degradation, social inclusion, 

environmental issues, 

administration and urban planning. 

Collection of funds will take place 

following public calls for proposals (tenders) 

in which applicants from Romania will 

participate as partners in joint projects or

project leaders, with main responsibility for 

carrying out that project partnership, project 

development and implementation. Thus, 

Romanian cities have the opportunity to 

submit and win urban development projects. 

URBACT II is a key element of cooperation 

between the cities involved in the project. 

The program priorities are implemented 

through operations target at exchanging 

experience and knowledge, aiming to 

establish 40 thematic networks and 25 

working groups, capitalization (using 

capitalization instruments and through the 

“Fast Track” option), communication and 

dissemination of information, particularly by 

building partnerships. The projects will 

focus on implementation of action plans, 

development of thematic studies and reports, 

promotion and dissemination of information 

obtained through creation of websites or web 

pages, printed brochures and publications in 

its partner national language, organisation 

of conferences. 

Acknowledging the fact that the quality 

of housing is a vital component of the quality 

of environment, URBACT II Programme 

through Axis 2 “Environment” provides 

financing to promote use of renewable 

energy and clean materials in the new 

buildings and to rehabilitate buildings in 

large residential estates that are not in a 

satisfactory condition. This issue represents 

a priority of the programme especially as 

most of people in many Eastern European 

cities are living in such buildings. 

The areas of expertise cover the 

following: 

- active inclusion; 

- cultural heritage and city 

development; 

- disadvantaged neighbourhoods; 

- human capital and 

entrepreneurship; 

- innovation and creativity; 

- low carbon urban environments; 

- metropolitan governance; 

- port cities; 

- quality sustainable living. 

Jessica Programme (Joint European 

Support for Sustainable Investment in City 

Areas) is an initiative of the European 

Commission in cooperation with the EIB and 

the Council of the European Bank for 

Development (CEB) to promote sustainable 

investments, economic growth and 

employment in European urban areas. It 

provides access to loan capitals to promote 

346 

urban development, including loans for 

social housing. Eligible beneficiaries are 

public, municipal, private sectors. 

Also JASPERS Programme (Joint 

Assistance in Supporting Projects in 

European Regions), funded by the European 

Commission, EIB and EBRD, assists 

Member States in implementing cohesion 

policy by expanding cooperation between 

them on better organization and use of 

expertise and resources. Jaspers' goal is to 

support authorities in the regions of 

Convergence to prepare major projects to be 

approved by the Commission. This support is 

provided free to all stages of project cycle 

from the initial project identification to the 

Commission's decision to award the grant. 

JASPERS is focused on large major projects 

(more than 25 million Euro for 

environmental projects, more than 50 

million Euro for transport and other areas). 

Priority is given to Romania and Bulgaria. 

The eligible beneficiaries of these 

programmes are the municipalities of the 

Member States, universities and research 

institutions. Private bodies or associations of 

national/transnational cities/municipalities 

can participate with their own funding. 

Once funding sources with the largest 

share in the project budget are identified, it 

is necessary to identify own sources for cofinancing. 

Not always and not all potential 

applicants have secured co-financing. 

Possible sources of co-funding for 

rehabilitation include: 

- Municipal bonds or municipal 

securities; 

- Bank loans from resident banks; 

- Loans from foreign banks (EIB, 

EBRD etc.). 

Municipal bonds or municipal securities 

are debt securities issued by municipalities, 

cities, counties, as well by other public 

authorities and their agencies to finance 

investment projects to support local 

communities. 

For example, in 2005, in Alba Iulia was 

launched a bond issue, amounting to 24.5 

million lei with a maturity of 20 years, which 

generated funds to finance 13 investment 

projects for expanding the water and sewage 

network, rehabilitation of roads, educational 

institutions etc. For municipalities to launch 

such programmes, the advantages are 

obvious. 

First of all, interest paid on loans made 

from the debt securities is lower than

interest paid if the municipality borrows 

from the bank. Secondly, interest can be 

reduced once the inflation goes down more 

easily, based on contract provisions and 

position of the municipality in public offer, 

much easier for debt securities than in case 

of bank credits, in the latter case the 

decision belonging to the bank. 

Another difference in favour of securities 

is that the money are returned at more 

distant maturities, unlike bank loans where 

the money must be returned immediately 

and grace periods are negotiated with 

difficulty. Additionally, a bank loan requests 

more severe evaluation of guarantees than 

for debt securities issues, where the 

municipality guarantees with its fiscal and 

taxation power. 

We have presented above the elements of 

a possible scenario for the rehabilitation of 

large residential estates. The next figure 

summarises the relations between the 

stakeholders, scenes and possible available 

funds taken into account in a scenario for 

the rehabilitation of large residential 

estates. 

Figure 1. Relations in a Scenario for the rehabilitation of large residential estates 

347

Detailed description of a possible scenario is 

presented hereby: 

Objective: rehabilitation of a large 

residential estate. 

Location: urban action zone. According ROP 

the urban action zones are geographically 

delimited within medium and large cities. 

Scenes (eligible activities): 

- Urban public infrastructure: 

o Development and/or 

rehabilitation of urban public 

infrastructure and utilities 

(public lightning, water, 

sewage, electricity, gas, 

telecommunication); 

o Creation/conservation of 

green areas for recreation 

(public gardens, parks, urban 

furniture, containers, waste); 

o Creation and rehabilitation 

of urban public spaces, 

markets, streets, sidewalks, 

pedestrian zones, bridges, 

passageways, walkways; 

o Rehabilitation and 

modernisation of county 

roads, urban streets; 

o Buildings and/or deteriorated 

structures demolition (not 

included in national 

heritage) and improvements 

of land free of public utility 

constructions or green ; 

o Systems for traffic 

management (infrastructure 

works and provision of 

specific equipments); 

o Integrated waste 

management systems; 

o Rehabilitation of district 

heating systems. 

- Social infrastructure including social 

housing; 

- Educational infrastructure; 

- Transport and population mobility: 

o Construction of stations for 

transport means; 

o Extension/modernisation of 

traffic routes infrastructure; 

o Construction rehabilitation 

of special lines for of public 

transport and/or individual 

means (bikes); 

348 

o Procurement of 

environmentally friendly 

transport means. 

Ante-financing actors: 

- Applicants – local public authorities; 

- Financing banks; 

- Private partners; 

- Direct beneficiaries (inhabitants); 

- Specialised companies in 

consultancy services and 

monitoring/supervision; 

- Regional Development Agencies 

(RDAs). 

Post-financing actors: 

- Designers and approval organisms; 

- Quality checking entities; 

- Work performers; 

- Direct beneficiaries (inhabitants). 

Benefits after project implementation 

(requested in cost-benefit analysis): 

- Reduced poverty and social 

exclusion; 

- Decreased long-term unemployment; 

- Positive demographic influence; 

- Positive trend in education; 

- Negative trend in delinquency and 

crime; 

- Increased economic activities; 

- Increased housing price; 

- Reduced energy consumption of 

housing; 

- Emergence of investments that 

would grow existing activities or 

start new activities. 


The data presented above could be 

included in a possible scenario for the 

rehabilitation of large residential estates. 

They allow us to present a model for the 

practical application (see picture) which can 

be used in any urban locality or county by 

the local administration. 

However the funds we presented above 

do not cover the whole range of existing 

problems, motivating us to search in a future 

study new financing options for 

rehabilitation projects of large residential 

estates. 

The start is the most difficult especially 

when the administrative structure has no 

organizational entity competent or 

courageous enough, no start-up databases

exist or specialists in elaborating 

applications are insufficient or not interested 

in attracting European funds for solving the 

problems of inhabitants living in large 

residential estates. 

References 

Bueren, E.M. van, Bougrain, F. & Knorr-Siedow, 

T. 2002, Sustainable Neighbourhood 

Rehabilitation in Europe: From Simple Toolbox to 

Multilateral Learning, in: Jong, W.M. de, Lalenis, 

K. & Mamadouh, V.D. (eds.), The Theory and 

Practice of Institutional Transplantation. 

Experiences with the Transfer of Policy 

Institutions, The Hague: Kluwer. 

IEA (International Energy Agency). 2006, High- 

Rise Refurbishment: The Energy-Efficient 

Upgrade of Multi-story Residences in the 

European Union, OECD/IEA, EuroACE. 

Kempen, R. van, Dekker, K., Hall, S. & Tosics, I. 

2005, Restructuring large housing estates in 

Europe, Bristol: The Policy Press. 

Leipzig. Urban Audit. Assessing the Quality of 

Life of Europe’s Cities. Available online: 

http://europa.eu.int/comm/regional_policy/urban2/ 

urban/audit/results/leipzig.htm 

LUDA – Improving the Quality of Life in Large 

Urban Distressed Areas. 

Mateu Turró, Gianni Carbonaro, Brian Field 

“Innovative methods for financing urban 

development: The European Union contribution”, 

Journal of Urban Regeneration and Renewal, 

International Energy Agency. 

Romanian Sectoral Operational Programme 

Increase of Economic Competitiveness for 2007- 

2013. 


Transport for 2007-2013. 


Environment for 2007-2013. 


Human Resources Development for 2007-2013. 

Romanian Operational Programme 

Administrative Capacity Development for 2007- 

2013. 

Romanian Regional Operational Programme for 

2007-2013. 

Romanian Operational Programme Technical 

Assistance for 2007-2013. 

349 

RESTATE – Restructuring Large Scale Housing 

Estates in European cities. 

Russe, May 2007 “Financing sustainable energy 

projects through the Structural Funds and the 

Cohesion Fund in 2007-2013”. 

SAVE Programme Project: “Innovative Financing 

of Social Housing Refurbishment in Enlarged 

Europe. Situation in the Czech Republic”. 

SUREURO – Sustainable Refurbishment Europe. 

Turkington, R. 2004, High-Rise Housing In 

Europe: Current Trends And Future Prospects, 

Delft: DUP. 

Wassenberg, F., 2004, High-rise in Europe: 

analysis and challenges, Chambridge, ENHR 

Conference “Housing, growth and regeneration”.




THE ANALISIS OF THE SITUATION LOOKING THE ENVIRONMENT 

PROTECTION IN ROMANIA THROUGH THE POS ENVIRONMENT 

REFERENTIAL CHALLENGES AND THREATS 

Abstract 

The purpose of the present paper is to 

present generally aspects looking the 

environment protection in Romania through 

the POS environment referential, with have, 

as overall objectives the protection and the 

improvement both of the environmental 

quality and living standards in Romania. 

For a better understanding of it, the paper 

present the specific objectives of the reminded 

referential (the quality improvement and the 

access to water and wastewater 

infrastructure, by providing water and 

sanitation in most urban areas by 2015 and 

the establishing of the efficient regional 

structures for the management of the water / 

wastewater services; the development of the 

sustainable waste management, improving 

the waste management and reducing the 

historic polluted areas in minimum 30 

counties by 2015; the reduction of the 

negative impacts over the environment and 

the diminution of the climate changes caused 

by the urban heating systems in the most 

polluted localities by 2015; the biodiversity 

and the natural heritage protection and 

improvement through the supporting of the 

protected areas management, including the 

implementation of Nature 2000; the 

reduction of the natural disasters risks 

which affect the population, by implementing 

preventive measures in most vulnerable 

areas by 2015), the main problems which 

appears for Romania looking the 

environment protection and, finally, the 

existent challenges and threats bounded by 

the environment protection issue. 

Keywords: environment, protection, 

objective, challenge, threats. 

MARDIROS Daniela 

University "Alexandru Ioan Cuza" of Iasi 

mardirosdaniela@yahoo.com 

BORZA Mioara 

University "AIexandru Ioan Cuza" of Iasi 

mioara@uaic.ro 

350 


The paper want to present the problems of 

the environmental protection in Romania 

according to certain referential which 

stipulated the problems which must be 

resolved by Romania as UE member. From 

the multitude of projects looking the 

environment protection which has been 

started in our country we present, mainly, 

the SOP Environment and the directions of 

it.. We also take into account the challenges 

at the threats that Romania must face 

looking the environment protection. The 

studied matter is an important one because, 

at world and at UE level, the concern for the 

environment protection is bigger and bigger, 

year after year. So, as responsible country 

and population, Romania and the 

Romanians must do important efforts to 

protect the environment and its health, for 

the present but, mainly, for the future. The 

answer to this matter is given by the study 

of the aspects involved by the environment 

protection (wastewater, public water supply 

system, waste production, waste from 

construction and demolition, waste 

generated by the medical activity, air 

pollution, soil pollution, biodiversity 

protection, flood risk etc.), their particularly 

form of expression for the Romanian 

territory, the directions in which Romania 

must action according with the European 

and world tendencies in matter and the 

challenges and threats which manifested 

against the fixed goals. The present paper is 

based on the study of the Romanian 

legislation bounded by the European one 

looking the environment protection such as: 

Environment Sectoral Operational Program

(SOP), National Strategic Reference 

Framework (NSRF), The Yearly Report 

looking the environment situation in 

Romania, Romania’s Public Health Institute 

Report etc. 


Environment Sectoral Operational Program 

(SOP) is closely linked to the national 

strategic objectives of the National 

Development Plan (NDP) for 2007-2013 and 

with the National Strategic Reference 

Framework (NSRF) which is based on the 

principles, practices and objectives pursued 

at EU level. SOP environment is based on 

objectives and priorities for environmental 

policies and infrastructure development of 

the European Union, reflecting both 

Romania's international obligations and 

specific national interests. SOP ongoing 

development programs at national 

environmental infrastructure that were 

started in the pre-accession assistance, in 

particular the Phare and ISPA. In addition 

to the infrastructure development, through 

SOP will be established the efficient 

management structures of the relevant 

services in terms of environmental 

protection. Also, the SOP's priorities 

includes assistance in areas far less 

discussed, as the efficiency of the urban 

heating systems, risk prevention, 

environmental reconstruction or the 

implementation of the management plans 

Nature 2000. The overall objective of SOP 

environment is the protection and the 

improvement both of the environmental 

quality and living standards in Romania. 

The objective is to reduce the existent gap 

between the EU and Romania on 

environmental infrastructure in terms of 

both quantity and quality. This should 

result in efficient public services, taking into 

account of the sustainable development 

principle and of the polluter pays principle. 

SOP's specific objectives are: the quality 

improvement and the access to water and 

wastewater infrastructure, by providing 

water and sanitation in most urban areas by 

2015 and the establishing of the efficient 

regional structures for the management of 

the water / wastewater services; the 

development of the sustainable waste 

management, improving the waste 

management and reducing the historic 

polluted areas in minimum 30 counties by 

2015; the reduction of the negative impacts 

351 

over the environment and the diminution of 

the climate changes caused by the urban 

heating systems in the most polluted 

localities by 2015; the biodiversity and the 

natural heritage protection and 

improvement through the supporting of the 

protected areas management, including the 

implementation of Nature 2000; the 

reduction of the natural disasters risks 

which affect the population, by 

implementing preventive measures in most 

vulnerable areas by 2015. 

To achieve these objectives, was identified 

the following priorities: the expanding and 

the upgrading of the water and wastewater 

systems; the development of the waste 

integrated management and the 

rehabilitation of the historically 

contaminated sites; the pollution reduction 

and the climate change mitigation, 

restructuring the urban heating systems to 

achieve the energy efficiency targets in the 

most affected by pollution areas; the 

implementation of adequate management 

systems for nature protection; technical 

assistance. SOP's total budget for the 2007- 

2013 programming period is approximately 

5.6 billion Euros. Of these, approximately 

4.5 billion Euros is EU support, which 

represents 23.5% of financial resources 

allocated to the National Strategic Reference 

Framework and 1.1 billion euros is from the 

national budget. Community sources used in 

the implementation of SOP are provided 

from the Cohesion Fund and European 

Regional Development Fund. 

The analysis of the current situation focuses 

on those environmental sectors that have in 

our days the biggest negative impact, which 

are most backward and where, the planned 

investments on medium term, although 

costly, can contribute substantially to the 

developing of a sustainable economy, 

stimulating job creation and business 

development. In particularly, the analysis 

concerns the situation in the following 

environmental sectors: water/wastewater, 

waste, soil pollution, air pollution, nature 

and biodiversity protection, flooding, coastal 

erosion. 

3. Paper content 

Compared with other European countries, 

Romania is a medium sized country, with 

complex ecosystems and natural landscape 

outstanding of a remarkable beauty, variety 

and balance. Natural resources are an

essential component of Romania's wealth. 

To improve the living conditions in Romania 

it is necessary that the natural resources be 

exploited in a sustainable manner. 

Sustainable development mission is to find 

ways of growth and development, while with 

the common use of the natural resources so 

that renewable resources can be maintained, 

and the non-renewable one to be used at a 

rate that takes into account the needs of the 

future generations. Some of the main 

environmental issues are: 97.8% of 

Romania's hydrographic network is 

contained in the Danube River Basin; 

approximately 38% of the length of the 

Danube is Romanian territory; with an 

average of only 2660 m3/inhabitant/year, in 

comparison with the average of 4000 

m3/inhabitant/year in Europe, Romania is 

placed in the category of relatively poor 

countries in water resources. In accordance 

with the Environment State Report 

(produced annually by MMDD), Romania is 

equipped with all types of freshwater 

resources (rivers, natural and artificial 

lakes, the Danube River and groundwater). 

The most important freshwater resource is 

the Danube and other rivers. The volume of 

the usable water resources is 2,660 

m3/inhabitant/year (the European average 

is 4,000 m3/inhabitant/year). This is mainly 

due to the contamination of the water 

resources; if are taken into account only the 

surface resources, these are about 1770 

m3/inhabitant/year, which places Romania 

among the countries with relatively low 

water resources; in comparison with the 

other 25 European countries, Romania 

ranks ninth place. 

The largest volume of wastewater, including 

cooling water, was discharged from the unit 

from: electricity and heat sector (over 51% of 

total), residential (over 36%), chemicals 

(approx. 5%) the rest being mining and 

metallurgy, animal husbandry. The biggest 

polluters of surface waters with organic 

substances, suspensions, minerals, 

ammonia, grease, cyanide, phenols, 

detergents and heavy metals are the major 

conurbations. The critical situation of 

wastewater treatment plants is generated 

by the age of the sewerage and treatment 

plants, by the sewage capacity change with 

no adjustment to the construction 

parameters, by the poor management 

capacity and by the poor financial situation 

of the public utility operators. This situation 

reflects the fact that substantial 

352 

investments are required both for the 

rehabilitation/ the extension of the collecting 

systems and to build sewage treatment 

plants. In compliance with its obligations in 

the negotiation process, Romania must 

comply with the provisions of Directive 

91/271/EC looking urban wastewater 

treatment till 2018 and the implementation 

estimated costs are about 9.5 billion euros 

for investment, in which EUR 5.7 billion for 

wastewater treatment plants and 3.8 billion 

for sewer systems. 

Looking the public water supply systems the 

last years shows a decrease in the total 

quantity of water distributed in the network 

dued, mainly, to the reduction and metering 

of the industrial activities. The un equal 

distribution of the water resources on the 

country's surface, the insufficient level of 

regulation of flow on watercourses, the 

significant pollution of inland rivers are the 

main factors that make that important parts 

of the country do not have sufficient water 

sources all the year, especially during the 

periods of drought or in the winter with low 

temperatures. The important decrease in 

water demand has helped to reduce water 

pollution by decreasing the volume of 

wastewater discharged. Regarding 

agriculture, Romania is still in a difficult 

situation caused by the excessive 

fragmentation of ownership (households 

living predominating), by the existence of 

weak machinery, by the precarious situation 

of rural infrastructure, dramatically 

reduction of the irrigated areas, by the soil 

degradation, by the chronic scarcity of the 

financial resources and by the lack of a 

functional system of agricultural credit. In 

accordance with country report on Romania 

over the Environment Strategic Evaluation 

and the Risk Prevention, developed by 

ECOLAS & GHK for the European 

Commission, regarding the water supply/the 

waste water treatment and also the 

investment needs for the 2007 – 2013 

periods, Romania ranks second place after 

Poland (Table 1). 

Romania will have to invest around 9.5 

billion euros to implement the European 

directive on urban wastewater treatment, of 

which EUR 5.7 billion for wastewater 

treatment plants and 3.8 billion for sewer 

systems, according to a National 

Administration Romanian Waters (ANAR).

Table 1 Necessary investment in member 

states during 2007 - 2013 (million Euros) 

State Invest. in Invest. in Total 

water waste invest. 

supply water 

treatment 

Bulgaria 3138 2487 5.625 

(no. 4) 

Cyprus 0 120 120 

(no. 13) 

Czech 1200 2400 3.600 

Republic 

(no. 5) 

Estonia 23 267 290 

( no. 12) 

Greece 1304 500 1.804 

(no. 9) 

Hungary 2121 3738 5.859 

(no. 3) 

Latvia 879 1201 2.080 

(no. 8) 

Lithuania 340 863 1.203 

(no. 11) 

Malta 3 55 58 (no. 14) 

Poland 1100 7240 8.340 

(no. 2) 

Portugal 1061 1958 3.019 

(no. 6) 

Romania 3800 4800 8.600 

(no. 1) 

Slovakia 455 2132 2.587 

(no. 7) 

Slovenia 465 1175 1.640 

(no. 10) 

Source: Strategic Environmental 

Assessment and Risk Prevention - Country 

Report - Romania, ECOLAS & GHK 

Romania obtained transition periods for 

urban wastewater collection until 2013 

December 31; for human agglomerations 

with less than 10,000 population equivalents 

(them) up to 2018 December 31; for human 

agglomerations with more than 10,000 

population equivalents, according to the 

ANAR report. For urban wastewater 

treatment and disposal, the transition is up 

to 2015 December 31; for human 

agglomerations with less than 10,000 

population equivalents, is until 2018 

December 31. According to ANAR interim 

targets were set: 31 December 2010 - 61% of 

total biodegradable organic load and 51% for 

sewage collection; December 31, 2013 - 69% 

of total biodegradable organic load and 61% 

for sewage collection; December 31, 2015 - 

80% of total biodegradable organic load to 

the sewage collection and 77% for treatment; 

December 31, 2018 for full compliance 

(100%). Currently, over 50% of the 

pollutants discharged into water sources 

353 

come from cities with more than 100,000 

inhabitants, due to insufficient treatment 

stations existence or to the lack of facilities 

at existing wastewater treatment plants. 

However, in the last 15 years, in Romania 

there was a significant reduction of nitrate 

and ammonium concentrations in rivers, 

especially since the requirement of water for 

population, industry and agriculture has 

declined significantly during 1990-2008, 

from 20 4 billion cubic meters in 1990 to 

9.44 billion cubic meters in 2008. According 

to an ANAR press, even if the 

concentrations of nitrate and ammonium in 

rivers are still 2-3 times higher in southeastern 

Europe to those in northern Europe, 

over the past 15 years, European countries 

have made progress in terms of water 

management policies. During 2005-2008, 

Romania registered a 10% reduction in the 

amount of pollutants discharged into 

natural receivers, this phenomenon being 

determined mainly by the decreased of the 

drinking water consumption, and by the 

development or upgrading of the treatment 

plants operation. Thus, in 2008, 70% of 

wastewater from the main sources of 

pollution has reached the natural receivers, 

untreated or insufficiently treated, 

compared with about 80% of the wastewater 

as it is recorded in 2005-2006. However, the 

percentage of untreated water remains high 

enough so that the major objective remains 

to increase the number of treatment plants 

and upgrading the existing ones, in order to 

achieve the European standard of quality. 

Taking into account both positioning 

Romania in the Danube basin and Black 

Sea, and the necessity of environmental 

protection in these areas, Romania declared 

its entire territory as sensitive area. This 

decision is focused on the fact that the tie 

with more than 10,000 equivalents 

inhabitants should provide an infrastructure 

for urban wastewater treatment to allow 

advanced treatment, especially in terms of 

nutrients. In terms of degree of treatment, 

secondary treatment (biological step) is a 

general rule for tie less than 10,000 

equivalents inhabitants. 

In Romania, many individual farms and 

properties of the small type used manure as 

main fertilizer because it is cheaper and 

more available. Regarding livestock, 

households are often not provided with 

protected platforms for collection of manure, 

so that nutrients, especially nitrates, 

dissolved in groundwater. Moreover, these

platforms are not emptied for the collection 

and storage. Larger farms and farm 

operators have storage facilities for manure 

and liquid waste from animals, but most of 

the sewage treatment facilities and storage 

should be rehabilitated or upgraded and 

provided with facilities for handling and 

manouvering of the natural organic fertilizer 

in accordance with the law. Some of the 

major problems of water services in small 

urban areas include: poor maintenance and 

operation services; increased volume of 

unpaid water caused by leaks in the 

network and the low level of collection from 

consumers; lack of investment for the 

rehabilitation/expansion of infrastructure 

for water/wastewater; lack of suitable 

personnel for promotion, management and 

implementation of major investment; 

inadequate management of operating costs, 

maintenance and staffing costs; unclear 

roles and responsibilities of the 

institutions/authorities involved in the 

management of public utilities; inadequate 

institutional framework. There is a constant 

need to ensure that all cities can invest in 

order to maintain and upgrade their 

infrastructure to get good service, capable of 

achieving European standards. This 

requires the adoption and implementation of 

appropriate development policies focused on 

meeting real needs of the population and an 

adequate degree of supportability. The 

accessing of the EU funds for investment 

needs will be an incentive to switch from a 

large number of low quality service 

providers to a limited number of large and 

strong operators able to provide better 

services at acceptable price levels, ensuring 

full recovery of costs and repayment of loans 

by local authorities. 

Waste management is one of the major 

problems facing Romania as regards 

environmental protection. It refers to the 

activities of collection, transportation, 

treatment, recovery and disposal. Data 

looking the waste management in Romania 

distinguish two major categories of waste: 

municipal and similarly from the 

commercial, industrial and institutions; 

construction and demolition wastes; sludge 

from municipal wastewater treatment 

plants; production waste. National Waste 

Management Plan, approved by Government 

Decision 1470/2004, provides a detailed 

analysis of waste management in Romania, 

measures to prevent waste production and 

to reduce their quantity, methods of 

354 

recycling and the list of the monitoring 

indicators. It also includes actions and 

appropriate means to comply with the 

environmental acquis in waste 

management. Regional waste management 

plans, based on Romanian and EU 

legislation transposing, at regional level, the 

objectives of the National Plan of Waste 

Management. These documents promote the 

cooperation between county and local 

authorities to establish and develop an 

integrated waste management system to 

replace the existing system, inefficient both 

economically and from the environmental 

protection. In this context, possible solutions 

were identified, depending on specific 

features of each region, to ensure national 

objectives and commitments assumed by 

Romania. 

The amount of municipal waste varies from 

year to year, occurring in the last years a 

tendency to increase, given both the growth 

in household consumption and increasing in 

the proportion of the population served by 

the public centralized sanitation services 

system. The amount of municipal waste 

generated per capita shows the level of 

economic development of the respective 

state. National Environmental Protection 

Agency has set a target of 35% municipal 

waste recycling rate in 2008, and of 40% by 

2011.The EU new member states must 

reach 55% recycling by 2012, with some 

exceptions: Latvia is the most important 

exception (till 2015), Poland and Bulgaria 

(till 2014) and Romania and Malta till 2013. 

Under European legislation, Romania must 

recycle 33% of packaging waste generated in 

2008 and 55% of those generated in 2013. 

Table 2 Land filling in the EU 

(thousand tons of municipal waste) 

State Recy- Treated Incine- Stored 

cled 

rated 

Belgium 1,442 1,088 1,627 594 

Greece 375 32 - 4,233 

Spain 3,811 3,914 1,567 14,723 

France 4,715 4,208 11,110 12,991 

Romania 170 - - 6,695 

Source: Eurostat 

In recent years, private economic agents 

have started supported actions to collect 

cardboard and plastics. In some localities 

have placed collection centers where people 

can make (with or without pay) scrap, 

cardboard, glass, plastic. In Romania, the 

institutions of the glass, paper, and

cardboard and plastics industry are 

approved and began to take these wastes 

from the collection centers for recycling 

and/or recovery. In some cities have set up 

pilot stations for the composting of the 

biodegradable waste. In comparison with 

EU countries that have chosen store, as 

main method for waste treatment, according 

to Eurostat data, Romania recorded the 

lowest percentage of municipal waste 

storage warehouse as a situation caused by 

the high number of irregular deposits. 

Amount of construction and demolition 

waste generated in Romania is relatively 

low, but growth is expected, determined by 

the country's economic development. Still, 

there is not an adequate recovery of 

construction and demolition waste, but an 

internal reuse in their household or on an 

undeclared market trade. Regional waste 

management strategies must provide 

solutions to target this category of waste, 

given that these become an acute problem. 

Waste production is represented by 

industrial and agricultural waste, including 

those resulting from energy production. 

Organizing the production of waste is the 

generator's obligation, under its own 

possibilities or by contracting services of 

specialized firms. These types of wastes are 

managed under specific national legislation. 

Mining waste is a problem not only in terms 

of environmental protection, but also in 

economically and socially terms. 

Government seeks to address this problem 

by using a specific strategy and programs 

aimed at mine closure, environmental 

rehabilitation and improvement of social 

problems in mining areas. Thus, the "closing 

mines and reducing social problems” project 

begins in 2000 and is continued by the" mine 

closure, environmental rehabilitation and 

socio-economic conditions "(2005-2010) 

project coordinated by the National Agency 

for the Development of Mining Areas. The 

waste resulted from medical activities 

management is currently regulated by the 

Ministry of Health Order no. 219/2002 

which approved the technical rules on the 

management of waste arising from medical 

and data collection methodology for the 

national database. 

The most important types of soil pollution 

identified by ICPA are: soil pollution 

(degradation) due to mining activities (for 

extraction of coal (lignite); mining destroys 

large areas which affects soil fertility and 

lead to loss of agricultural land and forests; 

355 

however, important areas are affected by the 

ballast, which affects soil quality by 

deposition of extracted material extracted 

which affect the soil quality; pollution from 

tailings dams, waste dumps, un adequate 

landfills (ponds in operation can affect the 

surrounding lands in case of tailings dams 

fail, through the contamination with heavy 

metals, cyanide and other excessive 

elements); pollution with waste and 

inorganic residues (mineral, inorganic 

materials, metals, salts, acids, bases); these 

cause disease in humans and animals and 

soils are affected by acidification, which 

decreases the nutrient content; pollution 

caused by airborne substances 

(hydrocarbons, ethylene, ammonia, sulfur 

dioxide, chlorides, fluorides, nitrogen oxides, 

lead compounds, etc.); salted water pollution 

caused by oil industry, oil pollution 

(affecting both flora and water quality in 

surrounding areas being caused by broken 

pipes or leaks). 

In October 2004 with the support of PHARE 

2001, Romania has developed the National 

Strategy for Atmosphere Protection which 

has, as main objectives: the maintenance of 

the ambient air quality in areas that comply 

with the limits set by the rules in force; the 

improvement of the ambient air quality in 

areas where it does not comply with the 

limits set by the rules in force; taking steps 

necessary to minimize and finally the 

elimination of the negative impact over the 

environment and/ or the elimination of the 

trans-boundary impact; the fulfillment of 

the obligations assumed through the 

international agreements and treaties to 

which Romania is part. The achievement of 

these objectives took into account both the 

time horizon up to accession, 2004 - 2006, 

but a longer time horizon, 2007-2013. 

Setting these goals has been made taking 

into account the need to protect human 

health and natural environment without the 

requirement, for the residents and business 

environment in Romania, of unacceptable 

economic and social costs. These goals 

represent an important part of the 

Government's objective to promote and 

achieve sustainable development of the 

country. Romania is the first country 

included in Annex I (developed countries 

and countries with economy in transition) of 

the United Nations Framework Convention 

on Climate Change (UNFCCC), which 

ratified the Kyoto Protocol to the UNFCCC, 

committing to reduce greenhouse gas

emissions (GGE) with 8% in the first 

commitment period (2008-2012), in 

comparison with the base year (1989). Also, 

by Law no. 271/2003, Romania ratified the 

Convention on Long-range Trans-boundary 

Air Pollution. Our country take the 

commitment that by 2010, the emissions 

level should be in the limits set by the 

Gothenburg Protocol, as shown in Table 4. 

In this respect, concrete measures were 

taken (assumed by each operator 

separately), such as: programs to reduce 

emissions of SO2, NOx, emissions from large 

combustion plants and also, from other 

activities (refining, petrochemicals, etc.). 

Table 3 Romania's commitments 

resulting from Gothenburg protocol 

Poll. 

(thou. 

tons) 

1990 20021 

2 

2004 2010 

emission 

ceilings/ 

Gothen. 

protocol 

2010 

emis. 

reduc. 

(% of 

1990) 

SO2 1311 781 960 918 -30% 

NOx 546 357 326 437 -20% 

Source: National Statistics Institute 

There have been significant improvements 

in air quality in localities where industrial 

production has ceased or have made 

investments that led to the emissions 

reduction. However, in many areas, air 

quality is very low, due to defective control 

of industrial emissions. One of the main 

sources of air pollution in many localities is 

the combustion activities, especially those 

resulting from large combustion plants 

(LCPs) that produce energy and heat. 

Emissions in the air of the pollutants from 

the IMA have a particularly negative impact 

on human's health and on the environment 

and represent the most important part of 

total emissions of SO2/NOx in urban areas. 

Romania is a country with a high biological 

diversity, at both ecosystem and species 

level. Romania's territory includes a 

relatively equal proportion of three 

geographical units - plain, hill and 

mountain, with a great diversity and water 

conditions which make the difference 

between 52 eco-regions with a variety of 

terrestrial and aquatic ecosystems - specific 

for the coastal and littoral of the Black Sea, 

steppe's zone, steppe's, hills, mountains, 

lakes, rivers and their meadows, to the 

areas of dry or wet, including those specific 

to the Danube Delta. Romania has a unique 

natural heritage, consisting of the 

Carpathian Mountains (65% of cross- 

356 

Carpathian region), and also, one of the 

most important wetlands in Europe, namely 

the Danube Delta (the second largest in 

Europe). In recent decades, natural and 

landscape conditions in Romania have been 

particularly influenced by the developments 

of the economic activities, plus the economic 

growth of the recent years which has often 

led to an excessive exploitation of the 

natural resources. Under these conditions, 

many plant and animal species are 

threatened with extinction, and the 

landscape change is the first indicator of 

environmental damage. A great variety of 

wild flora and fauna in Romania has great 

economic importance, with multiple uses in 

various sectors. For those species of 

commercial importance is necessary an 

assessment of areas and available quantities 

and, also, an adequate planning for the 

rational use of these species to avoid over 

exploitation. In Romania there are 13 

National Parks, 13 Natural Parks and, also, 

the Danube Delta Biosphere Reserve. 

Outside the national parks, natural parks 

and biosphere reserves are about 935 

scientific reserves, natural monuments and 

natural reserves whose total area is 

approximately 180,000 hectares. Therefore, 

the land area of protected natural areas 

covered about 8% of land area of the country 

in late 2005 but, till the end of 2013, this 

percentage must rise to 15%. So, currently 

dominate a series of threats to the 

biodiversity in Romania, as result from next 

explanation regarding the threat type/goals, 

manifestations and effects: 

1. Land conversion: 

Made for urban, industrial, agricultural, 

tourism and transport development, has, as 

effect the degradation, the habitat 

destruction and fragmentation; directions: 

the draining of the wetlands and the 

conversion into arable land or grassland, 

sustained even with environmental funds; 

the river regulation and the alluvial 

ecosystems destruction, sustained even with 

environment funds; the grasslands with low 

productivity and steppe habitats 

deforestation, wrong considered by the 

authorities as "degraded" land; the 

destruction of grazing land for the expansion 

of shrub vegetation; abandoned meadows 

and pastures, especially in the highlands, 

less accessible, which will be invaded by 

forest vegetation. 

2. Infrastructure development:

Stepping up the investments for 

infrastructure development; construction of 

wind farms, which may affect populations of 

migratory species (birds and bats), in case of 

poor location, lack of maps detailed in terms 

of species migration corridors and areas 

with potential wind. 

3. Expansion and development of the human 

settlements: 

Habitat fragmentation occurs when there 

are large agglomerations of dwellings, but 

also in those isolated, due to additional 

construction of access roads and utilities; 

building random, without respect to a 

coherent planning strategy leads to the 

building expansion against the natural one; 

the residential buildings and the one with 

seasonal destination from the coastal and 

mountainous area with touristic potential. 

4. Hydraulic works: 

Hydro big power from the Iron Gates, the 

thresholds bottom, guide dikes reduced 50 

times numbers of sturgeon; Danube 

impoundment, dikes sucking lead to the 

destruction of the reproductive for carp 

areas (10-fold reduction of its workforce); the 

tendencies to tackle the problems caused by 

the floods by strengthening dykes and 

building new dams, against the maintaining 

and restoring of the transitional areas and 

the prohibiting of human settlements 

development in flood risk areas; hydraulic 

works realized in port areas has as 

consequences the disappearance of entire 

species habitat valuable for ecologically but 

also economically point of view. 

5. Overexploitation of the natural resources: 

Over-exploitation of timber and the illegal 

logging of forests recently returned and 

which are not currently administered 

fragment the habitats and lead to the soil 

erosion or to landslides; overgrazing causing 

the decreases of the plant biomass and of a 

number of species with nutritional value 

(isolated problem due to the considerable 

decrease livestock since 2004); 

overexploitation of species of hunting 

interest, economic or cultural represents 

isolated phenomena being generated, 

mainly, by the over-valuation of the 

population number or by the poaching. 

6. Inappropriate exploitation of the nonrenewable 

resources: 

How the ballast and sand mining from the 

inner river beds determine the degradation 

of the and aquatic habitat and destroy the 

wetlands areas, affecting the species that 

have their habitats in these areas; the 

357 

exploitation of the mineral resources has the 

effect of total destruction of habitats due to 

scaling; waters formed in the abandoned 

mine galleries, usually acidic and loaded 

with heavy metals reach in the surface 

water; exploitation of thermal waters for use 

in heating systems or for therapeutic 

purposes, may affect the discharge waters 

from rivers collectors, due to the differences 

of temperature. 

7. Invasive species: 

Intentional introduction of the 

allochthonous species from economic reasons 

has a significant negative impact (the 

Chinese carp which eliminated the native 

carp populations); intentional introduction 

of exotic fish species, for private aquariums, 

may pose a risk in situations where they 

come inland; invasive species arrived in 

Romania inland on natural migration, 

favored by the habitat changes due to both 

human intervention and climate changes; in 

the Black Sea, the over fishing and the 

penetration of new species have produced 

significant changes in existing organisms 

associations (pronounced reduction of 

exploited fish stocks, reducing fishing 

industry virtually to zero in some areas of 

the Black Sea). 

8. Climate changes: 

For Romania, as INMH - Bucharest, this 

increase is of 0.30 C, higher in southern and 

eastern regions (0.80 C) and lower in the 

intra Carpathians regions (0.10 C); in the 

fourth report (2007) of the Committee 

International Climate Change (IPCC), for 

the period 2020-2030 in comparison with 

2000 and in an optimistic variant, is 

expected to increase an average global 

temperature of 0.50 C and in the pessimistic 

variant, with 1.50 C and for the period from 

2030 to 2100 the growth, in the two 

variants, is between 2.00 C and 5.00 C, 

which is extremely much. 

9. Pollution: 

Pollution incidents are relatively numerous 

in particular on the Danube and Black Sea 

due to the uncontrolled discharge of vessels 

and / or shipping accidents; diffuse pollution 

sources are represented in particular by 

chemical fertilizers used in agriculture, 

pesticides used for pest and human 

agglomerations in rural areas and urban; 

around some industrial sources such as 

ferrous metallurgy units can occur 

atmosphere pollution with particulate 

matter and gaseous pollutants, the effects of 

some of these sources being felt, even after

the activity cessation; the pollution related 

to the ferrous metallurgy produces human 

and animal diseases in the surrounding 

areas, within a radius of 20-30 km. 

Romania faced, during the time, with 

natural phenomena such as earthquakes, 

droughts, floods, forest fires and many 

accidents caused by human activities, which 

led to substantial material losses and have 

had a negative impact on the environment. 

In terms of climate, Romania faces with 

hydrological phenomena in cycles of 9-10 

years: years of drought followed by years of 

rain. Floods in Romania have a high 

frequency. Unfortunately, there were 

situations where, in terms of proportion and 

spatial distribution, it has caused 

catastrophic losses. Massive deforestation 

after 1990 has magnified the seriousness of 

the phenomenon, the floods having a 

torrential character in many areas. Given 

the frequency and losses caused by flooding, 

the last one is the first in terms of natural 

risks for population and economic activities. 

Given the frequency and the intensity of 

natural risks listed above, both in terms of 

casualties and material losses, Romanian 

authorities decided that the most important 

natural risk to be covered by specific and 

significant interventions is the flood. 

Romania faces an annual frequency of 

floods, especially in spring at the snow 

melting and in summer due the torrential 

rain, when the river flows increased greatly, 

causing floods, often catastrophic, with 

human losses and material damages. The 

frequency and the magnitude of floods has 

increased because of climate change, the 

occupation of the main riverbed of the river 

with unauthorized construction and 

unauthorized deforestation. Given the large 

number of human losses (283 people died) 

registered in the last decade, and the 

considerable material damage (affected 

households and annexes, flooded farmland, 

roads, bridges and culverts), whose value 

amounts to 3.5 billion (of which 2 billion 

only in 2005), Romania must take measures 

to prevent and protect against water 

disasters. Was completed in 2003 National 

Integrated Meteorological System (NIMS), 

which allows more precise understanding 

and forecasting of hazardous weather and 

has started the achieving of Integrated 

Information System in case of disasters 

caused by the water (DESWAT). In order to 

increase the responsiveness of government 

in case of floods and accidental pollution will 

358 

achieve the Integrated Water Management 

of disaster (WATMAN) with support from 

the Agency for International Development 

and Trade Development Agency of the 

United States. Another aspect is the process 

of Black Sea coastal erosion which has 

increased greatly now because of the 

planetary climate change which causes the 

sea level rise (in the last 35 years the beach 

area lost was over 2400 hectares (approx. 80 

ha/year), while the accumulation was only 

by 200 hectares (about 7 ha/year)). Another 

reason is the hydro facilities on the Danube 

and its main tributaries and, also, the 

coastal of the Black Sea which further lead 

to the decreasement of the supply of sandy 

material transported by water on shore. 

Action sea erosion caused complete 

disappearance of large areas of beach. 

National Administration "Romanian 

Waters" is the authority responsible for 

management of Black Sea coastal zone. 

In the process of developing plans for the 

implementation of the environmental 

acquis, MESD assessed the investment 

needs to comply with the EU environmental 

legislation in 2018 (year which coinciding 

with the last transitional period accorded to 

Romania) at 29 billion of which, approx. 18 

billion represent the necessary of funds for 

the next seven years. For 2007-2013 periods, 

Romania has a contribution to the FSC by 

4.5 billion euros for investments in the 

environmental sector, contribution which is 

situated well below under the estimated 

needs for the same period. 


The environmental general situation in 

Romania is characterized by deficiencies in 

environmental infrastructure, particularly 

in: urban wastewater treatment, water 

supply, solid waste management, flood 

prevention and urban warming. In addition 

to the commitments made during the 

negotiation process, Romania must align 

with the requirements of the Single Market. 

In this regard, to ensure social and economic 

attractiveness of cities, as a precondition to 

release economic growth and employment, 

Romania, as new EU Member State, must 

have a modern infrastructure and to provide 

services of general interest quality for all 

citizens and at affordable costs, improving in 

that mode, the life quality. Also, a 

preliminary measure for economic growth 

and jobs is to ensure the infrastructure for 

business. Romania's capacity to provide

efficient infrastructure and environmental 

services, both nationally and locally, is an 

important factor in the private sector 

development. Environmental investments 

lead to sustainable development in 

industrial and commercial. Investment in 

environmental infrastructure is strongly 

connected with sustainable economic growth 

and job creation. They help the convergence 

promotion and the competitiveness growth 

between regions. In this context, recurrent 

elements were addressed, in time, by the 

relevant authorities. 

In conclusion, the environmental and water 

infrastructure development through a 

regional approach is considered a key 

element in the implementation of the 

national and regional strategies. These 

include, as further actions the following one: 

the need of regional cooperation, proper 

implementation of national legislation in 

line with EU acquis, public participation, 

coordination of the different action plans 

and regional issues bounded by the 

administrative capacity implementation and 

building. 

References 

1. Dutu, Mircea, Environmental Law Treaty, 

Bucuresti, C.H. Beck Publishing House, 2007. 

2. European Union, Rural Development in the 

European Union. Statistical and Economic 

Information, Report 2009. 

http://ec.europa.eu/agriculture/agrista/rurdev200 

9 (on 14th April 2010) 

3. EUROSTAT, L’Europe en chiffres - L’annuaire 

d’Eurostat 2009. 

4. G.E.O. no. 57/2007 regarding the state of 

natural protected areas, conservations of natural 

habitats, of flora and wild fauna, Official Gazette 

of Romania, no. 442/29 June 2007. 

5 Marinescu, Daniela, Environmental Law 

Treaty, Bucuresti, Univesul Juridic Publihing 

House, 2008. 

6. Ministry of Environment, Management 

Authority for Environment Sectoral Operational 

Program (SOP Environment). 

http://www.mmediu.ro/vechi/proiecte_europene_p 

os.htm. 

7. National Strategy for Sustainable Development 

of Romania, Horizons 2013-2020-2030, Document 

approved by Romanian Government Decision no. 

1460 from 12 th November 2008, published in 

Official Gazette no. 824/8 th December 2008. 

8. Rojanschi, Vladimir, and Bran, Florina, 

Politics and strategies of environment, Bucuresti, 

Economic Publishing House, 2002. 

9. Statistical Yearbook of Romania, Bucuresti, 

National Institute of Statistic (NIS), 2008. 

10. Teseleanu, George, Economic development, 

Petrosani, Universitas Publishing House, 2005. 

359




THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT IN 

ROMANIA. A REGIONAL APPROACH 

Abstract 

The paper analyzes the impact of the 

economic crisis on the presence of the foreign 

capital in Romania. Data for 2007-2009 

shows that foreign investments were more 

sensitive than GDP and unemployment at 

global economic crisis. Using correlation 

coefficients we find out some effects of 

economic crisis and foreign investment on 

Romanian economy: companies with foreign 

participation in share capital had a low 

contribution to unemployment growth in 

Romania; and the foreign capital exits are 

higher in the regions with low unemployment 

rates. 

Key words: foreign capital, crisis, region, 

unemployment. 


The year 2007 was for the world economy 

the beginning of the worst economic crisis 

since 1930. Globalization is making the 

difference. Multinational companies, looking 

for profits or looses’ minimization, have 

made significant changes in their 

investment behavior. 

Before the crisis, the foreign direct 

investments attracted by Romania increased 

year after year, as the whole economy. The 

fact that in European Union the countries 

with the highest growth rates before 2007 

have the strongest fall in 2007-2009 

(Mărginean, 2009) could determine the 

assumption that a strong GDP decline is 

related to a great decline in FDI. 

This paper explores the impact of the crisis 

on foreign direct investments in Romania at 

regional level by analysis the following 

hypotheses: (1) the crisis determined the fall 

MĂRGINEAN Silvia; 

”Lucian Blaga” University of Sibiu, Romania; 

silvia_marginean@yahoo.com 

360 

of the foreign direct investments; (2) the 

unemployment rate and foreign direct 

investment are negatively related. 


First, the paper looks at the relationship 

between GDP decline and foreign direct 

investment at national level in 2007 – 2009. 

After that, based on correlation coefficients 

we determined the relationship between the 

new foreign direct investment (measured by 

the number of trading companies with 

foreign participation in the share capital and 

the value of the subscribed share capital) 

and unemployment at national and regional 

level. The correlation coefficients don’t give 

us indications on the causality. Our research 

is about correlations and not about causality 

and we try to make some assumptions about 

the possible direction of causality. 

3. Foreign companies: entries and exits 

on Romanian market 

The effects of the crisis on real GDP growth 

rate are significant and visible in 2009, 

when GDP registered an important 

slowdown in Romania (-7, 1%). In 2007 and 

2008 the growth rates were 6, 3% and 7, 3% 

per year, despite the global crisis. More 

sensitive than GDP at global trends was the 

foreign capital. The number and the value of 

foreign capital entered in Romania through 

companies with foreign participation in 

share capital registered a major decline.

Fig.1. Number of trading companies with foreign participation in 

share capital (number of entries and exists 2007-2009) 

600 

500 

400 

300 

200 

100 

0 

-100 

-200 

2007 New 2007 2008 New 2008 2009 New 2009 

Strike-off 

Strike-off 

Strike-off 

NE 

SE 

S 

SV 

V 

NV 

CENTRU 

B – IF 

Since 2007 there is a decline of new 


share capital, at regional and national level 

and the number of strike-offs of the 

Romanian market is higher every year. For 

the first time in the last years, in 2009 the 

balance is negative with 459 entries and 523 

exits, at national level. 

The value of the foreign capital invested in 

Romania looks to be more sensitive to global 

crisis. 

Table 1. Entries and exits on Romanian’s 

market (the balance of foreign participation in the 

share capital) – thousands Euro 

Region 2007 2008 2009 

NE 

-43739,4 -48833,6 -403679,3 

SE 

-131078,6 -63877,6 -117432,2 

S 

905315,9 71787 409635,3 

SV 

15337,2 26866 -8705,8 

V 

377429,3 3330223,1 -9154255,2 

NV 

8356,7 -21448109,4 -198563,5 

CENTRU 

1247446,3 -56612,4 -27439,6 

B – IF 

-7723777,7 -119455563 -21201490,4 

Source: NTRO Statistical Synthesis no. 

140/2009 

The economic downturn and the financial 

crisis are having negative effect on various 

indicators: global competitiveness (European 

Competitiveness Report 2009), innovation 

(Kanerva and Hollanders, 2009), foreign 

direct investments, etc. Knowing that 

unemployment is a lagging indicator we 

studied the impact of diminishing foreign 

investments in Romania’s regions on 

regional unemployment rate. 

The regional trends of unemployment are 

similar to those of real GDP (Table 2). 

361 

Table 2. Regional unemployment rate in 

Romania 2007-2009 (%) 

Region 2007 2008 2009 

NE 5 4,5 9,5 

SE 8,5 7,2 9,3 

S 8,2 6,8 10,2 

SV 6,8 6,5 11,5 

V 5,6 5,7 7,5 

NV 4,3 3,8 7,4 

CENTRU 8,5 8,5 9,9 

B-IF 4,1 3,4 2,6 

TOTAL 6,4 5,8 8,4 

Source: Eurostat, April 2010 

The correlation coefficients calculated for 

every region (2007, 2008 and 2009) to 

analyze the relationship between 

unemployment and market entries (number 

and value) and market exists (number and 

values) show that the impact of foreign 

capital on employment is relatively low 

(values between -0,14 in 2007 – number of 

companies and -0,56 in 2009 – capital value). 


The paper offers two kinds of conclusions 

based on correlation between trading 


share capital and unemployment in the eight 

regions. Analyzing the correlation 

coefficients, we find (1) a negative weak 

correlation between the number and capital 

value of the new trading companies with 

foreign participation in share capital and 

unemployment rate in every region. This 

result shows that between 2007 and 2009 

new companies with foreign participation in 

share capital have a low contribution to 

unemployment growth in Romania; (2) a 

stronger negative correlation between the 

value of capital of the strike-off trading 


share capital and unemployment rate. The 

correlation coefficient is higher if we 

determine the correlation between the 

capital values of strike-off in t0 and 

unemployment rate in t1. The foreign capital 

exits are higher in the regions with low 

unemployment rate.

References 

� Mărginean, S., Business Cycles and 

European Recovery. A Survey, Studies in 

Business and Economics, vol.4/2009, Lucian 

Blaga University Publishing House, Sibiu, 

available at 

http://eccsf.ulbsibiu.ro/RePEc/blg/journl/SBE/ 

447marginean.pdf 

� Doing business 2010: reforming through 

difficult times, Palgrave Macmillan, IFC, The 

World Bank, 2009 

� Companies by Foreign Direct Investment. 

Statistical Synthesis of the National Trade 

Register’s Data – 31 December 2009, no. 

140/2009 

� Kanerva, M. and Hollanders, H., The Impact of 

the Economic Crisis on Innovation. Analysis 

based on the Innobarometer 2009 survey, 

available at http://www.proinnoeurope.eu/admin/uploaded_documents/EIS_200 

9_Impact_of_financial_crisis_on_innovation.pdf 

362




MODERN STRATEGIES OF TRANSNATIONAL COMPANIES FROM 

EMERGING COUNTRIES 

Abstract 

The analysis of strategies adopted in the last 

10-15 years by companies in emerging 

countries that have managed to reach the 

status of global companies, enables us to 

appreciate that, in a first stage, emerging 

companies have followed the "normal" 

principles of corporate strategies leading 

Western companies to a multinational or a 

transnational status. But more important is 

what happened in the second stage, namely 

that many emerging companies were able to 

overcome the classical principles and 

strategies and to develop new business 

models. We consider that the most 

remarkable and ongoing process over the 

past 10-15 years, and whose effects will 

increase in coming decades in a manner 

which can not be said to have been predicted, 

that companies "functional" specialize, will 

definitely make its mark also on the 

emerging companies strategies. 

Key words: emerging countries, emerging 

companies, classical strategies, modern 

strategies. 


One cannot talk about globalization without 

taking into account the economic momentum 

of emerging countries, their development in 

rates two times higher than in developed 

countries and projections that indicate that 

the cumulative Gross Domestic Product will 

be at a higher level within 25-30 years. The 

BRIC countries (Brazil, Russia, India and 

China) will surpass the G7 countries from 

this point of view, and the first 15 emergent 

countries will surpass the G7 after 2030. 

MĂRGULESCU Serghei; 

University “Nicolae Titulescu” Bucharest; 

margulescu@univnt.ro 

MĂRGULESCU Elena; 

University “Nicolae Titulescu” Bucharest; 

margulescu@univnt.ro 

363 

G7 

Developed 

countries 

BRIC 

Next 11 

emerging 

countries 

-trillion- 

Total 

emerging 

countries 

2005 27,3 32,4 4,2 2,9 8,9 

2015 33,0 39,6 10,2 5,6 19,0 

2030 43,0 51,6 28,2 12,5 46,8 

2050 64,2 77,0 90,0 35,5 138,0 

Source: Antoine van Agtmael, in “The 

Emerging Markets Century”, Free Press, 

New York, 2007, based on Goldman Sachs 

estimates for BRIC and another 11 emerging 

countries and JPMorgan for another 

countries. 

Before, however, the years will validate or 

not this scenario, we can see the nowadays 

realities in the world. A study undertaken by 

Boston Consulting Group (BCG) has 

recorded impressive economic concentrations 

that exist in emerging countries. In 2006, a 

total of 100 companies in these countries 

have assets of 520 billion USD, this means 

more than the top 20 global automobile 

manufacturers. 

UNCTAD inventoried until 2004 a total of 

five companies from emerging Asia, which 

were among the top 100 transnational 

companies regarding the size and another 10 

external assets, which could be included 

among the first 200 companies. 

In 2006, FDI from the emerging economies 

(including mergers and acquisitions) reached 

the level of 174 billion in the USA, 14% of 

world total, up from 5% in 1990. Their share 

in world FDI stock was 13%, representing $ 

1600 billion in US (compared to 8% in 1990). 

Investment flows take place increasingly SN 

and SS relations as emerging economies

invest both in developed and in the less 

developed countries. 


This section must comprise referrals to 

specialized literature, compared against the 

paper’s subject, emphasizing the most 

important and relevant contributions on 

which the author will ground his/her 

argumentation. In the reviewing process 

there shall be taken into consideration the 

share of referrals to papers published in 

international journals recognized by the 

scientific community. This section must 

stress the fact that the author is familiar 

with the knowledge level in the studied area, 

that he/she has sufficient scientific training, 

allowing him/her to have a pertinent opinion 

over the studied issues. 


Tipology of strategies implemented by 

emerging companies 

According to Antoine van Agtmael, one can 

see three historical steps (the author calls 

them „waves”) that define the commercial 

relationships between industrial and Third 

World countries during the last century: 

� First wave defined by FDI in 

production facilities overseas; 

� Second wave dedined by outsourcing 

and offshoring; 

� The third wave defined by 

competition between transnational 

companies from developed countries 

and strong global companies in 

emerging countries; 

Today, we stand in the early stage of the 

third „wave”. 

Rise of a growing number of companies from 

emerging countries to the status of global 

companies is obvious. From the 

methodological point of view, we accept the 

criteria the author proposes to trace the 

entrance of a company in the selected 

category of global companies, as following: 

1. to be the world leader in the 

industry; 

2. to have a global presence in exports 

and even production; 

3. to have one of the top three market 

share position as a sufficient number 

of countries in order to be 

considered a global player; 

364 

4. to be globally competitive, not only in 

Chapter price, but also in quality, 

technology and design; 

5. to refer to the biggest and the best 

companies in the world. 

The ways of achieving these performances, 

the strategy adopted, there has never been a 

single abstract step, but a succession of 

steps. These attempts have however one 

common denominator: the courage of 

strategic management decisions, allowing 

faster browsing of those steps, getting out of 

the classic pattern of organic development 

that the Western occidental companies have 

run across. 

Analysis of strategies adopted in the last 10- 

15 years by companies in emerging countries 

that have managed to reach the status of 

global companies, enables us to appreciate 

that, in a first stage, emerging companies 

have followed the principles of "normal" 

corporate strategies that lead Western 

companies to multinational or transnational 

status, as following: 

� Focus on activities or core 

competencies and outsource other; 

� Accession to the status of market 

leader in key markets around the 

world; 

� Keeping costs at a low level and 

quality high level; 

� Impeccable customer service; 

� R & D investment; 

� Hiring the best specialists and their 

corresponding reasons; 

� Building a strong brand; 

� Motivating employees through 

options and other incentives. 

But more important is what happened in the 

second stage, namely that many emerging 

companies were able to overcome the 

conceptual principles and strategies to 

develop classical and new business models. 

Currently, we cross a time when we try, by 

specialists and researchers, to "unveil the 

mystery" of how many emerging companies 

were able to achieve this unexpected 

success. For example, Boston Consulting 

Group concludes that there are five types of 

strategy determinants, namely: 

1. Growth of local brands globally (eg.: 

Hisense in China for consumer 

electronics, Bajaj Auto in India for

two or three wheeled vehicles, Tata 

Motors of India for cars); 

2. Transforming engineering excellence 

in innovation globally (eg.: Embraer 

of Brazil for the production of 

regional jets); 

3. Acceding to the status of a global 

leader in a niche product (eg.: BYD 

in China which produces batteries, 

Johnson Electric in Hong Kong that 

produces electric motors and video 

cameras for cars); 

4. Widening ownership advantage of 

natural resources by implementing 

new ways of marketing and 

distribution (eg.: Sadie and Brazilian 

companies in international 

distribution Perdigao cereal, chicken 

and pork, Brazilian Vale Company in 

world exports of iron ore); 

5. Implementing new models for 

business performance or new types 

of market penetration (eg.: Mexican 

company Cemex in cement and 

construction materials). 

Certainly, the list of examples of each type 

of strategy presented above can be extended 

enough to validate these trends. 

In the following, we want to systematize in 

our own way the range of the main 

strategies implemented by emerging 

companies until now, facing their efforts to 

become global players in an increasingly 

globalized world. 

We believe that the most remarkable and 

ongoing process developed in the last 10-15 

years, and its effects will increase in the 

following decades, in a manner which cannot 

be said to have been predicted the 

"functional" specialization of companies 

affects the strategies of emerging 

companies. We call them "modern 

strategies." 

They join to a category of strategies that 

have direct link with the new division 

(national and international) of labor 

specialization based on "functions". We name 

them classical strategies, and based on these 

we refer to those who have provided the 

greatest success in recent years as emerging 

companies in their globalization plans. 

We believe that the following structure of 

strategies practiced by emerging companies 

to accede to the status of global companies 

can be enlightening for today: 

365 

A. Classical strategies, which: 

� Global brand development 

strategy; 

� Global development and supply of 

niche products strategy; 

� Non-organic growth strategy; 

� The strategy of geographical 

adjustment of business flows on 

South-South and South-North 

directions; 

B. Modern strategies, which: 

� The strategy of integration of 

"functions" resulted from the 

global value chain restructuring, 

based on the new "functional" 

specialization in manufacturing 

and services, completed by the 

strategy of “steps getting on” on 

the overall chain of the "product" 

value; 

� Strategy based on organizing 

global networks of suppliers; 

� Reverse outsourcing strategy on 

South-North direction; 

Modern strategies implemented by 

companies emerging 

I. The strategy of integration of 

"functions" completed by the 

strategy of "steps getting on" on 

the overall chain of the 

"product" value 

A unique strategy of building several 

corporations in emerging countries, which 

have started from scratch or have followed a 

restructuring process, was the strategy 

specialized on a certain "function" of a 

product value chain. This is the excellent 

example of large contract manufacturers in 

East Asia, South and Southeast from 

electronics, telecommunications and light 

industry. 

Their strategies can be grouped by the size 

and complexity of the "functions" taken for 

execution, in conditions of anonymity, from 

the greatest western transnational 

companies: 

� simple strategies: focusing on 

production function, as the "original 

technology manufacturers" (OEMs) 

and global suppliers; 

� more complex strategies: integrating 

several functions, usually

manufacturing and design, as 

"original design manufacturers" 

(MDGs) are; 

Some of the strategies of companies like 

Taiwan Semiconductor Manufacturing 

Company (TSCM), Hon Hai Precision 

Industry and High Tech Computer (HTC), 

Pou Chen and Yue Yuen are emblematic in 

this regard. The acquisition in the same time 

of the production function or of a 

combination manufacturing and design from 

a large number of order companies 

competing with each other, turned such 

functions integrators into "giant anonymous" 

in terms of established brand in the market, 

which remained in the position of partners 

to the globally integrated business, 

unavoidable to major brand companies 

worldwide. 

Hon Hai Case 

We mentioned earlier the five largest 

companies’ contract manufacturers of 

electronic components based in the U.S., 

some of which relocated their headquarters 

in Singapore (as Flextronics and Solectron). 

But in 2004 we are the witnesses of a 

spectacular evolution. Hon Hai Company 

exceeds, with a turnover of 17 billion dollars, 

both Flextronics and Solectron, and so it is 

becoming the largest contract electronics 

manufacturer in the world. 

The company is not only one of the largest, 

but it's one of the most profitable, perhaps 

due to heavy involvement in China. The 

company strategy was to build in China a 

few "mega-cities" for the 100,000 workers 

(out of 160,000), Chinese working in these 

industrial parks, providing all the amenities 

of cities. Profile of activity is more 

diversified, covering three areas: computers, 

communications and consumer electronics. 

Founder, Terry Gou, is a graduate of 

American University that began his own 

business in 1974 with a garage company 

that produced plastic switches and other 

components for cheap televisions. But in 

1981 he came to the attention of PC makers, 

for which he began to manufacture modules 

and circuits. In 1991 he was listed on 

Taiwan Stock Exchange and in 1993 was the 

first Taiwanese electronics company that 

has built large production capacity in China, 

representing 80% of its total capacity 

(Flextronics had in 2004 only 40% of 

capacity in China and Solectron 27%). 

366 

Hon Hai has reached in the top because of 

the speed with which manages to translate 

projects into products, while maintaining the 

league with the lowest cost producers, but 

also because it is developing a new 

organizational concept, called a one-stop 

shopping. This model, like the direct 

distribution model promoted by the Dell 

Company, requires an extremely generous 

offer module that can be easily assembled by 

the beneficiaries. The company has 

vertically integrated into a model called 

CMMS (components, modules, moves and 

services), which allow to quickly and 

continuously reposition to new products and 

new areas. In this approach, it is helped by 

the research and development centers in 

U.S., Europe and Japan, focused on the 

research and development of new products, 

while centers in Taiwan and China are 

dominant in the field of research and 

engineering of wireless connections 

processes. With over 3,000 engineers, Hon 

Hai, in 2005, had a total of 13,000 patents 

and 20,000 patent applications. The 

company has to be noticed also in the 

research field where its strategic decision 

was to move not only on their own, but 

mainly in tandem with its big clients. It is 

the adept of the philosophy according to 

which business partners and brand 

challenges will always pull you forward, so 

Hon Hai have always targeted at the first 

customers of the top 2-4 companies in each 

area: 

� Dell, HP, Intel, Apple in the 

computer field; 

� Nokia and Motorola in mobile phone 

services; 

� Cisco and Sun Microsystems in 

networks; 

� Sony and Nintendo in electronic 

games; 

Also, at the insistence of such companies, it 

has diversified his international presence by 

investing in Hungary, Czech Republic, 

Scotland, Mexico, Brazil, India, along with 

the migration from a pure fabrication from 

the position of a contract manufacturer to 

the position of the joint and even the original 

design maker. 

II. Strategy based on organizing 

global networks of suppliers 

Supplier’s networks establishment is a 

fascinating example of strategy based on

non-organic growth, without involving any 

form of ownership of production capacities or 

equity provider’s network. 

Li & Fung Case 

Li & Fung Company is emblematic for it’s 

assertion that "the success of firms today 

depends less on what they produce, but on 

their ability to work within a network". 

Though here we talk about Li & Fung as a 

large producer of clothing, toys and other 

consumer goods, worth $ 9 billion per year, 

this company has not even a factory. 

It is defined as a "network orchestrator" a 

network of over 8300 suppliers through a 

total of 70 supply centers located in over 40 

countries. 

Dispersion of manufacturing processes is not 

the only one half of the network 

orchestration. Dispersed production involves 

designing a complete supply chain, 

optimizing the management and relating 

processes. 

The other half is represented by the network 

itself and the degree of flexibility obtained. 

As the authors of the “Competition in a plain 

world” say, the network is a capacity or a 

potential energy. Supply chain harnesses the 

potential for a particular demand. 

Orchestration consists in developing and 

managing the network, but also in designing 

and management of specific supply chains. 

Organizing a business as a network is 

increasingly seen as a better alternative to 

relocation operations, outsourcing or 

strategic alliances. Some studies show that 

half of the companies that have relocated 

their activities haven’t obtained anticipated 

gains, as only 40% of mergers and 

acquisitions undertaken reach their 

objectives and these strategic alliances are 

risky because more than half end in failure. 

Although there are still many examples of 

successfully running the business in 

property-based systems, as in the case of 

vertically integrated companies (Esquel is a 

company, for example, which also owns the 

chain, from plantations of cotton to fiber 

processing, manufacturing, and final product 

distribution), we can observe the trend to the 

transition from proprietary models to models 

based on orchestration. If Esquel is the 

model of an extreme vertical 

integration, Li & Fung is the example of 

an extreme orchestration.. 

367 

We analyzed in the previous chapter the 

principles and managerial innovations that a 

great network orchestrator, Li & Fung 

company, has implemented in order to 

develop business. The network is actually a 

"global integrated business" that consists of 

a core company Li & Fung, in its turn, a 

"global company", and the many 

independent suppliers that revolve around 

her. 

Gravitational force is given by the system 

that offers benefits to network participants: 

providing access to a global demand, orders 

flow linearization based on the 30/70 rule, 

financing facilities, access to information 

and global connections. 

The "Li & Fung" network surpasses in many 

ways its predecessors in the original way in 

which it managed to integrate an 

increasingly diverse set of "functions" from 

the global value chain of products. The 

company has expanded its presence in the 

supply chain to some important markets 

such as USA. Through a series of strategic 

acquisitions and licensing agreements, it 

added a range of services provided 

simultaneously for a number of users, 

including product design, development, 

marketing, logistics, distribution and 

customer services, which the company 

translated right in the client’s marketplace. 

Company’s basic function, that of a "contract 

manufacturer", has expanded to the concept 

of one - stop - shopping based on a complete 

offer packages for the product, production 

supply, dynamic renewal of stocks, close 

connection with purchase teams from 

customers and ending with the development 

of private brands and national branding 

strategy. The key word is the 'functional' 

specialization of the network, which cannot 

be compared to traditional corporate models 

of transnational or multinational companies. 

III. Reverse outsourcing strategy on 

South-North direction 

If until the past 20 years, integrated 

companies in terms of functions were 

dominant, now it is possible to build a 

business from practically any part of the 

value chain. Contract manufacturers, 

designers without fabrication, 

manufacturing companies with no brand, no 

brand manufacturers and many other 

combinations have proven to be successful 

organizational structures.

Retention of some functions within the 

company involves the outsourcing of others 

functions. We used to see Western 

companies realizing outsourcing to other 

companies in developed countries or 

emerging countries. 

Situations in which companies outsourcing 

functions are companies from emerging 

countries have not yet entered into our daily 

perception. 

Outsourcing based on SS relationship, such 

as the widely practiced by companies in 

Taiwan in the relationship with China 

seems normal. Less normal in terms of 

business building is the outsourcing of 

emerging companies to companies from 

industrialized countries, which is why it is 

called "reverse outsourcing". 

Embraer Case 

Brazilian aircraft manufacturer, Embraer, is 

the first example of a new type of company, 

which being located in an emerging country, 

has nevertheless structured an extensive 

network of suppliers in developing countries. 

Aircraft manufacturer Embraer exists since 

1969, but after its privatization in 1995 it 

has developed a niche product, building 

small and medium size regional aircrafts 

(50-110 seats). 

In this example, it is not so much interesting 

how the niche product was found, but rather 

how the business is structured. 

The company is specialized in the functions 

of manufacturing, logistics and assembly. 

Company Embraer is the first example of a 

new type of company, which is located in an 

emerging market, but which is central to a 

wide range of suppliers from developed 

countries. Thus, classical outsourcing first 

appeared reversed. 

Embraer is able to design new planes, 

medium size, to the highest standards of 

quality at lower costs than competitors, 

using Brazilian engineers and specialists, 

who are as well trained as those in 

developed countries, but claim a lower wage 

level. 

In these conditions, Embraer is making 

aircraft on a global scale, remains an 

integrator, a designer and a regional 

supersonic aircraft assembler, noting that a 

series of parts are delivered by outsourcing 

operations. Thus, Embraer E-70 and E-90 

(launched in 2002, and 2004) are powered by 

two engines designed and equipped by GE 

and Honeywell avionics, parts of wings and 

368 

pillars are from Kawasaki (Japan), titanium 

plates from the VSMPO (Russia), doors and 

fuselage parts are build in France, Spain 

and Belgium, and the electronics is provided 

by an American company. 

This type of outsourcing allows Embraer to 

obtain the highest quality with the lowest 

price of components which are purchased 

worldwide, thus giving him an appreciable 

advantage over its competitors, which are 

more vertically or horizontally integrated 

(such as Bombardier). Company benefits in 

this way of greater flexibility, increasing the 

productivity rate in an easier manner, by 

building the delivery chain and the process 

of assembly. Outsourcing model is giving to 

the Embraer, the possibility to establish 

strategic alliances with its suppliers, which 

assure accelerate product development 

phase, maintaining low costs and access to 

the most advanced technology. 

Other advantages of this system lie in the 

fact that both co-production and licensing 

agreements give the ability to sell easier 

their aircraft in developed countries and at 

the same time, to keep competition at a 

distance. 


The analysis of strategies adopted in the last 

10-15 years by companies in emerging 

countries that have managed to reach the 

status of global companies, shows that, as a 

first step, they followed the principles of 

"normal" corporate strategies that have led 

Western companies to the multinational or 

transnational status. We have named them 

classical strategies: global brand 

development strategy, strategy of 

development and global supply of niche 

products, non-organic growth strategy and 

the strategy of geographical adjustment of 

business flows on South-South and South- 

North directions. 

But these strategies have a direct link with 

the new labor division (national and 

international) based on "functional" 

specialization. 

In the second stage, however, many 

emerging companies have managed to 

overcome the classical principles and 

strategies and to develop new business 

models. Some of these new business models 

are directly related to the development of the 

"functional" specialization of companies.

We named them modern strategies and we 

made reference to those who have largely 

ensured the success of the recently emerging 

companies in their efforts to accede to the 

status of global companies, namely: the 

strategy of integration of "functions" 

resulted from the global value chain 

restructuring, based on the new "functional" 

specialization in manufacturing and 

services, completed by the strategy of “steps 

getting on” on the overall chain of the 

"product" value, strategy based on 

organizing global networks of suppliers, 

reverse outsourcing strategy on South-North 

direction. 

References 

1. Baldwin R.& Martin P. (1999):”Two Waves 

of Globalisation: Superficial Similarities and 

Fundamental Differences”. Capitol 1, p. 3-59. 

Ed. H.Siebert. 

2. Berger Suzanne and the MIT Industrial 

Performance Center, How We Compete: 

“What Companies Around the World Are 

Doing to Make It in Today’s Global 

Economy”, Currency Book, 2006. 

3. Dunning H. John: “The New Globalism and 

Developing Countries” – N.Y., 1997. 

4. Fung K. Victor, William K.Fung, Yoram 

(Jerry) Wind: Concurenta intr-o lume plata: 

cum sa construim o companie intr-o lume 

fara granite, Ed.Publica, 2009. 

5. Goerg H., Greenaway D. & Kneller R. 

(2008):” The Economic Impact of Offshoring. 

Nottingham University’s Globalisation and 

Economic Policy Centre”. 

6. Grossman G. & Rossi-Hansberg E. (2006): 

“The Rise of Offshoring:It’s Not Wine for 

Cloth Anymore”. Paper presented at Kansas 

Fed’s Jackson Hole conference for Central 

Bankers. 

7. Margulescu Serghei, Margulescu Elena, 

“Trecerea de la globalizarea pietelor la 

globalizarea productiei si serviciilor in 

contextul starii de semiglobalizare”, in The 

33-rd Annual Congress of the American 

Romanian Academy of Arts and Sciences 

(ARA) Proceedings, Volume I, Polytechnic 

International Press, Montreal, Quebec, 2009. 

8. Rugman Alan, Verbeke Alain: ‘A Perspective 

of Regional and Global Strategies of 

Multinational Enterprises”, Journal of 

International Business Studies 35, no. 1 

(January 2004). 

9. UNCTAD, World Investment Report 2007. 

10. Van Agtmael Antoine –“The Emerging 

Markets Century”, Free Press, New York, 

2007. 

369




ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE 

Abstract 

The emergence of e-commerce has created 

new financial needs that in many cases 

cannot be effectively fulfilled by the 

traditional payment systems. Recognizing 

this, virtually all interested parties are 

exploring various types of electronic payment 

system and issues surrounding electronic 

payment system and digital currency. 

Broadly electronic payment systems can be 

classified into four categories: Online Credit 

Card Payment System, Online Electronic 

Cash System, Electronic Cheque System and 

Smart Cards based Electronic Payment 

System. Each payment system has its 

advantages and disadvantages for the 

customers and merchants. These payment 

systems have numbers of requirements: 

security, acceptability, convenience, cost, 

anonymity, control, and traceability. 

Therefore, instead of focusing on the 

technological specifications of various 

electronic payment systems, the researcher 

have distinguished electronic payment 

systems based on what is being transmitted 

over the network; and analyze the difference 

of each electronic payment system by 

evaluating their requirements, characteristics 

and assess the applicability of each system. 

Key Words: E-Commerce, Payment, Debit 

Cards, Credit Cards, Internet 


As payment2 is an integral part of 

mercantile process, electronic payment 

system is an integral part of e-commerce. 

The emergence of e-commerce has created 

new financial needs that in many cases 

cannot be effectively fulfilled by traditional 

MATEI (NIŢOIU) Mădălina 

The Academy of Economic Studies,Bucharest 

madalina_nitoiu@yahoo.com 

370 

payment systems. For instance, new types of 

purchasing relationships-such as auction 

between individuals online-have resulted in 

the need for peer-to-peer3 payment methods 

that allows individuals to e-mail payments 

to the other individual. Recognizing this, 

virtually all interested parties (i.e. 

academicians, government, business 

community and financial service providers) 

are exploring various types of electronic 

payment system and issues surrounding 

electronic payment system and digital 

currency. Some proposed electronic payment 

systems are simply electronic version of 

existing payment systems such as cheques 

and credit cards, while, others are based on 

the digital currency technology and have the 

potential for definitive impact on today’s 

financial and monetary system. 


In the early 1990s the business and 

consumer world encountered a new way of 

conducting trade business which was named 

electronic commerce. Over the years 

electronic commerce has evolved into a 

popular and acknowledged way of 

conducting business. While researchers are 

still trying to understand it and gauge its 

importance and turnover, e-commerce is 

changing and growing incredibly quickly, 

producing such extraordinary results from 

both business and consumer perspective that 

its phenomenon cannot be overlooked by 

anyone who has ever thought of conducting 

business, whether in online or offline 

environments. With many organizations and 

people laboring in the field of e-commerce it 

has become very clear that e-commerce is 

here to stay and organizations and 

customers are trying to get maximum 

benefit from it. 

The most popular definition of e-commerce is 

based on the online perspective of the 

conducted business. E-commerce provides

the capability of buying and selling products, 

information and services on the Internet and 

other online environments. As for any 

trading activity, the issue of sale and reliable 

money exchange between transacting parties 

is essential. In an e-commerce environment, 

payments take the form of money exchange 

in an electronic form, and are therefore 

called electronic payments. Electronic 

payments are an integral part of e-commerce 

and are one of its most critical aspects. 

Generally defined, electronic payment is a 

form of a financial exchange that takes place 

between the buyer and seller facilitated by 

means of electronic communications. An ecommerce 

electronic payment is a financial 

exchange that takes place in an online 

environment (Kalakota & Whinston, 1997). 


Therefore, electronic payment systems and 

in particular, methods of payment being 

developed to support electronic commerce 

cannot be studied in an isolation. A failure to 

take place these developments into the 

proper context is likely to result in undue 

focus on the various experimental initiatives 

to develop electronic forms of payment 

without a proper reflection on the broader 

implications for the existing payment 

system. 

Concept and Size of Electronic Payment 

Payment systems that use electronic 

distribution networks constitute a frequent 

practice in the banking and business sector 

since 1960s, especially for the transfer of big 

amounts of money. In the four decades that 

have passed since their appearance, 

important technological developments have 

taken place, which on the one hand have 

expanded the possibilities of electronic 

payment systems and on the other hand they 

have created new business and social 

practice, which make the use of these 

systems necessary. These changes, 

naturally, have affected the definition of 

electronic payments, which is evolving 

depending on the needs of each period. In its, 

most general form, the term electronic 

payment includes any payment to 

businesses, bank or public services from 

citizens or businesses, which are executed 

through a telecommunications or electronic 

networks using modern technology. It is 

obvious that based on this definition, the 

electronic payments that will be the objects 

371 

of present result, are the payment that are 

executed by the payer himself, whether the 

latter is a consumer or a business, without 

the intervention of the another natural 

person. Furthermore, the payment is made 

from distance, without the physical presence 

of the payer and naturally it does not include 

cash. By providing such definition for the 

electronic payment system, researcher 

include the transfer of information 

concerning the accounts of the parties 

involved in the e-commerce transactions, as 

well as the technological means of 

distribution channels through which the 

transactions is executed. 

Conventional vs. Electronic Payment 

System 

To get into the depth of electronic payment 

process, it is better to understand the 

processing of conventional or traditional 

payment system. A conventional process of 

payment and settlement involves a buyer-toseller 

transfer of cash or payment 

information (i.e., cheque and credit cards). 

The actual settlement of payment takes 

place in the financial processing network. A 

cash payment requires a buyer’s 

withdrawals form his/her bank account, a 

transfer of cash to the seller, and the seller’s 

deposit of payment to his/her account. Noncash 

payment mechanisms are settled by 

adjusting i.e. crediting and debiting the 

appropriate accounts between banks based 

on payment information conveyed via cheque 

or credit cards. 

Types of electronic payment systems 

With the growing complexities in the ecommerce 

transactions, different electronic 

payment systems have appeared in the last 

few years. At least dozens of electronic 

payment systems proposed or already in 

practice are found (Murthy, 2002). The 

grouping can be made on the basis of what 

information is being transferred online. 

Murthy (2002) explained six types of 

electronic payment systems: (1) PC-Banking 

(2) Credit Cards (3) Electronic Cheques (icheques) 

(4) Micro payment (5) Smart Cards 

and (6) E-Cash. Kalakota and Whinston 

(1996) identified three types of electronic 

payment systems: (1) Digital Token based 

electronic payment systems, (2) Smart Card 

based electronic payment system and (3) 

Credit based electronic payment systems. 

Dennis (2001) classified electronic payment

system into two categories: (1) Electronic 

Cash and (2) Electronic Debit-Credit Card 

Systems. Thus, electronic payment system 

can be broadly divided into four general 

types (Anderson, 1998): 

- Online Credit Card Payment System 

- Electronic Cheque System 

- Electronic Cash System and 

- Smart Card based Electronic Payment 

System 

Usage of electronic payment systems 

Overall Credit card is the most popular 

methods of payment over Internet. Internet 

buyers seem to prefer credit cards to other 

electronic payment system that have been 

made available to them. One reason may be 

the simple familiarity with the credit card, 

as it is the oldest form of electronic payment 

system. E-commerce is still new and 

intimidating to many. It is easier for the 

buyers to make purchase on the Internet 

when they can use the familiar payment 

method, like credit card. However, this 

payment system suffered from many 

limitations like security, merchant risk, high 

costs and affordability. For sellers’ side, 

credit card has strategic disadvantages like: 

(1) credit cards are subject to percentage fees 

and these charges erode the profits margin, 

particularly on the inexpensive goods and 

services; (2) a buyers who uses a credit card 

may refuse to pay the issuer on the grounds 

that he/she has a claim or defense arising 

out of the underlying transactions. When 

this happens, the issuer may pass the loss 

back to the seller. Above all, credit cards 

have highest possibilities of frauds. 

Therefore, both buyers and sellers are 

shifting from credit cards to other innovative 

payment products, such as smart cards and 

electronic money. But, still it is expected 

that the buyers may continue to prefer credit 

card system, particularly when making 

expensive purchase. 

Critical success factors of e-commerce 

payment system 

Success of e-commerce businesses, including 

both the largest of corporations and small 

retailers, rely on electronic payment system. 

Therefore, understanding the various critical 

success factors of e-commerce payment 

system is important. There are various 

factors, which should be considered by an ecommerce, 

firm before introducing and 

implementing e-commerce payment system. 

372 

From the business perspective, new payment 

products are notoriously difficult to 

introduce as the barriers to entry (Lee, 1989; 

Yin, 1994), acceptance, and ubiquity are 

high (Abrazhevich, 2002). 

Table 1: Factors Discouraging Consumer for 

Online Payments 

Factors Percentage 

Concern 

security 

about 70 

Difficulties to enter 9 

information 

Do not have credit 

cards/smart 

etc. 

cards 7 

Do not like interest 6 

charge 

Purchase value too 

small 

4 

Exceeded 

limit 

personal 4 

Source: www.PaymentOne.com 

Table 1 shows some factors, which are 

obstacles in the online payment systems. A 

good payment system should also consider 

these factors. Added to this, new payment 

products must be low margin to compete, 

high volume to build critical mass and be 

profitable, receive favorable press treatment, 

be well branded to gain customer confidence, 

achieve rapid uptake, and be differentiated 

from check and credit card so that 

consumers and merchants find reason to 

prefer and use them. Studies also revealed 

that simplicity (Schwartz, 2001; Truman et. 

al, 2003), trust (Herzberg, 2003; Juang, 

2006), security and mutuality (Peha and 

Khamitow, 2004; Baddeley, 2004; Oh et al, 

2006) of stakeholder benefits are all of 

importance to the adoption of e-commerce 

payment system. Thus the factors which are 

critical for the success of e-commerce 

payment systems are multifaceted. These 

include integrity, non-repudiation, 

authentication, authorization, confidentiality 

and reliability, which are discussed below: 

- Integrity: transaction data are 

transmitted and received unchanged 

and as intended. 

- Non-repudiation: transactions have the 

quality of non deniable proof or receipts. 

- Authentication: identities and attributes 

of parties engaged in commerce are

established at some tolerable level of 

risk. 

- Authorization: individuals are 

established and recognized as entitled to 

receive, send or view transactions. 

- Confidentiality: transactions can be 

protected from view except by those who 

are authorized. 

- Reliability: probability of failure in the 

transaction-send, receive, acknowledgeis 

low. 

Functionally, money technologies also need 

to achieve these operating characteristics: 

privacy, scalability, ease of use, personalizeable, 

seamlessness, interoperability, write 

one-apply anywhere and cost effective. 

Comparison of electronic payment 

systems 

The electronic payment system- the ability 

to pay electronically for goods and services 

purchased online- are an integral part of ecommerce 

and an essential infrastructure for 

e-commerce models. One of the major 

reasons for the widespread of e-commerce 

transactions is perhaps the rapid 

development and growth of various 

electronic payment systems. In the 

developed countries, credit cards have been 

used even before the advent of Internet. The 

present part of the study revealed many 

electronic payment systems and broadly 

these electronic payment system can be 

grouped or classified into four categories: (1) 

Online Credit Card Payment System (2) 

Online Electronic Cash System (3) Electronic 

Cheque System and (4) Smart Cards based 

Electronic Payment System. These payment 

systems have numbers of requirements: e.g. 

security, acceptability, convenience, cost, 

anonymity, control, and traceability. 

Therefore, instead of focusing on the 

technological specifications of various 

electronic payment systems, the researcher 

have distinguished electronic payment 

systems based on what is being transmitted 

over the network; and analyze the difference 

of each electronic payment system by 

evaluating their requirements, 

characteristics and assess the applicability 

of each system. 

After analysis and comparison of various 

modes of electronic payment systems, it is 

revealed that it is quite difficult, if not 

impossible, to suggest that which payment 

system is best. Some systems are quite 

similar, and differ only in some minor 

373 

details. Further, all these systems have 

ability or potential to displace cash. Added to 

this, widely different technical specifications 

makes it difficult to choose an appropriate 

payment system. On the basis of above 

analysis it is concluded that, smart cards 

based electronic payment system is best. It 

has numerous advantages over the other 

electronic payment systems. Therefore, 

establishing a standard smart card based 

system, or making different system 

interoperable with one another is critical 

success factor for the smart cards based 

payment system. Smart card organizations 

around the world must establish a smart 

card interface standard and a conformance 

testing organization to make all smart card 

system compatible; otherwise smart card 

related products will not develop fully. 


Technology has inarguably made our lives 

easier. It has cut across distance, space and 

even time. One of the technological 

innovations in banking, finance and 

commerce is the Electronic Payments. 

Electronic Payments (e-payments) refers to 

the technological breakthrough that enables 

us to perform financial transactions 

electronically, thus avoiding long lines and 

other hassles. Electronic Payments provides 

greater freedom to individuals in paying 

their taxes, licenses, fees, fines and 

purchases at unconventional locations and at 

whichever time of the day, 365 days of the 

year. On the basis of present study, first 

remark is that despite the existence of 

variety of e-commerce payment systems, 

credit cards are the most dominant payment 

system. This is consequences of 

advantageous characteristics, most 

importantly the long established networks 

and very wide users‟ base. Second, 

alternative e-commerce payment systems 

are some countries are debit cards. In fact, 

like many other studies, present study also 

reveals that the smart card based ecommerce 

payment system is best and it is 

expected that in the future smart cards will 

eventually replace the other electronic 

payment systems. Third, given the limited 

users bases, e-cash is not a feasible payment 

option. Thus, there are number of factors 

which affect the usage of e-commerce 

payment systems. Among all these user base 

is most important. Added to this, success of 

e-commerce payment systems also depends

on consumer preferences, ease of use, cost, 

industry agreement, authorization, security, 

authentication, non-refutability, accessibility 

and reliability and anonymity and public 

policy. 

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and Characteristics of Electronic Payment 

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Vol. 21, No. 5, pp. 81-90. 

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Commerce: A Managerial’s Guide to E-Business, 

New Delhi: Excel Books. 

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with mobile personal devices”, Communications of 

the ACM, Vol. 46, No. 5, pp 53-58. 

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374 

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(1996), Frontiers of Electronic Commerce, 

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Lim, B. (2006) “A Stakeholder Perspective on 

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Prearson Education.

RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0 

Marius Iulian Mihailescu, Eng. 

Titu Maiorescu University, str. Dâmbovnicului, no. 22, sector 4, postal code 040441 

mihailescu.marius@yahoo.com 

Abstract: The purpose in writing this work paper is two-fold: firstly, represents the brief study about the new 

language features up and coming in C# 4.0 and secondly, the results need to be shared. This article is a bite-sized and 

more then a simple introduction to named and optional arguments in the forthcoming version of the framework. The 

big addition to .NET 4.0 is dynamic programming support through the DLR (Dynamic Language Runtime). .NET has 

traditionally been statically typed, where objects have class types that are known at run-time, as is the structure of 

the types themselves. There is, increasingly, interaction with objects that have typing which is not fully known until 

run-time: Iron Ruby is available for .NET 4 and we interact more often with dynamically typed languages. 


F# (pronounced F Sharp) is a multi-paradigm 

programming language, targeting the .NET 

Framework, that encompasses functional 

programming as well as imperative objectoriented 

programming disciplines. It is a variant 

of ML and is largely compatible with the OCaml 

implementation. F# was initially developed by 

Don Syme at Microsoft Research but is now being 

developed at Microsoft Developer Division and 

will be distributed as a fully supported language 

in the .NET Framework and Visual Studio as 

part of Visual Studio 2010 [1]. 

F# brings you type safe, succinct, efficient and 

expressive functional programming language on 

the .NET platform. It is a simple and pragmatic 

language, and has particular strengths in dataoriented 

programming, parallel I/O 

programming, parallel CPU programming, 

scripting and algorithmic development. It lets 

you access a huge .NET library and tools base 

and comes with a strong set of Visual Studio 

development tools. F# combines the advantages 

of typed functional programming with a highquality, 

well-supported modern runtime system. 

This combination has been so successful that the 

language is now a first class language in Visual 

Studio 2010, and can also be used on Mac, Linux 

and other platforms. F# originates from Microsoft 

Research, Cambridge, and the MSR F# team, led 

by Don Syme, continues as partners with the 

Microsoft Developer Divsion. We seek to continue 

to break new ground in programming language 

design and implementation by making F# even 

better in upcoming versions. 

375 

The big addition to .NET 4.0 is dynamic 

programming support through the DLR 

(Dynamic Language Runtime). .NET has 

traditionally been statically typed, where objects 

have class types that are known at run-time, as 

is the structure of the types themselves. There is, 

increasingly, interaction with objects that have 

typing which is not fully known until run-time: 

Iron Ruby is 

available for .NET 4 and we interact more often 

with dynamically typed languages; COM objects 

are interacted with; .NET types can be accessed 

reflectively; one extremely common task is to 

deserialize XML into “object-world”, where we 

might not want to create or need a statically 

typed class. Code dealing with any of these 

normally gives off a “bad smell”, being long 

winded and often difficult to read. 

2. Understanding Named and Optional 

Arguments 

Visual C# 2010 introduces named and optional 

arguments. Named arguments enable you to 

specify an argument for a particular parameter 

by associating the argument with the 

parameter's name rather than with the 

parameter's position in the parameter list. 

Optional arguments enable you to omit 

arguments for some parameters. Both techniques 

can be used with methods, indexers, 

constructors, and delegates. When you use 

named and optional arguments, the arguments

are evaluated in the order in which they appear 

in the argument list, not the parameter list. 

Named and optional parameters, when used 

together, enable you to supply arguments for 

only a few parameters from a list of optional 

parameters. This capability greatly facilitates 

calls to COM interfaces such as the Microsoft 

Office Automation APIs. [2] 

a) Named arguments 

Named arguments free you from the need to 

remember or to look up the order of 

b) Optional arguments 

The definition of a method, constructor, 

indexer, or delegate can specify that its 

parameters are required or that they are 

optional. Any call must provide arguments 

for all required parameters, but can omit 

arguments for optional parameters. Each 

optional parameter has a default value as 

part of its definition. If no argument is sent 

for that parameter, the default value is used. 

Default values must be constants. Optional 

parameters are defined at the end of the 

parameter list, after any required 

parameters. If the caller provides an 

argument for any one of a succession of 

optional parameters, it must provide 

arguments for all preceding optional 

parameters. 

Named and Optional arguments are one of 

the rafts of measures intended to support the 

need to interact with non-statically typed 

constructs. Let’s take the common example of 

an overloaded method, where the overload 

specifies a default value where it is not 

supplied: 

public class Foo 

{ 

//...... 

public Bar(string id) 

{ 

//No amount specified, assume 0. 

Bar(itemCode, 0); 

} 

public Bar(string id, int amount) 

{ 

//Work Done here 

} 

//...... 

} 

Overloading a method like this is a common 

task, but it is uglier that it needs to be. With 

the Named and Optional Arguments added to 

376 

parameters in the parameter lists of called 

methods. The parameter for each argument 

can be specified by parameter name. For 

example, a function that calculates body 

mass index (BMI) can be called in the 

standard way by sending arguments for 

weight and height by position, in the order 

defined by the function. 

C# 4.0c, the same code can be written much 

more expressively: 

public class Foo 

{ 

//...... 

public void Bar(string id, int amount= 0) 

{ 

//Work Done here 

} 

//...... 

} 

In this code, it is still possible to call both 

Foo(string) which defaults the amount to 0 

and Foo(string, int). This is a boon if you 

have multiple overloads, potentially 

removing a lot of boilerplate code. 

3. Invalid Syntaxes 

Naturally, some invalid syntaxes are defined. 

The compiler will report an error for the 

following: 

public void foo(int amount = 0, string id) { /* ... */ } 

The error reported is as required parameters are 

not allowed after optional ones. This too causes a 

syntax error: 

public void Foo(string id, int count = 0) { /* ... */ } 

public void foo(string id = “Foo”, int count = 0) { /* ... */ } 

These methods, if written together will fail as the 

method signatures are the same, effectively 

defining the method twice. The two invalid 

syntaxes are defined so that consistent overload 

resolution can be achieved.

4. Named Arguments 

This method is intended to set the initial position 

on three axes, defaulting to [0,0,0]. 

public void SetInitialPosition(int x = 0, int y = 0, int z = 0) 

{ 

// Work Done here 

} 

Now suppose we want to set the x and z axes 

only, one option Microsoft could have chosen is: 

SetInitialPosition(0, ,0); 

Mercifully, Microsoft did not choose this for thei 

syntax. My Example here is not too bad, but if 

there are many optional arguments it would be 

hard to keep track of which are being set (e.g. 

DoSomething(0, , 0, 0, , 0, , , , 0) requires the 

developer to count the position of each 

parameter). A named syntax was chosen: 

SetInitialPosition(0, z:0); 

Two things to be aware of, are: 

� SetInitialPosition(1, z: 2, y: 3); will set “z” to 

2 and “y” to 3 as expected, even though the order 

the method declares in is x, y, z. This is 

potentially confusing! 

� If we just wish to set the first two 

parameters, we can do this by name or position: 

SetInitialPosition(6, 9); 

SetInitialPosition(6, y:9); 

SetInitialPosition(x:6, y:9); 

All specify the same thing. 

5. Overload Resolution 

Those of you who are still awake at this 

point will realize there is a potential 

minefield if the methods themselves are 

overloaded: 

public void OverloadedMethod(string x) {/* Overload 0 */} 

public void OverloadedMethod(object x) {/* Overload 1 */} 

public void OverloadedMethod(int x) {/* Overload 2 */} 

public void OverloadedMethod(int x, string y = "foo") {/* 

Overload 3*/} 

public void OverloadedMethod(int x = 0, int y = 0) {/*Overload 

4 */} 

public void OverloadedMethod(int x = 0, int y = 0, int z = 0) 

{/*Overload 5*/} 

public void OverloadedMethod(string s = "foo", int x = 0 ) 

{/*Overload 6*/} 

What happens if I call OverloadedMethod(0);? 

The framework firstly applies an applicability 

test that determines which methods can be 

377 

called. Then a betterness test determines which 

of the applicable methods is actually called.To be 

applicable, the parameters passed by the call 

must match (or be directly convertible to) the 

required arguments of the overload, as per 

earlier versions of the framework. Only void 

OverloadedMethod(string x) fails this test as the 

value passed (0) is not directly convertible to a 

string. Overloads 1-3 pass this criterion as the 

required argument needs are met. Overloads 4 - 

6 also meet this criterion almost “by stealth”, 

they have no required arguments, so these are 

met and the argument that is supplied can be 

matched (by position in this example) to an 

optional argument. 

If we had called OverloadedMethod(0, a: "bar"); 

none of the methods would be applicable, 

overload 3 would have if we hadn't specified a 

string as being destined for argument “a”. 

Similarly Overload 6 would become acceptable if 

we called OverloadedMethod(x : 0); as the 

parameter would refer to a named optional 

argument. Now that Overloads 0 and 6 have 

been deemed un-applicable, the framework 

applies its betterness test. Overload 1 is rejected 

as the conversion to an object is required, but 

this is not the case for overloads 2-4 where the 

int can be used without conversion. Overloads 3, 

4, and 5 are all rejected as the framework 

favours the call with the fewest number of 

default values used. This leaves Overload 2 as 

the one that is called (0 defaults). As an 

interesting side-note, if Overload 2 did not exist, 

what would happen? Overloads 0 & 6 are inapplicable, 

Overload 1 still requires conversion 

and overload 5 has more unspecified optional 

arguments. This leaves Overloads 3 & 4 neck and 

neck, even in terms of the betterness test. In this 

case, an ambiguous call error is reported at build 

time. 

6. The Third Paradigm 

Finally, the third paradigm supported by F# is 

language oriented programming (the design of F# 

in this area is largely influenced by ML, Haskell 

and also by LINQ). In general, language oriented 

programming is focused on developing executors 

for some code which has a structure of a 

language (be it a declarative language like XML, 

or a fully powerful language like some subset of 

F#). In this overview, I will focus on two 

techniques provided by F# that allow you to give 

a different meaning to a blocks of F# code. In a

programming language theory, this is often 

called internal domain specific languages, 

because the code is written in the host language, 

but is specifically designed as a way for solving 

problems from some specific domain. An example 

of such language (and an associated executor) is 

a block of code that is written as a linear code, 

but is executed asynchronously (in F# this can be 

implemented using computation expressions), or 

a query that is written in F#, but is executed as a 

SQL code by some database server (this can be 

implemented using F# quotations). 

7. Programming user interfaces using F# 

Workflows 

Numerous Manning partners already published 

several exceprts from my Real-World Functional 

Programming book [3]. You can find a list on the 

book's web page [4]. However, the last excerpt 

published at DotNetSlackers [5] is particularly 

interesting. It discusses how to use F# 

asynchronous workflows to write GUI 

applications. This is a very powerful 

programming pattern that is very difficult to do 

it quite difficult to understand the potential states 

of the application and the transitions between 

them. Using asynchronous workflows, we can 

write the code in a way that makes the control 

8. How to install F# 

Before any F# coding can take place, you must 

install the F# binaries. As of this writing, F# still 

resides on the Microsoft Research Web site, the 

latest version is 1.9.4.17 and is most easily found 

via the F# Web site there-simply visit 

http://research.microsoft.com/fsharp/fsharp.aspx 

and find the latest release link from the 

announcements column on the right-hand side 

(the actual download URL changes with each 

release). 

When installed, F# will not only put several 

executables, assemblies, and assorted samples 

into the installation directory, but will also 

register its Visual Studio language service 

support. This registration gives the F# developer 

much the same development experience as the 

C# or VB developer, with an added bonus: an 

extra tool window called interactive mode, which 

allows the F# developer to type some F# code and 

execute it immediately, much as the Immediate 

Window works in the debugger. Simply “swipe” 

378 

in any other .NET language. We first discussed it 

with Don Syme during my internship at 

Microsoft Research and I found it very elegant, so 

I made some space for it in the book. In fact, the 

entire Chapter 16 discusses various reactive 

programming techniques that can be used in F#. 

,,When designing applications that don't react to 

external events, you have lots of control flow 

constructs available, such as if-then-else 

expressions, for loops and while loops in 

imperative languages, or recursion and higherorder 

functions in functional languages. 

Constructs like this make it easy to describe what 

the application does. The control flow is clearly 

visible in the source code, so drawing a flowchart 

to describe it is straightforward. 

Understanding reactive applications is much 

more difficult. A typical C# application or GUI 

control that needs to react to multiple events 

usually involves mutable state. When an event 

occurs, it updates the state and may run more 

code in response to the event, depending on the 

current state. This architecture makes 

flow of the application visible even for reactive 

applications.’’ [5]. 

some code from the editor window with the 

mouse, hit Alt-Enter, and the text will be 

automagically pasted and executed in the 

Interactive Window. (This is by far the easiest 

way to explore the language and its concepts.) 

Note that the F# package will also install into 

the Visual Studio Isolated Shell, so programmers 

who don’t have a copy of the commercial Visual 

Studio bits can still play along. 

Assuming F# has installed successfully, fire up 

Visual Studio, create a new F# Project (under the 

“Other Project Types” node), add a new item (“F# 

Source file”), and call it file1.fs (the default). 

Notice that when you open the new file, the 

compiler populates it with a large number of F# 

example snippets, which serve as an easy way of 

getting started with the language. Have a look at 

the code in that template file later; for now, 

delete it all and replace it with the following 

code: F#’s version of the ubiquitous “Hello world” 

program:

#light 

let language = "F#" 

printfn "Hello, %A" language 


Named and optional arguments are a very 

useful, expressive addition to the C# language. 

Optional augments allow us to write overloaded 

code in a far terser way than has been the case in 

previous versions, removing a lot of boilerplate 

code. Named arguments allow us to specify 

optional arguments “out of order”, preventing the 

need to supply placeholders for all arguments 

(and the attendant comma – counting to keep 

track), but does mean we need to be aware that a 

named argument called is not necessarily 

supplied in the same order as the method 

declaration, though in well written code this 

should not occur. 

379 

10. References 

[1] F Sharp (programming language), 

http://en.wikipedia.org/wiki/F_Sharp_programming_la 

nguage ; 

[2] Named and Optional Arguments (C# 

Programming Guide),http://msdn.microsoft.com/enus/library/dd264739(VS.100).aspx 

; 

[3] Tomasn Petricek and Jon Skeet, Real-World 

Functional Programming, With examples in F# and 

C#, ISBN: 9781933988924; 

[4] Functional Programming in .NET, 

http://functional-programming.net/ ; 

[5] Programming user interfaces using F# 

workflows, http://functional-programming.net/ ; 

[6] Don Syme, Adam Granicz, Antonio Cisternino, 

F# Expert, ISBN13: 978-1-59059-850-4, ISBN10:1- 

59059-850-4, Aspress, 2007;




NEW PUBLIC MANAGEMENT AS A SOLUTION TO STATE’S INCAPACITY 

OF MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE DISPUTES 

Abstract 

The present scientific study’s objective is to 

challenge the managerial principles applied 

within the Romanian public sector. The 

organizational behavior that defines the public 

system is transcending from the bureaucratic 

weberialism towards Friederick Taylor’s 

management. The study intends to quantify 

the manner in which taylorism/the new public 

management might be implemented in the 

public institutions’ realities. Today, the 

altered effects of bureaucracy are measured 

quantitatively and qualitatively due to the lack 

of resources within the public system(and the 

threat of state bankruptcy in Europe). From a 

different perspective, the present study also 

analysis the altered effects of the new public 

management: managerialism means that the 

public servants are exposed to public life (the 

growth of the politicized traditional model of 

career development in the public office). 

Romania will need to promote the Anglo-Saxon 

model of flexible development of career 

management within the public service. In 

order for this to take place, the private-public 

sector dilemma must be solved, promoting the 

participative political culture and assuming 

responsibility at the public policies level for the 

governing models in order to counteract “The 

states’ failure”. 

Simona MINA 

Ana Rodica STĂICULESCU 

Cornel Grigoruţ 

Ovidius University of Constanţa Romania 

Faculty of Law and Public Administration 

staicul@univ-ovidius.ro 

simonamina@univ-ovidius.ro 

380 

Key words 

citizen empowerment; bureaucracy; new public 

management; new governance; the invisible 

hands’ theory; trained incapacity 


The public organizations’ resistance to 

change has represented a real concern for the 

public system management; furthermore, the 

organizational psychological studies have 

pointed out that the responsibility of the 

inability to adjust to change is determined 

from top to bottom, from the managerialexecutive 

level of the public institutions. 

Zoltan Boghaty[1,Boghaty 2009,103] has 

pointed out that, in Romania, ironically after 

the 90’s, the experimental research carried out 

within the work group has illustrated that the 

managerial team itself is the one that is 

resisting/opposing to changes[2, Maricutoiu 

2004.92]. 

The present study’s main objective is 

to ascertain another cause for the 

endorsement of the webberian traditional 

model regarding promotion in the public 

service, instead of the situations illustrated to 

the present day by the organizational behavior 

and conflict studies. The American 

sociologists, Robert Merton and Friederick

Taylor are the advocates of the theory 

regarding the distorted effects of bureaucracy 

(trained incapacity of bureaucracy); according 

to this theory, the negative effects of 

bureaucracy illustrated initially by Webber, 

prove to be at the present moment true 

managerial inefficiency principals, responsible 

for the 1980’s “State’s failure”. 

The American sociologists as well as 

the specialists in the public policies domain 

have criticized in the 80’s, the state’s inability 

to manage the public affairs in a judicious 

manner. These are the first steps in 

estimating the global financial crisis, marked 

by the alarming increase of the budget deficit 

in the traditional democratic countries (which 

have promoted the social well being model in 

the last 20 years). The threat of the 

increasing budget deficit constitutes the best 

plea for the need of reform of the public sector. 

The alarming increase of the budget deficit in 

Europe is the consequence of the increasing 

“consumption” of public services, exceeding the 

output and productivity markers. The 

European citizens took started to consider the 

public services to be a legitimate right, as a 

consequence of the “from cradle to the grave” 

social well being policy, such that, the citizen 

is the main interest of the state’s policies, 

he/she being protected from birth until death. 

However, the assisting state has become 

unacceptably reactive for the democratic 

governing models; it has become an extremely 

important a social player in the society by 

offering comprehensive public services to its 

citizens. The public services thus becoming, 

public establishments. The Germanic type of 

governing, which was successful in Europe 

during 1980-1990’s, has neglected the adverse 

reactions of bureaucracy and the democratic 

need to decentralize the state’s policies. 

Economic decline has determined the inability 

of the budgets to sustain these types of offers 

regarding public services. 

381 

Furthermore, “the maximizing power 

of bureaucracy” (this being a great public 

service “consumer”), that Merton has 

described, is another factor added to the 

equation. The ideologists that embrace the 

theory of social decision (public choice) have 

estimated that the monopoly of offers 

regarding the services, will allow the offices to 

expand and use resources over the social 

bounds, thus becoming inefficient. The 

inefficient management of the public affairs is 

determined by the exacerbated need for 

respect and recognition on behalf of the 

bureaucrat, which will determine a direct 

correlation between “the size of the office and 

the derived utility from the public servants. 

The liberal economic changes have determined 

reforms in the U.S. and Europe, which 

consider diminishing the public sector’s input 

or reforming the public sector following the 

private organizations’ model. It is time to 

implement the decentralization policies of the 

state. Adam Smith’s invisible hand is invoked 

with regard to the ever increasing 

insufficiency of the public bureaucracies. In 

the present day it is considered that the 

common good is achieved by the rational and 

egocentric interests of the bureaucrat [3 

Mihai Păunescu 2008,34-43]. 


“Changes in public sector accounting 

in a number of OECD countries over the 

1980’s were central to the rise of the “New 

Public Management” NPM and its associated 

doctrines of public accountability and 

organizational best practice”. The paper of 

Christopher Hood (London School of 

Economics and Political Science) published in 

Accounting Organizations and Society, 

vol.20,no 2/3 pp.93-109, 1995, Elseiver Science 

LTD and also published on Sage Journals on 

line: http://ppa.sagepub.com discusses the rise 

of NMP as an alternative to the tradition of 

public accountability embodied in progressive-

era public administration ideas. It argues that 

“in spite of allegations of internalization and 

the adoption of a new global paradigm in 

public management, there was considerable 

variation in the extent to which different 

OECD countries adopted NPM over the 1980’s. 

It further argues that conventional 

explanations of the rise of NPM (“Englishness, 

party political incumbency, economic 

performance record and government size) 

seem hard to sustain even from a relatively 

brief inspection of such cross-national data as 

are available, and that an explanation based 

on initial endowment may give us a different 

perspective on those changes.” 

The term new does not imply that 

NPM doctrines appeared for the first time in 

the 1980’s any more than “New Learning” of 

the fifteenth and sixteenth centuries involved 

the first discovery of Latin and Greek. Many 

NPM doctrines repackage ideas which have 

been in public administration since it earliest 

beginnings. Nor must NPM be confused with 

the New Public Administration movement in 

the USA in the late 1960’s and early 1970’s 

which achieved no real mainstream influence. 

These conclusion were established by Marini, 

F. in Toward New Public Administration 

(Scranton, PA:Chandler, 1971). 

The internalization of public 

management parallels the internalization of 

public and private sector economies. Similarly, 

Osborne and Gaebler write of 

NPM(1992,pp.322-330) as a new global 

paradigm, claiming that transition to the new 

paradigm is inevitable” just asa transition 

from machine rule to progressive government 

was inevitable”(p.325). 


The warning of the acute financial 

crisis of the 80’s that justified the public 

system reform and other factors as well, 

determined the need for a different type of 

382 

public governing 1 . Globalization, the spread 

of technology and the consolidation of 

supranational governing organizations, the 

liberalization of the capital flow and of the 

work force, globalization of the professional 

training market (universities), have 

determined the governing systems to become 

inoperative 2 . 

Two solutions are outlined in surmounting the 

state’s crisis: 

� The new public management-answer 

to the financial crisis and to the states’ 

need in becoming more efficient 3 

� The new pluralist governance – in the 

90’s, as a result of the demographic 

and technological changes 

The state as a non-invasive social player 

followed by the present American governing 

model “The great society” might jointly 

constitute the best means in reviving the 

public sector. 

Public spending is allowed; whatever the 

budget deficit might be, for certain public 

services, due to the fact that its output (the 

productivity levels) can be measured in the 

work market: education and healthcare. This 

is the model that Sweden refers to as “Strong 

Society” and the United States endorses it as 

“Great Society”. 

1 The end of the Germanic “Social well-being” 

efficiency model, successfully promoted in post-war 

Europe until the 80’s 

2 Adam Smith’s Invisible hand theory represents 

the generator for the need of subsidiaries and 

decentralization, stated by the European 

Commission as being the needs of a United Europe 

of the 90’s 

3 Due to a 4,7 budget deficit, Romania is confronted 

with the threat of inadequate resources for the 

public sector

Some NPM 4 authors (new public 

management) are engaged in redefining and 

revising the states dimension and especially of 

its administrative body. According to Osborne 

and Gaebler[4, David Osborne, Ted Gaebler 

1992,93] the implementation of public policies 

should be carried out by means of the market 

or by creating fairly autonomous organizations 

that will determine a specific market 

environment. The idea is not new and it is 

improved by Gordon Tullock[5,Tullok 

2000,120] who states that the existence of 

offices with the same purpose, independent 

from one another, will lead to competition 

among them. Therefore, the cost for providing 

a certain public service will decrease. The 

mechanism is as follows: whenever they are 

not competing, taking advantage of the fact 

that it is hard to evaluate the real cost of 

providing a certain service if you are not part 

of that office, the bureaucrats in management 

positions tend to boost their budgets. When 

they are competing, due to the need for 

affirmation, they take into consideration the 

cost, which will lead to a price that is much 

closer to the real cost of providing that certain 

service. One of the tools used for the 

motivation of a specific market environment 

recommended by Osborne and Gaebler, is the 

contract. The government should sign 

contracts with the organizations that 

implement public policies and provide goods 

and public services. The benefit of the 

contracts is that they can precisely stipulate 

the services that the certain organization has 

to provide, as well as the funds that the 

organization will receive in implementing the 

certain policies. 

According to Osborne and Gaebler, the two 

main objectives of the NPM (new public 

management) are: reducing the state’s budget 

4 NB: The New Public Management 

383 

and increasing efficiency. The two authors 

state that the entrepreneurial governments 

have adopted new governing principles, such 

as: the competition among the service 

providers; earning the citizens’ trust by 

placing the control away from bureaucracy 

and inside the community; measuring the 

agencies’ performance by concentrating on 

results; the conduct should take into 

consideration the objectives and not the rules 

or regulations; redefining the attitude towards 

the clients and recommend alternatives; 

problem deterrence; attempting to save up; 

decentralization of authority; choosing the 

market means; the involvement of every sector 

in solving the community’s problems. 

The new public management 

comprises the following: 

1. Professionalization of management 

within the public service organizations 

This means, promoting to leadership 

positions of certain managers that were 

trained to lead public organization. They are 

not just the administrators of the public 

institutions; they become responsible for the 

results of these institutions. 

The public managers become responsible 

for the degree of implementation of the 

policies and if the results are not what it has 

been expected, they can be dismissed for 

professional and managerial incompetence. 

It is remarkable the perception of the 

relation with the politicians, which have the 

possibility to recruit professional managers, 

whom they entitle as chief of departments and 

agencies for undetermined time periods, in 

order to carry on the application of the 

political parties’ programs. The next 

managerial level, that of the executive 

managers, is hired and transferred managers 

who in time have attained certain 

performances and have a certain level of 

professional and managerial aptitudes, rather

than attaining their experience as a result of 

carrying out their duties. The increase of 

efficiency in establishing and providing public 

services within the public organizations is 

expected, as a result of professional and 

managerial competence on behalf of all the 

public service managers. Therefore, it is 

considered that the general managers of the 

services’ organizations must not be specialists, 

engineers, doctors, economists or lawyers; 

instead, they have to be competent managers. 

An important role was played by the 

following in professionalizing the public 

management: 

a) The management based on 

knowledge5 b) The management based on 

performance 

The aim of this task is to create within 

the public institutions’ framework a certain 

perception, systematization and capitalization 

of the established programs and is based on: 

‐ the public institutions’ vision 

and mission regarding the 

capitalization of knowledge; 

‐ The strategic objectives are 

representing the purposes 

determined and 

acknowledged in time 

‐ Types of action taken in order 

to achieve the planned 

objectives. 

Finally, the public institutions will 

allow the public servants to employ their 

knowledge more efficiently and efficaciously 

5 

The important concepts in the management based 

on knowledge make reference to knowledge, 

competence, learning, and the ability to learn. 

384 

and to steer their actions based on this 

knowledge; 

The basis for the management based on 

performance, is the efficient management of 

human, material, informational and financial 

public resources, to fulfill the general social 

needs in order to achieve a higher level of 

performance. 

In order to apply this procedure, 

elaborating and implementing a monitoring of 

performance system is a must, a system that 

is met in all of the public institutions of the 

developed countries; countries that are 

permanently evolving as well as the 

“organizations that are going through the 

learning process” of achieving a higher level of 

performance. 

By implementing these types of 

methods in any public management system, it 

will lead to fulfilling the public interests, by 

taking into consideration the economic and 

managerial criteria. 

2. Determining and following certain 

standards and an indicator of 

performances’ system for each 

organization in the public sector, 

regarding the accomplishment of certain 

objectives 

The process of reform within the public 

sector involves the achievement of 

performance by each employee, as well as by 

each public organization. In order to achieve 

this goal, every public institution determines 

performance markers in order to be able to 

measure the progress made by each one, with 

regard to accomplishing the prerequisite 

objectives. The individual performance 

evaluation system establishes the 

contribution of each employee, in 

accomplishing the objectives throughout the 

year. Depending on these evaluations, a 

reward is offered or one might be 

reprimanded. It is considered that the

informal evaluation methods are inefficient 

and lead to the decrease of the public 

institutions’ revenues. 

Governmental organizations try to 

enhance the long term planning methods and 

to expand the area of application of the 

strategic management. It is achieved by 

determining the organizations’ missions 

within the public sector, the objectives that 

they have to accomplish, the degree of 

adaptability to their environment, the ability 

to capitalize the strong points and to solve 

the problems they encounter, the availability 

to anticipate their environments’ constraints. 

The politicians can intervene if they 

have this information, in order to support the 

process of accomplishing the objectives by the 

public institutions. 

3. The control of the results, not of the 

processes and steps 

The New public management 

representatives request the reduction of 

bureaucratic forms of control that are present 

in different stages and levels of the processes; 

processes which the public institutions utilize 

in accomplishing and intensifying their 

mission, thus leading to varied forms of 

control of the results. 

4. Decentralization of the system, of which 

the public organizations are part of 

This process has started in Great Britain 

in 1998, during Margaret Thatcher’s 

administration, labeled as “Next Step” 

program, and it expanded to New Zeeland, 

Holland and gradually covering all countries 

from the Scandinavian Peninsula. The 

manner in which this applied was based on 

creating separate agencies, responsible for 

the accomplishment and providing of services 

as a result of a signed contract with a 

specialized political department within the 

system. The objective of this change was to 

385 

reduce personnel from the services’ system to 

a group, formed by individuals with high 

ranking positions, with the purpose of 

supervising the manner in which the 

ministries and departments are managed and 

monitored. 

Due to this change, in 1994, 60% of the 

public servants in Great Britain have been 

involved in the “Next Step” program, and by 

the end of 1995, over 95% of them were 

integrated in this new system. Similar 

changes followed in New Zeeland and later on 

in the U.S. and Australia, although at a much 

slower pace than in Great Britain. Although 

it uses a different approach, this change 

tends to emulate Woodrow Wilson’s ideas, 

which underline the need for separation of 

the political departments from the agencies, 

basically a separation between politics and 

public administration. In this new 

environment, the agencies providing the 

services were not required to be part of the 

public sector, due to the fact that they were 

carrying out their activity based on a contract 

and the their employees didn’t have to be 

public servants. 

5. Increasing the level of competition in the 

public sector 6 

This attribute refers mainly to the 

governmental services and its objective was 

to diminish costs. The basis was that, if 

certain services are unsatisfactory, 

according to these criteria they can be 

auctioned. Therefore, the accelerated 

6 The public services’ beneficiaries are nonvolunteer 

clients, especially where alternate publicprivate 

services’ markets haven’t evolved in a 

competitive manner and where private-public 

partnerships represent a deficiency of the public 

sector

privatization was considered part of this 

process. As a result of this new course, a 

series of changes take place, such as: testing 

the services on the market, cost and quality 

supervision of the services rendered. 

6. Expanding the type of leadership 

applied in the private sector’s 

organizations, by renouncing the 

authoritarian approach 

Under these circumstances, two 

associations are taken into consideration: 

between the training profile of the personnel 

and the position held within the organization, 

and between the achieved performances and 

the applied wages system, based on merit. 

The emphasis put on achieving performances, 

determines the job and position placement 

based on a contract, to be carried out for a 

short term period, due to the fact that those 

certain public managers are not efficient. 

7. Discipline and appropriate use of the 

public organizations’ resources 

The new public management requires extra 

attention with regard to the management 

resources, which certainly include the 

reduction of costs, as well as a greater 

awareness of the programs through which 

strategic objectives are carried out. Therefore, 

the governments have the possibility to control 

the manner in which the financial, human, 

material and informational resources are 

managed. 


In most of the developed countries, 

elements of the traditionalist model, as well as 

elements of the new public management can 

be identified. The reality reveals that the new 

public management’s content is closer to what 

386 

the governments of the developed states 

expect from the public organizations 

Public services exist in order to 

accomplish the public interest’s objectives, to 

improve the citizens’ fulfillment of the needs 

and expectations’ level, through a political 

process. All of the outlined managerial 

changes strive to implement the public 

objectives and providing the information as 

efficiently as possible, absolutely necessary in 

taking informed decisions by the politicians 

who collaborate with the public organizations 

during a management process, which is 

carried out in an interactive manner. 

The specialists cannot estimate 

however, when the results of the new 

implemented values of the new public 

management will be known, but they are 

convinced that, in time, as Osborne and 

Gaebler were stating back in 1992, that the 

public managers the other public servants will 

become “entrepreneurs” and they will discover 

new methods for accomplishing and providing 

public services, in such a manner that most of 

the promoted values of the NPM be achieved, 

as a result of the evolving managerial 

dimension of the activities, carried out within 

the public sector’s organizations. This can 

only lead to cost reductions for the 

bureaucratic spending and an increase of the 

resources assigned for the efficiency of the 

services, by enhancing of relations with the 

private sector. 

A more flexible public management 

within the Romanian public institutions 

cannot be achieved by adopting normative acts 

that are universally valid with regard to the 

organizations’ structure or the decisional 

process, and with any central authority’s 

interference or ministerial orders. The 

solution lies in the “recovery of the system”, by 

treating it from the inside, through the 

enhancement of the public institutions’

managerial abilities, by placing career public 

servants in public positions and functions, who 

are prepared to become professional public 

managers with individual precise objectives, 

duties, competences and responsibilities[6, 

Simona Mina, Nicolae Naum, Remus Zagan 

2010,120] 

Time will tell if the public sector’s 

organizations will be able to accomplish a few 

of the fundamental values of the traditionalist 

model, such as: professionalism, impartiality, 

high ethical standards, nonexistence of 

corruption, and to incorporate some of the 

fundamental values of the NPM. 

5. References 

[1] Zsoltan Boghaty, Organizational Conflicts(Ed. 

Eurostampa, Timisoara, 2009),103-107 

[2] Laurenţiu P. Măricuţoiu,” Organizations’ 

efficiency regarding the acceptance of change or the 

dominant management. A transverse analysis”, 

Organizational Psychology 1-2/2004- 92-105 

387 

[3] Mihai Păunescu, The Romanian public 

management(Iaşi: Polirom, 2008), 34-43 

[4] David Osborne, Ted Gaebler, Reinventing the 

government: How the entepre-neutral Spirit is 

transforming the public sector( Addison-Wesley, 

1992),93 

[5] Gordon Tullock, The politics of 

Bureaucracy(Washington:Public affairs Press, 

2000),120 

[6] Simona Mina, Nicolae Naum, Remus Zagan, The 

management and quality of public 

services(Constanta: Ed. Ex Ponto, 2010),120




THE IMPORTANCE OF INNOVATION IN DEVELOPING AND 

ORIENTING COMPANIES IN THE GLOBAL ECONOMIC CRISIS 

MITITEL Elena 

PhD Student, Academy of Economic Studies, Bucharest, Romania 

elenammititel@yahoo.com 

Abstract 

This paper presents some aspects and 

general considerations on the role and 

implications of innovation regarding the 

potential growth of companies to exploit own 

resources and to identify solutions that save 

them in crisis. 

In a short period of time, economic 

globalization has modified the economic 

order, promoting changes, but also new 

opportunities. European Councils of Lisbon 

and Barcelona have indicated the important 

role of research and innovation in the 

European Union. They identified as a key 

concern the need to make the enterprises 

environment more favorable to innovation, in 

benefit of all citizens. 

One of the objectives of innovation policy 

is facilitating innovative potential 

development by creating an environment in 

which businesses can start a business and 

can develop. Cooperation between national 

and international enterprises represents a 

main feature of these actions. 

Implementation of significant changes in 

business practices, workplace organization or 

external relations, aiming to improve the 

innovative capacity of the enterprise were 

important factors in developing innovations 

on organizational management. 

In order to be competitive during the 

global economic crisis, enterprises must be 

inventive and to better respond better to 

consumer needs and preferences, because the 

success of innovation depends on consumers 

and citizens demand for new products and 

services. 

This fact mainly implies consumer 

confidence in these products and services, 

especially in their security (provable). 

Consumers will have even more confidence in 

unknown products and services as they may 

388 

rely more on effective consumer protection 

systems. Markets within which consumer 

trust is high new innovative products can 

penetrate easier. 

Key words: innovation, innovation 

management, economic crisis, enterprise, 

sustainable development 


Starting from the analysis of current 

realities of European economic and social 

context, strongly influenced by the effects of 

global financial and economic crisis, it can be 

stated that the main goal proposed by the 

Lisbon strategy, namely to make the EU 

“the most competitive and dynamic 

knowledge-based economy”, it is not possible 

now. 

However, in the current economic 

downturn, innovation is regarded as the 

main engine able to trigger economy as a 

whole. Innovation has become an obsession 

for all economic actors: enterprises, 

managers, local communities, governors, and 

consumers. By introducing innovations into 

practice, products with improved quality 

characteristics, quality services, new 

production processes, more efficient and 

cleaner (ecological), improved models of 

business management system, modern 

management methods of work force etc. can 

be obtained. 

There are multiple reasons for 

enterprises and organizations to innovate, 

including: increasing market share, 

achieving new markets, improving product 

quality, expanding range of products, 

replacing outdated products, reducing 

impact on environment, improving services

quality to meet consumer requirements at 

the highest level. 

Innovation is inextricably linked with 

creativity. Innovation and creativity 

processes are interrelated processes, because 

finding a solution to the problems that arise 

in the innovation process requires creativity. 

Innovation consists in producing, acquiring 

and operating successfully innovations in 

economic and social spheres, helping 

companies to conquer new markets, or to 

remain competitive. 

Innovation has many forms, from an 

invention resulting from research and 

development efforts to adaptation of 

production processes, acquiring new 

markets, use of organizational changes or 

create new market concepts. The race for 

innovation can be as important as price 

competition, companies playing an active 

role in this area, respectively in taking over 

research results and increasing 

competitiveness. The main objective is to 

improve the business environment through 

interaction with the field of competition, 

internal market, regional policy, fiscal 

measures, education and vocational training, 

standardization and patents. 


In the book Strategic Management of 

Technological Innovation, 2nd edition, Mc 

Graw Hill, New York, 2008, the author 

Schilling, A. M., 2008, p. 4, points out that 

based on the desire to maintain the 

competitiveness, many companies launch 

them in the innovation race, meaning that 

they develop new products without having a 

clear strategy and proper project 

management. These firms initiate more 

projects that can actually take over they 

choose projects that are not based on 

company resources, have long development 

cycles and high failure rates. 

Most new ideas, relating to a product do 

not turn into a new product that will 

succeed. Many studies show that only one 

from thousands of ideas result in a 

successful new product, to be accepted by the 

market. 

In order to improve the success rate of 

innovation in a company, you need a well 

founded strategy. Innovation projects of a 

company must be based on company 

objectives and resources, on core 

389 

competencies, that will help the company to 

achieve their strategic intent. 

The new product development process 

must maximize the probability that projects 

succeed, both technical and commercial. To 

achieve these, the following conditions are 

necessary: understanding the dynamics of 

innovation, an innovation strategy well 

founded, respectively well-designed 

processes to implement an strategy 

innovation (Schilling, A., M., p.5). 

In the same book, the author shows that 

many studies emphasize the fact that 

companies consider the inside research and 

development activity, as the most important 

source of innovation (Schilling, A., M., p.23) 

and that main forms of collaboration 

between companies, for researchdevelopment 

project are strategic alliances, 

joint ventures, licensing, outsourcing, 

research and development joint activities 

(Schilling, A., M., p.160). 

Dessau, G., G. Lumpkin, G., T., Eisner, 

A., B., Strategic Management, 2nd Edition, 

Mc Graw - Hill Irwin, Boston, 2006: 

”innovation is one of the most important 

forces in obtaining a strategic advantage in a 

strong competitive market, and we have to 

learn”. 

In the paper - Bratianu, C., Knowledge 

Dynamics in Organizations, in The 

Proceedings of the 6th, International 

Biennale SIMPEC 2006 Economic 

Symposium, vol. 1, pp 51-57, Infomarket, 

Brasov, 2006, he says it is important to 

create new mentalities for companies in 

Romania, encourage performance ideas, 

which may constitute real changes for all 

companies in Romania. 


Knowledge – innovative strategic 

resource in business environment 

Each company has its own way of 

development based on a behavior difficult to 

be simulated by other firms that combines 

organizational, functional and technological 

skills and capabilities in a unique approach. 

They are improved in time by accumulation, 

application and enrichment of intangible 

knowledge. A firm's competitive advantage 

lies on how this knowledge adds value to its 

products or services. 

The operation of such organizations the 

following processes essential:

� innovation (creation of new 

knowledge); 

� learning (knowledge assimilation); 

� interaction (sharing knowledge). 

The strategies applied by organizations 

in their struggle for survival, knowledge 

and innovation become strategic 

resources. Lifelong learning, knowledge 

intensive, represents essential conditions for 

introducing innovation in any organization, 

public or private. 

Knowledge-based business strategies 

include in each component of the strategy – 

mission, objectives, resources, options, 

deadlines and competitive advantage, 

knowledge as essential elements that must 

be used and exploited, and in this way the 

company acquires a strong innovative 

dimension. 

From the macroeconomic perspective, it 

is recognized that innovations have a 

positive impact on organizations and 

employees. Innovation are key factors in 

business success and is the most important 

factor in increasing the profitability of 

companies, technologies, processes and new 

products are essential for economic survival. 

Innovation management should be 

treated as part of the firm’s business strategy. 

The strategic context includes business 

objectives, current and future status of the 

firm, managers’ implications, and markets 

dynamics, and competition, economic and 

regulatory environment. The innovation 

manager is responsible for the effective 

management of innovation processes in a 

company, being responsible for the 

identification of ideas, new solutions, 

analysis, synthesis and forecasting, 

organizing, training, coordination, control 

and evaluation, as well as change of 

products, technologies/services according to 

demand. 

Framework activities that an 

innovation manager has to perform are: 

� elaboration of the firm’s innovation 

strategy, after its auditing; 

� implementation of the action plan to 

achieve the firm’s innovation 

strategy; 

� coordination of the professional 

development of team; 

� coordination of gathering of creative 

ideas; 

� creation of a data management 

system regarding innovation ideas; 

390 

� development of methods to exploit 

the intellectual capital of the 

Company; 

� evaluation of the innovation process 

in all its phases; 

� ensuring continuity of the innovation 

process. 

The main problems that the innovation 

manager has to deal with in its activity are: 

implementation within the company at all 

levels the mentality to which innovation is 

the best solution for competitiveness and 

economic development, as well as the 

implementation of organizational culture 

specific to innovative firms. Also, an 

innovation manager should focus his 

strategies in order to facilitate the creation 

and marketing of new products and 

innovative services, on markets where they 

have to be understood as being beneficial for 

all citizens. 

Wishing to maintain competitiveness, 

many companies are involved in innovation 

projects without having a proper innovation 

management that better exploit the 

available resources and then are registering 

expensive failures. 

New products and modern enterprise 

success 

Products improvement often fails to 

protect them from aging and to continue 

generate interest for buyers. The most 

effective fight against aging a range of 

products goes through diversification by 

creating new products. 

Introduction of new products is linked to 

research & development and marketing 

expenditures, with no guarantee of success. 

Risk is inevitable, because the new itself, 

technical or economic progress, involves a 

risk on the part of the one who takes a 

decision regarding a solution. 

A business manager is faced with a 

dilemma: on one hand he has to broaden the 

product range with new creations, on the 

other hand, their success is uncertain. 

Adequate capitalization of the 

information provided by market and 

technical research eliminates much of the 

risk, reducing it to acceptable proportions. 

The enterprise manager will have to provide 

a more rational shape for the activities 

related to creation and introduction of new 

products by undertaking a good division of

tasks and improving administrative 

organization. 

When research efforts are concentrated 

in specific areas of competence of the 

enterprise to create successful products, 

then broadening its own and related range of 

products ensures the premise for achieving 

success. 

By introducing products in areas related 

to its main business, the company acquires 

new experiences, develops new techniques 

and specific manufacturing processes and in 

this way increases its brand prestige. 

Innovation represents a successful 

solution for Romanian companies in the 

world of economic crisis. Products launched 

on the market must include technology, 

innovation, be competitive and to be able for 

selling anywhere in Europe. 

Modern companies should not develop a 

product that does not have anything new, on 

contrary they have to design new products 

with a higher frequency of two to three 

years. 

Harmonization regarding theory and 

practice in innovation process 

Innovation as process with many 

variables is centered on collaboration 

between research and industry. In the last 

decade, developed countries have proposed 

intermediate entities or forms of interaction 

and collaboration through which to develop 

bridges between the two sectors, allocating 

increased public financial resources to these 

entities. 

The EU integration of our country 

creates pressure on orienting 

competitiveness to innovation and actions to 

support private sector interest in this area. 

Political commitment of 1% of GDP for 

public expenditures on research and 

development, related to Romania’s 

important commitment to the Lisbon 

Strategy is extremely important. 

Structural Funds for innovation and 

human resources development are 

complementary to public investment in 

tertiary education and in research and 

development and will play an important role 

both on Romania's socio-economic 

development and in reducing regional 

disparities. 

According to the vision of National 

Strategy for Research and Innovation 

Development for 2007-2013, local and 

391 

central public administration should make 

specific requests for innovation, according to 

the national, regional and local strategic 

development objectives and priorities. Public 

procurement and introduction of advanced 

technologies in different socio-economic 

sectors will contribute to the development of 

Research, Development and Innovation. 

Through the RDI strategy, Romania will 

support innovative projects initiated by the 

private environment, as well to develop 

research capacity of public entities to 

respond to these initiatives. 

Innovation is the main engine of the 

competitiveness of economic operators, 

especially in an intensive and competitive 

market such as the EU. According to the 

characterization carried out by the European 

Innovation Scoreboard, 2007, Romania has 

an innovative performance level falling 

among catching up countries. 

The EU leaders in innovation are 

Sweden, Finland, Germany, Denmark and 

Great Britain, along with Switzerland which 

is not part of the community block. 

Although the gap between the EU, on 

one hand and the U.S. and Japan, on the 

other hand, it is reduced gradually, 

investments in innovation carried out by EU 

Member States are still low compared with 

those made in the largest two economies the 

world. 

Sustainable development through 

innovation is based on the growth of regional 

business activity by attracting talents and 

developing access to knowledge and 

opportunities. To achieve this goal, 

sustained actions are recommended in order 

to: 

� maintain and improve human 

capital 

� promote cooperation between 

companies, 

� facilitate harmonization between 

market and knowledge, 

� support for obtaining intellectual 

property rights, 

� support for regional economic system 

competitiveness through reducing 

the significant technological gap by 

facilitating procurement of 

technological equipment and 

services, 

� development of educational system 

through PhD and post-PhD

programs in association with 

business environment. 

European Parliament stresses out that 

SMEs should be considered one of the 

most important innovation drivers in 

Europe and requires full support for them 

according to their skills (including measures 

to streamline and effective administrative 

procedures and tax system and measures on 

public procurement). 

Content of innovative actions programs 

can cover several aspects, such as: 

� creation and reinforcement of 

cooperation networks between 

companies and groups of firms, 

research centers and universities, 

organizations responsible for 

improving the quality of human 

resources, financial institutions and 

specialized consultants, etc.. 

� staff exchanges between research 

centers, universities and companies, 

particularly SMEs; 

� dissemination of research results 

and technological adaptation among 

SMEs; 

� establishment of technological 

strategies for regions, including pilot 

projects; 

� support for new enterprises which 

have links with universities and 

research centers, encouraging trends 

from academic and large companies 

oriented towards innovation and 

technological development; 

� schemes to support scientific and 

technological projects, designed 

together with SMEs, universities 

and research centers; 

� contribute to the development of new 

financial instruments to start 

businesses. 


Innovation provides the key and 

foundation of today’s competitive strategies. 

These days, companies are facing a dilemma. 

If they do not innovate, they risk to die. If 

they introduce innovative methods in their 

activities and innovations are not successful, 

firms are subject to the same risk. 

Innovation and imagination have to be 

transformed into a firm’s capability. 

392 

Innovation process must be carefully 

managed as a whole correlated processes: 

developing ideas, screening ideas, concept 

development and testing, economic analysis, 

development and prototype testing, 

marketing test, distribution. 

Innovation is a global process of 

technological and commercial creativity, 

transfer of new ideas or a new concept to 

final stage of a new product, process or 

activity accepted on the market. 

Innovation is trying to propose 

innovations, unknown and untried up to 

present, des-stabilizing temporarily the 

system, so that it will be adopted usually 

following internal pressures. 

Representing one of the strategic 

priorities of modern enterprise, innovation 

represents the measure of its capacity to 

adapt to the social and economic 

requirements. 

In the innovative process, the 

development of new products or new 

technologies is considered differently, 

depending on the branch of activity in which 

the company is involved, its prospects and 

available creative potential. 

In the current conditions of market 

economy, the manufacturing companies are 

required to provide an increased attention to 

optimize the distribution of efforts between 

the production of new technologies and of 

new products, while the technology 

alternative must have a higher dose of 

interest and efforts in terms of obtaining 

financial funding. 

Taking into account that the 

international market requirements for new 

technologies represent a priority it is 

imperative to offer competitive technologies 

and more profitable for the exporter than 

the new products based on these 

technologies. 

Innovation is the central element that 

determines competitiveness and the world 

states, especially the developed ones, have 

engaged in a systematic generation of it by 

developing national systems and 

international interactions more 

sophisticated. 

The global economic crisis, competitive 

pressure from business environment, 

requires to firms to continuously seek for 

innovative solutions, enabling to achieve a 

better market position, a policy which is an 

essential condition for existence of the 

company.

References 

1. Adams, R., Bessant, J., and Phelps, R., 

Innovation Management measurement, in 

International Journal of Management review, 

vol. 8, nr. 1, 2006; 

2. Băloiu, L. M., Frăsineanu, C., Frăsineanu, I., 

Management inovaţional, Editura ASE, 

Bucureşti, 2008; 

3. Bob, C. A., Dobrescu, E. M., Grigorescu, A., 

Olteanu, V., pref., Marketingul afacerilor publice 

şi private, Editura Uranus, 2007; 

4. Boutillier, S., Allemand, S., Économie sociale et 

solidaire: Nouvelles trajectoires, d΄innovations, 

Éditeur L ́Harmattan, 2010; 

5. Brătianu, C., Knowledge Dynamics in 

Organizations, in The Proceedings of the 6 th, 

biennal international Economic Symposium 

SIMPEC 2006, vol. 1, pp. 51-57, Infomarket, 

Braşov, 2006; 

6. Brătianu, C., Vasilache, S., Jianu, I., Business 

Management, Editura ASE, Bucureşti, 2006; 

7. Casoinic, D. A., Leadership et diversité des ậges: 

Quel leadership adopter dans les organisations 

face aux équipes de travail composées de 

personnes d’âges divers?, EPU, Éditions 

Publibook Université, Administration de 

l’entreprise, ISBN, 2008; 

8. Celikel-Esser, F., and all, The Lisbon strategy 

and development of metrics to measure innovation 

in Europe, In: Yearbook on Productivity 2007, 

Statistics Sweden, 2008; 

9. Dess, G.G., Lumpkin, G.T., Eisner, A.B., 

Strategic management, 2nd Edition, Mc Graw – 

Hill Irwin, Boston, 2006 

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entrepreneurship: practice and principles, 

Butterworth-Heinemann, 2007; 

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în perspectiva globalizării, Editura Uranus, 


12. European Commision: European Innovation 

Scoreboard. Comparative analysis of innovation 

performance, January, 2009; 

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territoires: Économie sociale, environnement et 

innovation, Marché et Organisation, Éditeur L 

́Harmattan, 2008; 

14. Institutul Naţional de Statistică, Inovare în 

Industrie şi Servicii, în perioada 2004-2006, 

Editura „Revista Română de Statistică”, 


15. Isaic-Maniu, I., Territorial discrepancies 

concerning SME’s performances in Romania, 

Romanian Journal of Regional Science, vol. 2, 

nr.1, 2008; 

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Editura Teora, Bucureşti, 1997; 

17. Nicolescu, O., Verboncu, I., Managementul 

organizaţiei, Editura Economică, Bucureşti, 2007; 

393 

18. Olteanu, V., Management-Marketing, O 

provocare ştiinţifică, Editura Ecomar, Bucureşti, 

2008; 

19. Schilling, A. M., Strategic Management of 

Technological Innovation, 2th Edition, Mc Graw 

Hill, New York, 2008; 

20. Vişan S., Inovare, cercetare ştiinţifică, progres 

tehnic, Editura ASE, 2008; 

21. *** Politici de inovare, 

http://www.ec.europa.eu/invest-in-research/pdf/ ; 

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http://www.mct.ro ; 

23. *** www.marketingpower.com 

24. *** www.Businessweek.com




THE MICE TOURISM – A RECOVERY STRATEGY FOR 

ROMANIAN TOURISM 

Abstract 

Business tourism represents a relatively 

recently launched touristic product on the 

Romanian touristic market. On the real 

market the term MICE (meetings, incentives, 

conventions, expositions) market is frequently 

used representing 53,8% of the European 

market, followed by Asia with 19,9% and the 

North America occupies the third position 

with only 19,2%. Out of the Central and 

Eastern European countries, Hungary holds 

the most privileged position, namely position 

23 in the world, having 53 meetings in 2004. 

As compared with other East European 

countries, in Bucharest there are 6.000 

accommodation places whereas in Prague 

there are 24.000 and in Budapest 18.000. 

Approximately 85% of the Bucharest hotels 

turnover but also from the country represents 

amounts of money that are refunded by the 

Romanian or foreign companies: almost all 

checking-ins in the Romanian hotels are the 

result of the business travels, travels which 

actually keep in business the hotel market 

from the great cities. 

Not only the FIA GT 2007 competition drew 

on almost 70.000 spectators in Bucharest, out 

of which over 13.000 from the country and 

over 2.000 from abroad. During this 

manifestation the amount of money brought 

in by the tourists was over 2 million euros, 

taking into consideration a medium budget 

of 800 euro/foreign visitor and a minimum 

budget of 200 euro/local visitor. 

Moreover the market is influenced not only by 

the lack of capacity but also by the 

organizing problems of the great events like 

the Summit of the Francophony in 2006. 

MIHAELA-CARMEN Muntean 

“Dunarea de Jos” University, Galati 

mihaela_c_muntean@yahoo.com 

COSTEL Nistor 

“Dunarea de Jos” University, Galati 

cos_nis@yahoo.com 

394 

Keywords: business tourism, Romanian 

touristic market, business travels, tourists, 

hotel’s capacity 

Introduction 

The present paper is a research of the 

business touristic phenomenon in Romania 

compared with the international one, placing 

Romania on the MICE international market. 

The paper is structured on three chapters, 

the first one establishing the business 

tourism place within the international 

tourism, types of business tourism present 

on the MICE market as well as the 

requirements that should be met by a city to 

be allowed to organize international 

meetings and congresses. The second 

chapter deals with the impact of the urban 

image upon the business tourism and the 

factors that influence the selection of the 

organizing place of a certain event which is 

included in the international business 

tourism. The third chapter presents the 

business touristic phenomenon in Romania 

in 2007. 

1. The business tourism place within 

the international tourism 

Business tourism corresponds to some 

extremely various fields. It includes world 

level diplomatic reunions, state 

representatives meetings, economic 

reunions, scientific and technical 

information exchange meetings, meetings 

hold to deliver the results of some researchdevelopment 

projects, cultural and

educational meetings as well as 

manifestations specific to certain cultural 

events, sports competitions, etc. 

Business tourism also includes broadly 

speaking, trips of the employees taken with 

certain purposes connected with their work, 

more precisely, official, commercial trips, 

participations to various manifestations 

organized by economic companies or 

administrative organisms for their 

representatives. (R. Minciu, 2003) 

Although all these trips involve the 

performance of some paid activities, they are 

included in tourism as they involve the use 

of touristic endowments and specific 

services. According to the content, the types 

of business tourism are divided into: 

� Individual business trips (missions) 

common to many positions, for which the 

involved persons agree to travel outside 

their town; 

� Reunions tourism, meetings that include 

a wide range of events (conferences, 

seminars, team-buildings, product 

launching, annual meetings, etc.) of some 

companies or associations to facilitate 

communication with/between their 

employees, clients, shareholders or 

members; 

� Various fairs and exhibitions generally 

intended for product presentations; 

� Incentive trips, respectively those trips 

that employees receive as a reward from 

their employers for good work results; 

� Corporate events that include generous 

variants of entertainment which companies 

offer to their most valuable clients or to 

potential clients with the purpose of building 

or intensifying their business relationships. 

Business tourists are generally more exigent 

and less price sensitive and at the same time 

more preoccupied with their statute. 

Moreover they have a certain schedule that 

should be taken into consideration. As a 

consequence, transport services are very 

important; the transport means employed 

should be rapid, comfortable and adequate to 

their schedule. Also the transporter 

punctuality and prestige are of high interest, 

the booking systems should also be very 

efficient. (G. Stǎnciulescu, 2004) 

Regarding the accommodation facilities, 

chain hotels are generally preferred whose 

standard is well-known and which provide 

besides quality services, various bonuses for 

regular customers that have a significant 

impact upon business tourists (loyalty cards, 

scoring sometimes cumulated to the ones 

395 

offered by the airline companies, etc.) Even 

the selection of a destination could be made 

taking into account the presence of a hotel 

that belongs to a certain chain. It should be 

mention that quality is very important for 

all service categories that are employed. 

Nowadays international tourism has become 

a sophisticated industry that imposed itself 

as one of the most dynamic and profitable 

components of the tourism industry. 

Among the business tourism particularities 

that have contributed to this 

characterization we could mention: 

substantial profit made by organizers and 

service suppliers; independence regarding 

the natural conditions and contribution to 

diminishing season periods, better 

employment of material endowments, and 

reduced impact over the environment. 

According to specialists, business tourism is 

included in MICE (meetings, incentives, 

conventions and expositions), particular 

segment of the international tourism that 

recorded 10,318 meetings, 8864 

international organization meetings, 1454 

other international meetings in 2007. 

Europe represents 53,8% of the market, 

followed by Asia with 19,9%, and America 

(North and South) occupies the third 

position having only 19,2%, the last places 

are held by Africa 3,9% and 

Australia/Pacific 3,2%. In Europe, the top 

position is held by France, on the American 

continent – USA, and in Asia - Japan is the 

one that has the highest number of 

international meetings as it can be seen in 

the following figure. 

19,9 

INTERNATIONAL MEETINGS ON 

CONTINENTS 

19,2 

3,9 3,2 

53,8 

Europe 

America (North 

and South) 

Asia 

Africa 

Australia/Pacific 

Source: ICCA,2008 

Fig. 1. International meetings on 

continents 

The top of the 10 congresses and 

international meetings organizing countries

was in 2007 the following: USA, France, 

Germany, Singapore, Japan, Holland, Italy, 

Spain, Austria, and UK. 

Out of the 100 world greatest cities selected 

as congress destinations, the first 10 

positions were held in 2007 by: Singapore, 

Paris, Vienna, Brussels, Geneva, Barcelona, 

New York, Tokyo, Seoul, Amsterdam (UIA, 

Yearbook of International Organizations, 

2008). 

For a city to be qualified as congress 

destination, it should meet certain 

requirements which are even more exigent if 

the city also candidates for international 

organization office. These requirements, set 

according to the EFCT, are the following: 

- to provide congress facilities, services and 

endowments for at least 300 participants; 

- their hotel capacities should be included 

in 5 star international category for all 

accommodation services for at least 300 

participants; 

- to set up cooperation relationships with a 

national airline company that would be the 

official transporter of the congress 

participants; 

- to have a budget intended for congress 

tourism offer development; 

- to have a team of congress organizing 

experts and professionals; 

- to be able to prove that the hotel has 

accommodated in satisfactory conditions at 

least 5 international congresses over the last 

3 years; 

- to guarantee free entrance of foreign 

citizens and of residents exit. 

For a city to be competitive on the European 

market of business and congress tourism, 

characterized by high quality offer and 

sophisticated endowments, it should provide 

to the participants of these events the 

accommodation conditions similar to those 

intended by foreign investors. 

The MICE touristic product is made up of a 

group of services characterized by „delicate 

product” or by „ordered product” feature; its 

standardizing is not possible as the touroperator 

should collaborate with the 

potential client during the event production 

process by performing the following 

activities: 

- proposal formulation and event organizing 

agreeing; 

- establishing the place of performance; 

- budget establishing; 

- identification of finance and subsidizing 

resources; 

- establishing of the scientific schedule; 

396 

- elaboration of the social schedule; 

- printing and multiplying the materials 

required by the congress theme; 

- accomplishing the promotional material 

and its distribution; 

- invitations delivery; 

- organization of the congress participants 

registration; 

- suppliers selection; 

- accommodation booking; 

- visits and touristic circuits organizing 

before and after the congress; 

- organizing of the exhibitions connected 

with the congress theme; 

- congress works performance monitoring; 

- insurance of the possible ceremonial and 

protocol; 

- catering supplying; 

- contacting mass-media representatives. 

The touristic offer for organizing events 

(scientific, political, economic, cultural, 

sports, etc.) also includes trip arrangements 

during which are employed both general 

touristic services provided by the touristic 

industry suppliers (accommodation, 

catering, transfers and local transport, tours 

pre and post congress) and specific touristic 

services (strategic planning and event 

management, renting locations and 

conference places, renting audio-video 

equipment and the necessary technical 

assistance, employing translatorsinterpreters, 

hostess, organizing adjacent 

social programs, production of items and 

personalized promotional materials, printing 

the leaflets, catalogues, paper cases and the 

volume that includes the conference 

scientific papers. (C. Cristureanu, 2006). 

2. Urban image and business tourism 

Business meeting organizers take into 

consideration four main factors (Law, C.M., 

1993) when they select the location where 

the meeting takes place, namely: 

- the quality of the facilities associated with 

the business meetings; 

- cost; 

- accessibility; 

- image of the potential locations. 

However the relative importance of these 

factors may vary depending on the type of 

the meeting; most international 

organizations conferences take place in 

locations that have good connections with 

the airline companies, a high standard of 

facilities and an attractive image whereas 

the image role as well as the attractiveness

is not so important in choosing a proper 

location for an exhibition. Therefore image is 

important both for conference organizers 

that have to decide the location where the 

event will take place and for the potential 

visitors. Nevertheless some people select a 

location for a conference due to its 

destination and not the location. It could be 

assumed that this preference for certain 

destinations that have attractive images will 

be reflected in the event locations selected by 

the organizers. Some authors consider that 

images are very important in determining 

the success or the failure of some cities in 

business meeting field. 

Other factors that have a great influence 

upon this selection take into consideration 

the following aspects: 

- reputation and image of a potential 

conference centre. How attractive, 

interested and popular is it considered to be? 

How many utilities and other important 

characteristics does it have? These aspects 

are included totally or partially in the subconsciousness 

of every participant to a 

conference or of a organizer of a conference 

and they are very important. 

- costs and available accommodation 

number of places. However it seems that 

there is an agreement regarding the fact 

that a negative urban image is the main 

factor that determines the organizers to 

select another location instead the one in a 

city with problematic images. Having the 

image as a reason for establishing the 

location of some international events, cities 

can be classified into three main categories: 

cities that have a positive image, cities that 

have a negative image that can even be 

intimidated and cities that lack the powerful 

and distinctive images. This classification is 

based on the following factors: 

- cultural factors: including the local culture, 

new images and modern associations with 

the night life; 

- social factors: violence, thefts and 

infringements of the law; 

- environmental factors: locations esthetic 

attractiveness; 

- political factors; 

- economic development factors: they derive 

from the success of the recent regeneration 

projects; 

- specific factors connected with the involved 

locations but also connected with the 

facilities associated with the involved 

locations; 

- accessibility to the involved locations. 

397 

In conclusion, the image is the key of 

understanding the capital movement 

manifested in changes of company location, 

work places mobility and investments. 

Nevertheless when the decisions regarding 

the location establishment are taken, certain 

factors are taken into consideration, like 

that fact that the meetings take less than 5 

days and that particular image might be 

even more important taking into account the 

following attributes of a city: 1. Accessibility; 

2. Location quality and versatility; 3. 

Catering companies and services provided by 

banks; 4. Quality as well as the service 

range that it offers; 5. Physical location and 

associated facilities (hotels, restaurants, 

shops); 6. Technology and technological 

facilities; 7. City image; 8. Clients/high level 

events organized previously. 

All persons involved in the business 

environment are in favor of a more rapid and 

efficient development of the tourism being 

necessary an infrastructure, roads, modern 

and ultramodern accommodation capacities, 

qualified trained personnel that speak 

fluently several international languages 

thus foreign tourists would feel as if they 

were in their own country. 

In Romania their is both natural touristic 

potential, opening towards new, availability 

manifested by the new generation for the 

know-how achieving and above all the 

obligatory character to meet the 

requirements of the European Union 

standards in all fields of activity therefore in 

tourism as well. 

3. Business tourism in Romania 

Romania has manifested itself successfully 

over the last few years in the competition 

with the classical event locations, relying on 

a series of advantages that turns it into a 

reference point for the development of this 

industry in Eastern Europe and not only. 

Aspects that support this type of tourism are 

connected to many other factors like: 

- a new destination, ready to impress the 

visitors with a unique combination of 

natural, cultural and historic values, wellpreserved 

and generously presented and in a 

hospitable manner in all geographic regions; 

- ideal location in the central and eastern 

European space and easy to access through 

airline connections with most world capitals; 

- thousands of years of culture, history and 

traditions that are reflected in Romania’s 

cultural heritage;

- the well-known hospitability of the 

Romanian people, an advanced level of 

implementation of the international 

standards already existing in the 

hospitability industry; 

- old experience in organizing fairs and 

exhibitions; 

- professional specialization of increasingly 

more Romanian companies that have the 

capacity of taking over entirely the reunions 

organizing process, thus being able to 

become reliable partners of any organizers or 

beneficiaries from the entire world that visit 

Romania as destination for their events; 

- dedicated infrastructure for hosting 

conferences and exhibitions in an 

increasingly modernizing process, 

unprecedented rapid diversification and 

expansion, generating at the same time 

possibilities for foreign or mixed investments 

that can redeemed be in an efficient period 

of time; 

- market emergence of some new business 

centers as well as of new hotel chains like: 

Marriot, Hilton, Crowne Plaza, 

Intercontinental, Howard Johnson, Sofitel, 

Best Western, Ibis, Golden Tulip, Novotel, 

Ramada recording increasingly expansion 

from one year to another; 

- political and civil stability as a EU 

member country; 

- economic increases over the last few 

years. 

The developing markets as well as the 

competitive prices have turned Romanian 

into a favorite destination for MICE tourism. 

Even if in Romania there is a high 

accommodation cost (and sometimes of 

catering services), it is placed in the category 

of relative cheap destinations. The medium 

value of a conference participation fee is 

about 450 euros on international level 

whereas in Romanian it is about 150 euros. 

This aspect is mainly due to low price level 

of the management fee, of translating and 

interpreting services, of technical services 

and sometimes of rooms renting. For the 

first three elements mentioned above the 

costs are from 3 up to 10 times lower than in 

other Western Europe countries. Conference 

organizers do not charge a fix fee for to the 

value of the net services they integrate. The 

fee increases proportionally with the 

conference degree of complexity and not 

necessarily with the size with its budget. 

The latest international statistics show that 

the world average of the amount spent by a 

participant to an international conference 

398 

(with all costs included) is placed around 485 

dollars/day. The conference average duration 

on the international level is of 4,3 days, thus 

the participation of a person to an 

international conference involves costs of up 

to 2.000 dollars. In Romania, the total 

amount of money spent/participant is low 

(approximately 350 euros), and the duration 

of the events is shorter (approximately 3, 4 

days), which determines total expenses of 

about 1.200 euros. From this amount of 

money, most part (over 80%) remains in the 

country, city respectively that organizes the 

event. On the other hand there are 

significant costs differences between the 

locations from Bucharest and the ones from 

the country. Under similar organizing 

conditions an event can be planned in 

certain locations from the country at 3 times 

or even 50% cheaper than the costs charged 

for its organization in Bucharest. 

Almost all hotels built over the last 5 years 

include conference rooms in their structure, 

statistics and different enquires 

accomplished over the last 2 years show that 

60-70 % of the hotel income of 3-5 star 

category from Bucharest come from event 

organizing/hosting. One of the elements that 

provide to Bucharest the statute of 

attractive location for reunion organizing are 

the lower charges compared with other 

world cities. Moreover even the management 

fees charged by a Romanian company for 

organizing an event is 5% cheaper than the 

ones charged in the Western Europe. Being 

considered an attractive city and with a high 

potential in business tourisms, Bucharest 

lacks however the accommodation capacity 

required for hosting high level conferences 

as well as reception rooms for a great 

number of people. Of all Bucharest hotels of 

over 3 stars category, only a few accomplish 

the standards required by International 

Congress and Convention Association 

(ICCA), and of all conference rooms only 

Sala Palatului is the only one that could 

host about 4.000 participants. In Bucharest 

there are over 2.000 high standards 

accommodation places but the required ones 

would be of about 9.000. Comparatively, in 

Prague, Warsaw or Sofia the accommodation 

capacity is much greater and the prices 

considerable lower. 

According to the estimations regarding the 

dynamics of hotel investments in the 

following 5 years the accommodation 

capacity will increase by about 3.000 rooms 

for all comfort categories. In 2005 was

ecorded an increase of 580 rooms and for 

2006 and 2007 it took place an increase of 

720 rooms and 640 rooms respectively. In 

2008 other 450 rooms were ready to be used, 

but the most significant increase will be 

attained in 2009 when 900 rooms are 

estimated to be introduced in the touristic 

circuit. Out of the existing 3.000 rooms, 

approximately 54% will have 3 star-comfort 

level. The current existing capacity in 

Bucharest is about 17.000 market places. 

What the Romanian capital needs as specific 

infrastructure is a modern and 

multifunctional conference centre designed 

and built with this purpose that will ensure 

a total capacity of 8.000-10.000 places, with 

a main conference room of 4.000-5.000 

places. Outside Bucharest, the cities that 

have a development potential for reunion 

industry still remain Cluj, Timişoara, 

Constanţa, Braşov, Craiova, Suceava or 

Târgu-Mureş. 

From organizational point of view, since 

December 1997, the Romanian industry of 

this type is no longer an exception from the 

world level, due to the existence of the 

Romanian Convention Bureau (RCB), which 

is the established denomination of the 

National Association of Conference and 

Exhibition Professional Organizers that acts 

in favor of its members and local and 

international beneficiaries. RCB is a nongovernmental 

and non-profit entity which in 

1999 became member of the most important 

organization in the filed, namely ICCA. 

Romanian Convention Bureau currently 

combines 55 public and private companies 

able to ensure the entire range of services 

dedicated to congresses, conferences 

seminars, fairs, specialized exhibitions, 

business and motivational tourism. RCB 

categories of members are: conference and 

exhibition professional organizers, touroperator 

agencies and destination 

management, conference centers and 

exhibitions, reunion facilities hotels, service 

suppliers, dedicated equipment (audio-video, 

translators-interpreters, advertising, IT & 

multimedia), air and auto transporters, 

banking and insurance institutions, cultural 

locations (www.conventionbureau.ro). 

Romanian reunions infrastructure involves 

over 22 conference and exhibitions centers, 

approximately 320 hotels that have reunion 

facilities but also about 61 non-conventional 

locations (museums, palaces, universities, 

theatres, etc.). 

399 

Conference or other events organizing can be 

considered as the most efficient component 

and also the most profitable from tourism. 

Maybe this is the reason for the increasingly 

interest of the investors in the development 

of this offer particularly in Bucharest, 

Timişoara, Braşov, Oradea, Arad, Cluj, 

Sibiu, Constanţa, etc. However the tourism 

specialists consider that currently there is 

still an insufficiency of event host spaces, 

especially for those events that involve the 

participation of a great number of persons 

(over 300 persons). 

Another dynamic component is the 

organizing of the incentive-type trips. An 

increasingly number of Romanian companies 

having a modern management, use as a 

means of reward, company paid trips and 

offered to their most deserving employees. 

They are also the ones the employ modern 

training methods, product launching or 

team-building. Thus more tourism agencies 

emerged specialized in providing services 

linked with these types of events. 

About 85% of the hotels turnover from 

Bucharest but also from the country 

represents amounts of money that are 

refunded by the Romanian or foreign 

companies: almost all checking-ins in the 

Romanian hotels are the result of the 

business travels, travels which actually keep 

in business the hotel market from the great 

cities. 

Not only the FIA GT 2007 competition drew 

on almost 70.000 spectators in Bucharest, 

out of which over 13.000 from the country 

and over 2.000 from abroad. During this 

manifestation the amount of money brought 

in by the tourists was over 2 million euros, 

taking into consideration a medium budget 

of 800 euro/foreign visitor and a minimum 

budget of 200 euro/local visitor. 

Moreover the market is influenced not only 

by the lack of capacity but also by the 

organizing problems of the great events like 

the Summit of the Francophony in 2006. 

Romania has organized several world level 

events aver the years among which we 

mention: Crans Montana Forums (1994, 

1996), inter-parliamentary congresses, 

NATO and OSCE meetings, conferences of 

the Pact of Stability for Europe, General 

Meeting of the inter-governmental agency of 

Francophony (1998), Planetary Congress of 

Cosmic Space Explorers Association (1999), 

scientific congresses, various specialized 

reunions. Here are some examples of events

organized in Bucharest and what they 

involved: 

� the 23rd edition of the World 

Congress of the Post Offices Universal 

Union 15.09.- 05.10.2004. During the entire 

performance interval, over 2500 persons 

participated from 204 countries, the service 

value regarding the trip and stay 

arrangements and event complex 

organization, was estimated at over 5,8 

million EUR. 

� International Union Congress of 

Road Transporters (IRU), 2002, it had 

about 1.500 participants and it lasted 3 

days. It involved all categories of services 

(including those covered by the Romanian 

part) – accommodation, catering, transfers 

and local transport, renting locations and 

conference places, renting audio-video 

equipment and the necessary technical 

assistance, employing translatorsinterpreters, 

hostess, organizing adjacent 

social programs, production of items and 

personalized promotional materials, printing 

the leaflets, catalogues, paper cases and the 

volume that includes the conference 

scientific papers, etc. – the event budget 

worked out at about 1,6 million euros, the 

participants personal expenses were not 

included. 

� Annual General Meeting and 

European Bank for Reconstruction and 

Development Conference, 2002, about 

2.200 participants, the event budget under 

similar circumstances mentioned above 

worked out at 2,2 million EUR. 

� Summit of the Francophony, 2006, 

about 4000 participants (36 high level 

representatives, 56 official delegations, 950 

journalists out of which 450 from abroad, 

3500 policemen, employees of security 

companies). The Romanian state spent 

350.000 euros only on the accommodation of 

the official delegations. Other 500.000 Euros 

were spent for the participants transport but 

the money was provided by France. 

Moreover France also ensured the 

endowment of the press centre investing 

about 500.000 euro and Canada provided 

equipment whose value amounts at 2 million 

Euros. 

Romania’s successive presence to numerous 

reunion tourism international exhibitions 

over the last few years, among which we 

mention the most important world specialty 

fair - EIBTM Geneva, captured the attention 

of the event foreign organizers that 

expressed their intention to now better and 

400 

to use this new destination. 

(www.conventionbureau.ro). 

New locations for organizing meetings. 

Every location presented above is 

characterized by a slogan that reflects it’s 

specific. 

• Majestic Hotel has the newest 

conference centre in the middle of 

Bucharest. The traditional presence in the 

commercial, financial and cultural centre of 

Bucharest, in a remarkable area 

characterized by a spectacular architecture 

and accessibility (Calea Victoriei - Str. 

Academiei), the 4* Majestic Hotel, RCB 

member, is considered a standard of 

elegance, professionalism and discretion, 

characteristics which are extremely 

appreciated by Romanian and foreign 

business people. Since it has recently added 

new reasons for its clients’ satisfaction, ), 

the Majestic Hotel has extended and 

modernized its structure, now having the 

most recent conference centre in the middle 

of Bucharest. The spaces which are 

dedicated to reunions of the Majestic Hotel 

can also host successfully conferences, 

seminars or reception, as it has 5 rooms. 

• U Business Center (UzinExport), "On 

top of Bucharest" events. For event 

organizers that are constantly looking for 

accessible locations for participant who are 

increasingly in a hurry and at the same time 

accustomed with their presence in the 

conference and seminars rooms, the business 

centre which is placed in the Victoria Market 

(Piaţa Victoriei) has all the necessary 

facilities for reunions hosting and makes a 

good impression by a well-defined concept 

due to its chromatics and interior design, 

those being considered valuable assets. U 

Business Center (UzinExport) thus offers a 

solution having 12 rooms that bear the 

manes of precious stones adequate to the 

decorative specific of each of them. 

• Remarkable reunion facilities provided by 

Astoria Touristic Complex- Snagov Sat. 

Being located at about 45 km distance from 

Bucharest, the Astoria Touristic Complex - 

Snagov Sat has enriched its offer of spaces 

and services with a new conference centre 

equipped with state-of-the-art equipment. 

The spectacular environment of the natural 

park, accessibility of the Snagov Lake and 

the constant preoccupation for well 

preserving of the location make the Snagov 

Sat Complex an ideal location for events, 

motivational programs and relaxation.

• Crowne Ballroom - "Brand-new and 

sometimes available". A fashionable 

location, (5*) Crowne Plaza Hotel Bucharest 

conference centre, part of ANA Hotels makes 

the best of the business advantages provided 

to its partners and clients. Crowne Plaza has 

now 12 conference rooms being all (with only 

2 exceptions) natural illuminated, having 

acclimatizing and having their own spaces 

for coffee breaks. 

• Mogoşoaia Palace - a cultural jewelry 

that provides serious arguments within 

the circuit of events. The Mogoşoaia 

Palace has recently become affiliated 

member of RCB, is included in the 

Brâncoveanu Palaces form Bucharest Gates 

("Palatele Brâncoveneşti de la Porţile 

Bucureşti-ului"), Cultural Centre together 

with Arhonderia (Elchingen Villa), the park 

(36 ha), a restaurant, guest house and 

together with the Brâncoveanu Palace from 

Potlogi. 

• "Sydney 2000" Olympic Centre – a 

spectacular space for reunions near 

Snagov Lake. A state-of-the-art building 

finished in 1997, located at about 30 minutes 

driving distance from Bucharest, on DN 1, at 

the 33 km, (from Ciolpani village, 2 km right 

sideway, in Izvorani, near Pacea Complex), 

"Sydney 2000" Olympic Centre is a 

spectacular and unexpected emergence in 

the Snagov Lake scenery. Being used by the 

Romanian Olympic Committee as a token of 

appreciation of the Romanian sportsmen 

achieved during the Olympic Games from 

2000, the complex offers spaces and 

professional services for organizing 

conferences, meetings, seminars, exhibitions, 

product launching, fashion presentations, 

receptions, cocktails, etc. 

• Intercontinental Hotel, Bucharest – 

spaces and approaches renewal An 

emblematic presence in the centre of 

Bucharest, the (5*) Intercontinental Hotel 

intents to promote this year not only on 

international level but also on the local 

hospitability industry level its ability to 

organize reunions due to its optimized 

standards of accommodation and conference 

rooms. 

• The first field and professional golf 

club from Romania has conference 

facilities. LAC DE VERDE Golf Club (RCB 

member) is Romania’s first official golf field. 

The unique construction appreciated by 

experts (9 holes), made and modernized 

according to the highest standards, the 

location provides all the necessary facilities 

401 

for a fashionable sport. The club can be 

integrated successfully in the touristic and 

social programs performed on Valea 

Prahovei, providing the tourists the 

satisfaction of a short game and of a 

gorgeous driving range for long shots. 

Moreover the Golf Club offers multiple 

facilities including reunion hosting. 

• the 5th Best Western Hotel in 

Romania. After Balvanyoş, Bucharest, 

Mamaia and Arad, Best Western Hotels 

Romania network (RCB member) has 

inaugurated at Gura Humorului, Suceava 

and the 5th hotel – Best Western Bucovina. 

Being located in the close neighborhood of 

the famous Romanian monasteries from 

Bucovina: Voroneţ and Humor, at about 30 

minutes from Suceava, the recently-built 

hotel is a remarkable location in the area 

that complies successfully with the 

international standards. 

Romania is the heiress of a long tradition, 

being one of the few countries that 

participated to the Universal Exhibition that 

took place 133 years ago in Paris, where it 

won 3 golden medals, 3 silver ones, 25 

bronze and 28 honor certificates. In 1863 the 

government of that time initiated an activity 

of organizing agricultural and industrial 

exhibitions in the main urban centers. After 

the war, the current ROMEXPO 

Exhibitional Centre was inaugurated in 

Bucharest, in 1962, where took place in 1964 

the Exhibition of the National Economy 

Accomplishments, the first general 

exhibition having an international impact. 

Currently ROMEXPO has a modern 

Conference and Congress Centre (9 rooms 

that have a capacity between 30 and 2.000 

places), created especially to promote the 

image of Bucharest as business meeting city, 

next to its already known role of fairs city. 

Conclusions 

Professional associations in business tourism 

have the merit of promoting unitary our 

country as destination for the specific 

manifestations, providing consultancy and 

support in the development of these touristic 

activities, but still being in an early stage 

showing a positive, promising tendency 

however. 

Most tourism agencies have understood the 

high profitability of the business tourism 

and have adjusted their activity in the 

direction of service providing specific to 

business trips. The offer of the tourism

agencies in business tourism field involves 

services provided by those to organize 

congresses, conferences, symposiums, 

reunions and other events specific to this 

type of tourism. 

Another dynamic component is the 

organizing of the incentive-type trips. An 

increasingly number of Romanian companies 

having a modern management, use as a 

means of reward, company paid trips and 

offered to their most deserving employees. 

They are also the ones the employ modern 

training methods, product launching or 

team-building. Thus more tourism agencies 

emerged specialized in providing services 

linked with these types of events. 

In order to prove its dynamism and 

efficiency, business tourism in Romania 

should benefit of a powerful support from all 

directions and a coherent strategy. These 

should be priorities of the central organism 

activities (National Tourism Authority), local 

or of the service providers in the field. 

Romania should take advantage of the 

ascendant trend of the business tourism on 

the world and national level taking into 

consideration the economic advantages of 

this type of tourism. 

To prove its dynamism and efficiency, 

business tourism in Romania should benefit 

of a powerful support from all directions. 

First of all the economic increase should be 

carried on, as well as the policy of drawing 

on foreign investments to determine an 

increase of the business-purposes tourists 

flux. 

The development of the transport 

infrastructure will therefore have a decisive 

role. Secondly the touristic sector should aim 

at accomplishing the same increasingly 

trend regarding the following: 

� Accommodation capacity that should be 

extended especially in great cities with 

modern units of superior comfort category, 

providing services specific to business 

tourism; 

� Quality of services provided by hotels and 

restaurants, by specialized tourism agencies, 

business centers and reunions; 

� Professionalism of the operators and 

event organizers; 

� Attracting international events, process 

in which the central administration may 

have an important part; 

� Business tourism promotion in our 

country to various specialized international 

fairs; 

402 

� Professional and moral training of all 

employees from the hospitability industry as 

an essential element for the insurance of 

quality touristic services. 

For a more efficient promotion some 

thorough research is required for every 

country where Romania has tourism offices 

to fundament promotional policies adjusted 

to the specific of every partner country as a 

possible source of tourists. 

References 

Cristureanu C., (2006) – Strategii şi tranzacţii în 

turismul internaţional, Editura C. H. Beck, 

Bucureşti 

Davidson R., Cope B., (2003) – Business Travel, 

Editura Prentice Hall, Londra 

Greaves, S., (1998) - Competing for business, 

Conference and Incentive Travel 

Law, C.M., (1993) - Urban Tourism: Attracting 

Visitors to Large Cities,Editura Mansell, Londra 

Minciu R., (2003) - Economia turismului, Editura 

Uranus, Bucureşti 

Muntean M. C., Manea L. D., Nistor C., (2009) – 

Business Tourism – A New Form of Tourism in 

Romania, ISI Proceeding ISI Thomson 16 th 

International Economic Conference IECS 2009, 

“Industrial Revolutions, from the Globalization 

and Post-Globalization Perspective”, 7-8 May, 

Sibiu, ISBN 978-973-739-594-8 

Muntean M. C., Manea L. D., Nistor C., (2009) – 

Romanian Business Tourism, Proceeding of the 

2009 International Conference on Tourism, 22-25 

April, Messina, Italy, ISBN 978-88-96116-20-3 

Nistor C., Muntean M. C., Manea L. D., (2009) – 

Tourism Specialization and Romania’s Economic 

Development Post-Accesion, ISI Proceeding ISI 

Thomson 16 th International Economic Conference 

IECS 2009, “Industrial Revolutions, from the 

Globalization and Post-Globalization 

Perspective”, 7-8 May, Sibiu, ISBN 978-973-739- 

594-8 

Stǎnciulescu G., (2004) – Managementul 

operaţiunilor de turism, Editura All Beck, 

Bucureşti 

www.conventionbureau.ro 

www.iccaworld.com 

www.uia.org – The Union of International 

Association 

www.wttc.org- The World Travel & Tourism 

Council




REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK 

Abstract 

The paper makes a description of the journey 

towards banking regulations made by the CEC 

Bank, with modifications, progress and current 

state of alignment with European banking 

standards. 

Key words: banking system, banking 

supervision, CEC Bank 

Introduction 

Over time the banking system and regulation 

of banking has always appeared in the system 

to identify problems and how to solve their 

guidance and control policies, starting with 

central banks, with the mission and their role 

in the economic systems, the role of banks in 

monetary policy; regulation is done in ethics 

perspectives, in the spirit of fair competition of 

appropriate prudential regulations risk. 

Banking, including deposits and loans as 

major banking activity with related services 

and supplies, is an economic activity carefully 

regulated public. 

Paper content 

We have done a review of major regulatory 

actions in the work of CEC Bank, in its long 

history of over 145 years (table annexed). 

Theoretical Background 

Market economy environment involved 

remodeling and replacement of an economic 

system to another, with an institutional 

framework with systems: financial, banking, 

monetary and exchange specific to market 

economy. This process was aimed on the one 

hand, recreating a particular banking market 

economy, and secondly that of harmonizing the 

Romanian legislation with European Union 

countries. 

NEGOTIU Calin PhD Student 

,,Lucian Blaga” University of Sibiu 

negotiuc@yahoo.com 

403 

Regulations issued by the central bank [Money 

market regulations, Minimum required 

reserve system (RMO), Reference rate, 

Regulation on Foreign Exchange, Electronic 

payment instruments, the Central Banking 

Risks (CRB), the Payment Incident Bureau 

(PIB), Regulation on some reports statistical 

NBR, Regulation on use of IBAN in Romania, 

Regulation No. 3 of 2007 to limit credit risk on 

loans for individuals, regulations on currency 

redenomination] EU regulations and decisions 

have been translated into policy of CEC Bank. 

Banking regulation has followed international 

standards. Since technically, Romanian 

regulations are harmonized with the EU. EU 

regulations have however seen the 

intermingling with the other two perspectives: 

on the one hand, certain preconditions need to 

ensure macroeconomic, structural and 

cultural, on the other hand, international 

standards. 

But in the situation we find that the ethical 

rules of the game are not respected, and this is 

happening and identify the periods of crisis, 

and then we have the example causes collapse 

of banks, an example of the possibilities 

offered by the deregulation in banking 

practice. 

Banking system not only influences the 

perceived macroeconomic environment but 

also the quality of macroeconomic policies and 

instruments for their implementation. 

Regarding macroeconomic policies, they can be 

characterized as fluctuating (between firmness 

and laxity), according to the electoral cycle 

(which is especially visible in revenue policy) 

and macro-economic pressures, especially the 

external sector. Unpredictable variation 

induced macroeconomic uncertainty and credit 

policy of banks' interest. Similarly, in periods 

of laxity of economic policies, credit expansion 

has tended to grow beyond the limits of 

prudent banking. Alternatively, the steps of 

restrictiveness of policies, real interest rates

tended to increase too, with negative 

influences on the ability of debtors for 

repayment of loans, also dropped the banks' 

liquidity situation, representing a factor 

worsening the overall situation of banks. 

Viability of the banking system depends 

largely on macroeconomic stabilization policies 

and the availability of healthy and 

sustainable. Health banks will depend, 

ultimately, the general improvement of the 

macroeconomic climate. 

Reform of the banking system (legal and 

institutional) and reinforce the policy they 

reflect the strong dependence of the banking 

system developments in real sector (production 

dynamics and Restructuring). On the one 

hand, reform measures have been coordinated 

system with European standards (in terms of 

regulation and banking supervision) and, if 

authorized banks were cautious. Moreover, 

effective implementation of prudential rules 

established by the end of the decade was a 

clear weakness. 

Conclusions 

The activity is based largely on trust - trust in 

bank's customer’s ability to repay loans, banks 

will keep customer confidence that their 

savings are safe, or that operations will run 

correctly. Although trust is an abstract notion, 

there are models (quantitative / qualitative) 

which estimates, for example, which is the 

probability that a customer will not repay the 

debt maturity, the ability of banks to deal with 

customer requests for payment or even what 

can be wrong when an operation is performed 

on behalf of clients. What was lost in the 

current period, crossed by a global financial 

crisis still difficult to assess at this moment, is 

ultimately trust: trust in "healthy" financial 

institutional partners and companies or 

individual customers the ability to handle 

payments in liabilities. The close correlation 

between economic expansion and lending 

policies of banks, according to periods of 

economic expansion to meet credit growth and 

the tightening of contraction was observed in 

this case and the explanation is very simple - 

no longer have damage indicators allowed 

affected banks to be exposed in all conditions. 

Restoring financial situation while rebuilding 

the reputation of financial institutions and 

markets will mark their return point. From 

this perspective maintain trust between 

partners remains an important point in the 

development of banking. Even if it's a cliché, 

and confidence building, including the banking 

market, depends on each partner. 

Looking ahead, but having compared the 

current situation of the banking system, there 

are still significant challenges whose solution 

will determine the positioning of the 

Romanian banking system to future meeting. 

References 

1. Ştefan Petre Kirson Casa de Economii şi 

Consemnaţiuni (1864 - 2004), 140 years of 

existence, (Bucuresti., 2004) 

2. Victor Slavescu. - Enric Winterhalder's life and 

economical work, (Ed. Cultural Foundation History 

Magazine, Bucharest 2002) 

3. Victor Slavescu – Menelas Ghermani's life and 

work, (Ed. Cultural Foundation History Magazine, 

Bucharest 2004) 

4. CEC Annual Report: 1997 - 2009 

5. NBR Annual Report: 2005 - 2009 

Nr. Date Law MO Approval Observations 

1 28. 07. 1864 Draft regulations and 

establishment of the 

Cassa de Depozite and 

Consignatii 

2 21. 06. 1876 Approval of operating 

rules 

268 / 01. 12. 

1864 

174 / 08.08.1876 

267 / 30. 

11.1876 

404 

24. 11. 1864 

Alexandru Ioan 

Cuza 

State Council 

Council of 

Ministers 

Decree 

Royal 

Iniţiator Costache Balcescu 

Partially changed 

Iniţiator Nicolae Rosetti- 

Balanescu - Acting Minister of 

Finance 

Iniţiator Ion C. Bratianu

3 05. 1880 

1509 / 03. 08. 1876 

Romania 

NBR regulations establishing 

Parliament edited by Eugeniu Carada 

4 12. 1879 Establishment of Casa de 12 / 16. 01. 1880 Senate 

Iniţiator Dimitrie A. Sturdza – 

Economii 

Deputies Meeting Minister of Finance 

Change its name to Casa 

Sanctioned by 

de Depuneri, 

King Carol I – 05. 

Consemnatiuni and 

Economie (2 institutions) 

01. 1880 

5 23.03.1893 Law for the organization 

of services and staff 

24 / 30. 04. 1893 

6 1900 Change law articles 1876 241 / 27. 01. 

Amending articles related to 

1900 

investment policy 

7 1901 Law direct and indirect 293 / 31. 03. 

tax increases 

1901 

8 1922 Amending legislation Raising the ceiling for loans, 

improving the financial status 

of employees 

9 1928 Legislative intervention Activity in the territories 

annexed to the Romanian 

10 1930 Regulations for the 170 / 01. 08. Deputies of the 

kingdom in 1918 

Have the primary purpose, "to 

Casele de Economii 1930 

Senate Assembly 

encourage, 

keeping 

collecting and 

the economy, 

organization 

64 / 6. 09. 1930 High Royal Decree generating interest and 

2842 / 28. 07. 1930 

returning them to demand the 

highest relief’s”. The amounts 

deposited, together with their 

interests were guaranteed by 

the state. 

11 1932 Regulations for the 247 /21. 10. Chamber of Legislative intervention was 

Casele de Economii 1932 

Deputies and the 

determined mainly by 

establishment division 

the 

and 

organization. 

Senate 

current accounts and transfers 

Name is changed from 

High Royal Decree 

through postal checks, by 

using the postal network in 

Casa Generala de 

3032 / 19. 10. 1932 dealing with people. 

Economii in Casa 

Casa Naţională de Economii 

and Cecuri Poştale acquires a 

Nationala de Economii 

very important role in 

and Cecuri Postale 

economic and financial gears 

of Romania, and that receives, 

(abbreviate CEC, from 

by law, the power to undertake 

Casa – Economii – 

public education work in 

saving / provision became a 

Cecuri) 

cultural factor national bank, 

the organization of publicity 

actions of the most diverse and 

using all media: literary 

exposure, conferences, 

presentations of theater and 

cinema, billboards, awards for 

best papers on saving contests 

and prizes offered by 

12 1937 Decree Law 69 / 24. 03. 1937 

depositors lot, etc.. 

Initiator Virgil Madgearu - 

Minister of Finance, establish 

a Commission to develop the 

405

law to restructure the 

institution. CDC activities and 

powers are so separated from 

those of CNECP. 

13 01. 11. 1938 Decree - Law 254 / 01. 11. Proposal of FM Appointment of Board of 

1938 

Royal Decree Directors of CDC 

14 01. 11. 1939 Sanction Decree - Law 253 / 01. 11. 

CDC Administrative 

1939 

reorganization. 

Initiator Mitita 

Constantinescu 

Minister 

– Finance 

15 1941 - 1942 Decree - Law 78 / 01. 04. 1942 CDC Reorganization. 

Initiator Victor Slavescu – 

CDC President 

(Opening agency – Sibiu, Mai 

1943) 

16 15. 08. 1947 Monetary stabilization 186 / 15. 08. PCR 

Blocking the population 

1947 

Decision no. 19 / deposits from Casa Nationala 

14. 08. 1947 of the de Economii si Cecuri Postale 

Ministerial and CDC, was an act of 

Committee for nationalization carried out by 

Economic 

applying stabilizing monetary 

Recovery and confiscation (recalculated to 

Monetary 

report 1/leu new deposits to 

Stabilization 20,000 old lei, recalculated the 

amounts, 

interest). 

blocked, without 

17 1947 03. 09. 1947 PCR National Bank was authorized 

to guarantee deposits in cash 

at sight or term, made the 

savings passbooks and 

received a limited number of 

credit institutions benefiting 

from this guarantee only 

deposits made after 

stabilization. Through this 

18 1947 Decision Council of 

legal action, Casa Naţională 

de Economii şi Cecuri Poştale 

and CDC lose the accord of 

state guarantee on deposits 

which is going on NBR. 

Were forced to act as collectors 

Ministers 

of savings offices (PTT offices, 

popular banks, cooperatives 

designated by NBR) and, 

generally, all public 

institutions with cashiers, 

406

except fiscal. Were obliged to 

post the collection and refund 

of economies, all private 

enterprises employing at least 

100 employees. In the schools, 

they were to do only office to 

receive the savings, and no 

refund. Collector offices were 

not allowed to receive deposits 

to fruition for their own 

account, only institutions with 

guaranteed deposits.. 

19 01. 08. 1948 Law liquidation of private 

Are received by the Casa 

banks 

Naţională de Economii and 

Cecuri Poştale, unlocking 

instructions deposits in old 

money. Calculation 

changeover was 20,000: to one 

stabilized leu. The calculation 

is performed after the last 

release capital from existing 

accounts August 15, 1947, and 

not to calculate interest for the 

period August 15, 1947 to 

August 13, 1948. Existing 

capital at Aug. 15, 1947 

(deposit 

returned. 

plus interest) is 

20 25. 05. 1948 NBR Project - Situation of 

The main proposal was that 

28. 07. 1947 CEC and Casa de 

the two institutions "to be 

Depuneri 

absorbed entirely by the 

202 / 01. 09. Decree 

central bank”. 

1948 

CDC and CNECP merged in 

CEC 

21 07. 10. 1949 Decree nr. 387 64 / 07. 10. 1949 About the organization, 

operation and administration 

of CEC in RPR. 

22 1958 Decree 371 32 / 19. 08. 1958 About the organization, 

operation and administration 

of CEC in RPR. 

23 1961 December 1960 Decision of the Active contribution to the 

Council of development process of saving 

Ministers 

in rural areas is made by own 

units, developed and 

established by the institution. 

24 1972 Law amending and Official Bulletin 

supplementing Law No. of R. S. R., nr. 

407

finances. 9 / 1972 - 59 / 1979 

25 

Finance Law 

C.C. of PCR Measures were taken which 

Decision, 22 - 23. would lead to the development 

03. 1978 on and economic planning - 

improving 

financial, monetary and credit 

economic – relations improve, the 

financial 

increased role of banks in 

management and building the multilaterally 

planning. 

developed socialist society. 

26 29.03.91 Law 33/1991 70 / 03. 04. Romanian Banking law 

1991 

Parliament 

27 1996 Law nr.66 140 / 05. 07. 

Reorganization of CEC as 

1996 

Romanian 

company. 

banking stock 

28 HG Government The bank was reorganized and 

Decision nr. 88 gained a new legal regime. 

from 22. 10. 1996 Casa de Economii and 

29 Law nr. 250 516 / 30. 12. 

Consemnaţiuni SA statute was 

approved, so that year, the 

bank has acquired a complete 

legal and regulatory organic. 

CEC is a legal person of 

1996 

private law and there are 

made changes in the object of 

activity. 

30 05. 03. 1998 Law nr. 58 121 / 23. 03. Romanian Banking law 

1998 

Parliament 

31 OUG nr. 61 

377 / 04. 06. 

Expanding range of services 

Law nr. 589 

2002 

828 / 18. 11. 

2002. 

offered by CEC SA 

32 11. 03. 2004 OUG nr. 5 Considering the limited 

budgetary resources and 

investment (...) need 

completion already being 

employed or in employment 

under the Action Plan on Good 

Governance Program (2001- 

2004) – CEC SA may be 

compelled by Government 

subordinated to credit 

facilities, under the 

coordination 

ministry. 

authority or 

33 2005 OUG nr. 42 / 26. 05. 2005 463 / 01. 06. 

Establishment of measures to 

Law nr. 285 / 2005 as 2005 

restructure CEC SA (private 

408

amended legal entity organized and 

operated as a stock bank, 

according to Law no. 58/1998) 

for privatization. 

34 Order no. 979/8. 07. 05 635 / 19. 07. 

The approving CEC - SA 

issued 

Finance 

by Ministry of 2005 

statute. 

35 HG nr. 806 / 14. 07. 05 The approved privatization 

36 10. 08. 2005 Ministry of Finance 

strategy 

Public announcement of the 

privatization of CEC – SA. 

Following political pressure 

and from various 

37 06. 12. 2006 OUG nr.99 

1027 / 27. 12. Romanian 

organizations that process is 

stopped. 

On credit institutions and 

Law 227 / 2007 

2006 

Parliament capital adequacy 

38 14. 02. 08 Order no. 425/14. 02. 08 164 / 4. 03. 2008 The approving CEC - SA 

issued by Ministry of 

statute. 

39 25.04.08 

Economy and Finance 

Change Order no. 1312- 347 / 06. 05. 08 FM Order Amending Order No. 425/14. 

1325. 04. 2008, issued by 

02. 08, order stating the name 

the Ministry of Economy 

and image (brand) change of 

and Finance 

CEC Bank SA and status 

40 07. 07. 08 Change Order no. 425/14. 535 / 16. 07. 08 FM Order Change of bank capital 

02. 08 issued by Ministry 

that is subscribed and paid 

of Economy and Finance 

to 719.200.000 lei 

41 04. 11. 08 Change Order no. 425/14. 



767 / 14. 11. 08 FM Order Change status CEC Bank SA 

42 16. 07. 09 Change Order no. 425/14. 517 / 28. 07. 09 FM Order Change of bank capital 


that is subscribed and paid 


to 949.285.000 lei 

409




UNCONVENTIONAL ADVERTISING – AN IMPORTANT OBJECTIVE IN 

THE DEVELOPMENT OF THE COMPANY IN TIMES OF CRISIS 

Abstract 

The article reviews and analyzes the 

importance of communication and different 

unconventional communication methods and 

unconventional approaches to highlight the 

power of the unusual. There article enlist a 

range of communication tools and methods 

that want to create an impact among 

consumers and to help companies find and 

select new mediums of communication. 

Key words: communication, unconventional 

advertising, guerrilla communication, 360 0 

communication, communication media. 

Advertising represents one of the most 

utilised means of communication in the 

market activities- some specialists 

considering it as the political communication 

axis of the company. 

In essence, publicity contains all the actions 

that have as purpose the indirect 

presentation (unpersonal) – oral or visual- of 

a message about a produc, a service or a firm 

by any identified sustainer (payer).In other 

words, through the publicity actions, the 

company wants to assure a very large 

audience information about the activity, the 

products and its services, the brands under 

these are present on the market, to convince 

and determine him to perform the purchaise 

act. It targets on the long term, behaviour 

modifications at the level of different 

categories of consumers and also the 

maintaining of those’s fidelity towards the 

Paul Marinescu 



Niculae Sabin Mihai 

Academy of Economic Studies, Bucharest 


Sorin Toma 



410 

company’s offer. For this step to have the 

desired finality, the company must take into 

consideration some audience characteristics 

as a receptor of publicitary informations, 

those being: the public’s desire to be treated 

as an active and exigent partener in the 

dialog with the market agents, the 

manifestation of some diferential 

availabilities to react to the pyblicitary 

phenomenon, the capacity to express their 

own ideas and exigences towards this type of 

activity. 

THE UNCONVENTIONAL 

ADVERTISING MARKET IN ROMANIA 

Unconventional publicity takes places 

wherever it cans, using sight, hear and smell 

to draw the attention of an eterogen and 

hard to impress audience. Television tells 

her story, in the 14 minutes of advertising, 

that broadcast every hour. Radios carry us 

from pitch to colage, and the printed press 

crowds into pages discretly stamped borders, 

in the upper-left side.The outdoor is growing 

and is headed to sold-out. 

Perhaps more than in other domains from 

the communication sphere, the advertising 

market is one constantly subdued to the 

imperative of change, a normal consequence 

of the fact that two of its major components 

– the message, but also the way chosen to 

transmit the message – are subdued to a fast 

“alteration” process (either is the TV 

commercial, radio, magazines, outdoor, there

is “expiration date” of the mediatic product). 

The advertisers are therefore in a continous 

search – not only about the way in witch 

they draw the audience’s attention, but also 

the means used for this purpose, which 

makes the orientation towards the utilised 

informative forms of media to become 

therefore more signifiant. 

ELEVATOR ADVERTISING 

Media support relatively new in Romania, 

elevator publicity came as an answer to the 

growing need for communication in an 

unconventionally and impact manner, in the 

context of the growing crowding of 

publicitary messages on the traditional 

media channels. At the television, radio, on 

the street signs or mail boxes are overlaped 

various publicitary messages, many times 

coming from direct competitors. In the 

elevator, for a change, there can be 

exclusivity for a brand, fact that contributes 

to the differentiation of the brands. 

It proposed to the home market a new 

concept : VCTH (very close to home). Being 

the only place in which a company or brand 

can have an intimate communication with a 

potential customer. Through this new 

concept is tried to offer to customers an 

alternative to already known promovation 

environments, providing an intimate space, 

detached of the “ message war” we meet and 

see everywhere. There are no other 

publicitary supports on which a company 

can talk directly to a potential consumer 

without its message being bruited. 

The elevator is a restrained space, in which 

you are obligated to spend some seconds 

alone or in the company of other persons. 

The interpersonal communication laws 

determine the travelling parteners to avoid 

to look at each other and throw their eyes on 

the walls...where awaits quetly the 

publicitary message. The elevator offers an 

intimate communication with a potetial 

customer in a restraining environment, and 

the message isn’t bruited by paper articles, 

other commercials, noise or horns. 

How many times did it happed to you during 

the elevator journey – either in the block of 

flats you live in or at the office to be very 

bored or feel incomodated by other people’s 

presence or to read the using instructions for 

the elevator or different writings on the 

elevator’s walls? 

411 

Sociologs say it’s a very natural thing, taking 

into consideration the fact that it is a closed 

and anost environment, to look for 

something interesting to read. 

Domain researches show the fact that in a 

closed environment, of small sizes, in which 

there are no visual or auditive stimulies, a 

publicitary message has over 95% impact 

from the point of view of the reading and 

over 80% from the memorising point of view. 

The showing of your commercial in the 

elevators makes the message you send 

unforgetable, having a maximum impact 

that collects audience permanently. 

The commercials type in this environment 

includes in the presents framed prints in a 

format a bit larger that A3. There can be 

also made special projects like decorated 

mirrors or lenticulary posters ( visible as 

3D), but this format hasn’t been very 

solicitated because of the high costs. 

What are the advantages of such a support? 

As for the advantages of this media support, 

the differential elements from other 

communication channels are the following: 

•The complementary, innovative form of 

commercial. 

•The very close nearness from both physical 

and emotional point of view towards the 

consumers. This space is beween the 

intimacy of home and the exterior 

environment, creating therefore personalised 

relations between the brand and its 

consumer. 

•The over 90% rate of those who read the 

publicitary message – in most of cases the 

lack of other activities in a closed, captive 

environment, makes the publicitary boards 

attractive and as a consequence, provokes a 

positive reaction to the persons in the 

elevator. 

•The memoration rate for the publicitary 

message that outranks the majority of 

commercial forms, that have the rate 

between 20 and 30%; the lack of any other 

attention distraction sources makes the 

persons in the elevator stay focused on the 

publicitary message. 

•A target group that can get the publicitary 

message during the whole day, every day, 

even before they make important decisions 

towards the purchase of a product or service. 

ADVERTISING IN TOILETS 

“Give piss a chance” is the slogan that we’re 

used to in the restaurant, club or

McDonald’s toilets. The journalist Mircea 

Toma was creating at the end of the last 

millenium, the publicity agency OOPS 

Media, that brought from the Occident the 

model of toilet publicity. 

“The originality of this publicity, the raport 

between price and impact, the exact 

targeting on a type of consumer, the lack of 

other visual stimuly, the extense freedom to 

express the messages, all lead to the 

customer orientation in a growing and more 

important proportion towards the 

publicitary supports in toilets” thinks 

Cristian Dragan, the executive director pf 

OOPS Media. The toilet publicity only 

strikes the mentalities of some of the 

customers that consider that the space isn’t 

suited for their brand promovation. 

With an initial moderate investment, OOPS 

Media managed to double their bussiness 

capital annualy. Customers come from fields 

like pharma, telecomunication, cellphone 

producers, auto, drinks, mass media. The 

cost of the exposure of a poster in the toilet 

board is of 30 euros/month. According ro a 

research made by OOPS Media, 80% of the 

restaurant customers remember the 

messages exposed in the toilets. 

ADVERTISING ON BICYCLES 

Riding the bicycle is healthy. And with a 

small publicitary panel attached, it can 

become lucrative and effective. The 

advantage for bicycles is that they can enter 

in the areas in which the car access is 

restricted, such as parks and crowded 

sidewalks. Publicitary bicycles can station in 

front of a cafeteria or a store, even in the 

middle of an intersection from the centre of 

Bucharest at a rush hour, case in which the 

message is being seen by tens of thousands 

of people in a few minutes. 

Another advantage is that of the accesible 

costs for this type of publicity. For a bicycle, 

the tax is for 10 euros/hour and can reach 8 

euros/hour for campains that have 20 days, 

each of 8 hours/day. A disadvantage of this 

type of publicity is the lack of bicycle tracks 

in mosy of the cities in the country, which 

would make a lot easier the employees work. 

Bicycle publicity is adressed to larger 

companies from different fields, as an 

412 

alternative promovation method, but also to 

small and medium companies that allocate 

low budgets for advertising and that want 

campanies for short periods. The bicycle 

publicity targets active persons between 18- 

50 years, from the urban environment, that 

frequent crowded areas at the rush hour. 

This type of bussiness has already a profite 

marge of 35-40%, and the initial inverstment 

can be situated between 1000 and 5000 

euros for five bicycles, being covered even in 

the first three months of activity. The 

amount differs from how much is invested in 

the commercial. 

This development niche hasn’t been exploit 

by the big companies because of the small 

incomes generated by this type of bussiness. 

Advertising in moving on bicycles. Soon, the 

centre of the Capital Coty and shore will be 

covered by bicycles that will have publicitary 

pannels. Although at an international level, 

mobile publicity mounted on bicycles or 

scuters is no longer something so unique, on 

a national plan, such a niche bussiness 

hasn’t been yet developed. 

An enthusiastic young man – Dinu Iftode, 

actionary in the immobiliary agency 

Platinum Expert, thought to implement in 

our country what is a success at an 

European level. 

Mobile publicity on bicycles is a new format 

on the romanian market and offers 

something that the large companies don’t 

have in their portfolio. The short-term 

promovation of any customer’s products that 

choose such a popularisation method. Dinu 

Iftode, sales director of Platinum Expert 

company, that is now launching on the 

advertisement market, says that a new 

bussiness that is now entering the local 

market takes part from a greater strategy to 

create a new publicity agency. 

In his oppinion, the advantage of the use of 

such a commercial strategy by a company 

consists of the great movement liberty that 

the bicycles have. These, unlike cars, car 

circulate in very crowded spaces, where 

autovehicles don’t have access, like parks, or 

places where the circulation is prohibited 

etc. The development plans are great, and 

the bussiness initiator has already began 

negociations with big companies present on 

the Romanian market for bicycle 

promovation.

AIRLINE ADVERTISING 

A first advantage of the airline publicity 

would be that of the fact that it draws 

attention faster than any other publicitary 

material. Additionally, it remains in the 

interes field with more than 60 seconds than 

any other type of publicity, thank to the 

atipic and attractive frame in which it is 

presented, claim the specialists. 

Impact, visibility, flexibility, uniqueness are 

the key trades of this kind of 

communicating. 

Airline publicity is firstly visible. People are 

fascinated by flying objects. It is in 

everybody’s instinct to watch towards the 

sky, especially when there is something 

moving, that is why the publicitary message 

will be definetly be remarqued and all will 

remember a long time after. 

Publicitary messages transmitted through 

the tradtionally formes reach harder the 

target audience. Advertising made through 

the airlines can’t be ignored, they draw 

attention and the publicitary message is 

definetly remarqued. 

A first player on this market is the company 

Regional Air Services that offer, along with 

agrement flights, operational services and 

flying lessons, airline publicity through: 

towing banners with the airplane, ballased 

written flyers, parachuttes launches for 

promoting activities. 

The predilect customers of this type of 

publicity are large companies, multinational 

companies, banking institutions, agroalimentary 

companies, imobiliary 

companies, casinos. “Our customers choose 

to inform the turists that have more time 

available to see their message, those who are 

not disturbed by the noise of a plane that 

tows a banner or that throws advertising 

matterials” declared Elena Lepadatu, 

Marketing and Publicity director of the 

company. 

As for the efficiency of the airline publicity, 

nine of ten potentially customers perceive as 

they should the message transmitted 

through such a type of publicity and eight 

out of ten customers buy the product. 

Cost very between 270 and 350 euros/ hour 

for banner towing and between 275 and 375 

euros/hour for the ballase of written flyers. 

413 

ADVERTISING IN CABS 

In the New York from a couple of decades 

ago, the yellow cabs that were crossing the 

boulevards in a rush strarted to wear on a 

platform the commercials for different 

american companies.The publicitary 

messages extended in time on the interior of 

the vehicle, where they travel with the client 

along the entire trip in an intimate 

environment. 

The inconveniment of such a publicity is that 

it can measure audience only aproximately, 

without an exact centralisation thiks Angelo 

Dorobantu, general director at the Angelsoft 

Computers company, that represent the 

advertising company in cabs, Taxi 

Advertising. 

Cab commercials has many cattegories of 

customers, like travelling agencies, 

imobiliary agencies, bars or FMCG, because 

the persons that travel with the taxi come 

from different social cattegories. 

The standard cost for a cab publicity is 10 

euros/header/2 weeks. Depending on the 

number of cars and the duration, there can 

be discounts of almost 50%. 

“The passangers in the taxi are also your 

clients. Show them your offer! “ is the slogan 

that would resume the idea that led to the 

appearance of TAXI.AD, affirmed the 

representatives of the Taxi Advertising 

company – the service supplier- company 

specialised on the distribution of advertising 

in cabs. 

The service TAXI.AD means today the access 

at about 40% of the cab market in 

Bucharest, from a total of 10.000 licences 

given by the City Hall of Bucharest, affirm 

the officials of the service. According to the 

unconventional publicity supplier, the 

company has the first contacts with cab 

firms established in october 2006. 

The procent is translated every month in a 

media coverage of aproximatively 4 million 

persons transported every month, according 

to the informations offered by the taxi 

companies parteners with the advertising 

service. The advertising service promovated 

by the TAXI.AD represents advertising 

pannels of A5 dimensions (landscape) 

attached to the headers of the chairs in front 

of the taxi cars, targeting the passengers 

that stay on the backseat.

According to the dates given by Taxi 

Advertising, from the National Audience 

Study aproximatively 15.72% of the persons 

in Bucharest that were asked ride the taxi 

about 1-3 times per month, 7.86 once or 

twice a week and 2.5 say that they take the 

cab 3-7 times a week. 

“To me, the most important thing is social 

variety of the cab passengers, the balanced 

raport between women and men, single and 

married, youth and adults, etc. Therefore, 

although it is an unconventionally 

environment, it it not exclusivist. And that is 

good. It can send messages for a multitude of 

fields”, says Claudia Dorobantu – Managing 

Partner at Taxi Advertising. The officials 

from Taxi Advertising say that organising 

the same type of unconventionally 

advertising campaigns, the Taxi Media 

division of the ClearChannel group is 

enjoying a real success, on the exterior 

products and interior ones, conclude the 

company’s representatives. 

From a statistical point of view we know 

that each day a car makes about 20 races, 

with a duration between 20-80 minutes per 

track. Having about 2 customers/ track, with 

a simple mathematical operation, we can see 

that each month about 1000 persons travel 

with the cab. 

ADVERTISING ON SAFETY MATCHES 

BOXES 

Publicity on safety matches boxes is from 

before the direct marketing. It lasts from 

over 100 years and will continue to exist a 

long time from now- as long as we will need 

fire. The safety matches box is one of the 

most spresded publicity supports in America, 

even though the access to Interned and 

mass-media is very large. In Romania, 80% 

of the population uses safety matches. 

“The advertising messages from the saferty 

matches reach direct to the hand of the 

consumer, ofering the biggest number of 

repeted views: at least 10 for envelope-box, 

38 for a standard box, 200 for a home box. 

And that is because you cannot light a safety 

match without looking at the box, and 

therefore at what is printed on the box”, 

declared Ciprian Banciu, executive director 

at Match Point. 

The disadvantages of saftey matches 

publicity is the small printing surface. 

414 

Match Point has been launched 5 years ago 

with an investment of 9000 euro. The 

company management estimates that in the 

present time there would be needed at least 

150000 euro to launch such a bussiness. 

Match Point had its bussiness number of 

1.150.000 euros untill 2007 and estimates 

sales of over 2 millions this year. On the 

retail zone of safety matches, the company 

holds about 45% of the market, and in the 

advertising safety matches has a market 

share of 70%. The profit marge of the 

bussiness is 4-8%. 

“On the Romanian market extern 

competition comes. In the larger projects 

cases (quantities that are over 100.000 boxes 

of publicitary safety matches), where 

companies invite at auctions foreign 

producers”, explains Ovidiu Popa. The 

production director from Match Point 

estimates that one of its atues dealing the 

competition with players from other markets 

is the base of supplying the basic goods of 

the company. Match Point takes its primary 

goods from Czech Republic, China, Poland, 

Hungary and Chile. 

Ovidiu Popa appreciates that the main 

competitor of the company that he leads on 

the Romanian market is Grafinet, a 

company that has as clients brands such as: 

British American Tobacco Romania, Philip 

Morris Romania, JT International, Marriot, 

Howord Johnson, Sofitel Hotel, Princess 

Casino, Vernescu, House, Game World, 

Bucuresti Casino, Continental Hotel and 

Grand Casino. 

The Match Point representative sustains his 

business reminding of the benefits of the 

communication mix. “ The quality safety 

matches boxes are a powerful support for 

commercials. The accessible price, the high 

exposure number and the controlled 

distribution make them irreplaceable. They 

can be used single or can be included in 

complex campaigns, with advertising in 

written press, radio, TV, direct mailing, 

presentations at exhibits and fairs and other 

BTL events”, explains Popa. 

Among the Match Point customers there are 

multinational companies from different 

fields banks, retailers and distributors, 

service providers, small and medium 

producers, newspapers and magazines, 

hotels, restaurants, ONG and even political 

parties and persons. “We can approach any 

type of customers, because, practically, all 

safety matches offered by Match Point can

e used as an advertising support. The 

difference is made mainly by the distribution 

channels. The standard safety matches, the 

barbeque and the longer ones are sold 

through all the big department stores: 

Metro, Billa, Selgros, Plus, Real, Kaufland, 

and through wholesalers through the entire 

country. Envelope safety matches, those 

with special shapes and the personalized 

ones are directly distributed by the 

customers. As for the shape that can be 

given to the boxes, the possibilities are 

practically unlimited : houses, telephones, 

bottles, square boxes, rectangular ones, 

triangles, envelopes, cards.” , explained 

Ovidiu Popa. Starting from last year, Match 

Point has extended its activity in Europe, 

companies from countries like Switzerland, 

Czech Republic, Holland, Italy, Bulgaria or 

Serbia, becoming customers of the company. 

In 2007, Match Point has continued its 

expansion on markets like Armenia, 

Georgia, Azerbaijan or Libyan, through the 

integration in their portfolio of some 

multinational companies. 

Among the services offered by Match Point 

are the obtained results after the 

collaboration with the Design Echo company, 

but also the publicity agency of the 

customers. Due to these collaborations, it 

results the graphic image and the 

representated messages from the safety 

matches. 

Prices vary between 4.5 and 9.9 euros/ 1000 

boxes, the classic version, being able to reach 

816 euros/ 1000 boxes in the Extralong 

version. 

PUBLICTY ON STADIUMS 

The soccer games attrach hundreds of 

thousands roumanians in front of their 

televisions. Besides the commercial brakes, 

TV spectators are targeted, during the entire 

show with messages exposed on the 

advertising boards along the stadiums. 

International Sport Management is the 

company that has been dealing from over ten 

years with the administration of the 

advertising boards from different sport 

stadiums in Romania. According to Catalin 

Oprisan, Sales Manager of the company, one 

of the advantages for this type of publicity is 

the high duration of exposure for the 

advertising message. “ A customer can have 

5 minutes on the stadium, translated into 3- 

4 minutes on the “screen”, unlike the TV 

415 

spot of 30 seconds, paid 5-6 times higher” 

said Oprisan. Some other advantages are the 

large audiences for the sports channels and 

the retransmission of those in some analysis 

shows for the sport games. 

From 1991, ISM owns publicitary rights on 

the Romanian soccer stadiums for the games 

in the First League ( A Division). In each 

competitional stage, ISM offers 4 games in 

which there are put out advertising pannels 

at the side of the soccer field. 

Also, ISM offers publicity at the official and 

friendly soccer games of the Romanian 

teams with others from the abroad, games 

from European competitions ( Romanian 

Soccer National or soccer clubs in Romania). 

ISM offers publicity for other sport events: 

soccer games in the room, handbal games, 

etc. Based on her 15 years of experience for 

advertising in sports, ISM has become the 

most professional company from the sport 

management and marketing. 

The bussiness number of the company is 

situated at some million euros, International 

Sport Management operating on a 

competition-less market in the South-East 

Europe. After the purchaise in 2006 of a 

speed time led sistem, the company has 

joined, from a technological point of view, 

the players from the Occident. The price for 

showing a publicitary message on the 

stadium is 5-6 times smaller that that of a tv 

spot, with a medium audience on the all 

urban segment of 6-7%. 

VISUAL-OLPHACTIVE ADVERTISING 

This type of publicity is based on the strong 

bond between smell and the emotional traits, 

so using the olphactive supports in the 

advertising campaigns assure reaction from 

the consumers, even more is you “must 

breathe”. 

An advertising agency that used among 

bluetooth and mobile panneling publicity the 

smell advertising is Motion Vision 

Communication (MV.com), through the 

MV.com- SCENT programme. The perfumed 

devices allow a strategical placement, either 

in the interior of the means of transport, 

either on the shelf, on different dummys and 

can be adapted to any communication ideas. 

“ The MV.com supports are mainly utilised 

in the advertising campaigns that have as a 

purpose the direct interaction with the

consumer, which constantly implies the 

unmasket exposure of those and therefore 

the damage risk. This aspect is available for 

especially for the MV.com-SCENT supports 

that are more appealing to the consumer’s 

curiosity and therefore the tendince to 

closesly explore the smelling suports”, 

declared Marian Costache, the director of 

the company. 

Smell is an essential component in the 

coerent development of our evolution. With 

all of these still, untill now there have been 

registred shy attempts to use smell as an 

advertising communication instrument, 

although the primordial advantage of the 

use of flavours in advertising is given by the 

nature of the stimuly: 

•We all feel the same smell of orange, rose, 

etc. 

•We smell.. we enjoy... we smell... we get 

sad... because the olphactive stimuly 

activate the centre of emotions and feeling. 

•Smell has assured itself an indispensable 

place in all the levels of the piramidal 

structure of our lives: from the bottom ones 

to the supperior, the detection of a flavour 

giving the need to identify, interpretate and 

understand the source. 

•Smell has become an element that assures 

coerence to life : we associate the smells with 

persons, events, etc, it is the anchor in 

launching the memories, the recognising of 

persons or places. 

•Most people search for their suited 

perfume, one that would underline their 

personality traits... so the smell has become 

a landmark point in the social life... has 

become an aspirational element.. 

•An olphactive stimuly can lead to a verified 

knowing and unexplainable of a product/ 

person, independent of other factors around 

it and can direct the embrace of a favourbale 

attitude towards it before knowing it 

closely.. 

•Unlike other systems, smell is sudden and 

unlimited, we can smell somethin g we never 

tried before, something for what our 

evolution hasn’t prepared us. 

Having as a starting point those described 

above, the olphactive avertising 

communcation services have all the atues to 

reach a high audience. 

Smell is one the most unexpected and 

unconventional ways to appropach the 

consumer. 

416 

ADVERTISING IN AIRPORTS 

The waiting room of an airport may become 

the place in which we spend several hours, 

waiting and analyzing every corner of the 

room, from the electric panels to the 

advertising panels. Advertising benefits in 

the airport consist, in first place, in the 

diversity of the target audience and the time 

that this public spends in the airport. ( one 

hour in average for every passenger). In all 

this time, the travelers are consuming the 

advertising messages exposed in different 

forms. 

Dasson is the company who owns and 

administrates the advertising space from the 

International Airport Bucharest Baneasa- 

Aurel Vlaicu. The clients of the company are 

representatives of the different industrial 

types. “ The target audience of our clients is 

formed from the business men (because on 

this airport is operating the executive 

aviation – business men, presidency, VIP`s, 

private plans), the medium class who flies 

from this airport, the Romanians returning 

from abroad and, of course, the foreign 

citizens who are coming in Romania 

generally for different business 

opportunities” said Dan Mihai Ene, CEO 

Dasson. 

The prices in airport advertising varies 

between 100 euros/month - the light box 

from the terminal, to 3500 euros/month the 

light box of 40 square meters. 

IN-STORE ADVERTISING 

The last battle is given in stores. Once with 

the expansion of Modern Trade, there has 

been created a propitious environment for 

the transmission of the publicitary message, 

with small costs compared to what the same 

action meant until now in Traditional Trade. 

Modern Trade brought the esthetic, the 

centralized working method as well as the 

traffic that could be reached until yesterday 

only if you were the sponsor of a stadium 

concert. Nicoleta Padure, General Manager 

Cupon Pro. 

Until yesterday, a store action presumed a 

promoter at the shelf that was giving away 

flyers and was offering some information 

about the sold product; today, things have 

evolved and producers use an entire arsenal 

– from branded stands for tasting, samples 

of the product, giving prizes through

different contests or instant, to mascots, 

different types of store branding and on the 

special screens, where there are put 

advertising spots or information of different 

promotions that take place at that time in 

the store. 

Starting with the last half of the last year, 

there has been registred an increase of the 

investments in store actions, which 

validated the theory according to whom the 

last battle is given at the shelf. On the 

future we estimate that the in-store won’t be 

excluded from the mix of the communication 

channels of the producers from the large 

consume goods industry (FMCG) and not 

only. 

The commmunication methos in stores are 

getting diversed from year to year, among 

the newest counting the branding of the 

security buffer from the shopping charts, the 

buffers separating the cash registres and the 

special placement of products in gigantdimensions 

inside the commercial galeries. 

Each of these channels presumes a series of 

actions, from validation, production, 

implementation, monitorization, to deactivation. 

All that the producer has to do is 

decide what method is he using and the 

favourite location. 

The buying decision influences in store 

Classic publicity either we like it or not, 

decreases the efficiency and is more and 

more expensive. Aditionally, costumers 

became more educated, more informed and 

less influentiable. Now, there appear 

companies specialised in shopper marketing, 

that is in store publicity. 

According to the profile companies, the 

alternative promovation, in store is suited 

for any type of product. In this case, the 

benefits are multiple for the companies that 

use an alternative promovation: the method 

has impact for the type of persons to whom 

the classical commercial isn’t enough, the 

costs are significantly smaller, it is a new 

method that can cause the interest of more 

segments of the population and adtitionally 

it offers the possibility to quantificate the 

results through the gathering of the coupon 

number of talons used, for example. 

Therefore, through communication methods 

in store, the producers are helped to reach 

better the final consumer, especially through 

physical interaction ( getting a coupon, seing 

a banner that indicates a promotion, tasting 

the product at the stand etc. ). This thing is 

very important because the information for 

417 

the store offerts becomes indispensable for 

the client in our days. 

The large diversity of the products on the 

hipermarkets shelves makes sometimes 

difficult the identification by the customer of 

the new products or special offers, That is 

why it is being appealed to the alternative 

communication methods, in the different 

points of the customer’s crossing through the 

store, as explains Andreea Mihai, Marketing 

Director for Carrefour Romania: “Publicity 

on the entering gates of the hypermarket 

greed the customer with the most recent 

offerts. Right after the entrance, the 

Infokiosk pannel aknowledges him of the instore 

promotions. In the same time, thanks 

to the “Tin storet” different advertising 

supports, the customer finds out about the 

services he can get,in-store and after the 

sale. In the crowded periods, when the cash 

registres are crowded and the espectation is 

longer, the “Tin storet” publicity becomes the 

customer’s ally. He can spend his considered 

wasted time in an usefull way, informing 

himself while he is looking at the publictary 

spots that are being shown on the LCDs 

from the cash registers. “Tin storet” publicity 

is giving for free important information for 

the customer, for his advantage. 

The in-store advertising demand is 

increasing 

Camelia Dragomirescu, Trade Marketing 

Manager, Quadrant Amroq Beverages (the 

Pepsi maker în Romania),explains: “We live 

in a speed era, when everything is 

happening very fast and if don’t adapt while 

walking, you can miss important 

occasions.This is not only applied to life, but 

to bussiness as well. “Tin storet” 

communication is a growing and inovative 

trend. To understand better the specific of 

the buyer in modern commerce – the large 

hypermakets- and the intern specific of 

these organisations, you must use some 

professionals.We used for the first time shelf 

tasting for Prigat, one of our brands. This 

action has been supported by the “Tin 

Storet” branding, more specifically the 

personalisation of the security buffers. The 

impact of these actions is a very important 

because you interact directly with the 

consumer: you can see his reaction, you can 

find out his oppinion, you can see after if you 

managed to convince him to buy your 

product or not.” 

The operators who have studied the instore 

marketing phenomenon say that the tarket

audience of these comercials is almost 

completely identified with any person that 

comes into a hypermarket for this, the 

tarket-audience is none other than the buyer 

or the consumer, when he is in the store. 

Specialists in marketing research claim that 

70% of the consumers make the decision to 

buy in the store. In this case, the consumer 

must be cheased and “touched” all over the 

buying cycle – from home, on the street, the 

store entrance, shelf and even at the exit, for 

loyalisation. In these conditions, we expect 

that the instore advertising market to grow 

sustainly in the next years. The direct 

approach towards the consumer by using all 

the communication channels from the instore 

– the BTL activities as well as the 

merchandise ones – leads to an 

extraordinary efficiency for the producer 

that chooses these mean of promovation. 

CONCLUSIONS 

Advertising represents one of the most used 

means in the market activities – some 

specialists considering it as the axium of the 

company’s political communication. 

Unlike the classic information characteristic 

to mass-media, the advertising messages are 

short, dense and selective. Through the 

forms under which it is presented, publicity 

seeks to be appealing and seductive, in this 

purpose combining the rational and 

affective. 

For this reason, in the last years, companies 

avoid the imitation, especially about the 

message’s idea, the text, the presentation, 

the illustration, the product labelling, the 

format, the advertising slogan etc. It is 

considered that the imitation of such 

clements, characteristic to other companies, 

may create a certain confusion in the minds 

of the audience and decrease the efficiency of 

the action. 

For this reason, in the last years, companies 

started to orientate to the unconventional 

ways publicity, that offer new innovative 

channels for the companies, for them to send 

their message. These channels manage 

through their innovative character to send 

their advertising message with a higher 

degree of succes. 

Unconventional advertising makes way 

wherever it cans, using sight, hearing and 

smell to draw the attention of an heterogen 

and hard to impress audience. 

418 

Oficiours advertising (TV spots, radio, 

posters/ advertising pannels, etc.) sing the 

swamn song in front of the competition 

brought by new forms of media. The classical 

advertising just hasn’t the same efficiency as 

it had in the past. Firstly, because the 

adverising spots,the posters, the advertising 

messages have increased exponentially, and 

all this competition led to a background 

noise that prohibits any message. Secondly, 

because the consumers are, today, harder to 

win than in the past. In time, they have 

developed censor filtres to the advertising 

noise, as a way to adjust the media 

environment. 

At the same time, the competition grows, on 

all markets. The voices are multiplying and 

become more powerful and loud. To offer 

them some development space, the 

advertising agencies take into consideration 

the bicycles, elevators, toilets, safety 

matches or the blue sky. The conclusion is 

that any space, static or mobile, with a 

certain visibility, can become the carrier of 

an advertising message. The fight is on 

efficiency, reach, impact and prices. 

Although, about the place that Romania is 

situated on from the innovatice mediatic 

forms, Romania is without an appeal right 

“after”, us having less dare in Romania to 

implement innovative solutions, but we have 

no problems with the creativity. 

Althous the PR industry is in it’s incipient 

faze, Romanians have proven creativity in 

the prize ceremony of the Sabre Awards, 

Paul Holmes, the organiser of the 

competition and one of the most important 

personalities of the worldwide PR declared, 

talking to all present, that Romania has the 

most competitive and creative PR market in 

Europe. 

At only an year and a half from its 

foundation, The Practice team has won the 

Platinum for the Best PR Programme of the 

year at the European SABRE Awards, for 

the PR component of the campaign “Men 

Day 2007”, Bergembier/InBev Romania. 

The representatives of The Practice agency 

entered the scene three times gathering 3 

awards for the ”Men Day”: the Gold Sabre

for “Industries”, the category “Food & 

Beverages”, Gold Sabre at the “Geographical 

Area”, category “Eastern Europe” and for the 

first time in Romania, the Platinum Sabre, 

the most important prize of the competition, 

given for the best PR campaign of the year. 

Definetly, the future is optimistic about the 

evolution of these promovation methods in 

our country, in the context of the 

aglomeration of publicity messages on all the 

other channels, unconventionally methods 

will be the ones who will gain from the 

budget increase for the advertising from the 

romanian companies. 

Until now, the indoor advertising drawn less 

than 5% of the advertisers budgets from 

Romania, last year the market reaching 

about 2 million euros. 

The conclusion drawn is that any static or 

mobile space that has some visibility, can 

become an efficient carrier for a creative 

advertising message. The new key words 

are: reach, impact, communication, vital, 

word of mouth, efficiency. 

References 

1. Cathelat, Bernard. 2005. Publicitate şi 

societate. Bucuresti: Editura Trei. 

2. Farbey, A.D. 2005. Publicitatea eficienta. 

Notiuni fundamentale. Bucuresti: Editura 

Niculescu. 

3. Jouve, Michele. 2005. Comunicarea. Publicitate 

şi relatii publice. Bucuresti: Editura Poliron. 

4. Lane, Kleppner Russel. 2004. Manual de 

publicitate. Bucuresti: Editura Teora. 

5. Petre, Dan, and Nicola, Mihaela. 2004. 

Introducere în publicitate. Bucuresti: Editura 

Comunicare.ro. 

6. Veghes Ruff, Iulian, and Grigore, Bogdan. 

2003. Relatiile publice şi publicitatea online. 

Bucuresti: Editura Polirom. 

7. *** Aproape totul despre publicitatea 

neconventionala din Romania 

http://www.wall-street.ro/slideshow/Marketing- 

PR/32087/Aproape-totul-despre-publicitateaneconventionala-din-Romania.html 

8. *** http:// www.trender.ro/ 

9. *** http://www.elevate.ro/ 

419 

10. *** http://www.skyzepp.ro/ 

11. *** http://www.taxiad.ro/ 

12. *** http://www.matchpoint.ro/ 

13. *** http://www.iaa.ro/Articole/Studii-decaz/Ziua-barbatului-sau-succesul-unei-campaniiintegrate/1468.html




CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT COMPONENT 

IN CRISIS SITUATIONS 

Abstract 

The article analyses the place and role 

that the crisis communication has in crisis 

management and also, it proposes an 

approach for the communication activities, in 

order to make crisis management more 

efficient. A crisis may bring severe prejudices 

to the organisation if it isn’t well managed 

from all points of view, including from a 

communication point of view, and a good 

communication during the crisis can 

alleviate and even prevent negative reactions 

that can appear. 

Key words: Crisis management, 

communication, risk evaluation, 

organizational communication, 

organizational remodeling 


The fall of some funds or piramidal games, 

bankrupts or the lack of lichidity of some 

banks, airplanes crushing, cathastrophical 

floods, fires, water pollutions, violent 

manifestations, attacks and assasinates of 

some personalities, succesive epidemies, 

scandals regarding fake diplomas or 

highschool registration. 

Here are only some examples from hundreds 

NICULAE Tudorel; 

ISOP, Bucharest; 

ntudorel_ntcsp@yahoo.com 

Paul Marinescu 



Sorin Toma 



Niculae Sabin Mihai 

Academy of Economic Studies, Bucharest 


420 

of cases lived by the Romanian societu, that 

shows that this period is one shaked by 

numerous crisis. Nowadays, the crisis 

(economical, cultural, value, learning 

system, society, etc. ) has become a normal 

state, and the word has entered the current 

vocabulary for the institution leaders, 

jurnalists and the entire audience. 

Any organisation can come agains a crisis 

situation, that can put into danger her 

normal function and the reputation a certain 

community has. Some crisis are predictable 

and can be prevented, other can’t be 

suspected or correctly anticipated. 

Experience has shown that, despite all the 

precautions taken (technical, economical, 

financiar, educational ones etc.) to stop or 

control a crisis, it can get out of control and 

grow. 

The organisation’s management together 

with the public relations department must 

be prepaired from time to handle some 

unexpected or not normal situations. The 

management of the crisis can’t be 

improvised: on the contrary, it is based on 

the correct evaluation of the circumstances 

and the possession of adequate response 

strategies, prepared strategies and 

experimented a long time before the crisis is 

triggered.

2. Communication in crisis 

management 

There are no miracle recepies for the 

management of a crisis situation. 

The correct crisis management represents „a 

collection of measures, prepared from time, 

that allow the organisation to coordonate 

and control any emergencies”, therefore: 

• Efficient management of the crisis 

allows an organisation to maximise their 

chances and reduce the danger it comes up 

against. 

• Crisis management represents a set 

of factors designed to combat the crisis and 

reduce the damages created by themand to 

protect the organisation, the involved 

audiences and the domain from the possible 

damages. 

• Crisis management is a process of 

strategical planning, having as purpose to 

eliminate a part of the risk and insecurity 

that come from the negative events, allowing 

the organisation to have control over its 

evolution. 

Crisis situation management is a field that 

has known for the last years a quick 

development, both in the sphere of practical 

aplications and in the research one. 

There are some texts with implementative 

character, including an ample repertoar of 

indications about the preparation techniques 

for the crisis situations, to the persons that 

must be involved in these activities, to the 

necessary strategies, to the steps and 

application forms, and normally, to the 

communication tactiques that can be used 

both in the interior and the exterior of the 

organisation. 

The control over such events is based on the 

elaboration of a Crisis Management Plan 

(CMP). This includes a complete list of 

procedures that must be applied in all the 

sectors over it could actionate the effect of 

different crises. 

Such a plan represents an essential work 

instrument because: 

a) the crisis are events that take place 

under the pressure of time and in which fast 

answers are vital. A CMP contributes to the 

decrease of the response time through 

offering the necessary context information, 

through the identification of responsabilities 

and through the assignment of specific tasks 

to well identified persons. 

421 

b) Along with the speed factor, CMP 

creates a system of organized and efficient 

answers. CMP offers a system that can save 

lives, can reduce the exposure of some 

organisations to the risk factors and can 

allow the remedial actions to be made 

without other detailed analyses. 

Efficient crisis management includes, as a 

main component, crisis communcation. This 

not only can make easier the crisis situation, 

but can also bring to the organisation a 

better reputation than the one it had before 

the crisis. Crisis communication represents 

the communication between the organisation 

and its audiences before, during and after 

the negative elements. This communication 

is designed to reduce the dangerous 

elements that could effect the organisation’s 

image. 

The crisis communication domain implies 

numerous activities that have a strategic 

and tactical content. Crisis communication 

implies four big types of activities: 

1. risk evaluation 

2. planning for the crisis 

communication 

3. the answer 

4. the organisation’s remake. 

3. Risk evaluation 

This activity is based on the identification of 

different existing threats in the environment 

in which the organisation is operating. In 

this purpose, consultants from some 

specialised companies or organisation’s 

specialists can be appealed, that can make a 

team for crisis planification. 

The plan includes a very rich list, from the 

impact of the climat conditions to the 

political kneadings, from the possible work 

accidents to the reactions of different 

religious or civic organisations, from the 

actions of some bad groups to the own errors 

of conceal or production, etc. 

For this purpose, there will be formed a 

planning team, made from the management 

of the organisation, the chief of the public 

relations and the managers of other 

departments ( than can be implicated in the 

crisis) from the organisation, such as: the 

technical director, the responsable for 

human resources, the jurist, the responsable 

for organisation’s security etc.

These will identify the possible desasters or 

conflicts that the organisation may come 

against. Also, they will analyse the crisis 

that the organisation has been through and 

will try to imagine the worst things that 

could happen. 

S. Fink elaborated a diagrame of the crises 

based on two axiums: 

• the value of the crisis impact ( crisis 

impact value) and 

• the probability factor. 

On the first axium, the scale of the crisis is 

determined with the help of five questions: 

1. If a crisis risks to grow in intensity, 

who large is this intensity and how fast will 

the growth be? 

2. How will the crisis enter the interes 

sphere of the involved audiences? 

3. How will the crisis affect the normal 

activities of the organisation? 

4. How is the organisation guilty for 

the crisis trigger? 

5. How is the company affected by the 

crisis? 

On the second axium, the crisis probabiliy is 

determined on a scale from 0 to 10, in which 

0 represents the zero probability of a crisis 

appearance, and 10 the certainty of a crisis 

shown. The two axiums, divided into ten 

units, forms through their intersection a 

„crisis barometre”. 

4. Planification of the crisis 

communication 

The second step, maybe the most important 

is dominated by the activities regarding the 

elaboration of a Crisis Communication Plan 

(PCC). 

For an efficient crisis management, it is 

needed to be made, still from calm periods, a 

communication crisis plan. This is made by 

the specialists in public relations – which, 

according to authors from the crisis 

management domain, must be envolved in 

all the steps and all the events associated to 

a crisis. 

PCC has, usually the shape of file 

with instructions. He must be organised so 

the relationists to find easily the specific 

sections. Also, it must resist to the unforseen 

situations of a crisis – that is why it is not 

recommended to keep him exclusively on the 

422 

computer, in the conditions in which these 

could be affected by fires, earthquarkes or 

even shortcuts. 

The Crisis Communication Plan 

targets the same audiences of an 

organisation that are targeted by the regular 

communication campaigns. An organisation 

must have more PCCs, adjusted to different 

types of crises found. A fire PCC is different 

than the one for a product of bad quality: the 

audiences are/can be different, targeted 

mass-medias are/can be different, the 

messages sent are/can be different. These 

plans facilitate the communication with 

different types of audiences. Still, they are 

not magical formulas that assure succes, but 

only a guide of action, flexible, that 

organises actions and communication forms. 

After K. Fearn-Banks such a plan must 

have: 

-The cover – This has the title of the plan 

and the date in which it was elaborated or 

seen. On the cover it is specified the fact that 

the document is for internal use 

(confidential) and that it can’t be multiplied 

or broadcasted without authorisation. 

- The introduction – This document must be 

written by one of the organisation’s 

managers. It underlines the importance of 

PCC, releves the estimated results and 

draws attention to the forced keeping of 

what says there. 

- Purposes and objectives- They express the 

action principles of the organisation in crisis 

situations and the policies through which 

these principles will be obtained. 

De asemenea, pot fi precizate acele 

informaţii sau politici care, din motive ce 

variază de la o organizaţie la alta, nu pot fi 

făcute publice. 

- The components of the crisis cell - This 

document gathers the members of the cell, 

their competence field, their mission in the 

cell, adresses and phone numbers. To this 

list there can be added another, gathering 

external consultants or specialists to which 

it can be appeled. The crisis cell is a 

transversal and functional group, that 

gathers those designated persons to deal 

with any type of crisis. 

It has 3 main purposes: 

- To conceive a Crisis Management 

Plan. This is accomplished after there have 

been established, through different research 

methods, the vulnerable aspects of the

organisation. CMP must anticipate and 

answer most of the types of crises with 

whom the organisation may come against; 

- To apply this plan. The application of 

CMP is firtsly made in the crisis simulations 

and than in the confruntation with the real 

crisis; 

- To react efficiently to the 

unanticiped problems or those that weren’t 

included in the CMP. No plan can anticipate 

all the details of a crisis, that is why the 

crisis cell must be capable to offer sollutions 

for these problems that weren’t foreseen in 

the CMP, but can come up anytime in a real 

crisis. 

The crisis cell is lead by a crisis 

manager (usually the public relations 

director), that collaborates with the lead of 

the organisation, coordonates the other 

team-member’s work and makes the 

decisions, conceals, sketches and verifies the 

texts that have o be send. The crisis cell also 

includes a sub director of the manager, a 

crisis control center coordonator, other 

specialists in public relations with different 

responsabilities. Obviously, the componence 

of this team will be different from event to 

event. Along with the persons mentioned 

above, depending on the nature of the crisis, 

there can be included the technical director, 

the chief of the financial department, the 

chief of the marketing department, the 

lawyer and other specialists that have 

competences in the action sphere of the 

crisis. The list includes each member’s tasks 

during the crisis ( during the crisis period, 

the members of this team will be relieved 

from their current responsabilities). 

Crisis management is a group activity, in 

which there are made crucial decisions 

collectively.That is why the knowledges, the 

abilities and the character traits of the crisis 

cell members have to respond to those 

responsabilities. The choose of the crisis cell 

members is made depending on the tasks 

these must meat. 

a. To act like a team to facilitate the 

reach of the crisis cell objective. 

b. To conceal and apply CMP, to 

facilitate the abrogation of some efficient 

organisational answers. 

c. To adopt in the collective the 

necessary decisions to solve efficiently the 

problems that come up in the crisis cell. 

d. To listen to the other’s oppinions to 

423 

collect as much information as possible 

about the crisis. 

- The statements – Members of the crisis 

cell and the lead of the organisation sign 

that they aknowledge and will respect the 

foreseen of the crisis management plan and 

of crisis communication. This enhances the 

team’s and the management’s responsability 

towards the forseen of these plans. 

- The calendar for crisis stimulation – The 

actions and techniques forseen for the most 

probable crisis must be simulated once a 

year, if not often. Even if during a real crisis 

may appear new ways of action, these 

simulations allow the check of preparation 

for the crisis cell and the capacity to react, 

coming from the other members of the 

organisation. 

- The list of the involved audiences – This 

document includes the intern and extern 

audiences with whom it must be 

communicated during the crisis ( The 

members of the Board, shareholders, 

financial partners, investors, clients, 

suppliers, employees, the leaders of the 

community in which the organisation 

activates, organisations with the same 

profile, mass-media, sindicates, 

guvernamental oficialities etc.) 

- The ways to inform the involved audiences 

– In order to assure the efficient 

transmission of the information it is 

necessary a time preparation of a specific 

information system, with adequate 

transmitting technical supports, that must 

be put together for each type of audience ( 

phone for management members; meetings 

or posting for the employees, fax, e-mail or 

phone for mass-media). 

- The spokesman during the crisis – The 

designated person to have this role, has the 

mission to gestionate the consistency and 

accuracy of the messages the organisation 

sends to her audiences. He must be a good 

communicator, both in the interior of the 

organisation and the working team, and also 

in the journalist relations ( which means the 

capacity to listen and respons adequately). 

The spokesman has to be well chosen, 

because to the audience it represents the 

organisation or the company. He will be part 

of the crisis team and it would be good to be 

one of the board members, because therefore 

he will be seen as a person who expresses an 

oficial point of view. Also, he must know all

the aspects of the crisis, understand all its 

envolvements, have the responsability and 

authority to speak for the organisation. He 

must seem like a rational person, 

preocuppied by the needs of the 

organisation, sensible to the concerns of the 

persons affected by the crisis, decided to 

contribute to the solvement of the created 

situation. 

It is extremely important that 

during a crisis there is an only spokesman, 

that would express an unique point of view. 

This thing must be known by the other team 

members of the crisis and organisation team. 

This way, there will be avoided the 

contradictory or confuse statements coming 

from these, statements that leave the 

impression that in the middle of the 

organisatios chaos exists and that the events 

aren’t mastered and monitorised coherently. 

Ofcourse, he will be helped by other 

specialist, who, in certain situations can 

replace him for press communcation actions 

that are less important. Because he is the 

„key person” in the relations with the entire 

press, it is necessary for him to posses the 

necessary knowledges and abilities for an 

efficient communication with the journalists. 

The spokesman must have more specific 

qualities, qualities that corespond to the 

main tasks that come to him in these 

moments: 

• He must present in an accesible way 

the crisis informations. That is why, he must 

have the ability to talk so everyone can 

understand (avoiding the jargon) and to 

understand the journalists or audience 

expectations, so he can structure his 

answers after those; 

• He must give a convincing anwer to 

the questions. That is why, he must master 

all the crisis dates and to find fast the 

required information (a wrong or incomplete 

information may make the crisis worse 

through the creation of some negative 

publical oppinions); the spokesman mustn’t 

leave long pauses between the question and 

the answer, to avoid the no comment 

reactions, and not get into arguments with 

the journalists ; 

• He must offer a conving image over 

the organisation, transmitting the idea that 

it controls the situation and adopts a 

attitude full of understanding for the 

persons or institutions affected by the crisis; 

424 

so, he must cultivate a style that brings 

together control and compassion, through it 

language and attitude; he must look good on 

tv, have a pleasant voice and a clear diction, 

have a measured mimic and gestures, that 

underline the ideas, to be communicative 

and gain the other’s simpathy. 

• He must control the tough questions: 

that is why he must be capable to identify 

the dangerous questions, to have tact and 

know how to explain why certain 

information can’t be given for publication, 

know how to ask for a clarification of the 

question from the journalists, to be able to 

decide rapidly which of the elements of a 

multiple question are more important and in 

which order must he answer them or say 

more about the other elements of the 

respinse, know how to correct the mistakes 

or bad informations that come into the press 

etc. 

- The crisis control center – This is the place 

in which the crisis management team will 

take actions. This center is made of at least 

two rooms, one large enough to be made at 

any time into a conference roomn and one 

designated for the work of the crisis cell and 

if necessary, the individual interviews 

wanted by the journalists. These rooms must 

be equiped and operational. They must 

contain enough tables and chairs, xerox, 

direct phones, faxes, video and audio 

equipment, computers connected to a 

network, maps, phonebooks, block-notes, 

pens, pencils, paper, etc. Additionaly, here 

must be the up to date press files, containing 

documentary materials about the 

organisation, photographs frpm different 

sectors or persons from the organisation, 

statistics, etc. Also, the existence of Intranet 

and Internet may simplify the searching 

work for the information, and can increase 

the access speed for the data bases 

(especially the internal ones through the 

Internet). Besiders, the creation of a site 

about the crisis, where are placed relevant 

and actual information, allows to the 

involved audiences and other audiences the 

quick acces to those dates and gives more 

credibility to the organisation ( transparency 

is a factor that increases the audience’s trust 

in an institution). 

- The list with the intervention personnal – 

In a crisis, there appear different emergency 

situations, that need the implication of some

specialists from various fields of activity. 

Such a list will include phone numbers, 

adresses and the names of some officials 

from the fire department, ambulance and 

hospitals, police, DEA office, water regim, 

electricity etc. Also, it is very useful to have 

the dates of the guvernment representatives 

and local administration as well. 

- Crisis charts – After the officialties, the 

journalist are the next audience that must 

be informed of the crisis situation. Any 

department of the public relations or any 

press office of an organisation must have its 

press files up to date. In the crisis situations, 

these documents are more important,as the 

event is more serious.Therefore, sometimes 

it is needed in an hour or two to be urgently 

sent press releases or to be convocated an 

unforseen press conference. Without the upto-date 

charts, well structured and complete, 

neither of these vert important ways of 

communication with the mass-media can be 

accomplished. Also, there must be gathered 

from time and to bring again up to date the 

documents about the organisation, 

documents that will be put at the use of 

journalists to serve as an information source, 

right after the crisis is triggered. 

- Data bases – Under the pressure of the 

crisis it is hard to gather statistical or 

archive dates, that is why it is better for 

those to be already grouped into 

documentary files. In this category enter the 

materials like annual reports, proceeding 

and quality or security guarantee manuals, 

the history of the organisation, scort 

biographical files of the liders, photographs, 

the adresses for the organisantion’s offices, 

etc. Also, there can be prepared press release 

schemes, adequate to each type of crisis 

determined in the risk evaluation process. 

- Messages – For each cattegory of audience 

there must be buit a specific 

message,depending on the interests and 

involment degree of each audience in the life 

of the organisation. Additionally, there must 

be made a common statement for all the 

audiences in which to name the nature of the 

crisis, the basic facts about it, the 

precautions that the organisation is taking 

to stop or limit the crisis, the loss, the 

victims or affected persons, the 

environmental impact or on other 

organisations. In this statement, the 

organisation must take all responsability (if 

425 

the crisis situation was triggered because of 

it) and mustn’t accuse the others if those are 

not obviously guilty. 

The Crisis Communication Plan must be 

seen and approved by the board and by 

specialists from different activity sectors of 

the organisation. After the necessary 

corrections are made, the PCC is finalised 

and is distributed for the information of 

allthe organisation’s members, that could be 

involved in the crisis situations. PCC must 

be renewed and enhanced periodly. 

5. The answer 

The third stept is the application of the 

Crisis Communication .If this was well 

made, if the correct decissions were made, in 

consens with the strategies fixed by the 

PCC, the organisation will be rewarded 

through the limitation of the negative effects 

of the crisis and kept for the key-audience’s 

trust. 

In these moments, it is essential that the 

organisation reacts fast and not transmit to 

all the affected audienced or interesed by the 

crisis an innitial answer: this is usually 

made of by the first statement of the 

spokesman. Any crisis triggers a lust for 

information, expressed mainly in the massmedia 

formed requests. If the organisation 

doens’t respond quickly to those needs, then 

another group will distribute the 

information, and this could be wrong or 

incomplete. 

The answer not only has to be fast, but also 

consistent: it must contain exact 

informations, uncontradictory ( that is why 

it’s necessary that the organisation will 

express itself only through the spokesman’s 

voice), with a practical character ( in which 

to be shown the concrete consequences of the 

crisis and the immediate measures taken by 

the organisation). Additionally, he must 

show the responsability of the organisation, 

her simpathy for the persons involved in the 

crisis, the efforts made to solve the crisis and 

the limitation of its effects. For this purpose, 

there are used the Crisis Communication 

Strategies. 

Still, it mustn’t be forgotten the fact that, a 

Crisis Communication Plan is a guide that 

indicates the major actions. It is not an 

unique, rigid and restrictive receipy. In any 

crisis appear unpredictable factors : some

elements of the crisis can’t be anticipated, 

some less important audiences of the 

organisation can be brought into a view in 

the crisis situations, some response 

mechanisms can be very affected by those 

crises triggered by natural disasters or 

accidents ( 1989, after the earthquake that 

affected San Francisco, the main spokesman 

and the secondary one from the Pacific Gas 

and Electric company couldn’t reach the 

crisis control center and had to be used a 

different member from the public relations 

department). 

6. The remake of the organisation 

Constitutes the final step and is marked, 

mainly by the evaluation of the quality of the 

applied product.. 

In this case, the organisation shoul put some 

major questions: 

- Were the actions during the crisis 

according to the values and principles of the 

organisation? 

- What crisis aspects were anticipated by the 

PCC? 

- What conclusions can be drawn out of these 

success? 

- What aspects haven’t been anticipated and 

what changes must be made as a 

consequence to the communication plan? 

- How did the organisation’s members act? 

- Were they adequately ready to handle the 

crisis? 

- What are the long lasting efects of the 

crisis? 

- What measures must be taken? 

- How does the audience look at the changes 

brought to the organisation by crisis 

situations? 

- What actions can be triggered to take 

advantage of the oportunities brought by the 

resolve of the crisis? 


Crisis communication is an essentially 

component of efficient crisis management, in 

the purpose that it not only can make easier 

the crisis situation, but can also bring a 

better reputation to the organisation that 

the one it had before the crisis. 

Crisis communication implies as the main 

activities with a strategical and tactical 

426 

content: risk evaluation, the planning of the 

crisis communication, the answer and 

remake of the organisation. These imply the 

identification of the different existing 

threats in the environment in which the 

organisation is operating, the making of a 

Communcation Crisis Plan – under the form 

of an instruction file, the application of the 

Communication Crisis Plan and the 

evaluation of the quality of the applied 

response. 

8. References 

1. Altman, S.; Valenzi, E.; Hodgetts, R., 

Organizational Behavior - Theory and Practice, 

Academic Press Inc., New York, 1985. 

2. Baron, R.; Byrne, D., Social Psychology – 

Understand Human Interaction, Allyn and Bacon 

Inc., New York, 1987. 

3. Cooper, C.; Cartwright, S.; Early, C., 

Organizational Culture and Climate, John Wiley 

& Sons Ltd., New York, 2001. 

4. Wilcox, Dennis L.,Ault, Philip H., Agee, 

Warren K., Public Relations Strategy and Tactics, 

Harper Colluns Inc., New York, 1992. 

5. Grunig, James E., Hunt, Todd, 

Managing Public Relations, Holt, 

Rinehart and Winston, 

Philadelphia,1984. 

6. Peretti, André de, Tehnici de comunicare, 

Editura Polirom, Iaşi, 2001. 

7. ***Instructions MI, nr.171/2001, 

organization of public relations activities, 

traditions, education and sports in the Ministry of 

Interior



ICEA – FAA Bucharest, 14-15 th November 2009 

THE SELECTION OF METHOD OF DISTRIBUTIONWITH MODELING 

PROCESS APPLIED ON AN NATIONAL MANUFACTURING COMPANY 

BY MEANS OF DECISION TREE METHOD 

COSTEL Nistor; ROZALIA Nistor; CIPRIAN GEORGE Ticu; 

“Dunarea de Jos” University; 

cos_nis@yahoo.com; rozalia.nistor@selir.com; ciprianticu@yahoo.com 

Abstract 

In this paper, we emphasize the simulation of 

a decision making process applied to an 

national manufactured company from 

Romania. Our goal was to establish the most 

efficient decision, having in view two 

alternatives: sales through intermediaries 

without the involvement of the consulting 

firm to identify market situation, the 

marketing of products on their own efforts, 

without testing the market, market research 

and then use one of the 2 forms of sale 

presented above. In view to determine 

mathematically the best decision, we applied 

the decision tree method, in the conditions in 

which the company’s manager offered us a 

feasibility analysis concerning these 

alternatives. We also reveal in this paper the 

opportunity provided by DELMS software 

functions, which reduce the time involved by 

solving this decision problem. 

Keywords: modeling, simulation, decision, 

software, optimization, efficiency, resources. 


Today we are in a period when the mix of 

traditional, classical decision making tools 

based on intuition and experience, are 

emerging and a great number of modern 

scientific methods have appeared. These 

scientific processes are characterized by a 

solid theoretical background, based mainly 

on the use of mathematical methods, but 

maintaining a general guide, practical and 

realistic. 

In these conditions, higher qualitative 

decision-making are possible by the means of 

a large range of methods and techniques 

that facilitate decision choosing the optimal 

decision, each of these variants decision 

fitting to a decision model. 

427 

Economic modeling provides to the 

management activities its multiple ways of 

reconciling the resources (material, human, 

financial) in order to achieve the objectives 

formulated for a certain period of time, 

giving management the opportunity to think 

and act better and faster, and without 

distorting the reality. The constant need to 

find the best solutions in management 

processes, organizations are searching for 

the continuous improvement of the 

decisional processes. In this context, the 

actual business environment leads the 

scientists to develop and improve ways and 

methods of observation and analysis of the 

real business processes. 

As a general theory of programming and 

control of projects, requirements modeling 

method contains chapters devoted to the 

activities of a project, like: basic parameters 

under analysis (time, cost, and resources), 

the nature of the input data (deterministic 

or stochastic); aspects of structure or size of 

projects, ranging series of activities, etc. 

This method, with wide applications in 

industry, construction, transport, focuses on 

the design of decision points throughout the 

complex decision-making process, as a basic 

tool in management, organization and 

economic activity, helping to optimize 

resource availability. 

The business simulations can 

simultaneously track several criteria such as 

maximizing turnover, net income, value 

added, the loading capacity of production 

and minimize material consumption, the 

break times etc. Only if they have to achieve 

only one of these criteria may affect the 

optimization of one of the others. The 

correction of this situation requires the use 

of Multi-analysis.

Multi-analysis doesn’t lead to optimal 

solution, as it is considered to be sub-optimal 

against each criterion taken separately. The 

multi-analysis ensures the best compromise 

in the optimization for the criteria 

considered. Failure is compensated by the 

singular optimum harmonization criteria at 

the best compromise. 

In the developed countries, mathematical 

programming is applied frequently in the 

shaping of the economic processes. 

Consequently, many models have been 

developed and there were designed various 

software for solving problems of "routing". 

The majority of the Romanian companies 

have adapted their strategies to the ebusiness 

environment requirements and 

begun in the last period to use the benefits of 

computer technology. 

The education plays an essential role in 

creating and training the future specialists 

in view to make efficient decisions at the 

micro – economic level. Therefore, as 

university teachers, in order to illustrate 

how computing can help in making relevant 

and efficient decisions at the company level, 

we designed a software that we "called" in a 

generic way - DELMS (Delphi for modeling 

and simulation). 

In order to understand how the software 

"DELMS runs, no programming knowledge 

is required, but only minimal knowledge of 

personal computer use, knowledge that was 

gained during the first years of academic 

formation. 


The management decisions making process 

using the method of the decision tree are 

made in the decisional complex situations, in 

which random events that take place 

successively are involved. By means of this 

method, the multi-sequential decisional 

processes are described under the form of 

some diagrams in which the future events 

condition the decision, determining a set of 

values concerning the results of each 

considered decision alternative [1]. 

This method offers to the managers an 

extremely useful tool for making operative 

decisions, being successfully used in the case 

of a succession of decisions interconnected in 

time. 

Decision tree method in the data mining 

approach involves several stages: developing 

an understanding of the application model, 

428 

selecting a data set on which discovery is to 

be performed, choosing the appropriate data 

mining tasks and deployment of the decision 

tree in the order to select the optimal 

decision. [2] 

Decision tree models are the transition point 

from the structuring phase to the evaluation 

phase of the decision analysis process. The 

issues generated during the business 

assessment and the decision hierarchies are 

important for the foundation of the decision 

tree model. [3] 

Today, the use of computer technology in 

achieving production but also in decision 

making at the microeconomic level has 

become an important factor of competitive 

advantage for any company. 

Enterprises in Romania, dynamically linked 

to the environment that they operate (and as 

a consequence of the process of 

globalization), have begun in recent years to 

use the widespread benefits of computer 

technology [4]. 

Education plays an essential role in creating 

and training specialists who can be put in 

the situation of making decisions at micro – 

economic level. Therefore, as university 

professors, in order to illustrate how 

computing can help in making relevant 

decisions at company level (for a less 

complex) we have made an application which 

is called in a generic way DELMS (Delphi for 

Modeling and Simulation) [5]. 

To understand how to use the DELMS 

application, no programming knowledge is 

required, only a minimal knowledge of using 

a personal computer, knowledge that is 

usually gained during the first years of 

academic formation [6]. 

3. Application of the decision tree 

method in the decisions modeling 

process in a manufactured company 

The "GALFIRTEXT" Company from Galati 

(Romania) produces and markets the 

product "bedclothes and eiderdown”. The 

company management wants to analyze the 

need of conducting a market survey by a 

firm which is specialized in marketing in 

issues. The market survey will analyze the 

opportunity of launching the product on the 

market if the market is favorable and the 

product is launched or the market is 

unfavorable and the new product is 

abandoned.

The analysis of opportunity should take into 

account the cost of consultancy provided by 

the firm specialized in market-surveying 

services in Bucharest. The cost of study has 

been approximated at 50,000 USD, which 

will be paid to the consulting firm when 

submitting the survey results. The 

Marketing Company specialists are 

concentrated on obtaining information that 

indicates the opportunity of the product 

launching on the market: the market is 

favorable and the product is launched or the 

market is unfavorable bad and the product is 

abandoned. 

The product is expected to have as 

development potential a weight of about 25% 

of the national market, although the market 

is quite competitive, beside the local 

producers being present and a number of 

foreign companies with a range of products, 

that although the quality is questionable, 

they have successful sales to consumers due 

to lower prices. 

Besides the market research, the producing 

company is also facing another problem, 

namely how they choose the best 

distribution method which is the most costeffective 

more and which also has the largest 

market coverage. The company management 

has the following variants to choose from: 

� V1- to sell the entire new product 

quantity by intermediaries (which means 

a contract for mediation for a secure income 

of 750,000 mu/ year). 

� V2 – to sell products by their own 

efforts (through their own chain of 

shops and employed traders). In the V2 

case the following situations (states of 

nature) are taken into account: 

- SN1 – massive sales of the product on 

the market, rapid product acceptance; 

- SN2 – average sales volumes, moderate 

product acceptance on the market; 

- SN3 – very weak sales under aggressive 

competition circumstances. 

The company management has the following 

available strategies (S): 

� S1: sales through intermediaries 

without the involvement of the consulting 

firm to identify market situation; 

� S2: the marketing of products on their 

own efforts, without testing the market; 

� S3: market research and then use one 

of the 2 forms of sale presented above. 

To be established the sales strategy that 

brings the highest expected average income 

429 

to the company from selling the “bedclothes 

and eiderdown” product. 

Certain data regarding the physical 

production and value can be provided by the 

statistical statements of the company, on 

which the expected revenues and the 

probability of occurrence of the 3 cases can 

be estimated, as shown in the data 

presented in Table 1. 

Table 1. Probability of occurrence of the three 

strategic variants 

States of 

nature 

Probabilities 

of occurrence 

Estimated income 

(thousands mu) 

SN1 0.5 1000 

SN2 0.3 800 

SN3 0.2 400 

The marketing study has determined the 

probability of 0.55 that the market is 

favorable and 0.45 for an unfavorable 

market. Experts have estimated the 

probability of simultaneous accomplishment 

of different states of nature according to the 

data presented in Table 2 below. 

Table 2. Probability of occurrence of the three 

strategic variants 

States 

of 

nature 

Favorable 

market 

Un 

favorabl 

e market 

Absolute 

probabiliti 

es 

SN1 0.38 0.12 0.5 

SN2 0.12 0.18 0.3 

SN3 0.05 0.15 0.2 

Absolut 

e 

0.55 0.45 1 

(a) Database entry: 

� the estimated income of the company and 

the probabilities of occurrence of the three 

situations outlined (SN1, SN2, SN3); 

� probability of a new product favorable 

market (55%) and probability of a new 

product unfavorable market (45%); 

� probability of simultaneous 

accomplishment of different states of nature 

presented in Table 3. This table shows that 

the probability of a favorable market and 

the company sells large quantities of 

products is 

- 0.38 and the probability of an 

unfavorable market and the company sells 

large quantities of products is 

- 0.12, the probability that the market is 

favorable and the company sells average

quantities of products is 0.12 and the 

probability that the market is unfavorable 

and the firm sells the average quantity of 

products is 

- 0.18, the probability that the market is 

favorable and the company sells small 

quantities of products is 

- 0.05 and the probability that the market 

is unfavorable and the company sells small 

quantities of products is 0.15. 

Probabilities change depending on the 

results of the market survey, to the extent 

that more information regarding the market, 

the potential customers as well as how they 

react to changes in environmental conditions 

that will be made available. 

Based on data displayed in Table 2 the 

probabilities of the SN1, SN2 and SN3 

statements will be calculated depending on a 

favorable or unfavorable market as follows: 

- the probability of massive sales depending 

on a favorable market: 

P (SN1) = 0.38/0.55 = 0,690; 

- the probability of average sales of 

depending on a favorable market: 

P (SN2) = 0.12/0.55 = 0,218; 

- the probability of unsatisfactory sales 

depending on of favorable market: 

P (SN3) = 0.05/0.55 = 0.090 

The results thus achieved can be 

summarized in a situation as that presented 

in Table 3 below. 

Table 3. Probabilities depending on a 

favorable and unfavorable market 

Probabilities Favorable 

market 

Unfavorabl 

e market 

P(SN1) 0.690 0.266 

P(SN2) 0.218 0.4 

P(SN3) 0.092 0.334 

Absolute probabilities 1 1 

(b) Calculus Algorithm: 

The expected average income (EAI) of the 

decision (i) is calculated considering the 

nature of states j (j=1, 2…n). 

VMA 

i 

� 

i�1 

� n 

p 

j 

* C 

ij 

430 

where: 

Pj = probabilities associated to the states 

of nature; 

Cij = indicator value for i alternative in j 

state. 

Various possible situations are displayed by 

the graphic method in a tree diagram, using 

the following symbols: the event will be 

represented by branches (sales through 

intermediaries, own-account sales, and premarket 

testing sales); 

The nodes or points that appear different 

decisional alternatives are presented under 

various forms, as follows: 

- if the company management is making 

the choice, then the node will be represented 

as a small circle which empty inside where 

the name of the node will be inserted; 

- if "nature” is responsible for choosing 

one of the possible alternatives, therefore 

independent of the firm factors, then the 

node will be represented by a quarrel empty 

inside where the name of the node will be 

inserted. 

The analysis of various decisional 

alternatives on the basis of the probable 

average income could be accomplished by 

choosing the strategic alternative that yields 

the maximum economic benefit. 

(c) Solution 

The activity diagram is built as in Figure 1 

below. 

Figure 1 - Diagram of activities 

� in node 1 there are 3 possibilities: market 

launch of the new product after a

preliminary market testing, selling the new 

product on the market by intermediaries and 

selling the new product on the company’s 

own effort; 

� in node 2 the "nature" is responsible for 

the choice, the launch enjoying 55% 

probability of great success and 0.45% 

probability of failure. Therefore the choice 

depends on the decision-maker as follows: 

- in terms of a nature-friendly state, the 

decision-maker may decide to sell through 

intermediaries, in which case the earnings 

are of 750 thousand mu, which will be also 

the average revenue value of node 12, or to 

sell on their own efforts in which case the 

estimated income that could be achieved will 

be different depending on the 3 strategies 

(SN1, SN2, SN3). 

- the average income that might be 

accomplished in node 10, starting from 

probabilities of occurrence of the three 

strategies on the favorable market 

conditions (0.69, 0.22, 0.09) will be: 

1800*0.69 + 1200*0.22 + 800*0.09 = 1.242 + 

264 + 72 = 1.578 thousand; 

- under the circumstances of an 

unfavorable state of nature, the decisionmaker 

may decide to sell through 

intermediaries, in which case the earnings 

will be also of 750 thousand mu and which 

will be the average revenue value of node 16, 

or to sell on their own efforts in which case 

the estimated revenue that could be 

achieved will be different depending on the 

probabilities of occurrence of the three 

strategies in unfavorable environmental 

conditions. The average income that could be 

achieved in the node 11 starting from the 

probabilities of expression of the three 

strategies in favorable market conditions 

(0.69, 0.22, 0.09) will be: 

1800*0.27 + 1200*0.40 + 800*0.33 = 486 + 

480 + 264 = 1.230 thousand; 

� in node 3 the choice belongs to the 

"decision-maker" who can choose one of the 

selling strategies on their own, which would 

yield an expected average income of 1420 

mu to the company calculated as follows: 

1800*0.5 + 1200*0.3 + 800*0.2 = 900 + 360 + 

160 = 1.420 mu thousand; 

431 

� in node 6 the average income that would 

be accomplished if the sale is made through 

intermediaries is secured and will be 750 

thousand mu; 

� in node 5 - choosing the selling variant 

will be based on the average income to be 

accomplished. The selling variant will be 

chosen to ensure the accomplishment of the 

maximum expected average revenue: 

Max (750; 1.230) = 1.230 mu thousand, 

corresponding to the selling variant on their 

own. It can be concluded that when the 

market position is unfavorable, you can 

choose to sell on their own strategic option, 

variant which allows the highest average 

income to be accomplished; 

� in node 4 - choosing the selling variant 


obtained, will be chosen the selling variant 

that allows the maximum expected average 

revenue to be accomplished: 

max (750; 1.578) = 1.578 

corresponding to the strategic selling variant 

on their own under the circumstances of a 

favorable market. 

� In node 2 - choosing the selling variant 


obtained, will be chosen the selling variant 

that ensures the maximum expected average 

revenue: 

max (1.578; 1.578) = 1.578 

corresponding to the strategic selling variant 

on their own regardless of the market 

position at a certain point: favorable or 

unfavorable. 

4. The role of the information 

technology applications in the decision 

tree problem solution 

4.1. Simulation management with the help 

of DELMS 

The application DELMS presents six types 

of economic simulation issues. From the 

main window of the application through the 

"issues" certain components start running 

that address to the following applications: 

� Analysis of the market share evolution of 

competitive products by using Markov 

chains;

� Forecast sales of goods on the market 

(exponential adjustment method of Brown); 

� A review orders from different clients 

(made with spectral vectors); 

� Analysis of decision making under 

uncertainty and risk (using Hurwitz 

optimistic criteria; the regrets criterion or 

Savage's criterion; the prudent / pessimistic 

criterion or Wald's criterion; Laplace 

criterion); 

� Allocation of resources at company level; 

� Analysis of decision-making processes in 

cascade (decision trees). 

4.2. The roll of DELMS application in the 

decision tree problem solution 

The application of the decision tree method 

in the decisions modeling process in a 

manufacture company using DELMS 

software can be solved by following these 

steps: 

(a) the main menu is selected from of the 

six available applications, the application 

"decision-making processes in cascade” as 

shown in Figure 2 below. 

After choosing the problem which is aimed to 

be resolved by pressing the left mouse 

button, a window will be opened in which we 

will be presented synthetically details 

regarding: the informational basis, solving 

methods and algorithm of calculation, as in 

Figure 3 presented below. 

Figure 2. Choosing the problem 

432 

Figure 3. Problem description 

(b) then we access, by pressing the left 

mouse button the "informational basis" 

window, which switches to the loading a new 

data base as follows (Figure 4). 

Moving from one box to another within the 

"informational basis" window will be done 

only by mouse. After entering all required 

data: number of items, the period for which 

it is desired to make forecasts, market 

shares of the original, the probability matrix 

of transition from one product to another, 

the initial data will be confirmed by clicking 

"Confirm initial data" button using the 

mouse and the application will proceed to 

the calculation by clicking the "Perform 

calculations” button. 

3. After the "Perform calculations" 

command was given, the "Results" window 

can be opened where we find all input data 

processed, on the structure of the example 

above, achieving instead a summary of the 

type shown in Figure 5. 

(d) Based on data from the matrix above, the 

"DELMS" program accomplishes significant 

“graphical representations”, which 

illustrate the evolution of the phenomena 

mentioned above, graphs on which decisions 

can be taken regarding the policies / trade 

strategies that may be taken by the company 

(see Figure 6 below). 

Analyzing the graph above we can say that it 

shows clearly that the strategic option to be 

followed by company management in the 

process of launching the new product on the 

market, is to choose the strategy that 

ensures the achievement of maximum 

expected average income, namely the

strategy that launches the product on the 

market with pre-market testing. Even after 

the expenses were paid on market research, 

the remaining income will be higher than all 

other variants. 

Figure 5. Results achieving 

Figure 6. Graphical representation of the 

problem to be solved 

433 


We have made DELMS to be used 

exclusively for educational purposes, as 

support for applied activities that have the 

following features: 

� Modeling is a partial management as 

simulating a small number of activities in 

some fictitious companies; 

� Participatory management is a simulation, 

because the participants are organized into 

teams, the adoption of decisions by the 

group, one of the main objectives we have 

pursued is achieving simulation by the 

involvement of all team members that 

participate in decision making and also the 

awareness of the benefits provided by 

teamwork; 

� Is a management simulation involving in 

particular the average level of management, 

marketing departments namely: supply, 

production and finance?; 

� Is a computerized management simulation 

as it facilitates the decision making by the 

participants and especially processing 

decisions (simulation proper) that uses an 

application? 

In the globalization of the manufacture 

market product and in the context of the 

financial crisis, the competition pushes the 

companies’ managers to make strategic, 

tactic and operational decisions which allow 

the implementation of strategies focused on 

low costs and implicitly low prices for 

customers. 

The decision tree method represents a 

simple decision tool, but in the same time 

complex as it provides the opportunity to 

design several decision alternatives and to 

choose the most efficient one. The simulation 

of the economic consequences of the different 

decision alternatives, before their effective 

implementation, offers the surety of the 

decisions making process quality. 

Our model reveals the advantages of the 

decision making process simulation, 

facilitated by DELMS software. Once the 

optimal decision is found, the manufactured 

company manager can seek to improve that 

solution by finding ways to relax binding 

constraints. This model can be personalized 

to any type of business activity, revealing 

the interdependences between its variables 

and constraints and emphasizing the value 

of the decision tree approach in the 

formulation of a business problem.

References 

[1] Raţiu-Suciu C. – “Modeling and Simulations 

of Economic Processes”, Ed. Economica, 

Bucuresti, 2004 

[2] Rokach L., Maimon O. – “Data Mining with 

Decision Trees”, World Scientifice Publishing 

Co., Singapore, 2008 

[3] Skinner D. – “Introduction to Decision 

Analysis”, Third Edition, Probabilistic 

Publishing, Gainsville, 2003 

[4] Nistor R., Capatina A. – “Management 

Simulations and Projects”, Ed. Academica, 

Galati, 2005; 

[5] Nistor R – “Economic modeling and 

simulation company's Computer Aided” Ed 

Academica, Galati, 2003; 

[6] Nistor R – “Economic modeling and 

simulation”, Ed. Fundatiei Universitare 

“Dunarea de Jos” Galati, 2006; 

434




THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND 

SIMULATION OF THE ECONOMIC PROCESSES 

Abstract 

Today, the use of information technology in 

achieving production but also in decision 

making at the microeconomic level has 

become an important factor of competitive 

advantage for any company, regardless of 

industry. As a consequence of the process of 

globalization, the enterprises from Romania, 

dynamically linked to the business 

environment that they operate have started to 

use widely the benefits of using computer 

technology in decision making. To illustrate 

how computing can help in decision making 

inside a company, regardless of level and 

decision, we created a software dedicated to 

support modeling and simulation processes 

entitled "DELMS”. 

Key words: resources assignment, 

optimization, modeling, simulation, 

efficiency. 


Today we are in a period when the mix of 

traditional, classical decision making tools 

based on intuition and experience, are 

emerging and a great number of modern 

scientific methods have appeared. These 

scientific processes are characterized by a 

solid theoretical background, based mainly 

on the use of mathematical methods, but 

maintaining a general guide, practical and 

realistic. 

In these conditions, higher qualitative 

decision making are possible by the means of 

a large range of methods and techniques 

that facilitate decision choosing the optimal 

decision, each of these variants decision 

fitting to a decision model. 

ROZALIA Nistor; 

University “Dunarea de Jos”of Galati; 

Rozalia.Nistor@selir.com 

ALEXANDRU Capatina; 

University “Dunarea de Jos”of Galati; 

Rozalia.Nistor@selir.com 

435 

Economic modeling provides to the 

management activities its multiple ways of 

reconciling the resources (material, human, 

financial) in order to achieve the objectives 

formulated for a certain period of time, 

giving management the opportunity to think 

and act better and faster, and without 

distorting the reality. The constant need to 

find the best solutions in management 

processes, organizations are searching for 

the continuous improvement of the 

decisional processes. In this context, the 

actual business environment leads the 

scientists to develop and improve ways and 

methods of observation and analysis of the 

real business processes. 

The business simulations can 

simultaneously track several criteria such as 

maximizing turnover, net income, value 

added, the loading capacity of production 

and minimize material consumption, the 

break times etc. Only if they have to achieve 

only one of these criteria may affect the 

optimization of one of the others. The 

correction of this situation requires the use 

of multi analysis. 

In the developed countries, mathematical 

programming is applied frequently in the 

shaping of the economic processes. 

Consequently, many models have been 

developed and there were designed various 

software for solving problems of "routing". 

The majority of the Romanian companies 

have adapted their strategies to the ebusiness 

environment requirements and 

begun in the last period to use the benefits of 

computer technology. 

The education plays an essential role in 

creating and training the future specialists 

in view to make efficient decisions at the

micro – economic level. Therefore, as 

university teachers, in order to illustrate 

how computing can help in making relevant 

and efficient decisions at the company level, 

we designed a software that we "called" in a 

generic way - DELMS (Delphi for modeling 

and simulation). 

In order to understand how the software 

"DELMS runs, no programming knowledge 

is required, but only minimal knowledge of 

personal computer use, knowledge that was 

gained during the first years of academic 

formation. 

a. The necessary hardware features. In 

view to use DELMS software, it is necessary 

to have available a personal computer in 

which is installed any version of 

Windows2000/XP/Millenium/2007. 

b. Programming language used. Delphi 

language is a visual programming 

environment, object oriented, which provides 

fast development. 

Using the Delphi system we can design 

effective software applications in the 

Windows operating system. Delphi language 

requires a minimum number of code writing 

(to write some simple applications do not 

need the keyboard since the program code 

can be generated only using the mouse). 

Based on data provided by the company 

producing the Delphi language, system 

speed is extremely high. 

If somebody wants a full system installation 

of Delphi (including utilities as Borland 

Database Engine and SQL Links Database 

Desktop, which provides multiple 

opportunities for managers), hard disk space 

must have minimum 110 megabytes. 


Within the last few years, the topic of 

modeling and simulation of the economic 

process has gathered a lot of interest in the 

corporate sector. Researchers are 

demonstrating an increasing interest in the 

topic. Software process simulation modeling 

is increasingly being used to address a 

variety of issues from the strategic 

management of software development, to 

supporting process improvements, to 

software project management training. 

The scope of software process simulation 

applications ranges from narrow focused 

portions of the life cycle to longer term 

product evolutionary models with broad 

organizational impacts. (Marc I. Kellnera, 

436 

Raymond J. Madachyb and David M. Raffo, 

1999). 

Many companies are taking a process view 

as a result of business process re engineering 

exercises, statutory compliance, reaction to 

market forces and the promotion of 

integrated computer and information 

systems. This means questioning the way in 

which companies operate and has 

implications for management. 

Business process modelling (BPM) and 

business process simulation (BPS) help to 

facilitate process thinking. BPM provides 

management with a static structured 

approach to business improvement, 

providing a “holistic” perspective on how the 

business operates, and provides a means of 

documenting the business processes while 

BPS allows management to study the 

dynamics of the business and consider the 

effects of changes without risk (RJ Paul, GM 

Giaglis, V Hlupic, 1999). 

There are a number of BPM and BPS 

methodologies, approaches and tools 

available, each of which may be applicable to 

different circumstances. (K.D. Barber, F.W. 

Dewhurst, R.L.D.H. Burns, J.B.B. Rogers, 

2003). 

Process modeling becomes more and more an 

important task not only for the purpose of 

software engineering, but also for many 

other purposes besides the development of 

software. Therefore it is necessary to 

evaluate the quality of process models from 

different viewpoints. This is even more 

important as the increasing number of 

different end users, different purposes and 

the availability of different modeling 

techniques and modeling tools leads to a 

higher complexity of information models. 

(J Becker, M Rosemann, 

Christoph von Uthmann, 2000). 

A new approach to modeling systems is 

Agent-based modeling and simulation 

(ABMS). ABMS promises to have far 

reaching effects on the way that businesses 

use computers to support decision making 

and researchers use electronic laboratories 

to support their research. Computational 

advances have made possible a growing 

number of agent-based applications in a 

variety of fields. Applications range from 

modeling agent behavior in the stock market 

and supply chains, to predicting the spread 

of epidemics and the threat of bio warfare, 

from modeling consumer behavior to 

understanding the fall of ancient

civilizations, to name a few. (Macal Ch, 

North M, 2008). 

3. Presentation of DELMS (Delphi for 

Modeling and Simulation) software 

The software that we designed using Delphi 

language - DELMS, allows the solving of six 

types of specific applications based on 

modeling and simulation of economic 

processes, in a manner that has enabled a 

user-friendly and interactive user. 

The user receives instructions in Romanian, 

which makes it easier for our students but 

we intend to customize it by making 

available in several languages. The first 

window that the user comes in contact is 

presented as in Figure 1. The interface that 

the user will find is stimulating in view to 

discover the details about the issues subjects 

that must be solved. 

The software presents six types of problems 

concerning the business simulation. The 

main window of the software provides the 

opportunity to select one of the following 

applications: 

� Analysis of the market share evolution of 

competitive products using Markov chains; 

� Sales forecasting on the market 

(exponential single smoothing – Brown 

method); 

� The analysis of the orders made by 

different clients (spectral vectors method); 

� Analysis of decision making under 

uncertainty and risk (using criteria of 

Hurvicz optimistic; the criterion regrets or 

Savage's criterion; criterion prudent / 

pessimistic or Wald's criterion; Laplace 

criterion); 

� Resources assignment at the company 

level; 

� Analysis of the decision-making processes 

using the decision trees method. 

To start running one of the six issues above, 

the cursor is positioned on the problem that 

is intended to be solved, and do click on the 

left button of the mouse. Practice application 

DELMS loading of input data files built. 

These files have the extension "p1" "p2" "p3", 

"p4", "P5" and "P6". 

437 

Figure 1 – Choice of a problem 

The application also allows DELMS practice 

and saving data entry in one of these 

extensions. 

After the user selects a specific problem 

which would be solved with the help of 

DELMS opens a window where the user 

must choose one of these options (figure 1): 

� Evolution of market share; 

� Forecast sale of good; 

� Customer order analysis; 

� Decisions in conditions of risk; 

� Resource allocation; 

� Cascade decisions making processes; 

a. "Description problem” is the window 

where a user can find some information and 

clarification on the typology / nature of the 

application he wants to solve. "Method of 

Solving" and “The algorithm for calculating” 

represents two important tools which 

facilitate the understanding of the 

theoretical concepts involved by the 

problems. In the following example, we 

present the menu "Description in the case of 

the problem "Cascade decisions making 

processes" (Figure 2). 

b. "The Information" is gathered in the 

database of the software that can be built 

freely by the user that must to reach an 

infinite number of variables. If one of the 

applications is made by hand, the number of 

inputs is reduced to facilitate the work and 

reduce computing time. Design for 

applications provides a large number of 

input variables, fast speed of processing and 

a reduced time for results display.

Figure 2 - Description problem 

At this stage of solving the problem, the user 

can confirm the data entered by clicking the 

left mouse button on the box "Confirm data”. 

"Perform calculations” button allows the 

resolution of the problem in real time. 

The user has the possibility to upload and 

another set of data and save data issues 

through the menu "File" and its two 

components: "Load Example" and "Save 

Sample" (Figure 3). 

Figure 3-The Information inserted in the 

software’s database 

438 

For example, we present a simulation for the 

application "Cascade decisions making 

processes"”. The database is created by 

loading the target file, noted in our case 

"problem4.p4”. After loading the data entry, 

a user will click on the "Confirm initial data" 

to accept the data entered and then the 

"calculations" tab in order to automatically 

solve the problem. 

c. Using "The results obtained" menu, the 

user can view the results obtained at the box 

"the results" just by driving the left button of 

the mouse. This box summarizes the results 

of calculations that were made. (Figure 4). 

d. "Graphics”. DELMS software provides a 

range of facilities such as graphic 

representation, enabling an easier analysis 

of results obtained by the algorithms. We 

illustrate this feature of the program 

through a pattern of three-dimensional 

graphs (Figure 5). 

The user has available the option of printing 

the graph obtained from processing data in 

view to facilitate the analysis and 

interpretation of the results; we consider 

that graphical representations generate a 

valid support decision making at the 

microeconomic level. Printing is done simply 

by pressing the button "printer" with the 

mouse. 

Figure 4 – Results provided by DELMS 

software

Figure 5 - Graphical representation 


DELMS software provides a real support for 

business simulations, being designed 

exclusively for educational purposes, 

including the following features; 

� Modeling and simulation of a small 

number of activities in some virtual 

companies; 

� It facilitates teamwork spirit, because the 

participants are organized into teams, 

making decisions by group; one of the main 

objectives we have pursued is the 

involvement of all team members 

participating in decision making; 

� The simulation involves particularly the 

average level of management, being focused 

on departments like marketing, supply, 

production and finance; 

� It is a computerized management 

simulation as it facilitates the decision 

making by the participants and especially 

processing decisions with specialized 

software. 

References 

� Gheorghiţă M. – ”Modelarea şi simularea 

proceselor economice”, Lito ASE, Bucuresti 1994; 

� Jörg Becker, Michael Rosemann and 

Christoph von Uthmann - Guidelines of Business 

Process Modeling, Springer Berlin / Heidelberg, 

2000; 

� K.D. Barber, F.W. Dewhurst, R.L.D.H. Burns, 

J.B.B. Rogers - Business-process modelling and 

simulation for manufacturing management: A 

439 

practical way forward, Business Process 

Management Journal, 2003; 

� Macal Ch, North M, 2008) -Agent-based 

modeling and simulation: ABMS examples, 

Proceedings of the 40th Conference on Winter 

Simulation, Florida, 2008; 

� Marc I. Kellnera,, Raymond J. Madachyb and 

David M. Raffo - Software process simulation 

modeling: Why? What? How?, Journal of Systems 

and Software, 1999; 

� Rădăceanu E – “Metode decizionale în 

conducerea sistemelor complexe“, Editura 

Militară, Bucureşti, 1985; 

� Rădulescu D, Gheorghiu O – “Optimizarea 

flexibilă şi decizii asistate de calculator“, Editura 

Ştiinţifică, Bucureşti 1992; 

� Rozalia Nistor – “Modelarea si Simularea 

proceselor economice”, Editura Fundatiei 

Universitare “Dunarea de Jos” Galati, 2006; 

� Rozalia Nistor – “Modelarea si Simularea 

proceselor economiche ale firmei asistata de 

calculator, Editura accademica, Galati, 2003; 

� Rozalia Nistor, Costel Nistor, Alexandru 

Capatina – Metodoligii Informatice 

Managemriale, Editura Academica, Galati, 2004; 

� Rozalia Nistor; Alexandru Capaţină – “Simulări 

şi proiecte de Management – Marketing”, Editura 

Academica, Galaţi, 2005.




THE ROLE OF STRATEGIC LEADERSHIP IN THE EXECUTION OF 

CORPORATE STRATEGIES 

ABSTRACT 

This study takes a critical look at the role of 

strategic leadership in the execution of 

corporate strategies as obtained in the 

banking industry in Nigeria. The researcher 

tries to ascertain the degree to which strategic 

leadership plays a role in the execution of 

corporate strategies and how this can be 

improved upon with reference to decision 

making and motivation, to enable employees 

feel at home in executing corporate strategies 

so that organisations could reach the peak of 

success by achieving their goals and 

objectives maximally. From this research, it 

can be concluded that strategic leadership 

plays a crucial role in execution of corporate 

strategies as the strategic leaders who are the 

principal heads of all strategic affairs 

inculcates the need for an excellent 

implementation to all organisational 

members, through motivation, decision 

making and skill. The strategic leaders 

therefore have the foremost role to play in any 

execution plan and this role should be taken 

with all seriousness. 

KEY WORDS: Corporate Strategy, 

Strategic Leadership, Strategy Execution, 

Strategies. 


Strategy execution has always been one of 

the more difficult problems in business 

(Davenport, 2007). Creating a brilliant 

strategy is nothing compared to executing it 

successfully. It has always been much easier 

to create a strategy document than to get 

employees to abide by it. Many employees 

don’t even know the details of strategies. 

OLU Ojo 

Osun State University, Nigeria 

oluojoe@yahoo.com 

440 

When plans are neither attended to nor 

executed properly, performance expectations 

cannot be achieved. 

Despite the experience of many 

organizations, it is possible to turn strategies 

and plans into individual actions, necessary 

to produce a great business performance. 

But it’s not easy. Many companies 

repeatedly fail to truly motivate their people 

to work with enthusiasm, all together, 

towards the corporate aims. Most companies 

and organizations know their businesses, 

and the strategies required for success. 

However many corporations –especially 

large ones –struggle to translate the theory 

into action plans that will enable the 

strategy to be successfully implemented and 

sustained. Therefore, this study tries to 

examine the role that strategic leadership 

plays in successful execution of corporate 

strategies. This study become very important 

in the face of turbulent environments in 

which many organisation have found 

themselves couple with their inability to 

translate their good and workable strategies 

into brilliant business performance. This 

study also reveals that the strategic 

leadership role goes far beyond strategic 

planning in corporate performance. It 

involves strategic thinking, foresight, team 

building, cultural understanding and 

personnel management. 

This study therefore takes a critical look at 

the role of strategic leadership in the 

execution of organisational strategies. In 

other words, this study fills the gap between 

strategy and execution. The exploratory

method of study was employed in this 

research. This study tries to provide answers 

to two major questions generated. These are: 

(i) What is the relationship between strategic 

leadership and execution of corporate 

strategies? (ii) What is the effect of strategic 

leadership decisions on the outcome of 

strategies execution? A number of studies 

have been carried out on this important topic 

that points out the need for further studies 

especially in the developing countries. 

Additionally, Cannella & Monroe (1997) note 

that in recent years the attention of many 

leadership theorists has shifted to strategic 

leadership by executives and the top 

management team. This shift in focus 

reflects an increased interest in 

understanding how corporate executives 

must transform their companies to cope with 

the growing international competition (Yukl, 

2006). This study is significant to many 

organizations today in many respects: It will 

help in the successful implementation of 

organizational strategies, by staff and 

leaders alike when they play their role 

intelligently. 

LITERATURE REVIEW 

Conceptual Framework 

Many attempts have been made to come up 

with a definition of strategic leadership, 

however, all these definitions complements 

rather than contradict one another. In the 

words of Ireland and Hitt (1999), strategic 

leadership is the ability to anticipate, 

envision, maintain flexibility, think 

strategically, and work with others to 

initiate changes that will create a positive 

future for an organization. In addition, 

strategic leadership is about motivating 

people to move in a particular direction in 

order to achieve particular objectives 

(Hannagan, 2002). While strategy execution 

entails figuring out all the how’s- the specific 

techniques, actions and behaviours that are 

needed for a smooth strategy running- 

supportive operation- and then following 

through to get things done and deliver 

441 

results (Thompson, Gamble, and Strikland, 

2004) According to Hannagan (2002) 

leadership is a vital ingredient in developing 

the purpose and strategy of organizations 

because strategic management is concerned 

with the way forward for an organization. 

The people who develop a strategy may or 

may not be the same as those who take the 

lead in managing strategic change. Some 

managers may be especially good at creating 

a vision for the future, but may need to rely 

on others to take a lead in implementing the 

changes (Hannagan, 2002). 

The Gap Between Strategy and 

Execution 

The strategy-execution gap is not new to 

most leaders. Leadership is about initiating 

and leading change. This requires strategy, 

the casting of vision as well as guides the 

implementation and execution of the 

strategy. To be successful leaders need to be 

as diligent in guiding the execution as they 

are at setting and communicating strategic 

direction. 

If becoming a strategist is the “ends,” then 

leadership is the “ways,” and development is 

the “means.” Learning to become a strategic 

leader requires special preparation in 

several areas. First, one must understand 

how such a leader develops—in essence the 

anatomy of strategic leadership. Second, one 

should recognize some of the essential 

competencies a strategic leader must have. 

Finally, the prospective leader needs to 

assess his or her current abilities and 

commit to a development plan (Guillot, 

2003). 

The Path to Strategic Leadership 

The development of a strategic leader 

involves a number of important aspects. 

First, the most important, indeed 

foundational, part of this preparation 

concerns values, ethics, codes, morals, and 

standards. Second, the path to strategic 

leadership resembles the building of a 

pyramid (See Figure 1 below).

Figure 1. Anatomy of a Strategic Leader 

(Source:http://www.airpower.maxwell.af.mil/airchorinicles/apj/apj03/win03/Guillot.html) 

Shortcuts do not exist, and one can’t start at 

the top—strategic leaders are made, not 

born. Strategic leaders gradually build 

wisdom, defined as acquiring experiences 

over time (Jacobs, 2000). One must also 

remember that certain activities can 

accelerate these experiences and widen 

perspectives. Leaders should know that even 

though some individuals with strategic 

competency may not become strategic 

decision makers, they can still influence and 

contribute to decisions. Additionally, having 

strategic competency will allow one to fully 

understand strategic decisions and 

perspectives (Guillot, 2003). 

Strategy is getting it right and doing it right. 

On the one hand, we have to pick the right 

course of action. On the other hand, once 

chosen, we have to carry it out properly. The 

interplay of our strategy and its execution 

yields the consultant’s dream (Mintzberg, 

1994). If strategy is sound but its execution 

is flawed, we are guilty of muffing it. We 

have botched the job. The real but hidden 

danger here is that we will be quick to blame 

an otherwise sound strategy. With the 

strategy condemned, a new one, probably of 

lesser quality, will be sought out. A series of 

events in which a sound strategy is botched 

during execution can result in a series of 

shifts to increasingly inadequate strategies, 

leading to a downward spiral in the level of 

the organization’s performance. Only when 

our strategy and its execution are sound do 

442 

we stand a pretty good chance of success. 

Even then success is not guaranteed. If your 

competitors have better strategies and 

execute them with more dispatch, diligence 

and dedication, we will lose the battle of 

business. So, even if we get the strategy 

right and even if we carry it out efficiently 

and effectively, all we can really say is that 

the odds are in our favour. 

Strategy Execution 

It is not enough to make good strategic 

decisions; they must be implemented 

effectively to be successful. Member 

commitment is important for effective 

implementation of strategic decisions 

(Schweiger and Sandberg, 1991). According 

to Harrison (1992), executives vary greatly 

in their perceptions on effective leadership in 

successfully implementing strategic choices. 

Thompson Jr. and Strickland III (2003) 

explain that in crafting a strategy 

management is saying in effect ‘among all 

the paths and actions we have chosen, we 

have decided to move in this direction, focus 

on these markets and customers needs, 

compete in this fashion, allocate our 

resources and energies in this way, and rely 

on these particular approaches to doing 

business’. Executing a strategy are toppriority 

managerial tasks for two very 

serious reasons; first, there is the compelling 

need for managers to proactively shape how 

the company’s business will be conducted. It 

is management’s responsibility to exert 

strategic leadership and commit the

enterprise to going about its business in one 

fashion rather than another (Thompson Jr. 

and Strickland III, 2003). 

Achieving results thrusts a manger into a 

variety of leadership roles in managing the 

strategy execution process. There are times 

when leading the strategy execution process 

entails being authoritarian and hardnosed. 

For the most part, leading the strategy 

execution process has to be top-down and 

driven by mandates to get things done and 

show good results. Leading the drive for good 

strategy execution and operating excellence 

calls for several actions on the part of the 

manger-in-charge. (Thompson Jr. et al., 

2004) 

David (1997) says that interpersonal skills 

are especially critical for successful strategy 

execution. Strategy execution activities 

affect all the employees and managers in an 

organization. He also said that they must 

decide on answers to questions such as 

“what must we do to implement our part of 

the organizations strategy”? “How best can 

we get the job done”? As observed by Bryson 

(1995), creating a strategic plan is not 

enough. Developing effective programs, 

projects, action plans, budgets and 

implementation processes will bring life to 

the strategies and create real value for the 

organization, community and stakeholders. 

A major concern of top management as noted 

by Pearce II and Robinson Jr., (1997) is 

implementing a strategy, particularly if it 

involves a major change, the right 

management should be in the right position 

to facilitate execution of the new strategy. 

This strategy executing task is easily the 

most complicated and time consuming part 

of strategic management. It cuts across 

virtually all facets of managing. The action 

agenda for executing strategy emerges from 

careful assessment of what the organization 

needs to do differently or better (Pearce II 

and Robinson Jr., 1997). 

Role of the Strategic Leader 

Pearce II and Robinson Jr. (1997) listed out 

five roles of strategic leaders which are; 

1. Staying on top of what is happening, closely 

monitoring progress, ferreting out issues, 

and learning what obstacles lay in the path 

of good execution. 

2. Promoting a culture and espirit de corps that 

mobilizes and energizes organizational 

members to execute strategy in a competent 

fashion and perform at a high level. 

3. Keeping the organization responsive to 

changing conditions, alert for new 

opportunities, bubbling with innovative 

ideas, ahead of rivals in developing 

competitively valuable competencies and 

capabilities. 

4. Exercising ethics leadership and insisting 

that the company conduct its affairs like a 

model corporate citizen. 

5. Finally, pushing corrective actions to 

improve execution and overall strategic 

performance. 

Dess, Lumpkin and Taylor (2005) see leaders 

as change agents whose success is measured 

by how effectively they implement a 

strategy. Strategic leadership is vital in 

ensuring that strategies are formulated and 

implemented in an effective manner. 

Leaders must play a central role in 

performing three critical and interdependent 

activities. Setting the direction, designing 

the organization and nurturing the culture 

committed to excellence and ethical 

behaviour (Dess et al., 2005). 

Strategy Execution and the Strategic 

Leader 

Strategic leadership is very important in this 

executing task as Bryson (1995) says 

strategic leaders need to have a clear view of 

the strategic direction of the organization, 

where it wants to be, and also have a clear 

view of where it is now. Many organizations 

are only motivated to change when their 

problems are so bad that they have to 

change. Strategic leadership motivates 

people to change before this situation arises. 

Strategic leaders are also responsible for 

building a foundation of purpose and core 

values. They can do this through long term 

policies and fostering strategic thinking. The 

strategic leader also has to be a teacher or 

443

coach in the sense of bringing to the surface 

peoples assumptions and challenging them. 

People will develop a range of assumptions 

about their work, leaders as teachers, may 

want to change this impression, strategic 

leaders help people to restructure their 

views of reality, to see beyond the superficial 

conditions and events into the underlying 

causes of problems, and therefore to see new 

possibilities for shaping the future (Bryson, 

1995). 

Hitt, Ireland and Hoskisson (1999) note that 

employees may look to the strategic leader 

for relief from stress in times of change, but 

rather than protecting them from outside 

threats it is the role of a leader to stimulate 

his or her employees to adapt. Instead of 

maintaining norms leaders encourage 

employees to change the way business is 

done. Leaders are needed who take interest 

in employees and develop a firm’s human 

capital. Strategic leaders are now required to 

be transformational managers who not only 

help firms operate efficiently, but can 

provide visionary leadership which 

empowers not only managers with good 

product ideas but motivates people to make 

the necessary changes as well (Hitt et al., 

1999). Strategic leaders must learn how to 

influence human behaviour effectively in an 

uncertain environment by word or by 

personal example and through their ability 

to dream pragmatically, effective strategic 

leaders meaningfully influence the 

behaviours, thoughts and feelings of those 

with whom they work (Gardner, 1995). The 

ability to manage human capital may be the 

most critical of the strategic leader’s skills 

(Quinn, Anderson, and Finkelstein, 1996). 

Competent strategic leaders also establish 

the context through which stakeholders (e.g. 

employees, customers and suppliers) are able 

to perform at peak efficiency (Kets De Vries, 

1995). 

3. METHODS AND MATERIALS 

This section focuses on the research 

techniques adopted and used for this study 

with the aim of achieving the research 

444 

objectives. In this study, survey research 

design was adopted. Survey research design 

was chosen because the sampled elements 

and the variables that are being studied are 

simply being observed as they are without 

making any attempt to control or manipulate 

them (Ojo, 2003). For the purpose of this 

research, the sampling method used was 

purposive and convenience sampling 

methods which are non probability sampling 

techniques in which selection of sample 

elements from a given population is based 

entirely on the subjective choice of the 

researcher. In all, samples were drawn 

bearing in mind the organisational level of 

the respondents. Primary method of data 

collection was used in this study. The 

primary data consists of a number of items 

in structured questionnaire that was 

administered to the respondents. The 

decision to structure the questionnaire is 

predicated on the need to reduce variability 

in the meanings possessed by the questions 

as a way of ensuring comparability of 

responses. To ensure the validity and 

reliability of the questionnaire used for the 

study, even number of experts were 

consulted to look at the questionnaire items 

in relation to its ability to achieve the stated 

objectives of the research, level of coverage, 

comprehensibility, logicality and suitability 

for prospective respondents. A total of 185 

copies of the questionnaire were distributed 

to our sample size of 185 respondents who 

are leaders in their business organisations. 

Managers and leaders at strategic level with 

significant experience and responsibilities 

for organic functional areas in their 

respective organizations were the subjects of 

this research. One hundred and fifty 

respondents adequately filled and returned 

their completed questionnaire resulting in a 

response rate of 81.08 %. Data collected from 

the questionnaire were analysed with the aid 

of descriptive statistical techniques such as 

total score, and percentage while chi-square 

inferential statistics was used to proof the 

level of significance in testing stated 

hypotheses.

4. PAPER CONTENT 

This section of the study presents the major 

results that emanated from the test of 

hypotheses. The hypotheses in this research 

would be tested using chi-square method. 

The chi-square test is used as a goodness fit 

to assess whether a particular set of 

observation is sufficiently reliable for the 

purpose for which is has been collected (Ojo: 

2003). Having obtained the observed and 

expected frequency table, the chi- square test 

is performed using the standard formula: 

x2 = ∑ (O – E) 2 

E 

Where: ∑ = Summation 

O = Observed frequency 

E = Expected frequency 

The two hypotheses were tested at a 

significance level of 0.05 with the degree of 

freedom of 4 (i. e. n-1, where n= number of 

alternatives; 5 in this case). 

Hypothesis 1: There is a positive 

relationship between strategic leadership 

and execution of corporate strategies. 

Table 1: Chi-Square Calculation for 

Hypothesis 1 

Alternative 

Responses 

Strongly 

agree 

O E O- 

E 

(O- 

E)² 

(O-E)² 

E 

100 30 70 4900 163.33 

Agree 50 30 20 400 13.33 

Undecided 0 30 - 

30 

900 30 

Disagree 0 30 - 

30 

900 30 

Strongly 0 30 - 900 30 

disagree 

30 

Total 150 266.66 

E = no of respondents 150 ₌ 

30 

no of alternatives 5 

x2 Calculated Value = 163.33+13.33 + 

30+30+30 =266.66 

x2 = Tabulated Value at 0.05 = 9.49 

From the above computations, chi-square 

calculated value is 266.66 while chi-square 

tabulated is 9.49. This means that the 

445 

calculated chi-square value is greater than 

the tabulated value of chi-square. We 

therefore accepts our alternative hypothesis 

that strategic leadership has a significant 

and positive role to play in the execution of 

corporate strategies. 

Hypothesis 2: Strategic leadership 

decisions do affect the outcome of corporate 

strategies execution. 

Table 2: Chi-Square Calculation for 

Hypothesis 2 

Alternative 

Responses 

Strongly 

agree 

O E O- 

E 

(O- 

E)² 

45 30 15 225 7.5 

(O-E)² 

E 

Agree 85 30 55 3025 100.83 

Undecided 15 30 - 

15 

225 7.5 

Disagree 5 30 - 

25 

625 20.83 

Strongly 0 30 - 900 30 

disagree 

30 

Total 150 166.67 

x 2 Calculated Value= 7.5 + 100.83 + 7.5 + 

20.83 + 30 = 166.67 

x 2 Tabulated Value at 0.05= 9.49 

At the 0.05 level of significance, the 

calculated chi-square value is greater than 

the tabulated value of chi-square. We 

therefore conclude that strategic leadership 

decisions do affect the outcomes of corporate 

strategies’ execution. 

This study was carried out to test whether 

strategic leadership played a role in strategy 

execution. Two hypotheses were tested to 

find out whether strategic leadership has a 

significant role to play in strategy execution 

and to prove if strategic leadership decisions 

affect the outcome of strategy execution. The 

two hypotheses were proved positive and we 

can therefore infer that strategic leadership 

plays positive role in corporate strategies 

execution. 

5. CONCLUSIONS AND IMPLICATIONS 

In this section our attention shall be focused 

on two major items: conclusions and 

implications of the study. This section

however is divided into three sub-sections 

discussed in the next few paragraphs. 

Successful strategy making depends on 

business vision, solid industry and 

competitive analysis, successful strategy 

execution depends on doing a good job of 

working with and through others, building 

and strengthening competitive capabilities, 

motivating and rewarding people in a 

strategy- supportive manner, and instilling 

discipline of getting things done. Executing 

strategy is an action-oriented; 'make-things 

happen' task that test a leader’s ability to 

direct organizational change, achieve 

continuous improvement in operations and 

business processes, create and nurture a 

strategy supportive culture and consistently 

meet or beat performance targets. It takes 

adept managerial leadership to convincingly 

communicate the strategy and the reasons 

for it, to overcome pockets of doubt and 

disagreement, secure the commitment and 

enthusiasm of concerned parties, identify 

and build consensus on the entire how’s of 

implementation and execution, and also to 

get all the pieces into place. 

Summary of the Main Outcome 

This study takes a critical look at the role of 

strategic leadership in the execution of 

organisational strategies. It is believed that 

strategy execution has always been one of 

the more challenging tasks in business. Most 

companies know their businesses, and the 

strategies vital for success. However many 

corporations battle seriously to translate the 

theory into action plans that will enable the 

strategy to be successfully implemented and 

sustained, therefore the need to look at how 

these strategies can be implemented easily 

through strategic leadership becomes 

imperative. Employees look to leaders to 

bring meaning, to make sense of the 

seemingly limitless demand for results and 

the need for individuals to find the drive and 

value to work. In a competitive business 

environment like that of Nigeria, it is 

essential for organisations to have an 

extensive knowledge of how strategy 

execution can be improved in order to 

446 

increase organisational productivity and 

compete successfully. The main outcome of 

this study can be summarised thus; strategic 

leadership plays significant roles in the 

execution of corporate strategies. 

Implications of the Outcome 

It can be inferred from this study that good 

strategy and good strategy execution are 

the most trustworthy signs of good 

management. Managers do not deserves a 

gold star for designing a potentially 

brilliant strategy but failing to put the 

organizational means in place to carry it 

out in high fashion: because weak 

implementation and execution undermine 

the strategies potential and pave the way 

for shortfalls in customer satisfaction and 

company performance. It is essential for 

leaders to note that they play a very 

crucial role when it comes to strategy 

execution task. It is also important to note 

that a good strategy is not complete 

without an equally good execution and that 

a flawed execution spoils a very good 

strategy. Also that working together with 

employees is likewise important, as a 

strategy execution task cannot be carried 

out alone and for there to be an equal 

amount of enthusiasm for the task from 

the leader and employees the strategic 

leader needs to influence, provoke and 

motivate his employees to work. This 

knowledge would lead to better and more 

proficient organizations which would give 

them the knowledge which they would use 

to compete successfully and stakeout a 

market position. Therefore, leaders in 

every sphere should constantly and totally 

involve themselves in strategy execution 

tasks. Also subordinates’ should be 

involved in task relating to strategy 

execution and their views should be taken 

into consideration when it comes to issues 

that concern execution of corporate 

strategies. In addition, leaders should 

motivate their employees as this gives 

them the confidence to make useful 

suggestions that may lead to effective

execution of corporate strategies. 

Additionally, everybody should be carried 

along in the execution process and believe 

that they as an individual have a part to 

play. Also it is important that the 

subordinates understand the strategy 

before being told to work, as adequate 

understanding builds up enthusiasm. 

Similarly leaders need to be as diligent in 

directing the execution as they are at 

communicating strategic direction. As they 

are both equally important if stated goals 

want to be seen. 

Suggestions for Further Study 

Although this present study assessed the 

role of strategic leadership in the execution 

of corporate strategies in the private sector 

profit oriented enterprises. There is a need 

to carry out empirical studies to determine 

the role that strategic leadership plays in 

execution of corporate strategies in public 

sector organisations and other not-for-profit 

enterprises. 

Finally, this study was done with particular 

reference to the banking industry. Thus, the 

findings cannot be generalized across all 

other sectors of Nigerian economy. Thus, 

there is compelling need for future research 

efforts to focus on these other sectors in 

order to determine the attitude of the 

operators of these sectors to the role that 

strategic leadership plays in the execution of 

corporate strategies. 

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80. 1996.

COMPETENCY LEVEL OF CONSTRUCTION PROJECT MANAGER IN 

PENANG STATE, MALAYSIA 

Abdelnaser Omran 

naser_elamroni@yahoo.co.uk; 

School of Housing, Building and Planning, Universiti Sains Malaysia, 11800, Minden, 

Pulau Pinang, Malaysia 

Abdullah Mahmood 

Department of Architecture and Building Science, College of Architecture and 

Planning, Kind Saud University, Riyadh 11574, Kingdom of Saudi Arabia 

Abstract 

Many countries over the worldwide recognize 

project management as a core business 

capability and seek to reap the benefits of the 

effeminacy of management to seep into their 

business. In construction industry, successful 

of a project is always determined by the 

competency of the project manager who is 

exercising the competency framework as 

practices by the profession’s leading 

researchers today. Today’s construction 

project manager needs to supplement their 

traditional functions with other nonengineering 

knowledge and skills to meets 

with higher demands from professional 

which have burden them with bundle of 

responsibility. As a result to identify the 

competency of construction project managers, 

this paper has listed out a few project 

Management competency practitioners’ 

framework. PEAKS framework which is 

developed by Murry-Webster and Hillson is 

applied in order to determine the competency 

of our construction Project Managers in their 

projects. 

Keywords: Competency level, construction 

industry, Project Manager, PEAKS. 

1.0 Introduction to competence 

According to the Cambridge Advanced 

Learner’s Dictionary “competence is the 

ability to do something well”. Among the 

many definitions provided by the Oxford 

English Dictionary, one with a similar 

meaning would be that competence is 

“sufficiency of qualification; capacity to deal 

adequately with a subject”. Both definitions 

offer a general explanation which is quite 

representative of the common understanding 

448 

of the word. However, as noted by Robothan 

and Jubb (1996) the concept has evolved 

incorporating different meanings, it has also 

become one of the most used terms in 

organizational literature. A good definition 

of competence is presented by Berglund 

(1999) in Glader (2001): 

“Competence is used to accomplish 

something. It includes knowledge in all their 

shapes, but it also includes personality 

traits and abilities, such as social 

competence, persistence, stress tolerance and 

so on. Competence is at first an individual 

based term, but is however not impossible 

to also talk about organisational competence. 

One can then refer back to the complete 

competence at the individuals in the 

organisation, or the stored knowledge 

concerning systems, techniques or the culture”. 

By analyzing this definition it can be 

understood that competence can be looked at 

from an individual perspective and also from 

an organizational point of view. In the 

organizational perspective the firm possesses 

competence as an institution. This 

perspective is presented by Söderlund’s 

(2005), who looks at project competence in 

terms of organizational capability. In his view 

the organization is deemed to posses’ project 

manager competence if it is able to 

generate/select and implement/execute 

projects in a skillful manner. These two 

different views are not contradicting, after 

all an organization is an inanimate 

character that exists only through its people. 

Therefore, for an organization to have 

competence it is essential that the people 

inside are competent. Nevertheless, there is a 

difference on how competence is approached; 

one perspective looks at the individual parts 

and the other at the whole. In many

construction companies, construction project 

manager are selected based on their years of 

working experience and most of the 

construction project managers’ education 

level do not achieve the tertiary education 

levels. This will normally lead to the lack of 

job competency and not to mention that most 

of their work performances express more on 

technical aspect rather than on management 

aspect. The general purpose of this study 

was to determine how competent of our 

project manager in our construction industry 

today, using PEAKS model. This study has 

been clearly defined four core competency for 

project manager and each component. 

Basically, this paper aimed particularly to 

seek perception from our project manager 

and they are required to answer two 

fundamental questions. Firstly’ “what is the 

level of importance of these core 

competency?’ and secondly; “What is your 

level for the core competency?”. The 

competency model and implications derived 

from the findings of this study should be 

valuable to our project manager or others 

concerned in developing the competence of 

job incumbents and maximizing competent 

performance in an organization. In order to 

obtain effective performance at this position 

level, the project manager needs to have job 

incumbents well equipped with these 

competencies. 

2.0 PEAKS Framework 

Table 1. The Five Core Element of Competency 

PEAKS element Description 

Personal characteristics 

“Who am I?” 

Experience 

“What have I done?” 

The PEAKS framework is structured in a 

way that clearly separates and defines the 

raw materials of competency. This is 

achieved by distinguished five component 

elements, then defining each unambiguously 

in a way which allows them to be assessed 

objectively, and finally recombining the 

elements into an overall assessment of 

project management competence (Hilson and 

Muray-Webster, 2002). The PEAKS acronym 

captures the understanding that competence 

requires the presence of five elements, 

namely Personal Characteristics, 

Experience, Attitudes, Knowledge and Skill. 

These must all be present for true 

competence to exist, whether this is in 

project management or any other area. The 

five elements are each defined and described 

in Table 1, with specific examples relating to 

project manager. Figure 1 illustrates 

diagrammatically the relationships between 

the PEAKS elements, showing that the four 

Personal Characteristics, Experience, 

Attitudes and Knowledge form a foundation, 

but these must all applied with Skill in order 

to produce the appropriate behaviours 

associated with Competence. 

Personal characteristics are natural preferences and 

traits. These tend to form the basis of a person’s 

natural reactions to situations. Some may change over 

time through personal development or gaining 

experience, but in general they are not easily influenced 

by traditional training. Some personal characteristic 

indicate an individual’s aptitude for project 

management. Examples relevant to project 

management include: self-confidence, pragmatism, or 

the needs to be organized and to organize. 

Experience must be acquired as the outcome of 

practicing project management or working within 

projects. It is not only acquired formal paid jobs, but 

can be obtained in the life context. Experience does not 

simply equate to time spent in a project environment, 

but measured by relevant achievements. The 

assessments of experience will always be relative to the 

needs of specific organizational requirements. For 

example, experience of relevant organizational policies, 

procedures and methods; or project start up and 

definition. 

449

Attitudes 

“How shall I respond?” 

Knowledge 

“What do I know?” 

Skills 

“How ably do I apply?” 

Attitudes are chosen responses to situation. Some 

attitude may be deeply rooted, representing core value 

of that individual, but they nevertheless represent a 

choice. Others attitudes may be more malleable. 

Attitudes differ from personal characteristics in that 

they are situational responses rather than natural 

preferences or traits, and chosen attitudes may 

therefore differ depending on the context. Example may 

include attitudes that planning is important, a concern 

for stakeholder needs, or commitment to ethical 

behaviour. 

Source: Hilson & Muray-Webster (2002). 

Knowledge is learned, often theoretically via traditional 

learning, or can be gained on the job. It includes 

familiarly with the widely-held principles about a 

particular subject; and the way those principles should 

be applied to best effect. Examples of project 

management knowledge areas are contained in the 

bodies of knowledge for the project management 

professional organizational and in related standards 

and guidance documentation. 

Skills are learned, but must learn experientially. They 

are more accurately describe as being the skillful 

application of P, E, A and K as described above. For 

example the skills of planning, (i.e. the ability to plan 

effectively) requires ( as a minimum): a personal 

characteristic to need to be organized, experience of 

planning, relevant planning tools and methods; an 

attitude that planning is important; and knowledge of 

how to plan scope, time, cost, quality and etc. 

Figure 1. Relationship between PEAKS 

Elements 

Source: Hilson & Murary-Webster, (2002) 

3.0 Methodology 

PEAKS framework is selected and applied in 

this paper and the questionnaire was 

basically designed based on PEAKS 

framework. Questionnaires survey was 

distributed to specific number of project 

C 

S 

PEAK 

450 

management consultants and contractors 

firms, which is related to the construction 

industry in Penang state, Malaysia. A total 

of 50 questionnaires were sent out and only 

30 respondents were successfully received 

for four weeks after mailing analyzed.

4. Results and Discussion 

4.1 Personal Characteristic Competence 

Variables 

Table 2 depicts the competency level for 

personal characteristics competence of our 

project manager in Penang construction 

industry today. From the data, it is crystal 

clear that there are 2 constituents to be 

considered, a) self reflection; and b) 

leadership/team management. From part a), 

the highest mean value of 19.87 was 

recorded on the variable sustained energy 

and enthusiasm. This value falls between 

the minimum and maximum of 1 and 24 

thus suggesting that the mentioned variable 

is the ideal personal characteristic which is 

inherits in our project manager This follow 

by the standard deviation that recorded as 

8.419 which is at the high concentration 

score side if compare with the existing 

highest score of standard deviation of 9.163. 

The smallest mean value was found on the 

variable enjoys problems where the value 

was recorded as 8.43 which is far away from 

the highest mean. This value falls on the 

minimum and maximum value of 0 to 11 and 

with the lowest standard deviation of 3.35 in 

the part a. From this, it can be summarized 

that the variable is unsuited to our personal 

characteristic of project manager where they 

are most likely not to enjoy problems during 

their working life. Table 2 shows the results 

for the personal characteristic competency 

on the leadership/team management. From 

the results, the biggest mean value was 

recorded as 18.03, which is second highest 

score in the Table 5.13, falls on the variable 

adaptable. The standard deviation of 9.163 

shows the top value in the table, means that 

this variable is very important and to be 

possessed by project manager. It is clear, 

this variable has been an ideal personal 

characteristic for our project manager today. 

The lowest mean value falls on variable 

charismatic and inspiration, where the value 

was recorded as 8.93 and the standard 

deviation shows 3.778, a value second lowest 

in the part b). 

Table 2: Competency Level for Personal Characteristic Competence of Components 

Personal Characteristic Competence Variables 

a. Self reflection 

Descriptive 

Statistic 

Mean Std 

Deviation 

1. Seeks out and is comfortable with change 13.27 6.136 

2. Aptitude to uncertainty 11.67 3.790 

3. Enjoys problems 8.43 3.350 

4. At ease with prioritization & decision making 9.87 4.361 

5. Critical thinking 12.53 6.947 

6. Need to be organized 11.20 5.598 

7. Need to deliver results/achievement oriented 11.20 5.598 

8. Pragmatic 11.87 4.547 

9. Self driven & tenacious 14.53 7.877 

10. Self confidence 16.80 8.814 

11. Sustained energy & enthusiasm 19.87 8.419 

12. Self - controlled 16.93 8.562 

13. Self – awareness & regulation 

b. Leadership / Team Management 

18.03 9.163 

14. Seeks out face to the communication 9.80 2.565 

15. Charismatic & Inspirational 8.93 3.778 

16. Intuitive & sensitive to the needs of others 10.80 5.696 

17. Adaptable 18.03 9.163 

18. Integrity 11.30 6.691 

4.2 Attitudes Competence Variables 

Table 3 displays the statistic results of 

competency level for attitudes competence of 

451 

our project manager today. There are total 2 

constituents and 11 subs-constituents have 

been analyzed, a) personal values and d) 

organization / project. From section a) the

iggest mean value of 12.47 was recorded on 

the variable team approach. This value falls 

between the minimum and maximum of 3 

and 18 with the highest standard deviation 

value that recorded as 6.912. This results 

with the high concentration score shows that 

our project managers are well suited with 

the above variable where they are team 

approach player in the market. In contrast, 

the smallest mean value was found on the 

variable prepare to take responsibility where 

the value was recorded as 9.03 which is far 

away from the highest mean. This value falls 

on the minimum and maximum value of 0 to 

14 and with the lowest standard deviation of 

in the Section a). From this, it can be 

summarized that the variable is unsuited to 

our personal value of attitudes for project 

manager where they are most likely not well 

prepared to take responsibility during their 

working life. Table 3 shows the results for 

the attitudes competency on the organization 

/ project. From the results, the biggest mean 

value was recorded as 13.20, which is the 

highest score in the Table 5.14, falls on the 

variable prepared to serve the aspirations of 

the organization regardless of personal 

agenda. The value falls on the minimum and 

maximum value of 2 and 18 with the 

standard deviation of 6.250. This result 

implies that our project managers are very 

obligated to their work and have very good 

attitudes with concerning to their 

organization or project. The lowest mean 

value falls on variable willing to play at 

organization politics, where the value was 

recorded as 8.97 and the standard deviation 

shows 3.746, with the lowest value Table 3. 

It is clear that this attitude had rejected by 

majority or our project manager as they are 

reluctant to play in the organization politics. 

Table 3: Competency Level for Attitudes Competence of Components 

Descriptive Statistic 

Attitudes Competence Variables 

a. Personal Values 

Mean Std 

Deviation 

1. Concern for ethical behaviour/courteous 10.53 6.056 

2. Team approach 12.47 6.912 

3. Prepared to take appropriate risk 11.23 6.745 

4. Prepared to take responsibility 9.03 4.810 

5. Open minded 10.87 5.637 

6. Maturity 

b. Organization / Project 

9.97 5.346 

7. Concern for stakeholder needs 11.23 6.745 

8. Concern to learn from experience 11.07 5.126 

9. Concern to learn from experience 11.07 5.126 

10. Willing to play at organizational politics 8.97 3.746 

11. Prepared to serve the aspirations of the organization 

regardless of personal agenda 

13.20 6.250 

4.3 Knowledge Competence Variables 

Table 4 shows the statistic results of 

competency level for knowledge competence 

of our project manager today. There are total 

4 constituents (as listed below) and 17 subsconstituents 

have been analyzed, a) 

Organizational Context; b) Scope, Quality, 

Risk and Value; c) Time and Cost and d) 

Human Material Resources and 

Procurement Management. For 

organizational context, the biggest mean 

value of 11.23 was recorded on the variable 

coordinate project development processes & 

phases. This value falls between the 

452 

minimum and maximum of 0 and 17 with 

the highest standard deviation value that 

recorded as 6.745. This results with the high 

concentration score shows that our project 

managers are well suited with the above 

variable where they are able to coordinate 

project development process and phases at 

very well skills. In contrast, the smallest 

mean value was found on the variable 

programmed project management where the 

value was recorded as 9.80 which are far 

away the highest mean. This value falls on 

the minimum and maximum value of 1 to 15 

and with the lowest standard deviation of in 

the Section a. From this, it can be

summarized that our project manager are 

lack of the experience on programmed 

project management and as an improver this 

might need time to practice during their 

working life. Section “c” shows the results for 

the knowledge competency on the scope, 

quality, risk and value. From the results, 

the biggest mean value was recorded as 

11.73, which is the highest score, falls on the 

variable quality and regulatory 

management. The value falls on the 

minimum and maximum value of 0 and 15 

with the standard deviation of 5.747. This 

result implies that with the high 

concentration of the score, our project 

managers are very expert in manage the 

quality and regulatory work pertaining to 

their organization or project. The lowest 

mean value falls on variable project strategic 

planning, where the value was recorded as 

9.73 and the standard deviation shows 

4.323, with the lowest value Table 4, it is 

clear that the competency level of our project 

managers are still at the improver level as 

this knowledge had to gain by exposure and 

experienced of projects. In Table 4, Section 

“c” shows the results for the knowledge 

competency on the time and cost. The 

highest mean value was recorded as 11.37, 

which is the highest score in the Table 4, 

falls on the variable time and cost 

estimating. The value falls on the minimum 

and maximum value of 0 and 15 with the 

standard deviation of 4.406. This result 

implies that with the high concentration of 

the score, our project managers are master 

and sensitive in estimating the time and cost 

of a project as this will direct incur the profit 

of an organization. The lowest mean value 

falls on variable time scheduling and 

phasing management, where the value was 

recorded as 8.93 and the standard deviation 

shows 4.920. It is clear that our project 

managers are still lack of the knowledge on 

the time scheduling and phasing 

management as this knowledge had to gain 

by exposure and experienced of projects. 

Section “d” shows the results for the 

knowledge competency on the human 

material resources and procurement 

management. The highest mean value was 

recorded as 14.80, which is the highest score; 

falls on the variable plan and evaluate 

contract. The value falls on the minimum 

and maximum value of 2 and 20 with the 

standard deviation of 7.568. The lowest 

mean value falls on variable manage 

internal and external project material 

resources, where the value was recorded as 

9.50 and the standard deviation shows 

4.562. 

Table 4: Competency Level for Knowledge Competence of Components 

Knowledge Competence Variables 

Descriptive 

Statistic 

Mean Std 

Deviation 

a. Organizational Context 

1. Identify project environment & context 10.27 6.253 

2. Coordinate project development processes & phases 11.23 6.745 

3. Establish project organization structure & role 11.07 5.452 

4. Programme project management 9.80 5.378 

5. Organize completion & handover activities 10.80 5.696 

b. Scope, Quality, Risk & Value 

6. Project Strategic Planning 9.73 4.323 

7. Quality & regulatory management 11.37 4.406 

8. Decide & identify risk management 10.53 4.100 

9. Process review and value engineering knowledge 11.07 5.747 

c. Time and Cost 

10. Appraisal techniques for evaluating options 9.73 4.323 

11. Time & cost estimating 11.37 4.406 

12. Time scheduling & phasing management 8.93 4.920 

13. Budgeting & cost management 9.63 4.089 

d. Human, Material Resources & Procurement 

14. 

Management 

Manage internal & external project material resources. 9.50 4.562 

453

15. Acquire, develop & manage project team. 11.07 5.452 

16. Plan & evaluate contracts 14.80 7.568 

17. Perform contract close out 10.60 4.731 

4.4 Skills Competence Variables 

Table 5 shows the statistic results of 

competency level for skills competence of our 

project manager today. There are total 3 

constituents (as listed below) and 17 subsconstituents 

have been analyzed, (a) project 

process; (b) communication; and c) 

leadership. For Section a) the biggest mean 

value of 13.23 was recorded on the variable 

manage project execution. This value falls 

between the minimum and maximum of 0 

and 19 with the highest standard deviation 

value that recorded as 7.749. This results 

with the high concentration score shows that 

our project managers are master with the 

above variable where they are at the expert 

level to manage and coordinate project 

execution. In contrast, the smallest mean 

value was found on the variable develop 

projects resources and capacity planning 

where the value was recorded as 11.33 which 

are far away from the highest mean. This 

value falls on the minimum and maximum 

value of 2 to 16 and with the lowest standard 

deviation of 5.339 in the Section “a”. From 

this, it can be summarized that our project 

manager are lack of the skills on develop 

projects resources and capacity planning and 

as an improver this might need time to 

practice from time to time. Section “b” shows 

the results for the skills competency on the 

communication. From the results, the 

biggest mean value was recorded as 14.27, 

which is the highest score in the Table 5, 

falls on the variable project communication 

needs and methods. The value falls on the 

minimum and maximum value of 2 and 20 

with the standard deviation of 8.267. From 

the results, it can be conclude that with the 

high concentration of the score, our project 

managers are master in project 

communication needs and methods in such a 

way to comply and fulfil the stakeholder’s 

requirements. The lowest mean value falls 

on variable facilitate and resolve conflicts, 

where the value was recorded as 9and the 

standard deviation shows 3.667, with the 

lowest value section b). It is clear that our 

project managers are lack of the skills of 

facilitate and resolve conflicts as this skill 

involve human being and engineering and 

non-engineering background. The skills have 

to polish and improve by exposure and 

experienced of projects. The final section is 

refers to the leadership variable. The highest 

mean value was recorded as 13.23; and the 

lowest mean value is only marked as 10. The 

highest score is falls on the variable critical 

thinking and rational decision making where 

the value falls on the minimum and 

maximum value of 0 and 19 with the 

standard deviation of 7.749. The lowest 

mean value falls on variable negotiation and 

delegation of project information and process 

where the standard deviation shows 4.068. 

Table 5: Competency Level for Skills Competence of Components 

Descriptive Statistic 

Skills Competence Variables Mean Std 

Deviation 

a. Project Process 

1. Define project requirement 12.40 6.976 

2. Develop Projects Resources & Capacity Planning 11.33 5.339 

3. Manage project execution 13.23 7.749 

4. Monitoring & controlling projects 13.10 7.928 

5. Close project 12.67 6.712 

b. Communication 

6. Project communication needs & methods 14.27 8.267 

7. Communication in wiring at all levels 13.20 6.250 

8. Communicate verbally at all levels 

10.27 3.552 

(presentation/public speaking) 

9. Facilities & resolve conflicts 9.00 3.667 

c. Leadership 

10. Managing information 13.20 6.250 

454

(gathering, assessing, integrating, organizing and 

documenting) 

11. Negotiation and delegation of project information and 

process 

13.20 3.044 

12. Critical thinking and rational decision making 13.23 7.749 

13. Building, leading and motivating teams to ensure 12.40 4.344 

commitment, respect and loyalty 

14. Transfer knowledge (coaching, mentoring, training) 11.33 5.339 

15. Ability to manage legal issues 10.00 4.068 

16. Ability to listen 12.03 6.150 

17. Ability to complete project on time 13.20 6.250 

5. Identifying the level of competencies 

of Construction Project Managers 

From the statistic results, it can be 

concluded that our project manager today is 

at the high level of competent. The level 

which is indicated in the Table 6 can be used 

as a reference when we obtained the data 

from the statistic. For the personal 

competence, our project manager have very 

ideal of characteristic which is suited to our 

highly demanding of construction market. 

They are well equipped with the personality 

of adaptability, self confidence on work, selfawareness 

and regulation and have good 

sustained energy and enthusiasm to seek out 

the challenges on site. In the other hand, 

they have good attitudes in which the 

statistic shows they are very well as a team 

approach player, concern for stakeholder 

needs prepared to take appropriate risk. All 

these attitudes are stated in the highest 

mean of the score from the Table 3. For the 

knowledge and skills competence, the results 

stated that our project managers are at the 

level of practitioner and still have a need for 

improvement. Young to middle age of 

practicing project managers must learn to 

identify and handle risk management and to 

delegate project information and process to 

the relevant stakeholders. 

Table 6: Results for Competence Level of Project Manager 

Personal Characteristic Competence Variables Std Deviation 

1. Self awareness & regulation 9.163 

2. Adaptable 9.163 

3. Self confidence 8.814 

4. Seeks out face to face communication 2.565 

Attitudes Competence Variables 

1. Team approach 6.912 

2. Concern for stakeholder needs 6.745 

3. Prepared to take appropriate risk 6.745 

4. Willing to play at organizational politics 3.746 

Knowledge Competence Variables 

1. Plan & evaluate contracts 7.568 

2. Coordinate project development processes & phases 6.745 

3. Identify project environment & context 6.253 

4. Decide & identify risk management 4.100 

Skills Competence Variables 

1. Project communication needs & methods 8.267 

2. Monitoring & controlling projects 7.928 

3. Critical thinking and rational decision making 7.749 

4. Negotiation and delegation of project information and process 3.044 


This paper was aimed at providing insight 

on the level of importance of project 

manager’s competency and how the 

455 

practicing project manager had rated their 

competency. The results established the 

importance level of personal characteristic of 

competency for project manager are selfreflection 

on the need to deliver results,

followed by the leadership or team 

management characteristic on seeks out face 

to face communication and integrity. In 

contrast, the least important personal 

characteristic is self driven and tenacious. In 

terms of actual current level of this 

competency for practicing project manager, 

the personal characteristic of self-awareness 

and regulations is the highest followed by 

adaptable and self-confidence. For the 

attitudes competency variables, the most 

importance personal value is open minded, 

followed by team approach and maturity. In 

contrast, the practicing project managers 

perceived and agreed that willing to play at 

organization politics is the least importance 

variable in the attitudes competency. From 

the results, the current competency level 

posses by practicing project manager shows 

that the team approach is the highest 

followed by the personal value of prepare to 

take appropriate risk and concern for 

stakeholder needs. The attitude of team 

approach in this result had shown that both 

level of importance and their current 

competency level are equally important as 

dedicated in the literature chapter which is 

marked as the second highest variables. 

Team approach was identified as an 

important attitude suggesting that today’s 

project managers have a need to well-equip 

with this attitude for better efficiency in 

their works performance. The results 

established the changing role of project 

managers and increasingly, they are 

required to perform roles outside the 

traditional scope of project management. 

The survey established that the personal 

characteristic, attitudes, knowledge and 

skills necessary to maintain their 

competency, in order to fulfil these changing 

demands are acquired largely from their 

experiences. From our project manager’s 

perception, knowledge and skills competence 

are very important to a project manager in 

order to achieve his goal in the construction 

industry. These are include organize and 

coordinate project development process, 

establish the project organizational 

structure and role and organize the project 

completion and handover activities. All of 

these works execution need an expert skills 

where the skills must be learn and build up 

from the project handled. Therefore, this 

results implies that our project manager are 

very alert and aware of current market 

trend where the construction project 

456 

manager should possess and keep on develop 

all these skills during their working life. As 

far as for the actual competency level of 

knowledge, most of the practicing project 

managers are generally at the proficient 

level of competent where some of young 

project manager still lack of experience on 

the certain variables such as time 

scheduling; phasing management and 

programmed project management. This 

knowledge of competence have to improve 

and polish through varies exposure and 

working environment. For the competency 

level of skills components, the results shows 

our project managers are at the level of 

practitioner and still have great space to 

improve. Some of our young to middle age of 

project managers must learn to facilitate and 

resolve conflict, learn to communicate 

verbally at all levels and develop their skills 

in the manner that able to manage legal 

issues. These are not a one day job but they 

need sometimes to get better and build up 

their skills from time to time. 

7. Recommendations 

As recommendation, this study can be 

develop into further research where 

incorporates the competencies identified 

above into its future competency-based 

project manager plan. First, it is essential 

that competencies be included in job 

descriptions because a list of job 

responsibilities and the results of job tasks 

are not sufficient measures to ensure 

success; rather well-defined skill 

competencies for a position encourage job 

incumbents to work more effectively. This 

study provides a competency model 

consisting of a list of competencies needed at 

this position level, therefore an effective job 

description for the Construction Project 

Manager position level in organization 

should include the required competencies. 

Second, the findings of this study 

demonstrate the need for a competency – 

base training required in this position. 

Multiple training courses were 

recommended although the current 

incumbents may have the opportunity to 

attend a number of training courses, very 

few have access to formal training designed 

for this position. Maybe this implication 

ought to be given attention during 

competency enhancement. Finally, apart 

from training and development, a

competency model can be used by an 

organization in a variety of ways. For 

example, this model can be used for selection 

of project manager, performance 

management and career development of 

manager in improving efficiency of 

performance for an organization. 

8. References 

Glader, A. (2001). Learning and competence 

development – The study of competence 

development in large Swedish organizations. 

(Master). Umea School of Business and 

Economics. 

Murray-Webster, R. and Hillson, D. (2002). 

Scaling the PEAKS project management 

competences. Proceeding conference paper 

presented at PMI Europe, The project 

management festival, 19-12 June 2002, Noga 

Hilton, Cannes, France. 

Robotham, D. and Jubb, R. (1996). Competences: 

measuring the unmeasurable. Management 

Development Review, 9(5), 25-29. 

Söderlund, J. (2005). Developing project 

competence: Empirical Regularities in 

Competitive Project Operations. International 

Journal of Innovation Management, 9(4), 451-480. 

457

MANAGEMENT OF SAFETY IN CONSTRUCTION SITES IN MALAYSIA: 

PERSPECTIVES ON THE ELEMENTS OF POOR 

Abdelnaser Omran, Abdelwahab Omran, Mayhuddin Ramli 

& Abdul Hamid Kadir Pakir 

naser_elamroni@yahoo.co.uk; 



ABSTRACT 

The creation of safety programs comes in a 

very wide scope and there is just no 

limitation on the strategies that can be taken 

to provide an efficient health and safety 

planning and procedures to be practiced. As 

construction site is the main source of 

fatalities and accidents in the construction 

industry, the concept of the safety 

management which stressed the importance 

of a well-defined organization structure and 

the safety planning, eventually, this concept 

is seen as having the potentials on 

eliminating the hazard risks that normally 

occur on the construction site. This paper 

aims to examine the status of safety 

management in the Malaysia construction 

industry, and indentify factors affecting 

construction site safety. The findings reveal 

that the main factors affecting safety 

performance include lack of training, lack of 

certified skill labour, ineffective operation of 

safety regulations as the most important 

factors. Based on the finding, it can be 

concluded that the industry should be more 

active in organizing training programmes for 

educating people and improving safety 

performance. 

KEYWORDS: Safety programme, 

construction safety, management, Malaysia 


The construction industry is considered as 

one of the most hazardous industrial sectors 

wherein the construction workers are more 

prone to accidents (Tam et al., 2004). In 

developed countries such as United Kingdom 

and United States of America, there is strict 

legal enforcement of safety in the 

construction industry and also in the 

implementation of safety management 

systems which are designed to minimize or 

eliminate accidents at work places (Dorji et 

al., 2006). However, occupational safety in 

458 

construction industry is very poor in 

developing countries such as Malaysia. In 

USA, the practice of safety in construction is 

regulated by governmental agencies such as 

the Occupational Safety and Health 

Administration (OSHA), which provides 

strict rules and regulations to enforce safety 

and health standards on job sites. However, 

legislation alone cannot reduce accident 

rates unless craftsmen and management 

take positive actions to integrate these rules 

into their everyday activities by 

implementing a safety management 

programmed. However, in most developing 

countries, safety consideration in 

construction project delivery is not given a 

priority, and employment of safety measures 

during construction is considered a burden 

(Mbuya and Lema, 2002). Safety 

management is an approach aimed at 

removing or minimizing the forces which 

cause losses through injured workers, or 

damaged equipment and facilities. It is 

commonly known that accidents have 

serious implications to the construction 

industry both in financial and humanitarian 

terms. Construction accidents may cause 

many problems, such as demotivation of 

workers, disruption of site activities, delay of 

project progress and adversely affecting the 

overall cost, productivity and reputation of 

the construction industry (Mohamed, 2002). 

Considering the adverse impacts of 

accidents, construction safety management 

is of genuine concern to all stakeholders in 

the construction industry. Government, 

unions and insurers have spent a great deal 

of time and effort attempting to evolve 

legislation, rules and regulations to help 

reduce the large loss of life and limbs, and 

the high number of "lost-work days" 

(Goldsmith, 1987). The rate at which 

infrastructural development is increasing 

and the complexities of modern time 

associated with it, surely calls for more 

concern to safety at construction sites if

meaningful reduction in fatalities is 

required. The number of fatalities at work in 

the construction sector remains a matter of 

serious concern for the Government, 

employers and employees alike (HSA, 1999). 

Statistics on fatalities generally places the 

construction sector as the second highest 

industry, only surpassed by the agricultural 

sector. Among the most common sources of 

fatalities in construction, falls from heights 

is the category that accounts for the highest 

proportion of deaths. A brief comment of 

some statistics will be given below. Some 

international figures for falls from heights 

will also be reproduced as an example of the 

relatively high percentage of fatalities: 

2. Construction Fatality Rates in 

Europe 

The HSE (2001) reports that the European 

average fatality rate in construction was 

13.3 per 100,000 workers in 1996. In 

contrast with that figure, the HSA (1999) 

has reported a rate of 8 fatalities for 100,000 

workers for the Republic of Ireland in 1996. 

Although under the European average of 

fatalities, Ireland still shows a higher 

incidence than countries as France, the 

United Kingdom or Spain (Table 1). 

Table 1: Fatality rates for selected EU Member States 

Country Year Fatality Rate per 100, 000 workers 

Europe 

Germany 

Italy 

France 

Romani 

United Kingdom 

Spain 

1996 

1996 

1996 

1996 

1996 

1996 

1996 

Source: Mcdonald and Hrymak (2006). 

3. International Construction Related 

Fatalities due to fall from heights 

Berg (1999) attributes falls as the leading 

cause of deaths in construction worldwide. 

Berg states the percentage of fatalities from 

falls on German construction sites accounts 

for 50% of all fatalities in that work sector. 

Cattledge et al., (1996) analyzed construction 

fatality rates in the United States between 

1980 and 1989. They found that 49.6% of all 

occupational related fatalities due to falls 

occurred on construction sites. In Asia, 

Jeong (1998) reported on construction 

related fatalities in South Korea. This study 

showed that falls from heights accounted for 

42% of all construction related fatalities 

between 1991 and 1994. Tam and Fung 

(1998) report the fatality rate among 

construction workers in Hong Kong during 

1985 and 1994 was 86.8 per 100,000. 

4. Some of the findings of the 

International Labour Organisation 

(ILO) in the field of safety in 

construction are: 

459 

13.3 

15.4 

14.4 

12.1 

8.0 

5.6 

4.2 

1. The accident rate in construction is four to 

five times higher than that of 

the manufacturing sector on the global scale. 

There is an increase in the number of work 

related diseases associated with construction 

all over the world. 

2. After the initial employment, there is a 

dramatic increase in accident frequency over 

the following six to eight months. This shows 

that more workers meet with accidents 

during the first year of their employment. 

3. A study conducted in four industrialised 

countries - Canada, Japan, UK and US - 

showed that danger in the construction 

industry was more than four times than 

those in the manufacturing industry. 

4. Another study of seven industrialised 

countries indicated that the average number 

of such occurrences per 1, 00,000 workers 

was 12 per year, with some countries 

reporting 35 instances per 1, 00,000 workers 

annually. 

From the above statistics, it can be deduced 

that poor construction safety on sites is 

evident globally and thus Malaysia is no 

exception.

5. Previous studies 

An accident can be defined as an unplanned, 

undesirable, unexpected, and uncontrolled 

event. An accident does not necessarily 

result in an injury, it can be in term of 

damage to equipment and materials and 

especially those that result in injury receive 

the greatest attention (Hinze, 1997). Safety 

is therefore of importance regardless of the 

loss or damage because even if accidents do 

not cause damage to personnel, material or 

equipment, it may foretell future accident 

with les desirable result. 

5.1 The Importance of Safety 

Management in Construction 

The importance of safety at construction site 

certainly needs to be given a serious 

attention by the site management team and 

also by all parties who are directly involved 

in the construction industry. According to 

Tey (1999), among the importance of safety 

are to eliminate or reduce the probability of 

accident and disease occurrence to the 

workers. For example, the workers can 

perform their works more conductively and 

be able to complete the project as scheduled. 

It is also to ensure the smoothness of 

progress of works on site. If any accident 

occurs at site, thus the work progress will be 

hampered due in order to make way for the 

accident investigation to be carried out by 

the responsible authorities. Consequently 

the completion of the whole project will 

finally be affected. In addition to that, it 

certainly could foster the productivity of the 

workers and cost savings. Once the workers 

aware that the construction site is safe and 

comfortable to work in, it will induce the 

workers mood to work harder and also 

improve the construction cost since the 

works on site can be completed on time as 

scheduled. There is no loss of skilled 

workers. With efficient safety management, 

skilled workers will feel secured and 

comfortable working in that particular 

construction site. Finally, it will increase 

client confident towards the competency of 

that particular construction company in 

managing the safety and health effectively 

and hence completing and delivering the 

project on time. Khalid (1996) stressed in his 

writing that although the construction 

industry involved a very complex process, it 

should emphasis on finding a management 

strategy and resolution in reducing the rate 

460 

of accident occurrence at construction site. 

According to him, good safety programs 

would certainly help in reducing injuries at 

construction site and also minimize 

construction costs, increase productivity and 

profitability and more importantly it could 

save lives of workers and consequently 

contribute positively to construction industry 

and nation as a whole. Ahmad et al., (2000) 

explained that although sometimes the 

contractors questioned the importance of 

spending an amount of money for the 

purpose of safety aspects in construction, the 

benefits and returns that they would enjoy 

from an effective safety management system 

were much more than the cost spent. Other 

benefits are avoidance in project delay, 

machines and equipments breakdowns and 

litigation. Safety system also facilitates the 

management in conducting any accident 

investigation at workplace. Furthermore, 

providing a safe and healthy workplace is 

one of the most effective strategies in for 

holding down the cost of doing construction 

business. Accidents cause not only delays in 

operations and project deliverables but also 

directly and indirectly incur costs (Bakri et 

al., 2006). Therefore as required by the 

Occupational Safety and Health Act 1994 

(OSHA), it is mandatory for all construction 

companies to provide a safe and conducive 

working environment for their workers and 

subcontractors at construction and 

fabrication sites. Hinze and Harrison (1981) 

have identified that good safety program 

practiced in a big company can helps to 

reduce the injury rate at construction site. 

The success of a big company in tackling 

safety aspects is due to the fact that there 

are safety competency certificate holders 

exist among its workers not withstanding 

any working level. With better enforcement 

of the legislation and commitment from 

employers and employees, construction 

safety management has obviously received a 

greater attention (Ahmad et al., 1999). 

Consequently, the improvement of safety 

and health management in construction is a 

very important goal for all construction 

stakeholders in order to provide a better and 

safer workplace which will help to improve 

productivity, reduce construction costs, 

better time performance and deliverables 

and also increase in profitability.

5.2 Accidents and their costs 

Construction work covers many activities, 

techniques, materials and hazards and it is 

this diversity that increases the probability 

of accidents occurring. There is a 

commonality of accidents within the 

industry and the factors that can contribute 

indirectly to an accident. An accident may 

be defined as ``any unplanned event that 

resulted in injury or ill health of people, or 

damage or loss to property, plant, materials 

or the environment''. A recurring theme is 

that people are killed during simple, routine 

work and in many cases a clear lack of 

planning contributed to the tragedy. An 

underlying belief is that the majority of 

accidents are not caused by careless workers 

but by failures in control which ultimately is 

the responsibility of management. Improved 

health and safety management systems are 

assumed to make good financial sense and 

should be part of the cost conscious culture 

of companies dedicated to efficiency and 

profitability. It has been recognized that a 

reduction in the level of accidents would be 

the principal quantifiable benefit of new 

construction design and management 

regulations. 

5.3 Safety Management System 

Management approach to health and safety 

in construction industry can be seen in three 

important ways. Firstly, from legal point of 

view, the need to abide the rules and 

regulations of the place is important. Second 

is about the socio-humanitarian aspects 

which is to consider human lives and finally, 

the financial-economic aspects of the 

accidents which have high direct and 

indirect to the costs. Safety management 

also can be described as a set of actions or 

procedures relating to health and safety in 

the workplace, put in place and actively 

endorsed by management to achieve the 

following: 

- Identification, assessment and control of 

all workplace hazards and risks. 

- Active involvement in health and safety 

matters with managers, supervisors and 

workers working together both formally 

and informally to improve health and 

safety. 

- Providing information and training for 

people at all levels so they can effectively 

meet their responsibilities. 

- Designing and implementing company 

goals and objectives about health and safety. 

461 

Construction safety management deals with 

actions that managers at all levels can take 

to create an organizational setting in which 

workers will be trained and motivated to 

perform safe and productive construction 

work (Levitt and Samelson, 1987). The 

system should delineate responsibilities and 

accountabilities. It should also outline 

procedures for eliminating hazards and 

identifying potential hazards before they 

become the contributing factors to 

unfortunate accidents. 

5.4 Safety Policy 

A health and safety policy is a written 

statement of principles and goals embodying 

the company's commitment to workplace 

health and safety. It demonstrates top 

management's commitment to ensure safe 

working methods and environment at the 

construction sites. Koehn et al., (1995) 

states that in order to reduce financial risk, 

management support for safety programmed 

in both developed and developing countries 

should be considered as an economic 

necessity since accidents had proved quite 

costly to the contractor. This is in addition 

to the ethical and professional responsibility 

of the management for providing a safe work 

site for all employees. Sawacha et al., (1999) 

also stresses the importance of 

management's viability and participation in 

achieving successful safety performance. 

5.4.1 Organizing 

One of the essential elements of the safety 

management is the designation of individual 

with responsibilities and accountabilities in 

the implementation of the construction 

safety programmed and plan. The 

organization should demonstrate how 

accountabilities are fixed, how policy 

implementation is to be monitored, how 

safety committees and safety representatives 

are to function and how individual job 

descriptions should reflect health and safety 

responsibilities and associated 

accountabilities (Stranks, 2000). Such as, in 

order for the safety policy to be effective, 

both management and employees have to be 

actively involved and committed. In the 

research finding of Sawacha et al., (1999), it 

indicates that having a well-trained safety 

representative on site can improve safety 

performance by undertaking fault spotting 

and insisting on corrective action being 

taken. Also having full-time safety

personnel will somehow relieves the 

pressure on the on-site construction project 

team (Koehn et al., 1995). Sawacha et al., 

(1999) further indicates that companies with 

effective safety committees are more likely to 

take steps that improve safety performance. 

This means that safety committees can play 

a positive role in the improvement of safety 

performance. 

5.4.2 Planning and Implementing 

Planning is a critical area in the control and 

enforcement of a safety program. It is a 

process that prepares, creates, implements 

and monitors the safety programmed, 

thereby addressing the workplace health and 

safety through an organized, step-by-step 

strategy (CSAO, 1993). Planning starts with 

the company's written health and safety 

policy. It ensures that health and safety 

efforts of all job-site personnel really work by 

designing a programmed that translates 

policy into practice. Planning such as, 

entails identifying the objectives and targets 

which are attainable and relevant, setting 

performance standards for management, 

considering and controlling risks to all 

employees and to other people who may be 

affected by the organization's activities, and 

ensuring documentation of all performance 

standards (Holt, 2001). The safety and 

health programmed covers a range of 

general safety procedures and practices. 

Some of them are safety training, safety 

meeting, safety inspection, accident 

investigation and reporting, job hazard 

Table 2: Previous studies on safety programs 

analysis and control, safety promotion, and 

personal protective equipment. 

5.4.3 Measuring Safety Performances 

Safety performance measures are used 

primarily for comparisons among companies 

and supervisors. In addition, they are also 

used as a means for pinpointing problem. 

According to Laufer and Ledbetter (1986), a 

key factor in the control and improvement of 

any performance aspect on site is the ability 

to measure the performances. Measuring 

safety performances is important to check 

the effectiveness of various training methods 

and it also serves as an instrument in 

choosing a contractor. There are various 

methods of measuring the safety 

performances. Some of the common methods 

are experience modification rating (EMR), 

accident costs, frequency rate, behavior 

based safety and OSHA recordable incidence 

rates. 

5.5 Root causes affecting safety 

performance 

There are various factors influencing safety 

management in the construction industry. 

These factors can be grouped into people 

role, organization, management, technology, 

industrial relationship and so on. Due to 

differences in culture, management and the 

market structure, these factors have diverse 

influence on construction safety. Table 2 

below shows the previous researches on 

safety management. 

Area Items Relatives researches 

People role Role of leaders Hakkinen (1995), Koehn et al., (1995), Levitt and 

Parker (1976), Tam and Fung (1998) and Wentz 

(1998). 

Worker behavior Hinze (1981) and Yu (1990). 

Organization and Training Gun (1993), Hakkinen (1995), Hale (1984), Krause 

management 

(1993); Tam and Fung (1998); 

Safety systems Hale et al., (1997), Hale and Hovden (1998), Hinze 

(1981), Jaselskies et al., (1996) and Tam et al., 

(2001). 

Apparatus and Equipment Jaselskies and Suazo (1994), Krause (1993); 

equipment 

Larson and Field (2002). 

Technology Technology 

control 

Industrial 

relationship 

Market Safety 

regulations 

Blank et al., (1997), Lingard and Holmes (2001) 

and Jannadi and Assaf (1998). 

Hinze and Raboud (1988); Kartam et al., (2000); 

Gun (1993) and Seppala (1995). 

462

5.6 Factors affecting site safety 

Even though no two construction sites are 

similar, yet the followings are given an 

effective construction site safety: 

1. Site organization: A well defined 

safety organization for contractors, 

subcontractors and interface with 

departments is vey essential. 

Implementation of safety is a management 

function, and therefore its ownership lies 

with them. These managers are to be backed 

up by competent persons in construction 

safety that provide expertise and supervision 

of work environment and equipments such 

as lifting tools, plants, scaffolding. 

2. Safety training: the objective is to 

ensure safe working condition, hence it is 

necessary to understand and implement 

proactive training measures. This may be in 

the form of pre-job briefing and talks in 

order to bring awareness to the contract and 

departmental employees. 

3. Job hazard analysis and work 

procedure: the dynamism and complexities 

construction are unavoidable. These 

activities though planned, are carried out by 

the work force which is skilled in the 

execution of work but lack of awareness of 

safety requirements, overconfidence, 

complacency, at times leads to breach in 

safety requirement. Hence a regular 

monitoring and surveillance program along 

with coaching and meeting of employees 

during execution becomes necessary to 

correct the aberrations in safety 

implementation. 

4. Safety provisions and personnel 

protective equipment: even after the 

implementation of the safety requirements, 

there will always be residual risk to workers. 

Thus as a good safety culture, all workers 

should be ensured to use the required 

personnel protective equipment. These may 

include helmets, safety belts, safety boots, 

hand gloves, goggles, fall arrester etc. 

5. Safety meeting: in order to ensure 

proper coordination and communication on 

safety aspects on a periodical basis, it is 

necessary to have regular exchange of views 

and experience as given below: 

463 

- Daily interaction between contractors’ 

safety officer and departmental safety in 

charge. 

- Monthly safety meetings by each works 

manager of the contractor along with his 

safety officer with departmental group. 

- Sectional safety meetings for the 

departmental and contractor employees. 

- Quarterly project level apex safety 

committee meeting. 

- Regular experience feedback among 

various agencies. 

On the other hand (Tam et al., 2004), 

suggested the followings as constraints to 

effective site safety: (1) Poor safety 

awareness of firms top leaders; (2) Poor 

safety awareness of project managers; (3) 

Reluctance to input resources for safety; (4) 

Reckless operation; (5) Lack of certified skill 

labor; (6) Poor equipment; (7)Lack of first aid 

measures; (8) Lack of rigorous enforcement 

of safety regulations; (9) Lack of 

organizational commitment ; (10) Poor safety 

conscientiousness of workers; (11) Lack of 

personal protective equipment; (12) 

Ineffective operation of safety regulation; 

(13) Lack of strict operational procedures; 

(14) Lack of experienced project managers; 

(15) Shortfall of safety regulations; and (15) 

Poor information flow. 

6. Research methodology 

Questionnaires survey was carried out 

within Penang State. Three 3 respondents 

from (construction sites within Penang) were 

involved in this survey and they respond to 

the survey positively. A check list of the 

most safety factors was adapted from Tam el 

al., (2004) and used to assist in the 

investigation during the site survey. 

7. Result analysis and Discussion 

Summary of the results and discussion 

presented below are based on the analysis of 

the 15 factors of affecting construction site 

safety.

Table: Factors affecting construction site safety 

No. Factors affecting construction site safety Mean Rank 

1 Lack of training 4.3 1 

2 Lack of certified skill labour 4 2 

3 Ineffective operation of safety regulation 4 2 

4 Shortfall of safety regulations 4 2 

5 Poor equipment 3.7 5 

6 Poor safety conscientiousness of workers 3.7 5 

7 Poor safety awareness of firm’s top leaders 3.3 7 

8 Reckless operation 3.3 7 

9 Lack of first aid measures 3.3 7 

10 Lack of organizational commitment 3.3 7 

11 Lack of strict operational procedures 3.3 7 

12 Poor information flow 3.3 7 

13 Poor safety awareness of project managers’ 2.7 13 

14 Lack of experienced project managers 2.7 13 

15 Lack of rigorous enforcement safety regulations 3 15 

Based on the respondents, they provide their 

opinions on the importance of 15 factors 

affecting construction site safety. Based on 

the respondents’ rank, the lack of training is 

the most important factors to affect 

construction site safety. The mean of lack of 

training is 4.33 which is the highest rank. 

Training programs must provide for 

workers. Both of them are rank agree and 

strongly agree on this factor. Training 

programs help personnel carry out a lot of 

activities effectively. Training programs 

helps to ensure a safety, professional and 

fully qualified workforce. Safety training and 

orientation are necessary to provide at 

construction site. Supervisors and workers 

need to understand the safety policy and 

procedures which related to their work. The 

second important ranks of the factors are 

lack of certified skill labour, ineffective 

operation of safety regulation and shortfall 

of safety regulations which the mean is 4. 

Lack of certified skill labour always being 

the hot topic of problems at construction site. 

Certified skill labour need to pay with higher 

salary if compare with unskilled labour. 

Lack of certified skill labour, ineffective 

operation and shortfall of safety regulation 

are important to affect construction site 

safety. Certified skill labours are need for 

some activities with high level skill such as 

tower crane, scaffold erection and framework 

etc. If those equipment control by uncertified 

skill labour without experience, any accident 

will easily occur. The other is ineffective 

operation of safety regulation. Operations of 

464 

safety regulation at construction site not pay 

full attention by all workers. The safety 

regulation plays an important role at 

construction site. Everyone at construction 

site must follow the safety regulation or 

rules. It can prevent all accidents, injuries 

and occupational illnesses though the 

activities of every employees of a company. 

According to the Occupational Health and 

Safety Regulation 2001- REG174ZD, as an 

occupier must ensure that the safety 

equipment required controlling an identified 

risk in relation to the storage or handling of 

dangerous goods, the equipment is provided, 

maintained and accessible to person 

authorized to be on the premises. If not 

apply the safety regulation in effective way, 

it is easily to make accident at construction 

site. All workers include supervisors follow 

the safety regulation at construction site, 

then will be a very smoothly way to complete 

the construction task and strongly to prevent 

the accident occur. The number five 

important and agree by the respondents are 

poor equipment and poor safety 

conscientiousness of workers with 3.66 

mean. Construction equipment is considered 

to be one of the important things at 

construction site. Equipment at site should 

be fully provided. Safety equipment such as 

goggles, helmets, eye-shields are prepared to 

prevent accident. Helmets should be worn as 

supplementary protection. Workers safety 

and public safety must be first in mind when 

company uses construction cranes or heavy 

construction equipment. Some equipment

not safety being uses will cause accident at 

construction site. Poor equipment is an 

important issue. It can cause dangerous 

accident happen. Workers should have 

responsibilities to understand and apply the 

safety equipment at site. They also need to 

follow safe work procedure, helping new 

employees recognize job site hazards and 

follow proper work procedures and correct 

unsafe work practice and unsafe conditions. 

Supervisors have responsible to instruct 

workers to follow safe work practices and 

correcting unsafe acts and conditions. The 

respondents rank that they agree on poor 

safety awareness of firm’s top leaders, 

reckless operation, lack of first aid measures, 

lack of organizational commitment, lack of 

strict operational procedures and poor 

information flow which those are located at 

rank number seven important to affect 

construction site safety. It means that firm’s 

top leader play an important role in 

construction site safety management. The 

personal factors of top leader maybe 

influence the workers to follow up. If the top 

leader lack of knowledge to perform the work 

properly, the workers would not know the 

leader do the correct or wrong choice, maybe 

they just follow up. So the top leader such as 

supervisor at site needs to perform the work 

as well. Effective safety manager need to 

manage in efficiency way such as display 

strong safety attitudes at site. With a good 

basic understanding of the principles of work 

site safety and a belief in effective safety 

programs planned by manager. A manager 

also needs to incorporate job safety planning. 

Managers need to incorporate job safety 

planning with considerations for necessary 

safety equipment and proper safe work at 

construction site. While for the lack of first 

aid measures also need to pay attention. 

Mostly the first aid measures not take as 

important prevent at construction site. Each 

construction site must provide the first aid 

measures to provide for emergency use. Lack 

of organizational commitment need to 

cooperate by everyone at site includes the 

manager, supervisors and workers. 

Organizational commitment has an 

important role. The attitude, behaviours and 

performance effectiveness of employee can be 

influence by the organizational commitment. 

Manager need to manage and learn how 

leadership styles affect employees at work 

place. Some respondents feel like disagree on 

the lack of first aid measure will affect 

465 

construction site safety. For the poor safety 

awareness of project managers and lack of 

experienced project managers are queue in 

number 13 with 2.66 mean. It means these 

two factors not important to affect 

construction site safety based on the 

respondents. The safety awareness at 

construction site must be everyone’s 

responsibilities. Each person work at 

construction site must learn and understand 

the safety policy and procedures. Lack of 

experienced project managers maybe 

important for handle the construction site 

problems or management. Project managers 

need to understand and know that the 

construction safety management important 

at site. If happen any problem or people 

injured at site, it will cause many problems 

occur, the work will be stop and delay. At the 

last, the lack of rigorous enforcement of 

safety regulation is the last and not 

important to affect construction site safety. 

The respondent’s ranks disagree on the lack 

of rigorous enforcement of safety regulation. 

Many clients do not consider past safety 

records of contractors in the tender prequalification 

process. 

8. Conclusion 

While accident frequency is an objective 

measure in safety-related researches, 

measures based on compliance with 

procedures seems to be more appropriate for 

comparison between sites as is identifying 

change when intervention programs are 

implemented. The following broad 

observations can be made about the state of 

the art of safety in the Malaysian 

construction industry: 

8.1 Training 

A greater percentage of operatives report 

that they have received no safety training 

from the main contractor. While managers 

consider this safety training to be necessary 

and indeed should be supplemented by 

further refresher courses, many believe the 

way it is currently carried out is primarily to 

"cover them" in case something goes wrong. 

Very few sites claimed to have a systematic 

in recruiting operatives, apart from the 

certificates required for scaffolders, crane 

and digger drivers, etc. Thus it seems clear 

that for the majority of operatives the main 

way in which they achieve knowledge of the 

risks of their work is through their 

experience of work itself. Even where the

main contractor provides induction training, 

this is often perceived as a formality, to 

protect the company, with little expectation 

that it would influence the knowledge and 

behavior of workers. The low level of 

provision of safety training is particularly 

worrying considering that a great percentage 

of the operatives report that they have 

worked in the industry for less than one 

year. Thus their level of experience of the 

risks associated with the job and of how to 

manage them may not be that great. Direct 

and vicarious experience of hazards may be 

the main way of gaining knowledge of the 

risks of construction and how to manage 

them. This is a reactive and potentially 

dangerous way of learning. 

8.2 Safety management 

Both the management interviews and 

analysis of safety documentation indicated 

that whereas virtually all the sites had a 

safety plan, these were mostly generic 

documents that could be applied to any 

construction site. Thus, few contained a 

management structure with clear delegation 

of responsibilities. Few contained safety 

statements from subcontractors. Although 

half the sites had risk assessments which 

were site specific, in some of these not all the 

relevant site activities were addressed. 

These documents played little or no role in 

ongoing management activities and their 

function appeared solely to meet legislative 

requirements. All sites conducted safety 

audits, mostly following a checklist method 

with a written audit report. However few 

sites documented improvement measures or 

actions taken to remedy audit deficiencies. 

Hazard reporting was rarely documented 

and the same was true of incidents and near 

misses. Communication about safety was 

most often informal and verbal. A quarter of 

the sites had regular dedicated safety 

meetings, though for others safety was a 

frequent item on site meetings. In all but one 

site some or all of the management had 

undertaken CIF/CEF training courses. A 

small number of safety managers had also 

undertaken diploma courses in health and 

safety management. Also the studies suggest 

that a compliance with safety procedures 

varies widely across categories of procedure 

and in different sites. Evaluations of a range 

of interventions to improve safety have 

further revealed that training and other 

behaviorally based programs need to be re 

466 

addressed. While some of these have 

demonstrated success in the short term, a 

common conclusion emphasizes the 

importance of sustained management 

commitment and activity in ensuring the 

effective implementation of these programs. 

However, there is a lack of systematic 

research concerning the management of 

safety in construction. Also, while there have 

been some studies of attitudes and 

perceptions of construction workers towards 

safety and safety management, they have 

not addressed the link between these 

variables and safety behaviors and 

compliance with safety procedures. In 

general note, the finding of this study 

reveals that accidents are the result of many 

contributing factors, causes, and sub causes. 

Some of the critical factors are unsafe 

method, human element, unsafe equipment, 

job site conditions, management, and unique 

nature of the industry. The causes of 

accidents in Malaysia were found to be 

similar to that mentioned in literature 

review. However, some of the causes are low 

in frequency of occurrence. The main cause 

of construction accidents found are lack of 

training, in effective operation of safety 

regulations, failure of workers to obey work 

procedures, operating equipment without 

safety devices, poor site management, low 

knowledge and skill level of workers, failure 

to use personal protective equipments and 

poor workers attitude about safety. 

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CRITICAL SUCCESS FACTORS IN CONSTRUCTION INDUSTRY IN 

LIBYA 

Abdelwahab Omran, Abdul Hamid Kadir Pakir and Abdelnaser Omran 

School of Housing, Building and Planning, Universiti Sains Malaysia, Pulau Pinang, 

Malaysia 

naser_elamroni@yahoo.co.uk 

Abstract 

Performance of a project has always been an 

important issue in the construction industry. 

A critical success factors is something that 

the organization must do well to succeed. 

Critical success factors are very important 

cause influence that to project success. This 

paper seeks to identify the major factors 

influencing the success of the project, 

particularly in construction projects in 

Libya. A questionnaire survey was carried 

out to explore the most critical success factors 

for construction projects. A sample of 35 

participants was involved in this study. As 

results, it was revealed that, project 

understanding, cost and time estimate, 

communication, adequate project control, top 

management support, client involvement, 

competent project team, problem solving 

ability and authority of the project manager 

are ranked as higher critical success factors 

in Libya. 

Keywords: Critical success factors, 

Construction industry, Survey, Libya 


Construction is an activity to build buildings 

or constructions that are inseparable with 

their location. The result of construction 

activities are such as building construction, 

road, bridge, railway, tunnel subway, airport 

building, dams and etc. This activity 

includes planning, preparation, execution, 

demolition and repairing buildings and 

other constructions. The construction 

industry generally represents a significant 

share of the total economic activity of a 

country with corresponding demand of 

materials, services and labour inputs. It is 

sensitive to the movements in the general 

level of business activities; the movements 

in the construction tending to both amplify 

and lead those movements in the economy as 

a whole. In other words, its peaks are 

468 

generally relatively higher, and its trough 

lower and both peaks and troughs tend to 

precede their counterparts in a general 

business cycle (BPS, 2003). Over the past 

two decades, construction industry sectors 

have been experiencing chronic problem 

such as low productivity, poor safety, 

inferior working conditions and insufficient 

quality. These problems have been identified 

as factors that affect construction’s 

performance. Hampsons (1997) believed that 

construction performance affects 

productivity across all sectors of the 

economy. Generally, problems in 

construction can be divided 2(two) which is 

External and Internal Difficulties. According 

to Odeh and Battaineh (2002), External 

factors were the lowest ranked group of 

factor by both parties. It seems that all 

parties are familiar with these factors and 

were able to deal with them effectively 

without causing any major delay. Al- 

Momami (2002) indicated in his survey that 

the major causes identified were: poor 

design, change order, weather, site 

conditions, late delivery, economic conditions 

and increase in quality. 

2. FACTORS EFFECTING OF THE 

PROJECT SUCCESS 

Project success factors are those input to the 

project management system that lead 

directly or indirectly to the success of the 

project or business (Cooke and Davies, 

2002). Belassi and Tukel, (1996), categorized 

success factors into four main group. These 

are factors relating to the project managers, 

factors relating to the project, factors 

relating to the organization and factors 

relating to the external environment. Chan 

et al., (2002) Identified a set of project 

success factors; project team commitment, 

contractor’s competencies, risk and liability 

assessment, client’s competencies, end-users’ 

needs, and constraints imposed by end-user. 

Shenhar et al., (2002), used multivariate

analysis method to identify project success 

factors. They found that project success 

factors vary with project type, they depend 

on high uncertainty or low uncertainty, and 

that project managers must carefully 

identify the factors that are critical to their 

particular projects. High – uncertainty 

projects demand a specific focus on project 

definition, milestones, design, 

documentation, and policy and customer 

participation. Low–uncertainty projects need 

to focus more on formal and structured 

selection of contractors, budget monitoring, 

quality and managerial autonomy. 

3. CRITERIA OF PROJECT SUCCESS 

Project success means different things to 

different people. Each industry, project team 

or individual has its own definition of 

success. Over the last 10 years, a number of 

researchers have shown intense interests in 

this topic. Munns and Bjeirmi (1996) 

consider a project as the achievement of 

specified objective, which involves a series of 

activities and tasks that consume resources. 

From the oxford Dictionary (1990), criterion 

is defined as a standard of judgment or 

principal by which something is measured 

for value. Lim and Mohamed (1999) 

advocate a criterion as a principle or 

standard by which anything is or can be 

judged. The Oxford Dictionary further 

defines success as a favorable outcome or the 

gaining of fame or prosperity. When 

combining these terms together, criteria of 

project success can be defined as the set of 

principles or standards by which favourable 

outcomes can be completed within a set 

specification. Pariff and Sanvido (1993) 

consider success as an intangible perceptive 

feeling, which varies with different 

management expectations, among persons, 

and with the phases of project. Owners, 

designers, consultants, contractors, as well 

as sub-contractors have their own project 

objectives and criteria for measuring 

success. However, client may value other 

dimensions more. Albert and Ada (2004) 

defined project success are dependent on 

project type, size and sophistication, project 

participants and experience of owners, etc. 

In the early 1990s, project success was 

considered to be tied to performance 

measures, which in turn were tied to project 

objectives. At project level, success was 

measured by the project duration, monetary 

cost and project performance (Navarre and 

Schaan, 1990). Time cost and quality are the 

469 

basic criteria to project success, and they are 

identified and discussed in almost every 

article on project success, such as that of 

Belassi and Tukel (1996), Hatush and 

Skitmore (1997) and Walker (1995,1996). 

Atkinson (1999) called these three criteria 

the “iron triangle”. He further suggested 

that while other definitions on project 

management have developed, the iron 

triangle is always included in the alternative 

definitions. Pinto and Pinto (1991) 

advocated that measures for project success 

should also include project psychosocial 

outcomes which refer to the satisfaction of 

interpersonal relations with project team 

members. Subjective measures such as 

participant’s satisfaction level are known as 

“soft” measures. The inclusion of satisfaction 

as a success measure is suggested by 

Wuellner (1990). Pocock et al. (1996) further 

suggested including the absence of legal 

claims as an indicator of project success. 

This then calls for including “safety” as a 

success indicator as well, since it is sensible 

to expect that if accidents occur, both 

contractors and clients may be subject to 

legal claims, as well as financial loss and 

contract delay in the construction project. 

Kometa et al., (1995) used a comprehensive 

approach to assess project success. Their 

criteria include: safety, economy 

(construction cost), running/maintenance 

cost, time and flexibility to users. Songer 

and Molenaar (1997) considered a project as 

successful if it is completed on budget, on 

schedule, conforms to user’s expectations, 

meets specifications, attains quality 

workmanship and minimizes construction 

aggravation. Kumarasamy and Thorpe 

(1996) included a variety of criteria in their 

study of project evaluation. These include 

meeting budget, schedule, quality of 

workmanship, client and project manager’s 

satisfaction, transfer of technology, 

friendliness of environment, health and 

safety. 

4. METHODOLOGY 

As the primary objective of this study is to 

identify factors related successful project in 

construction industry. This study was 

carried out using structured questionnaire. 

As stated by (Sekaran, 2003) questionnaire 

is a popular method of collecting data 

because researchers can gather information 

fairly easily and the questionnaire responses 

are easily coded. The dependent variable for 

this study is successful project management

in construction industry. This dependent 

variable is measured using 13 items. The 

items are as follows: All items were rated 

using a 5- point Liker scale with 1 

representing strongly disagree to 5 

representing strongly agree. The targeted 

population for this study was project leader 

and members from construction sector in 

Libya. The sample was project leaders and 

members from Libyan construction 

companies. This study aims to collect a 

sample size of about 63 using purposive 

sampling as the targeted sample need to be 

exposed to project management. All the 

collected information from the survey were 

checked and verified for their correctness. 

The returned questionnaires were then 

analyzed using Statistical Package for 

Social Science (SPSS); Version 11.5 for 

windows software. Further, after keying in 

the data into SPSS, a Relative Importance 

Index (RII) was used to determine the most 

critical success factors (CSFs). The 5-point 

Likert scale was converted to relative 

importance index for each factor, which 

made it possible to cross-compare the 

relative importance of each of the factors as 

perceived by the respondents. 

Relative importance index (RII) = 4n1 + 3n2 + 2n3 +1n4 +0n5 

4N 

(0 < RII

(roads, utilities and public services) and 

etc. “Adequate project control” are ranked as 

sixth factor followed by “resources” as the 

ninth CSFs. “Top management support” has 

been ranked the tenth CSFs. However, 

management support for has long been 

considered of great importance 

indistinguishing between success and 

failure (Belassi, 1996) and (Pinto, 1989). 

Project management is dependent on top 

management for authority, direction and 

support. Top management should make it 

clear that the project is worthwhile and 

that they support it, (Belassi, 1996) and 

(Nicholas, 1989). Interestingly, many upper 

managers are unaware of how their 

behavior influences project success 

(Graham, 1997). Additionally, successful 

projects have good control and reporting 

systems that provide adequate monitoring 

and feedback that enables comparison of 

team performance and project goals (Gioia, 

1996, Jian, 1996, Jaselskis, 1988). 

Adequate monitoring and feedback 

mechanisms give the project manager the 

ability to anticipate problems, oversee 

corrective measures, and ensure that no 

deficiencies are overlooked (Pinto, 1998). 

The eleventh CSFs appeared in our results 

was external factor. Another critical success 

factors were observed by the respondents 

was that project characteristics and it is 

ranked the eighth (see Table 1). The last 

CSFs are Clint involvement and it is 

ranked. However, in the project delivery is 

important to project success, but this study 

has shown that this kind of factor is ranked 

by the respondents as the latest factor that 

might be as critical factor in construction 

project in Libya. However, a research by 

Jiang, (1996) proved that such factor can be 

considered as one of the priorities factor to 

be making the project a success. For 

successful project the user must be strongly 

committed to the project goals and be 

involved in the project management 

process (Kharbanda, 1996). 

Table 1. Ranking the most important Critical Success Factors in Libya 

6. CONCLUSION 

Project understanding 

Competent project team 

Communication 

Realistic time and cost estimates 

Problem solving 

Project manager authority 

Project planning 

Adequate project support 

Resources 

Top management support 

External factors 

Project characteristics 

Client involvement 

The project management process is complex, 

usually required extensive and collective 

attention to a broad aspect of human, 

budgetary and technical variables. In 

addition, projects often possess a specialized 

set of critical success factors in which if 

addressed and attention given will improve 

the likelihood of successful implementation. 

On other hand if these factors were not 

taken seriously might lead to the failure of 

the project management. As projects are 

used widely in the construction industry, 

therefore, vital to identify factors that 

contribute to the successful implementation 

Factor RII Ranking 

471 

0.891 

0.853 

0.833 

0.831 

0.829 

0.801 

0.792 

0.788 

0.781 

0.704 

0.689 

0.674 

0.661 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

of a project and to identify the factors’ 

relative importance as the project journeyed 

throughout the life cycle. This paper, 

therefore, identified the major factors 

influencing the success of the project, 

particularly in Libya. 

7. REFRENCES 

Bayliss, R. (2002). Project partnering a case study 

on MTRC Corporation Ltd's Tseung Kwan O 

Extension. HKIE Transactions. Pp. 1–6. 

Belassi, W., Tukel, O. I. (1996). A new framework 

for determining critical success/ failure factors in 

projects. International Journal of Project 

Management. Vol. 14(3), p. 141-152.

Chan, A.P.C., Scott, D., Lam, E.W.M. (2002). 

Framework of success criteria for design/build 

projects. Journal of Management in Engineering. 

Vol. 18 (3), pp.120-8. 

Clarke, A. (1999). A practical use of key success 

factors to improve the effectiveness of project 

management. International Journal of Project 

Management. Vol. 17(3), p. 139-145. 

Cooke-Davis, T. (2002). The real success factors 

on projects. International Journal of Project 

Management. Vol.6 (3), p.164–170. 

Chua, D.K., H Y.C. Kog, Y.C. and Loh, P.K. 

(1999). Critical success factors for different 

project objectives. Journal of Construction 

Engineering and Management. Vol. 125 (3), p. 

142–150. 

Gioia, J. (1996) Twelve reasons why programs 

fail. PM Network. Vol. 10(11), p.16-19. 

Graham, R. J., Englund, R. L. (1997) Creating an 

environment for successful projects. San 

Francisco, Jossey-Bass. 

Gray, C.F., Larson, E. W. (2002). Project 

Management. McGraw-Hill, Boston. 

Jaselskis,E.J., Ashley,D.B. (1988). Achieving 

construction project success through predictive 

discrete choice models. 9 th World Congress on 

Project Management, Glasgow, p. 71-85. 

Jaselskis,E.J., Ashley,D.B. (1991). Optimal 

allocation of project management resources for 

achieving success. Journal of Construction 

Engineering and Management (ASCE). Vol. 

117(2), p. 321-340. 

Jian, J.J., Klein, G., Balloun, J. (1996) Ranking of 

System Implementation Success Factors. Project 

Management Journal. Vol. 27(4), p. 49-53. 

Judev, K., Muller, R. (2005). A retrospective look 

at evolving understanding of project success. 

Project Management Journal. Vol. 36(4), p. 19-31. 

Kharbanda,D.C., Pinto, J.K. (1996)What made 

Gertie gallop? Lessons from project failures. 

New York, Van Nostrand Reinhold. 

472 

Lim, C.S., Mohamed, M.Z. (1999). Criteria of 

project success: an exploratory re- examination. 

International Journal of Project Management. 

Vol.17 (4), p. 243-248. 

Mango, W.A. (2008). Project management: beyond 

the formal definition. PM World Today. Vol. X, 

Issue IV. 

Mohsini, R. A., Davidson, C.H. (1992). 

Determinates of performance in the traditional 

building process. Construction Management 

&Economics. Vol.10(4), p. 343-359. 

Munns, A. K., Bjeirmi, B.F. (1996). The role of the 

project manager in achieving project success. 


Vol. 14(2), p. 81-87. 

Nicholas, J.M. (1989) Successful project 

management. A force field analysis. Journal of 

Systems Management. Vol. 40(1), p. 24-30. 

Pheng, S.L., Chuan, T. Q. (2006). Environmental 

factors and work performance of project 

managers in the construction industry. 


Vol. 24, p. 24-37. 

Pinto, J.K., Slevin, D.P. (1989). Critical success 

factors in R& D projects. research Technology 

Management . Vol. 32(1), p. 31-35. 

Pinto, J.K., Slevin, D.P. (1988). Critical success 

factors in effective project implementation. 

International Project Management Handbook. 

Cleland, D. I., King, W.R. (Eds), Princeton, Van 

Nostrand Reinhold. p. 479-512. 

Project Management Institute (2000). A Guide to 

the Project Management Body of Knowledge 

(PMBOK). 

Sanvido, V., Parfit, K., Guvenis, M., Coyle, M. 

(1992) Critical success factors for construction 

projects. Journal of Construction Engimeering 

and Management (ASCE). Vol. 118(1), p. 94-111. 

Sekaran, U. (2003). Research Methods for 

Business, 4 th edition. John Wiley and Sons. p.249.

IDENTIFYING THE KEY FACTORS THAT INFLUENCE DELIVERY OF 

PROJECTS UNDERTAKEN BY LOCAL CONTRACTORS IN MALAYSIA: 

A CASE STUDY 

Abdelwahab Omran, Abdul Hamid Kadir Pakir and Abdelnaser Omran 

School of Housing, Building and Planning, Universiti Sains Malaysia, Pulau Pinang, 

Malaysia 


Abstract 

Many studies have been conducted to identify the factors influencing project performance that 

contribute to either success or failure. These studies has concluded that success can be measured by 

the budget and schedule performance, customer satisfaction, work experience, safety record, as well 

as other subjective and objective factors. Project failure is due to various factors hence, the 

objectives in this study are to discover possible solutions and propose ways to prevent future 

occurrence of these problems. The reasons for project failures among local Malaysian contractors 

should be viewed as challenges that need prime attention. Therefore, to ensure successful 

completion of a project, the contracts awarding procedures need to be evaluated and appraised to 

ensure that only the best contractor for the job will be appointed. The aim of this study is to 

determine the key factors that influence delivery of projects undertaken by the local Malaysian 

contractors in Malaysia. It will basically focused on identifying the internal and external factors 

affecting the delivery of projects undertaken by the local Malaysian contractors and to identify the 

intervention that can be applied to assist local Malaysian contractors to overcome their problems. 

Keywords: Internal and external factors; project delivery, local contractors, Malaysia. 


The concept of project success factors is one 

of the most widely researched topics in 

project management (Ashley et al., 1987). 

Many studies have been conducted to 

identify the factors influencing project 

performance that contribute to either 

success or failure. These studies has 

concluded that success can be measured by 

the budget and schedule performance, 

customer satisfaction, work experience, 

safety record, as well as other subjective and 

objective factors (Menches & Hanna, 2006). 

The construction industry represents one of 

the most dynamic and complex industrial 

environment. Peurifoy and Ledbetter (1985) 

identified that the construction industry is 

one that deals mainly with the conversion of 

plans and specifications into a finished 

product. In developing countries, the 

construction sector forms a high percentage 

of the economy (Abdul-Rahman et al., 2006). 

In Malaysia, the report of DSM (2004) had 

shown in the third quarter of 2004, the 

construction sector contracted 3% compared 

to a positive growth of 2.4% in the same 

quarter a year ago. In the present study, the 

success of a project is measured in terms of 

473 

its performance on schedule (time), cost, 

quality and no-dispute. A successful 

completion of a project refers to a project 

that is completed on time and meets the 

required quality as defined in the contract 

documents. (Abd Rahman et al., 2006). 

Delays or late deliveries, sub-standard 

workmanship and materials, poor safety 

management on sites and cost over-run of 

projects are some of the issues that are often 

faced by local Malaysian contractors. (Abd 

Rahman et al., 2006). Delay gives rise to 

disruption of work and loss of productivity, 

late completion of project increased time 

related costs, and third party claims and 

abandonment or termination of contract. It 

is important that general management keep 

track of project progress to reduce the 

possibility of delay occurrence or identify it 

in early stages (Martin, 1976). Project failure 

is due to various factors hence, it is our 

objectives in this study to uncover possible 

solutions and propose ways to prevent future 

occurrence of these problems. The reasons 

for project failures among local Malaysian 

contractors should be viewed as challenges 

that need prime attention. Therefore, to 

ensure successful completion of a project, the 

contracts awarding procedures need to be

evaluated and appraised to ensure that only 

the best contractor for the job will be 

appointed. (Abd Rahman et al., 2006). The 

aim of this research is to determine the key 

factors that influence delivery of projects 

undertaken by the local Malaysian 

contractors in Malaysia. The establishment 

of research aim helps in the formulation of 

the dissertation objectives. The objectives 

are: 

1. To identify the internal and external 

factors affecting the delivery of projects 

undertaken by the local Malaysian 

contractors. 

2. To identify the intervention that can be 

applied to assist local Malaysian contractors 

to overcome their problems. 

2.0 Literature Review 

The construction industry represents one of 

the most dynamic and complex industrial 

environment. Peurifoy and Ledbetter (1985) 

identify that the construction industry is one 

that deals mainly with the conversion of 

plans and specifications into a finished 

product. In developing countries, the 

construction sector forms a high percentage 

of the economy (Abdul-Rahman et. al., 2006). 

In Malaysia, the report of DSM (2004) 

showed that in the third quarter of 2004, the 

construction sector contracted by 3.0% 

compared to a positive growth of 2.4% in the 

same quarter a year ago. The problem of 

delays in the construction industry is a 

global phenomenon and the construction 

industry in Malaysia is no exception. The 

construction sector in Malaysia, a fast 

developing country in South-East Asia has 

not escaped the problem of delays. In 2005, 

about 17.3% of 417 government contract 

projects in Malaysia were considered sick 

(more than 3 months of delay or abandoned) 

(Abdul-Rahman et. al, 2006). The 

importance of the criteria used to evaluate 

and select contractors or suppliers has been 

examined under various industrial 

purchasing situations. These include the 

supply of professional management services 

and procurement of capital equipment and 

systems, for the delivery of large scale 

projects (Alsugair, 1999; Cardozo and 

Cagley, 1971; Dempsey, 1978; Dickson, 1966; 

Hakansson and Wootz, 1975; Hatush, 1997; 

Hensher et. al). The criteria included those 

in which evaluators could gauge contractors 

and their likely performance across key 

474 

project dimensions; relevant experience, track 

record, quality, expertise, capability, cost, 

safety record, and capacity to name a few. In 

terms of the their importance in evaluating 

and selecting contractors, these studies 

showed that no individual criteria or group 

of criteria are consistently reported as being 

more important than others. Hughes (1986) 

conducted a survey to identify the factors 

that affect project performance. He 

concluded that projects fail because of 

improper basic managerial principles, such 

as the improper focus of the management 

system, by rewarding the wrong actions, and 

the lack of communication of goals. Morris 

and Hough (1987) studied eight large, 

complex projects which had great potential 

economic impact but were poorly managed 

and generally failed. They identified the 

success and failure factors for each of them. 

They concluded that although their analysis 

of success factors is aimed at large, complex 

projects, they are also relevant to projects in 

general. One of the first efforts to classify 

critical factors was carried out by Schultz et 

al., (1987) who classified factors as strategic 

or tactical. These two groups of factors affect 

project performance at different phases of 

implementation. The strategic group 

includes factors such as "project mission", 

"top management support" and "project 

scheduling" whereas the tactical group 

consists of factors such as "client 

consultation", "personnel selection and 

training". In their follow-up work, Pinto and 

Slevin (1989) identified success factors, and 

their relative importance, for each stage of a 

research and development project life-cycle. 

In a similar study by Pinto and Prescott 

(1988) the relative importance of each group 

(tactical vs. strategic) over the project lifecycle 

was analysed. It was found that the 

relative importance of success factors varies 

at different stages of the project's life-cycle, 

depending on the success measure used. 

When external success measures are 

employed, planning factors dominate tactical 

factors throughout the project life-cycle. 

Faridi and El-Sayegh (2006) reported that 

shortage of skills of manpower, poor 

supervision and poor site management, 

unsuitable leadership, shortage and 

breakdown of equipment among others 

contribute to construction delays in the 

United Arab Emirates. Hanson et al., (2003) 

examined causes of client dissatisfaction in 

the South Africa building industry and

identified conflict, poor workmanship and 

incompetence of contractors to be among the 

factors which would negatively impact 

project performance. The performance of 

contractors in Zambia is apparently below 

expectation; it is not uncommon to learn of 

local projects that have not been completed 

or significantly delayed. This poor 

performance of many local contractors has 

huge implications in terms of their 

competitiveness (Zulu and Chileshe 2008). 

For example, Dissanayaka and 

Kumaraswamy (1999) found that project 

time and cost performance are influenced by 

project characteristics, procurement system, 

project team performance, client 

representation's characteristics, contractor 

characteristics, design team characteristics, 

and external conditions. Similarly, Iyer and 

Jha (2005) identified many factors as having 

influence on project cost performance. These 

include project manager's competence, top 

management support, project manager's 

coordinating and leadership skills, 

monitoring and feedback by the participants, 

decision- making, coordination among 

project participants, owners' competence, 

social condition, economic condition, and 

climatic condition. Coordination among 

project participants, however, was identified 

as the most significant of all the factors, 

having maximum influence on cost 

performance. Interestingly, Love et al., 

(2005) examined project time-cost 

performance relationship, and their results 

indicate that cost is a poor predictor of time 

performance. Elyamany et al., (2007) 

introduced a performance evaluation model 

for construction companies in order to 

provide a proper tool for the company's 

owners, shareholders and funding agencies 

to evaluate the performance of construction 

companies in Egypt. Further, Dlungwana 

and Rwelamila (2003) proved that 

contractors can be distinguished from each 

other by variables such as the size of annual 

turnover, capacity and capability. The 

challenges facing small and medium-sized 

contractors can be distinguished between 

those that affect small-scale contractors and 

those that affect medium-sized contractors. 

Some key features of small-scale contractors 

are that they are largely unregistered, 

operate in the informal sector of the economy 

and have very little formal business systems. 

The small-scale sector comprises the largest 

percentage of total contractors, although 

475 

they employ very few permanent staff, 

usually less than ten employees. The 

conditions in developing countries present 

additional challenges, which include, 

amongst others, the lack of resources for 

training contractors, such as funds, poor 

construction procurement systems and lack of 

management capacity and resources to equip 

managers to operate their business 

enterprises effectively and efficiently. In 

regard to legal barriers of construction 

disturbing contractors’ development and 

growth, a commonly perceived constraint of 

micro enterprises is the labour laws which 

are said to raise the cost of employment 

artificially prolong retrenchments or 

corrective action and do not allow for 

adequate flexibility especially in wage 

settings and the arrangement of working 

time (Bhorat et al., 2002). As a result 

enterprises feel a profit squeeze and impact 

on the willingness to create jobs. 

3. Research Methodology 

Data is collected as secondary data consists 

of literature review from references books, 

local and international journals, published 

reports, online database and etc. This 

method had been chosen in this case because 

it is an ideal method for research with 

stringent time constraint. After the 

secondary data i.e. journals, theses, 

newspaper and etc are collected, the raw 

data is reviewed and analysed. Here, 

internal and external factors that influence 

delivery of the projects undertaken by the 

local Malaysian contactors are identified. 

4.0 Results And Discussion 

The results and discussions are divided into 

two parts. The first part discusses the 

internal and external factors that influence 

delivery of project undertaken by Local 

Malaysian Contractors. The second part 

discusses the interventions that can be 

applied to assist the Local Malaysian 

Contractors to overcome their problems. 

4.1. Internal and External Factors 

Influencing Project Delivery 

The internal and external factors that 

influence delivery of projects undertaken by 

Local Malaysian Contractors are divided into 

several categories as shown in Table 1 and

Table 2. After identifying the main 

categories of the internal and external 

factors, other sub-items under those 

categories are described. These sub-items or 

sub -factors were created based on the 

collected data or information from critical 

and comprehensive reviewing. 

No. Categories 

1 Financial factor 

2 Managerial factor 

3 Technical factor 

4 Project management action factor 

5 Project procedure factor 

6 Project-related factor 

7 Human related factor 

Table 1: Seven main categories of 

internal factors that influence delivery 

of projects undertaken by Local 

Malaysian Contractors 

Table 2: Four main categories of external factors that influence delivery of projects 

undertaken by Local Malaysian Contractors 

No. Categories 

1 Economics factor 

2 Legal factor 

3 Political factor 

4 Environmental factor 

The complete statements of the factors and sub-factors are stated in Table 3 and Table 4. 

Table 3: Internal factors 

Internal Factors Sub-factor 

Financial -credit rating 

-capital supply 

-insufficient cash flow 

-rental 

Managerial -productivity 

-improper planning 

-poor cost control 

-site management 

Technical -change in design 

-delay in design 

-design failure 

-no advanced equipment or machineries 

476

Table 4: External Factors 

External Factors Sub-factor 

Economic -material supply 

-labour supply 

-price increase in building material 

-equipment availability 

-inflation 

-tariffs 

Legal -contract clause 

-regulations & codes 

-drawing issues & approval 

Political -delay in approval 

-corruption 

Environment 

As results, the study have come out with the most critical external and internal factors that 

influence the delivery of projects undertaken by local contractors in Malaysia, these factors are 

listed accordingly to their degree of importance as shown in Table 5. 

Table 5: Ranking the internal and external factors that influence delivery of projects 

undertaken by local Malaysian contractors 

Rank Internal External 

1 Poor cost control Increase in price for material 

and machinery 

2 Improper planning Site condition 

3 Site management Equipment availability 

4 Change in design Material supply 

5 Health and safety Drawing issuance and approval 

6 Productivity Weather 

7 Lacked of skilled workers Inflation 

8 Delay in design Change in law 

9 Estimation error Environment impact 

10 Insufficient cash flow Tariffs 

11 Credits rating Contract clause 

12 No advanced equipment or Labour supply 

machinery 

4.2 Interventions that can be applied to 

assist the Local Malaysian Contractors 

to overcome their problem 

Table 6 presents the key factors (internal) 

that influence delivery of projects 

undertaken by local contractors with 

maximum value is poor cost control with a 

sum of 224. Then, it is followed by improper 

planning with a sum of 217 site management 

-change in law 

-weather 

-soil condition 

-environment impact 

477 

with a sum of 216, changes in designs with a 

sum of 206, health and safety with a sum of 

205, productivity with a sum of 199, lack of 

skilled workers with a sum of 197, delays in 

design with a sum of 190, estimation error 

with a sum of 185, insufficient cash flows 

with a sum of 182, credit ratings and no 

advanced equipments or machines with a 

sum so 179, rentals and loan facilities with a 

sum of 175 and designs failure with a sum of

163. The lowest value for key factors 

(internal) that influences delivery of projects 

undertaken by local contractors is lack of 

experiences with a sum of 152. 

Table 6: Ranking of Key Factors (Internal) That Influence Delivery of Projects 

Undertaken by local Malaysian contractors 

Factor N Su Mea 

m n 

Poor cost control 60 224 3.73 

Improper planning 60 217 3.62 

Site management 60 216 3.60 

Changes in designs 60 206 3.43 

Health and Safety 60 205 3.42 

Productivity 60 199 3.32 

Lack of skilled workers 60 197 3.28 

Delay in design 60 190 3.17 

Insufficient cash flows 60 185 3.08 

Credit rating 60 182 3.03 

No advanced equipments/ machines 60 179 2.98 

Rentals 60 179 2.98 

Loan facilities 60 175 2.92 

Design failure 60 163 2.72 

Lack of experiences 60 152 2.53 

Table 7 shows the key factors (external) that 

influence delivery of projects undertaken by 

local Contractors with maximum value is 

increase in price of construction materials 

and machineries with a sum of 205. Then, it 

is followed by site conditions with a sum of 

204, equipment availability with a sum of 

200, materials supply with a sum of 198, 

drawing issuance and approval and weather 

with a sum of 197, inflations with a sum of 

194, change in law with a sum of 191, 

environmental impact with a sum of 190, 

tariffs with a sum of 187, contract clauses 

with a sum of 185, labour supply with a sum 

of 183, regulations and codes with a sum of 

180, delay in approvals with a sum of 179, 

corruption with a sum of 177, limited 

business relationship with a sum of 176 and 

lack of knowledge on regulations with a sum 

of 167. The lowest value for key factors 

(external) that influence delivery of projects 

undertaken by Local Contractors is exchange 

rates with a sum of 146. 

Table 7: Ranking of Key Factors (External) that influence delivery of projects 

undertaken by local Malaysian contractors 

Factor N Su Mea 

m n 

Increase In Price Of Construction Materials & 60 

Machineries 

205 3.42 

Site Conditions 60 204 3.40 

Equipment Availability 60 200 3.33 

Material Supply 60 198 3.30 

Drawing Issuance & Approval 60 197 3.28 

Weather 60 197 3.28 

478

Inflations 60 194 3.23 

Change in law 60 191 3.18 

Environmental impact 60 190 3.17 

Tariff s 60 187 3.12 

Contract clauses 60 185 3.08 

Labour supply 60 183 3.05 

Regulations & Codes 60 180 3.00 

Delay in approvals 60 179 2.98 

Corruption 60 177 2.95 

Limited business relationship 60 176 2.93 

Lack of knowledge on regulations 60 167 2.78 

Exchange rates 60 146 2.43 

5.0 Conclusion 

The construction industry is a complex 

business involving a dynamic industrial 

environment, various professional and nonprofessional 

participants, as well as third 

parties with indirect yet substantial 

involvement in the project. There have been 

many witnesses of project failures in the 

industry, most of which fail to complete, or 

were completed at a loss. This scenario 

drives the need for special attention to solve 

some of the main issues often faced by local 

Malaysian contractors. Many researches 

have been conducted in topics related to 

project success factors in the last ten years. 

Project success is often measured in 

reference to its timely project completion and 

resultant quality definition as expected in 

the contract documents. From our findings, 

review of literature, and expert observations, 

we have drawn a conclusion to the subject 

issue. It can be concluded that the internal 

key factors affecting project delivery are 

found in financial factors, managerial 

factors, technical factors, project 

management action, project procedure, 

project-related factors, and human-related 

factors. The external key factors affecting 

project delivery are attributed to economics, 

legal, political and environmental factors. 

Therefore, we have suggested a list of 

interventions to assist local Malaysian 

contractors as below: 

1. Mutual understanding and team work 

amongst staff. 

2. The organization should allow some 

budget for staff incentive on top of 

project bonus as to give more 

motivation and recognition of their 

services. 

479 

3. Cut down operating costs, work hard 

and look for more contacts. 

4. Reduce red tape with authority. 

5. Improve system for quality control. 

6. Improve communications and follow up 

on project progress. 

7. Make quick and accurate decisions on 

site. 

8. Ensure proper planning of works. 

6.0 References 

Abdul-Rahman, H. and Alidrisyi (1994) A 

Perspective of Material Management Practices in 

a Fast Developing Economy: The Case of 

Malaysia. Journal of Construction Management 

and Economics, 12, 413-422. 

Abdul-Rahman, H., Berawi, M., Berawi, A., 

Mohamed, O., Othman, M., & Yahya, I. (2006). 

Delay mitigation in the Malaysian construction 

industry. Journal of Construction Engineering 

and Management , 132 (2), 125-133. 

Al-Khalil M.I. and Al-Ghafly, M.A. (1999) 

Important Causes of Delay in Public Utility 

Projects in Saudi Arabia. Journal of Construction 

Management and Economics, 17, 647-655. 

Alsugair A. (1999). “Framework for Evaluating 

Bids of Construction Contractors.” Journal of 

Management Engineering, 15(2):72–8. 

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MANAGING CONSTRUCTION CONFLICT: A CASE STUDY OF PAN 

PALACE PLAZA COMMERCIAL COMPLEX IN PENANG STATE, 

MALAYSIA 

Yeoh Keat Yew, Abdelnaser Omran, Abdul Hamid Kadir Pakir & Abdullah Mahmood 




Abstract 

Normally every project in the construction industry encounters conflict at the very beginning of the 

project, which is at the inception stage till the project commissioning and handover. Therefore, it 

is important to identify the factor that lead to conflict and the impact it bring to the construction 

industry. While all this factors of conflict are indentify, a great many destructive conflicts have 

arisen which could be managed effectively. If all deadlines were met, if all claims are paid in full 

and on time, if all specification are followed, if all claims were reasonable and honest, if 

expectation were realistic and if the people involved communicate with accuracy and complete 

understanding, with a willingness to be flexible and to seek solutions to problems that would 

benefit all concerned, conflict within the industry should be avoidable. Of course, with so many 

imponderables and human nature being less than perfect, some degrees of conflict is inevitable. In 

view of such conflicts that may arises, the project report describe in details the factor and impact 

of conflict toward a project, and method to manage the conflict in a project such as the case study 

of an on-going project. A case study of a nine story shopping complex in Taman Lip Sin located in 

Penang has been discussed and factor that lead to conflict such as inadequate resources, late 

payment, inexperienced site personnel, lack of supervision, coordination problems, decision 

making, contract duration, discrepancies in construction drawing, fluctuation of price and 

peoples’ interest with such conflict arises in this study. 

Keywords: managing construction, conflict, Pan Palace Plaza, Commercial complex, Pinang, 

Malaysia 


In the 21st manager, quantity surveyor, supervisor and 

subordinates to safeguard the interest of the 

company in a project. A number of 

century, the construction researchers and practitioners in project 

industry had gone through a few cycle of management have reported that there is an 

evolution. The recent change in the increasing trend in the use of cross- 

construction industry was thirty years ago functional project teams because of the 

such as the tendency of the economic to dynamic nature of today's projects and their 

swing alternately between period of boom life cycles (Kezsbom, 1992; Ranney and 

and recession, emergence of claim Deck, 1995). More and more, conflict is being 

consultants to handle discrepancies, perceived and accepted as inevitable in such 

procurement method available, hierarchy of a stressful project-oriented environment. 

contractors relationship with sub Project managers should therefore be able to 

contractors, expectation of clients and mode identify the sources of conflicts and apply 

of payment and credit term. This change can appropriate resolutions in today's project 

cause conflict and have impact toward the environment. Tjosvold (1991) and Deustch 

project. Changes can be viewed from a (1994) suggest that when conflict is 

number of perspectives such as the increase appropriately managed, it could be 

in the incidence of conflict between parties constructive and even add substantial value 

involved in the construction industry and to an organisation. They, and a number of 

construction companies had evolved to be other Western researchers, have written 

mange by not only individual but a whole much about how to effectively confront and 

project team members comprising of project resolve the various types of organisational, 

manager, project engineer, contract task-related or personal conflicts (Kezsbom, 

481

1992; Tjosvold, 1991; Deutsch, 1994; 

Thamhain & Wilemon, 1975; Rahim, 1986; 

Gupta & Wilemon, 1998; Amason, 1996). 

The form of contract had change to become 

more one sided, i.e the Department of 

Engineering (JKR 203 Contract that side the 

authorities, the PAM Contract that sides the 

consultant and the CIDB Contract that side 

the contractor. Although, many types of 

contract had emerged until today, the 

traditional standard form of procurement 

which are still been used which is the PAM 

Contract. Furthermore, new contracts have 

proliferated that the experienced 

practitioner likes the consultants, 

developers, contractors and sub-contractors 

and also the supplier have become uncertain 

of the terms embodied in the standard form 

of contracts. Every player in the 

construction is still trying to safeguard their 

interest in their dealing with knowledge, 

experience and contracts that bind the work 

together. Conflict does emerge in every 

single project which may be due to site 

problems, coordination, management, 

financing, site personnel’s affair on site and 

the quality of work on site. Conflict that 

occurs on site especially within this case 

study was due to the method of construction 

during the initial stage (foundation and substructure), 

this is because the three story 

basement was constructed by constructing 

the center portion of the basement structure 

and finally the retaining wall. This is a new 

method of construction and created conflict 

on site due the method used. Along the 

construction process, conflicts are causes by 

time, financial, quality and human factors. 

This has prompted me to analyze in detail 

the causes of conflict, impact of conflict 

toward the project and method to handle 

conflict effectively. Conflicts on site are 

unavoidable and every project has their own 

set of conflicts. Question that arises when 

analyzing conflict in a project are as follow: 

� What are the causes of conflicts in a 

project? 

� What kind of impacts that the 

occurrence of conflict bring in a 

project? 

� What are the methods used to 

mitigate conflicts in a project? 

Based on these questions, this paper is 

attempted to explore the following 

482 

objectives: (i) To identify factors that lead to 

construction conflict due to progress claim, 

Interaction on site, coordination of site work, 

sequence of trade to proceed then followed 

by other trades, contracts, technical 

specification, method of construction and 

completion of project on time. (ii) To 

examine the impact of conflict toward the 

project whether does it bring advantage or 

disadvantage to the project? The impact 

toward a project brings tremendous change 

to the project outlook and output. (iii) To 

study method used to mitigate the impact of 

construction conflict on the project and how 

the conflicts are managed in a project. 

2. Methodology 

The selected project was started in January 

and completed in March 2007. It involved 

the construction of a nine story building 

comprise of a three level basement car park 

and six level shopping complex in Taman 

Lip Sin located in Penang Island 

(Malaysia). The study was tried to describe 

the conflict at a project site and method used 

to manage the conflict effectively on site 

without hindering the progress work on site. 

For the initial observation, is to study the 

source of conflicts in a construction industry 

and the type of conflict that occur ranging 

from the mild to the severe cases that can 

jeopardize the entire progress on the job site. 

Once a conflict had been identified, a 

detailed analysis is performed to determine 

the human involvement in the conflict. 

Effective measures must be taken to either 

avoid or resolving the conflicts. A wellplanned 

strategy and tactic must be 

produced to solve the conflicts on the job 

site. For the final stage, is to formulate an 

effective construction management 

technique in handling conflict in the future. 

It also equips the project manager to handle 

conflict efficiently with the three core 

qualities in mind this is time, cost and the 

quality. An improved set of guideline on how 

to manage a conflict in the construction 

industry are produced as a guideline for all 

future project manager in the construction 

industry. Details on the project where the 

case study was carried out, is shown in 

Table 1.

Table 1: Project information 

Client consultant team member 

Client Bukit gambir land Sdn Bhd (BGL) 

Architect Architect BK Lee (BKL) 

C&S Engineer Jurutera Perunding Cescon (JPC) 

M&E Engineer Han Yang Consultancy (HYC) 

Main contractor Langkah Kemas Construction (LKC) 

Sub-contractors 

Foundation Soil Mechanic (SM) 

Earthwork Amasser Construction (AC) 

Carpenter Loh Yam Seng (LYS) 

Bar bender Tan Chin Seng (TCS) 

Masonry Law Tek Leong (LTL) 

Soil Nailing Great Soil Eng (GS) 

Plumber Ban Hong (BH) 

Infrastructure Boon Yong Lee (BYL) 

Landscape Eng Hor Nursery (EH) 

Interior designer Adbantec (ID) 

Nominated sub-contractors 

Electrician Emas Jaya Electrical (EJE) 

Aircon & ventilation ITS Technology (ITS) 

Fire fighting Conquest Engineering (CFE) 

Lift and Escalator Thyssenkrupp (TKE) 

Genset supplier Hong Seng Power (HS) 

Suppliers and dealers 

Concrete supplier Hanson Concrete (HC) 

Sand supplier Tech Quarry (TQ) 

Tiling supplier White Horse (WH) 

3. Analysis and discussion of the case 

study 

Conflict at work site such as many case 

studies may seem like something to avoid. 

But it does not have to be. By learning how 

to manage conflict effectively, you will create 

better relationships, open yourself up to new 

alternatives and enhance your overall job 

satisfaction. Consider the scenario with your 

workers. If you have an open and honest 

discussion about what sidetracked the big 

project, chances are he or she will be less 

483 

upset and even able to help you keep your 

team on track with deadlines. And your loud 

co-worker might not even realize that he is 

broadcasting his personal life all over the 

office and might just thank you for pointing 

it out. Conflicts consist of two major 

components – the issue at hand and the 

relationship between those involved. You 

might find that you repeatedly knock heads 

with someone in the office over seemingly 

trivial matters. Unless the relationship 

component is addressed, conflicts only 

remain idle until the next issue arises.

Case Study Discussion and Analysis 

Foundation (Case 1) LKC and SM plan to discuss matters privately. They have decided on a specific time and place to meet, preferably 

on neutral ground such as the case of the sub contractors cannot meet eye to eye with the main contractor. 

Finally, they planned to keep any issue pertaining to conflict privately until LKC had a chance to discuss and try 

to resolve it. Be willing to compromise. As LKC and SM approach the situation, they recognize that both of them 

have something at stake. They find ways to meet in the middle, if necessary such as this case study were the 

dispute is due to cost budgeting. Compromise is most effective when each person feels right, to a certain degree, 

despite differing opinions. Before negotiating a compromise, make clear which issues are negotiable and which are 

not. 

Foundation (Case 2) Acknowledge the problem at hand which is the welfare of workers working on site is not taken care. Effectively 

managing a conflict at site requires facing up to it because the problem will not just go away such as the basic 

amenities are not provided for workers. Ignoring a conflict won’t make it go away but will worsen the situation 

where the worker are reluctant to work. LKC knew that and acknowledge the problem at site and are prepared to 

spend a bit to ease the burden of workers. Conflict raise awareness of what is important to individuals especially 

the workers and this make Langkah Kemas Construction (LKC) aware of the needness of basic amenities at site. 

All team members are working for their self interest in a project such as LKC is trying to save cost in a manner 

that jeopardize others. This lead to a degree of selfishness of LKCI but if LKC are brought to the table to discuss, 

then LKC might be aware that their interest are second compare to the on going project. 

Foundation (Case 3) Conflict requires creativity to find the best outcomes such as the lack of water supply at site resulted in LKC 

outsourcing from the nearest water source. Communication and discussion regard the inadequate of water usage 

at site between team members may lead to argument and sometime conflict on the discussion table. But 

brainstorming on the table creates ample solution to a problem they may be discussed by all the team members 

such as outsourcing water from the nearest water source. 

Foundation (Case 4) Discussing conflicting views between LKC and AM can lead to better solutions. Certain conflict matters between 

project team members may turn out to be a sore point in the construction progress but in the end everyone is 

working toward the interest of the project. Such as AM could not agree to the method of construction but LKC 

stated that excavation work can be carried out in three stages and no LAD will be imposed. At the same time. AM 

allow the usage of excavator for pile cap excavation free of charge. 

Excavation (Case 5) LKC have to focus on the issue although TH is not keen to carried out the job due to complication. If the problem 

is complex such as the team member such as TH is not working with the project team members, focus on one issue 

at a time. In fact, most conflicts have several components. Break the problem down so that a satisfactory 

resolution won’t seem unattainable. Such as to excavate a trench first to attain the soft ground then allow TH to 

drive the sheet piles into the ground. 

484 

LKC able to keep their emotions in check. It’s understandable that LKC might get emotional if LKC have 

something at stake such as the sub contractors does not want to cooperate or give hard time to the main 

contractor. But venting your emotions may only prevent you from expressing your views logically. Anger, for

example, often leads to a negative and destructive conversation. If a situation becomes explosive, wait for another 

opportunity to discuss the matter. Therefore, LKC take a further step to create an opportunity for TH to carried 

out the job and make TH feel that LKC is a contractor that does care for the sub contractors. 

LKC accept personality differences such in LYS not wanting to cooperate when problem arises. LKC might find 

themselves repeatedly clashing with the same person over minor issues such as LYS. LKC might have to accept 

that they have a personality conflict in hand. It’s harder to let the little things go when LKC don’t particularly like 

a person like LYS. But, LKC try to keep the differences from negatively impacting LKC working relationship. The 

bottom line is, LKC have direct control over a LYS’s behaviours and opinions and can be tactful LYS. LKC choose 

to focus their energy on how LKC can speed up the job to prevent an unpleasant situation in the future. 

Conflicts are challenging and exciting such as the delay in confirmation of the architecture finished by BGL will 

delay the site work. This will create conflict due to delay in time. Activities on site are always very demanding and 

the interaction of site personnel among themselves is very heavy. The interaction between BGL and LKC is very 

important to confirm the shop drawing. Demand on site are also very demanding and this require the site 

personnel to be able to sort all problems on site without creating a friction among themselves. For example: 

architecture finished confirmation. 

BGL understand that work had been done already, no point to blame any of the project team members now. BGL 

and LKC will brainstorm on method to put shop lot signage’s due to the ceiling headroom is too low. 

The floor finishes have to be decide as to award the tiling work to which supplier and sub contractor. BGL and 

LKC brainstorm on the pros and cons of the tiling grade and decide on the most analytical approach they can 

obtain. 

This conflict arises because AS are confidence of getting LKC’s director support. AS do not respect LKC’s site 

personnel although they ask for endorsed shop drawing for comparison. Whatever LKC’s site personnel request, it 

will fall into deaf ear of the AS’s representative. Finally, JPC inspected the roof truss and not satisfied with the 

roof truss design at all. JPS commented that they are not comfortable to certify that the roof structure is safe and 

sound. This matter arises because there was no mutual respect between LKC and AS site representative. This 

resulted in AS having to bear the total cost loss and have to satisfy JPC and LKC and BGL that the roof truss is 

safe and sound. 

Construction of Substructure 

(Case 9) 

Construction of substructure 

(Case 12) 

Architecture Work 

(Case 14) 

485 


(Case 15)

4. Case Study Analysis and Discussion 

Scope of Work Conflict Description Factor of Conflict Impact of Conflict Managing Conflict 

Foundation (Case 1) 1. Awarding of contract to Misunderstanding 

Time 

Communicate With 

undertake the 1. LKC feel that they have 1. Delay in work Precision 

construction bore piling awarded the job for a high commencement. 1. LKC meet up with SM 

(foundation). The LKC price to SM. 

2. Trust between at SM office to show 

initial wanted to award 2. Beside that SM insisted to LKC and SM become sincerity and discuss on 

the foundation work to use two piling frame to something 

the outcome of job on 

SM at an agreed price. complete the job in three questionable. site. 

When SM wanted to (3) month and this 3. As discussion is 2. LKC renegotiate every 

commence job on site and resulted in a VO to LKC. needed to come to a item stated in the work 

mobilize equipment to 3. LKC ordered SM to agreeable ground, order and come out with 

site, LKC immediately remove all site machinery time is wasted and a proper solution that is 

issued a stop work order from site pending final also result into to create a win-win 

to SM to stop work. LKC discussion with SM or fluctuating cost. situation for both parties. 

wanted to discuss the LKC will take legal action 

3. LKC then come out 

pricing and duration to to remove SM from site. 

with a solution top 

complete the job again 

provide material for the 

before allowing SM to 

construction of 

commence job. 

foundation and SM with 

provide machinery and 

labour to finish the job by 

early February 2005 due 

to CNY around the 

corner. 

Foundation (Case 2) 1. SM mobilise machinery People 

Time 

Look for Common 

and labour into site to 1. Accommodation provided 1. Create 

Ground 

commence work. SM by LKC to SM. 

Inconvenience to 1. LK allow SM to put 

requested LKC to provide 2. Makeshift toilet not 

the worker up containers to 

accommodation and basic provided for SM worker working on site. accommodate SM’s 

necessities for SM worker on site. 

2. Workers 

workers on site at SM 

to stay. 

3. LKC promise to look into dissatisfied with own cost. 

the problem and state the welfare on 2. LKC will construct a 

that the SM’s workers site. Resulted in makeshift toilet to 

486

allow SM’s workers to 

all basic necessities on 

site. 

3. LKC and SM agree 

that the workers 

staying on site will 

follow the curfew at 

10.00 pm and no 

visitors are allowed to 

come into site. 

Address the Conflict 

the workers 

reluctant to work. 

should not stay on site 

after work. 

Time & Cost 

1. LKC brainstorm for 

alternative to the 

water crisis. 

2. As a result, LKC 

outsource water from 

the nearest concrete 

plant to supply 

100m3 of water to 

site daily by concrete 

work. 

3. This make SM 

happy to carried out 

the job and LKC and 

demand that SM 

complete the job on 

site or earlier. 

1. Delay in the 

construction of 

bore pile. 

2. Have to spend 

additional cost to 

buy water to 

carried out the 

job. Cost for work 

on site increase 

slightly. 

Slow in Decision Making 

1. SM requested LKC to 

provide more water to 

carry out these method of 

construction for bore 

piling. 

2. LKC ask SM to use the 

water that are provided 

by the utility company 

but SM said that the 

water is not adequate to 

use. 

3. SM suggested to LKC to 

use the fire hydrant 

water to construction site. 

LKC decline and SM say 

that with this current 

water supply provided, 

they are unable to finish 

up the job on time. 

Foundation (Case 3) 1. The construction of 

bore pile foundation is 

using the method of 

reverse water 

circulation that 

require the usage of 

adequate water to bore 

a hole into the ground 

at a length of average 

35m. 

2. By using the tap water 

is not enough to bore a 

hole into the ground. 

Therefore an 

alternative is needed 

to carry out the job. 

487 

Be Honest and 

Understand 

Time 

Contract Duration 

1. The negotiation of unit 

rate and quantity for 

the excavation work 

because the excavation 

work involves four (4) 

Excavation (Case 4) 

1. LKC suggested that 

the duration of 

1. AM not satisfied 

with the rate they 

are given to carried 

1. The method of 

construction that AM 

cannot agree to because it

excavation work to be 

divided into four sub 

contracts under the 

main contracts. This 

will give advantage to 

AM to complete the 

excavation work stage 

by stage. 

2. On the unit rate, LKC 

allow AM to quote 3 

different rate for the 

10m excavation such 

as the first 30m is 

RM2.00, 3m-6m is 

RM7.50 and above 6m 

is RM8.00 AM is 

comfortable with this 

rate and allow the 

usage of excavator for 

excavation of pile cap 

at Free Of charge. 

3. This creates a winwin 

situation for both 

parties. 

LKC believe in AM that 

they will not delay the 

excavation work on site 

because AM has a 

out the job. 

2. To do the job in 

good faith and not to 

ruin reputation in the 

construction market. 

3. Time wasted on 

the discussion table as 

time is critical to get 

the project going. 

involve to many stages of 

work to be done. 

2. AM also could not agree 

to the contract amount 

suggested by LKC 

because the duration to 

complete the excavation 

work as a whole is too 

long. 

AM do not want the LAD to be 

part of the contract because 

the excavation work method is 

suggested by LKC and AM is 

not comfortable with it. 

stages for excavation 

work. 

2. Stage 1 - centre portion 

3. Stage 2 – Front portion 

4. Stage 3 – Left and Back 

Portion 

5. Stage 4 – Right and 

Back Portion 

Discussion on the method of 

construction with the usage 

of sheet pile as temporary 

earthwork protection. 

488 

reputable track records. 


Ground 

Cost 

Coodination Problems & 

Misunderstanding & 

People 

1. The construction of 

pilecap and slab for 

Basement 3 have to be 

constructed in stages 

and not in a single cast. 

2. As per figure attached 



1. LKC quickly called for 

a daily meeting to 

diffuse this matter on 

1. Subcontractors 

are not satisfied 

with the method 

1. The stages of work of the 

sub structure had created

site. 

2. LKC explain to the sub 

contractors that this 

stage of construction is 

part of the job and the 

sub structures are 

completed. 

3. LKC reassure the 

subcontractors that 

their profit can be gain 

when the pile cap and 

basement 3 slab are 

completed as a base is 

needed for the 

construction to gain 

composure. 

LKC need to work out a 

daily schedule to inform 

the subcons of the trade 

that will be performing a 

week and update on a 

daily basis. 

5. LKC also make sure 

every trade have a job to 

do daily to make sure 

workers on site are not 

cut off from their daily 

wages. 

of construction 

a conflict between the 

sub contractors and the 

main contractor. 

2. Argument created 

on site between 

LKC and LYS. 

Bad relationship. 

2. The carpenter, LYS 

complained that stages of 

construction method had 

make him not being able 

to make and meet due to 

the work on site does not 

measure with the wages 

that he have to pay his 

worker. As a result, he is 

making loss. 

below, due to the 

method of construction, 

the pile cap and slab are 

cast in stages. This does 

hamper the job progress 

on site but on the other 

hand, there are cost 

saving. 

3. Material used 

excessively and 

this resulted in 

wastage. 

3. The masonry, LTL had 

also said that the 

construction. Method 

applied by the main 

contractors is not 

economical and slow 

down the work progress 

on site. 

489 

4. The bar bender, TCS said 

that his workers on site 

are not able to work on 

the daily basis because 

the sequence of 

constructing the 

basement involved many 

trade to constructed a 

pile cap and slab.

Recognize and 

Understand Issues 

1. LKC scout for 

materials on site and 

informed of the 

outstanding materials 

on site that can be 

used to construct the 

formwork for the 

structure. 

2. LKC also hold a 

meeting with LYS to 

check on the material 

delivered to site and 

compare with the 

material needed to 

construct the already 

completed structure. 

3. LKC found out that 

LYS had been using 

new formwork 

material to construct 

formwork structure 

and not recycling the 

formwork material on 

site. 

4. LKC reminded LYS 

to be more attentive 

and responsible in 

utilizing the 

formwork material on 

site. 

Time & Cost 

1. Due to 

insufficient of 

material on site, 

LYS has to 

utilize all 

resources 

available on site. 

2. This causes delay 

to the project. 

3. LKC have to 

decide whether 

to order 

construction 

material to site 

or utilize the 

available 

resources. 

4. LKC do not trust 

LYS in handling 

of materials. 

Therefore, LKC 

did the quantity 

calculation and 

order 

accordingly. 

Fluctuation in Price & 

Inadequate Resources 

1. LYS keep on asking LKC 

to order formwork 

material to site and 

demanded that the 

material to be delivered 

to site ASAP. 

2. LKC explain that the 

material on site is 

sufficient to construct the 


structure. 

3. LYS said that the 

material on site has been 

used for different 

measurement and they 

have to construct new 


structure. 

4. LYS said that if LKC do 

not order the material to 

site, LYS will ask his 

worker to stop work as 

there are no materials to 

work with. 

1. LKC calculated the 

quantity of formwork 

material needed on site 

and ordered this 

material based on the 

quantity calculated. 

2. LYS keep on asking 

LKC to order formwork 

material to site to 

construct formwork. 

3. LKC in a dilemma on 

where is all the 

formwork materials 

LKC ordered as the 

material on site seem to 

be not enough to 

construct the structure. 



490

Do Not Dispute 

Trivial Matters 

1. BGL finally 

understand that 

there are no points to 

blade anybody for the 

clearance height. 

Because, blaming 

will not bring us 

nowhere. 

2. BGL gave a memo to 

LKC to take not of 

any unique or 

discrepancies in the 

shop drawing. 

3. BGL will deal with 

the consultants when 

the project is finish. 

4. BGL called for a 

meeting with the 

consultants and 

main contractor to 

solve this dispute 

and finish up the job 

earlier. 

5. BGL will think of 

ways to minimize the 

effect of low ceiling at 

the typical floor. 


Ground 

1. The dispute between 

BGL and LKC was 

bring to the table to 

discuss with the 

Quality 

1. The ceiling height 

become lower 

than expected. 

Misunderstanding & 

Values 

1. The typical floor height 

from floor to floor is actually 

4.1m. After taking into 

consideration of the beam 

soffit, aircon ducting, 

sprinkler head, plumbing 

and electrical point, the 

clearance from floor finish 

to ceiling is only 2.7m. 

2. This makes BGL not happy 

with the consultants and 

LKC. BGL blame 

consultants for not paying 

attention to this matter. 

3. BGL asked the consultants 

to compensate for the 

mistake make and the 

consultants blamed LKC 

for not informing them of 

this situation. 

4. LKC asked for a fair 

judgement because 

consultants are the one that 

prepare the shop drawing 

for construction. 

1. Confirmation of ceiling 

board, either 2” x 2” or 2” 

x 4”. 

2. The height of the ceiling 

is discussed as the ceiling 

clearance after taking 

into consideration of all 

the fitting are installed at 

the soffit of the slab is 

only 2.7m for the typical 

floor and the ground floor 

is only 3.2m. BGL not 

happy with the height 

clearance. 


(Case 12) 

491 

Time & Quality 

1. The roof 

construction 

causes delay to 

the whole project 

by 1 month. 

Inaccurate Shop Drawing 

& Misunderstanding 

1. AS think that due to their 

relationship with the top 

management of LKC, they 

can do what they want on 

1. AS construct the roof 

without submitting a 

shop drawing to LKC and 

JPC to confirm. 

2. LKC had reminded AS to 

submit proposal for the 


(Case 14)

presence of JPC. 

They agree to ask AS 

to provide 

satisfactory shop 

drawing with a PE 

endorsement for JPC 

to evaluate. 

2. LKC then meet up 

with AS to request 

AS to provide 

documentation and 

to come up with a 

final account in 

favour of LKC. LKC 

will pay AS a final 

amount and taking 

consideration into 

the problem that 

arises due to AS 

negligence. 

3. AS come up with a 

reduced claim 

amount from the 

original amount and 

LKC is satisfied to 

pay them in goodwill 

basis. 

4. Therefore, LKC AS 

LKC went and BGL 

look for a common 

ground to solve 

problem. 

2. The roof could not 

be completed by 

the time the 

escalators and 

lifts arrived on 

site. 

3. Dispute between 

LKC and AS due 

to the delay and 

documentation. 

4. JPC reminded 

BGL that LKC 

does not follow 

specification. 

5. BGL delay 

payment to LKC 

and LKC delay 

payment to AS. 

site. 

2. JPC inspected the site and 

was no satisfied with the 

roof design because it did 

not follow JPC’s proposed 

drawing. JPC issued a 

letter to LKC to follow 

specification given. 

3. LKC that instructed AS to 

provide shop drawing to 

satisfied JPC but AS could 

not get the drawing ready 

due to some technical 

problem. 

4. There was a delay in the 

completion of the roof truss 

and roofing material 

roof construction but AS 

did not take note on this 

matter seriously. 

3. AS caused delay in the 

construction of the roof 

truss and this make LKC 

not happy and refuse 

payment to LKC. 

492

Communicate with 

Precision 

1. LKC went to 

approach the person 

in charge in the 

authority and tell 

them the reality of 

delay in the road 

widening will affect 

the publics’ 

convenience using 

the road. 

2. BGL make a 

proposal to relocate 

the trees to the 

nearest community 

field to preserve the 

trees. BGL will also 

relocate the cables by 

lowering the cables 

into the ground and 

protect the cables 

from exposure to the 

public. 

3. BGL, LKC and the 

authorities look for 

common ground to 

solve this matter. 

Time 

1. It because delay 

to the road 

widening and 

resurfacing 

process. 

2. BGL not happy 

with the 

infrastructure 

progress that 

LKC promise to 

carried out. 

3. Each day waiting 

for the authorities 

to approve the 

relocation will 

make BGL and 

LKC loss tome 

and increase 

overhead cost. 

Coordination of Work 

1. LKC had the interest to 

finish up the infrastructure 

work and BYL had the 

obligation to carried out the 

road widening. 

2. LKC asked BYL to help in 

chasing the authorities to 

relocate the utilities but 

BYL do not have the 

capabilities to handle the 

authorities. 

3. The authorities are very 

slow in the relocation 

because of too many red 

tapes involved. 

4. The environment of process 

makes it hard for LKC and 

BYL to carried out the job. 

1. The road widening 

cannot be done because 

of the existing utilities 

and trees along the 

affected stretch. 

2. LKC had to apply to the 

authorities to relocate 

these utilities and trees 

before road widening can 

proceed. 

3. LKC and BYL discuss 

this matter with the 

authorities and this will 

take time for approval. 

4. LKC do not have the 

time to wait and have to 

make a decision on this 

matter. 

5. BYL requested that LKC 

assist in the relocating of 

utilities for road 

widening. 


(Case 15) 

493

5. Conclusion and Recommendation 

It can be concluded that conflicts are 

causes by money, time, quality, honesty 

and people toward the best interest of the 

project. As a result, we found that the 

greatest emphasis should be placed on the 

prevention of conflicts. The most difficult 

conflict that arise involved people. 

Therefore, it could be recommend that the 

people involved directly or indirectly in 

the project to be reduce such as using the 

method of Build, Operate, Transfer 

procurement method (BOT) as the society 

is moving into the new era of VISION 

2020, this recommendation will come 

timely as society change to adapt to new 

environment. Education plays an 

important part to teach the professionals 

and people in the construction industry 

which aim to reduce conflict in 

construction. The universities and colleges 

are teaching the new generation of 

construction graduates a better way of 

working. These graduates will be leaders 

and managers of tomorrow in the 

industry. Therefore, it can be 

recommended that those who have been in 

the industry for some time to share their 

experiences with those graduates who 

have theoretical knowledge in new 

construction industry and to exchange 

ideas for the better of a new society 

generally and construction industry. The 

form of contract can be modified to 

494 

address issues pertaining construction 

conflict. The contract should be fair to 

both parties and the current contract used 

should go through a reform. We need to be 

innovative in the field of preparing 

contract documentation to ensure that 

conflict is avoided whenever possible. 

6. References 

Amason, A.C. (1996). Distinguishing the effects 

of functional and dysfunctional conflict on 

strategic decision making: resolving a paradox 

for top management teams. The Academy of 

Management Journal, 1996, 39(1), 123-148. 

Defence Management Journal, 11(3), 29-40. 

Deutsch, M. (1994). Constructive conflict 

resolution: principles, training and research. 

Journal of Social Issues, 50 (1), 13-32. 

Gupta, A.K. and Wilemon, D. (1988). The 

Credibility co-operation connection at the 

R&D-marketing interface. Journal of Product 

Innovation Management, 5, 20-31. 

Kezsbom, D.S. (1992). Re-opening Pandora's 

box: sources of project conflict in the `90s. 

Industrial Engineering (USA), May, 54-59. 

Rahim, M.A. (1986). Managing Conflict in 

Organizations. Praeger Publishers, New York. 

Ranney, J. and Deck, M. (1995). Making teams 

work: lessons from the leaders in new product 

development. Planning Review, 23(4), 6-12. 

Thamhain, H.J. and Wilemon, D.L. (1975). The 

effective management of conflict in projectoriented 

work environments. 

Tjosvold, D. (1991). The Conflict Positive 

Organization: Stimulate Diversity and Create 

Unity. Addison Wesley.




ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER 

GOVERNMENTAL POLICY-MAKING 

OPREA Radu Adrian; 

PhD Candidate 2011, Dunarea de Jos University; 

Founder of “SMART Method of Public Policy;” 

office@public-policies.org 

Abstract 

The purpose of this paper is to find the 

characteristics of a better participation model 

that would generate stronger leverage in the 

decision-making process. The objective is to 

analyze the advantages and disadvantages of 

online, offline and mixed participation 

models, given relevant literature available, 

real world examples and theoretical 

predictions. 

Key words: online, offline, participation, 

policy-making, decision-making. 


The “great thing” about a better 

participation tool is to allow any person the 

possibility to recommend solutions to various 

community problems at local, national and 

international levels. 

This paper is going to identify the defining 

characteristics of a better citizen 

engagement model that copes with the 

disadvantages of traditional offline and 

online participation methods and builds 

upon the advantages of the two. The paper is 

also comparing some of the most used 

projects of participative democracy and 

analyzes ways to improve the face-to-face 

participative democracy endeavors and the 

traditional participation options allowed by 

the laws. 

A better citizen engagement model will be 

called in this paper SolveNet, for easier 

reference. The name does not constitute any 

SARPE Ancuta Daniela; 

PhD, Dunarea de Jos University; 

d_sarpe2000@yahoo.fr 

495 

project referral. It will just sum up the 

theoretical and practical functionalities of 

the new citizen engagement model. 

The study of SolveNet is important, to give 

the participation efforts of every-day citizens 

greater leverage to their constructive ideas, 

in order to generate more community action. 

In doing this, the paper is framing the 

characteristics of a participation method 

that would achieve efficiency of time and 

costs to participate and at the same time an 

increased effectiveness. 

The answer to this matter will be sought 

after carefully analyzing relevant literature 

about participative democracy, the most 

famous participation projects that 

communities organize, the characteristics of 

the online dialogue, and using the 

assumption of a constructive attitude. The 

already-existent literature forms the 

backbone of the paper, helping to project the 

better participation model. Scholars have 

been showcasing many advantages and 

disadvantages of various participation 

attempts and their research conclusions 

form important theoretical background for 

this paper. 


The relevant literature that has been 

studied includes titles like Brian E. Adams, 

Citizen Lobbyists. Local efforts to influence 

public policy; Matt Leighninger, The Next 

Form of Democracy; Cass Sunstein, 

Infotopia; and Mark H. Moore, Creating

Public Value: Strategic Management in 

Government. 

Scholars who study the resources used by 

citizens participating in politics have found 

that three are critically important: time, 

money and civic skills (Verba, Schlozman 

and Brady 1995, 270-272). In his book, Brian 

E. Adams adds a fourth resource to that list: 

social networks. The importance of social 

networks consists in creating opportunities 

for others to mobilize citizens, fostering 

democratic norms and civic virtues and 

helping citizens develop political skills. 

Brian E. Adams argues that we need to 

make a distinction between citizens’ capacity 

to participate, which is enhanced by social 

networks, and citizens’ effectiveness at 

influencing policy. 

In his book, The Next Form of Democracy, 

Matt Leighninger advises that in order to 

make democratic governance work, you 

have to move past the civic stereotypes and 

create environments that will appeal to real 

citizens. The author points out one of the 

main weaknesses of most citizen 

involvement efforts: they focus on the goals 

and agenda of the organizers, rather than the 

citizens. 

Cass Sunstein argues in “Infotopia” that the 

key goal of deliberation is to improve choices, 

not to legitimate whatever choice ultimately 

is made. Wikipedia is successful because of 

the large numbers of knowledgeable people 

who are willing to participate in creating it. 

People are motivated by the desire to see 

their words in print, the value of selfexpression 

and the apparently widespread 

desire to be helpful and constructive. Status 

and motivation can play a significant role in 

wiki communities. Participants compete for 

prestige by giving time, energy and 

creativity away. Innovation improves 

people’s reputations. 

Mark Moore advocates in his book, Creating 

Public Value, that in order for a solution to 

generate stronger leverage, it needs to 

comply with three criteria: 

1. be feasible: this means that it can be 

accomplished by the existing 

organizations or with help from others. 

2. be valuable: it should bring value to 

overseers, people in general or members 

of various communities. 

496 

3. be sustainable: it is likely to attract 

public support, authority and money 

from the political, social or business 

environments. 


3.1. Participation Problems 

SolveNet has to address two major citizen 

engagement problems: 

� The lack of participation of every-day 

people and experts in solving 

community problems at local, national 

and international levels. 

� The flows of the citizen engagement 

tools that people and organizations 

use nowadays. 

Researches show that people don’t 

participate in solving community problems 

mainly because of “lower socioeconomic 

status, lack of impact of personal 

participation compared to collective 

participation, limited time and money, lack 

of information and knowledge about issues, 

and lack of confidence in their ability to be 

effective.” i SolveNet’s theory for social 

change has thus to focus around the 

individuals, who feel they need to take 

action and fix what is wrong in the 

community, but they are limited due to one 

or more of the reasons mentioned above. 

As scholars argue that governments alone 

cannot solve pressing social problems, a 

better citizen engagement model will have to 

provide the resources that every-day people 

need, to bring their knowledge to the table. 

The problems of local, national or 

international communities need to become 

opportunities for the new model. 

There are many attempts to facilitate 

people’s input in the policy-making process. 

Some of the most used ones are citizen 

assemblies, deliberative polling, citizen 

juries, study circles, and choice dialogues. 

They are based on meetings where people 

have a direct contact with one another. From 

the authors’ point of view, they face two 

major problems. The first one is stated by 

Matt Leighninger: “the whole notion of 

citizen involvement centers on the needs and 

goals of the person doing the involving, not 

the citizen…ordinary people are only needed 

to play limited roles on certain occasions.” ii

The other problem concerns the high costs 

associated with these engagement programs. 

The authority under which participation 

programs come from, vary from governments 

to non-governmental organizations, 

community leaders and various interest 

groups. They usually tend to provide 

unbiased information to the people they 

engage. However, there is no accountability 

on the end result, which is usually a new 

policy proposal, a prioritization, or an 

opinion. 

The traditional participative democracy 

models usually use random sampling to 

choose their participants—Study Circles use 

self selecting criteria. They usually try to be 

representative for various demographics. 

The number of participants can be as high as 

thousands in the case of Citizen Assemblies, 

hundreds in the case of Deliberating Polling 

or Choice Dialogues, and as small as 15-30 

for Citizen Juries. The high-number models 

usually last for one day to one weekend, 

while the lower-number models tend to last 

from a couple of days to months. The costs 

associated with these projects are usually 

very high and can even reach millions of 

dollars in the case of Citizen Assemblies. 

Organizers have to cover costs that include 

food, accommodation, travels, stipends and 

even prizes. 

These face-to-face or offline participative 

democracy models face important challenges 

that SolveNet has to minimize: 

� Limited time and money – in order to 

participate in the programs, people 

need to dedicate first of all time. This is 

a big problem in attracting professionals, 

as they are usually very engaged in 

many projects. The projects are also 

expensive to organize. 

� Sometimes, group discussions tend to 

be polarized by one or few members. 

This requires facilitators to make sure 

that everybody’s opinion is being heard. 

However, they are not all the time 

effective and can be expensive. 

� Lack of knowledge about issues. This 

is more prevalent in the case of Citizen 

Assemblies and Deliberative Polling 

that last for short periods of time. The 

randomly selected people usually don’t 

have enough knowledge about the issues 

being discussed and there is not enough 

497 

time to learn about them during the 

unfolding of the project. The longer the 

participative democracy process, the 

more time you have to think about issues 

and recommend a better solution. 

� Lack of ability to be effective. A couple 

of major factors influence this. One of 

them is the lack of accountability. 

Usually, you don’t have access to 

people’s data to ask them about the 

participative democracy process or about 

the policy they chose. Sometimes, even 

the project participants are not confident 

enough in their ability to influence 

policy. So far, hardly any participative 

democracy initiative has generated a 

change of policy. 

The greatest advantages of the traditional 

participation programs are the face-to-face 

discussions and the fact that they usually 

tend to be representative for the targeted 

communities. These two advantages give 

them greater leverage to change policies, at 

least in theory. 

3.2. Elements of a better participation 

model 

The new model has to allow people with 

various backgrounds to participate, from 

PhD professors to unskilled workers. All 

they need to have in common is the desire to 

solve community problems. SolveNet will 

thus allow anybody to choose a public issue 

of importance to him/her, provide the 

strategy and the tools to address it, mobilize 

other interested people to form a small policy 

working group and create an opportunity to 

build awareness and influence policy. If 

these opportunities are presented to them, 

citizens may be more likely to participate. 

SolveNet has to focus mainly on the quality 

of the solutions that emerge out of its 

participation model. These should comply 

with the three criteria, inspired from Mark 

Moore’s Creating Public Value: be valuable, 

sustainable and feasible. 

Under SolveNet, nonprofits with activity and 

interest in participative democracy have to 

run the model and thus form the general 

authority, while the citizens who recommend 

solutions to community problems are held 

accountable for their ideas. This ensures

that they receive the appropriate 

acknowledgement for their contribution, as 

well as prestige from the communities they 

contribute to. SolveNet has also to transform 

the raw solution ideas into official policy 

papers with a leveraging layout, under the 

endorsement of a nonprofit in charge of the 

participation model. The scope of this is 

twofold: On one hand, this is a motivation 

for the citizens to recommend a valuable, 

sustainable and feasible solution. As Cass 

Sunstein mentions, people are motivated by 

“the desire to see their words in print, the 

value of self-expression and the apparently 

widespread desire to be helpful and 

constructive.” iii On the other hand, the 

information about the participants would 

allow decision makers, mass-media and 

other target audiences to obtain more 

information from them, if they want to. 

The face-to-face participative democracy 

models usually focus on generating new 

policies, making an educated opinion, 

prioritizing various policies, and predicting 

people’s future views. These are usually 

complex issues that are supposed to help 

decision makers make better decisions or 

people vote new ballot initiatives. Issues 

vary greatly and include health care, new 

voting systems, the future of various 

communities, education reform, community 

planning, racism, emigration, land use, or 

other social problems. While SolveNet can 

deal with all these issues and others of 

importance to the network members, the end 

product will be different. It will basically 

consist in a policy paper that has specific 

layout characteristics. The content of the 

paper will recommend a solution to a specific 

community problem or a well-defined policy 

or action plan from a pool of policies, while 

carefully analyzing other alternative 

solutions. 

Under SolveNet, any citizen has to be able to 

raise a problem of public concern that is of 

interest to her/him on a specially-created 

online policy-making platform. In the case of 

SolveNet, the citizen’s needs and goals are 

actually advantages, because they are the 

ones who push the policy-making process 

further. This way, ordinary people will not 

be just some tools to play limited roles, but 

accountable citizens. 

498 

The main advantages of SolveNet have to 

consist in its cost of use, flexibility in terms 

of time to offer a solution to a community 

problem and an educational approach. 

People have to use SolveNet at no cost. 

Because they can use the participation 

platform from basically anywhere they have 

an Internet connection, they will offer their 

input whenever they have time. More over, 

people can use additional time to do 

individual research on the issue they want to 

solve and thus make more informed solution 

proposals. One important side of the method 

of participation has to focus on the 

educational approach. The participation 

platform has to offer basic tutorials that 

show citizens what the policy-making steps 

are and how to work online. This is aimed at 

offering basic policy skills to all participants, 

in order to make them more confident in 

their ability to be effective as a group. Also, 

the educational tutorials will help shorten 

the education gap between more educated 

people and less educated ones. 

SolveNet will face a series of difficulties that 

are specific to the Internet-based enterprises 

and to the participative democracy models in 

general. The first one will be the absence of 

the face-to-face discussions. Some ways to 

combat this problem will include using a 

friendly format of the citizen engagement 

platform that will also host the pictures of 

the participants. On the other hand, the 

online presence will allow for collaborations 

between people from different regions or 

countries. They need to have in common the 

desire to solve problems in a specific 

community. 

Another important challenge for SolveNet 

will be the leverage for the recommended 

solutions. The online approach means that 

the participation process will not be 

representative for any community. That is 

why the focus of the participation platform is 

on the quality of the solutions that citizens 

recommend. The policy papers that the 

scripts generate will follow a well designed 

template that addresses all the options for a 

solution. Another way to gain more leverage 

stands in the professions of the persons who 

participate. 

The effectiveness of the policy papers is 

another challenge. This is what SolveNet 

and the other participative democracy

models will have in common. In order to be 

effective and influence a change of policy 

once the solutions come out of SolveNet, the 

participants need to act creatively. They 

need to find the best ways to promote their 

solutions and, may be, lobby the right 

persons. This is also true for the other 

models. It could be argued that SolveNet and 

the other models of participative democracy 

will have at least the same chances to 

influence a policy. 

Cass Sunstein argues in Infotopia that 

“deliberation on the Internet (through blogs) 

can produce errors and nonsense.” Blogs are 

indeed not a good and encouraging 

environment to deliberate on pressing 

issues. However, SolveNet will not use blogs. 

The citizen engagement platform has to be 

new software that will consist in many 

different scripts that will guide the citizens 

throughout the policy-making process and 

transform their rough work into a policy 

paper. 

There is also the issue of Internet pranks. 

When referring to wikis, Sunstein mentions 

that “at first glance, the democratic quality 

of wikis seems to be a big problem. If anyone 

in the world can make changes, isn’t the text 

vulnerable to pranks and even destruction?” 

Cunningham and Leuf say that “experience 

shows that in fact little damage is done to 

wiki content even in the absence of security 

mechanisms.” Of course, SolveNet is not 

wiki. However, pranks might want to 

register and use it. Compared to wikis, 

SolveNet will have security mechanisms. 

The proposed problems and solutions have to 

be moderated, so that licentious language is 

avoided. But the main reason that pranks 

might not actually try to inadequately use 

SolveNet is also stated by Sunstein when 

referring to wikipedia: “an essential part of 

the answer is that large numbers of 

knowledgeable people are willing to 

participate in creating it; status and 

motivation can play a significant role in wiki 

communities; participants compete for 

prestige by giving time, energy and 

creativity away.” Also, “innovation (creative 

solutions in the case of SolveNet) improves 

people’s reputations.” 

3.3. Coordination with governmental 

participation programs and 

participative democracy projects 

499 

SolveNet could be used as a follow-up of 

various offline governmental participation 

programs. An example would be community 

meetings. During a summer internship at 

Los Angeles Mayor’s Office, I attended such 

a meeting. During approximately two hours, 

policy analysts from the Mayor’s Office 

presented the Mayor’s initiatives to their 

constituents from Hollywood and other 

representatives of nonprofit organizations. 

The participants raised a lot of questions 

and expressed their concerns about major 

problems. These didn’t always fit the 

proposed initiatives. However, two hours a 

month that the Mayor’s representatives use 

to meet their constituents is not enough to 

create meaningful projects. As a follow-up of 

these kinds of meetings, participants could 

agree to use SolveNet and work on its 

participation platform on solutions to 

community problems in their neighborhoods. 

The policy papers that would come out could 

be discussed at the following community 

meeting and influence new projects or 

allocation of resources. More over, the group 

members would also benefit from an initial 

face-to-face contact. 

The same situation could be true for people 

who attend offline participative democracy 

projects. Some of them may want to work 

more on certain issues and come up with a 

better solution or policy. So SolveNet could 

be nicely used in combination with both 

participation options provided for by the 

laws and the traditional participative 

democracy projects. 

On August 11, 2007, California Speaks 

organized a “statewide conversation on 

health care.” The organization randomly 

chose 3.500 participants who met in eight 

sites throughout California. The purpose 

was to find the “enlightened opinion of 

people.” Overall, the organizers had 400 

facilitators, contacted 120,000 people, sent 

300,000 letters and made +2,000,000 phone 

calls. The budget for this project was 

approximately $4.5 million. The end result is 

summarized in the event’s final report: 82% 

of participants say the system requires 

major change; 86% say it is essential or 

important for reform to pass this year; 84% 

say they are at least somewhat willing to 

share responsibility for paying for reform.

Some of the major problems of this event are 

associated with the lack of time for the 

participants to discuss about health reform, 

the impossibility to consider tradeoffs and 

alternatives, the reliance of their decisions 

mainly on a booklet provided by the 

organizers, the high costs, and even its 

outcomes. 

If SolveNet had existed, people could have 

used its platform to recommend a solution to 

improve the health care system. In this case, 

those who are sensitive about the issue, 

could have established online working 

groups. For example, a health care specialist 

from California, a Wal-Mart worker, a nurse, 

a professor from France and an MPP 

student, could have offered solutions based 

on their experiences and expertise. Together, 

they would have as much time as needed to 

analyze tradeoffs and alternatives, do 

research on their own and exchange ideas on 

the participation platform. Other advantages 

would consist in working during their free 

time—at home, during breaks, no costs, the 

possibility to see the result of their work 

right away, the motivation to see their name 

printed on the platform, and the possibility 

to send the policy paper to anybody they see 

fit like executives, legislature, mass-media. 

If third parties are interested to see 

solutions in a particular deadline or time 

frame, they could simply offer awards 

through the nonprofits that run SolveNet. In 

this case, instead of spending $4.5 million on 

a one-day event, the six foundations that 

secured the funding would have spent little 

on awards for the best policy solutions that 

people offer to the health care situation in 

California. 


SolveNet is a combination of online and 

offline citizen engagement. It benefits from 

advantages specific to the online dialogue 

like little to no cost of use, flexibility of 

participants to give solutions to problems of 

public concern, educational approach, and 

interactivity among the participants. At the 

same time, SolveNet is coping with the 

disadvantages of offline engagement, like the 

lack of accountability of the end result of a 

participation endeavor, limited time and 

money of participants to offer input in 

pressing community problems, polarization 

500 

of discussions, and lack of knowledge about 

issues. 

As the majority of the work is done online, 

the policy-making process is pushed further 

using the authority of a legally established 

nonprofit organization. This way, the most 

feasible, valuable and sustainable solution 

proposals from citizens, are sent to the desks 

of elected and appointed officials. 

The participation model lacks the 

advantages of face-to-face discussions 

between the participants, but the online 

citizen engagement platform offers an 

interactive participation experience that 

allows people from different regions to work 

together creatively in solving community 

problems. The people who participate are not 

representative for any given community. 

That is why the main focus is on the quality 

of the solutions that are exchanged on the 

platform and not on the background of the 

citizens. 

SolveNet faces however the problem that 

every participation model has: effectiveness 

in generating a change of policy. It is 

ultimately up to the decision-makers to 

consider the results of any participative 

democracy exercise or not. The main 

advantage of SolveNet is in this case the 

little effort that every-day people make, in 

order to make their voices heard in the 

community. 

A mixed participation model to support 

governmental decision-making seems to 

work the best, in order to benefit the most 

from citizen engagement. This model has to 

provide for authority, accountability, 

creativity, exchange of constructive ideas, 

educational approach, and perseverance. 

Future research could identify such a model 

and showcase it. 

Acknowledgements: Research was conducted 

within the project POSDRU-6 /1.5/S/15 - 

Management System of Scholarships for 

Doctoral Students - 6583, funded by the EU 

and the Romanian Government. The authors 

thank the team of project management for 

financial support. 

Annex: the Participative Democracy 

Matrix.

Citizen Assembly Deliberative Polling 

Product New policy Educated opinion; 

Prioritization of policies 

Authority Governments; 

International and National 

Big NGO's 

Governments 

Accountability None None 

Technique Random selection of large Large scale project; statistical 

number of people; 

sampling; could reach 

representative sample; 

incentives to participate; could 

reach thousands 

hundreds 

Time frame One day Long weekends 

Costs Can reach millions of dollars Very high; provide for 

accomodation, food, 

transportation 

Participating People Random people and targeted Random and representative 

recruiting 

participants of large 

communitites 

Information source Organizers and partners Experts 

Target audience Politicians; 

Legislature; 

Press; 

Ballots 

Press 

Problems High costs; no time for Nothing has to happen; high 

participants to think at the 

problems 

costs 

Citizen Jury Study Circle 

Product Prioritization of policies New policy proposals; 

Prioritization of policies 

Authority Nonprofits; 

Nonprofits; 

Local and National Governments; 

Governments; 

Administrative Agencies 

Administrative Agencies 

Accountability None None 

Technique Small groups of people; could Self selected participants; 

reach 15-30 participants groups of 8-12 people; could 

reach 6-8,000 participants 

Time frame Two-five days From 3-4 weeks to 4-10 

months 

Costs Can get big; participants are 

paid; provide for 

accomodation, food, 

transportation 

High 

Participating People Selected through random 

phone calls 

Self selected 

Information source Usually an advisory board Organizers and partners 

Target audience Any agency; 

PR campaigns 

Governments 

Problems Hard to get representation Not really an informed 

from profesionals because of opinion; no demographics 

time; participants are not 

representative 

501 

Choice Dialogue 

SolveNet (online and offline 

participation) 

Product Prioritization of policies; A policy paper; 

Prediction of peoples' future Specific solutions to a community 

views 

problem 

Authority Civic organizations; A legally-established nonprofit 

Governements; 

Administrative Agencies; 

Foundations 

organization 

Accountability None The nonprofit organization and 

the person raising a problem of 

public concern on the online 

policy-making platform 

Technique Random selection of Online exchange of solution ideas, 

participants; could reach 200- unlimited participants, issuance of 

400 people total; small groups official policy papers for decision 

makers 

Time frame Three to eight days No time frame, the person 

publishing a problem of public 

concern sets his/her own deadline 

Costs High No fees from the part of the 

persons using the citizen 

engagement platform; the 

nonprofit organization will have 

operational costs that tend to be 

fixed 

Participating People Random people and leaders Any person interested in solving 

community problems 

Information source Organizers Person publishing the problem; 

individual research 

Target audience Governments and other 

agencies 

Governments; mass-media, 

individual politicians; elected and 

appointed officials; other agencies 

Problems No face to face interaction; 

participants may not be 

represenatative for the targeted 

communitites 

References 

1. Brian E. Adams, Citizen Lobbyists. Local efforts 

to influence public policy (Temple University 

Press 2007). 

2. Cass R. Sunstein, Infotopia. How Many Minds 

Produce Knowledge (Oxford University Press 

2006). 

3. Matt Leighninger, The Next Form of Democracy 

(Vanderbilt University Press 2006). 

4. Mark H. Moore, Creating Public Value: 

Strategic Management in Government (Harvard 

University Press, 1995). 

i Brian E. Adams, "Citizen Lobbyists. Local efforts 

to influence public policy," Temple University 

Press 2007, Chapter 2, Citizen Efforts to Influence 

Local Policy. 

ii Matt Leighninger, “The Next Form of 

Democracy,” Vanderbilt University Press 2006. 

ii Cass R. Sunstein, “Infotopia. How Many Minds 

Produce Knowledge,” Oxford University Press 

2006 

iii Cass R. Sunstein, “Infotopia. How Many Minds 

Produce Knowledge,” Oxford University Press 

2006.




GROUP DECISIONS and IMPLICATION of GROUP DECISION 

SUPPORT SYSTEMS IN TURKEY 

Abstract 

Group decision making has been going on 

since of the time. It is a critical part of good 

management. However, the meeting at which 

joint decisions are made have always been 

time consuming, and in some instances, not 

always effective and efficient. Throughout the 

years, management theorists and specialists 

have devised and adopted a number of 

techniques and developed technology to 

improve the effectiveness of what has come to 

be known as the Group Decision Support 

Systems (GDSS). 

Nowadays, GDSS technology has made 

enormous technical advances. This study 

looks at which GDSS is currently being used 

in businesses in Turkey. Base for the study is 

depended on Delone and McLean’s study; a 

survey sample 102 is selected from 56 

businesses which use GDDS in Turkey. 

Descriptive statistics based on the which 

current implementations are heaviest in each 

of the GDDS types. 

Keywords: Group Decisions, GDSS, Types of 

GDSS, Decision Room, Local Decision 

Network, Teleconference 


Rapid developments that have been 

encountered in technology recently can also 

be seen in the field of management as well. 

Parallel with this rapid technologic 

development, management techniques are 

also improving. Especially, developments 

that are being encountered in the field of 

Prof. Dr. Mehmet SAHİN 

Anadolu University, Turkey 

msahin@anadolu.edu.tr 

Dr. Didem PASAOGLU HAMSIOGLU; 

Anadolu University, Turkey 

dpasaoglu@anadolu.edu.tr 

502 

information technologies affect people and 

businesses working with computer-based 

systems and render it compulsory for 

businesses to keep up with developments. 

Importance of systems making it possible to 

obtain information increases proportionally 

with the importance of information. 

Businesses have to attain information that is 

necessary for them. Rapid changes and 

activities in the current environment make 

it essential to reach the correct information 

in the shortest period of time. It is very hard 

for the decision-maker to contemplate on all 

necessary details of the problem due to 

increasing complexity of the environment. 

This is why most of the businesses choose to 

comply with group decisions rather than 

individual decisions. However, they do not 

only ground their decisions on human factor 

but also on technologic developments while 

choosing group decisions. One of them is 

Group Decision Support System (GDSS). 

GDSS helps by ensuring interaction and 

exchange and therefore better and faster 

decisions without letting others know about 

preferences and opinion holders. (Aiken and 

Vanjani, 2001, p.39) Previous studies show 

that group members using the system 

participate in the discussions more, make 

more comments and they are more satisfied 

as a result of GDSS compared to traditional 

meeting methods. (Aiken and Vanjani, 2001, 

p.41) 

2. Group Decisions 

Studies regarding Group Decisions go back 

1900s. (Lam and Schaubroeck, 2000, p. 185) 

From 1900s to today, researchers have been

trying to bring up the factors affecting group 

decision making process. No certain results 

have been achieved on group decision 

making process in spite of the abundance of 

the studies. 

Some common results have been put forward 

as a result of studies regarding factors 

affecting group decision making process in 

categorization of groups. First of these is the 

size of group. Size of group is a factor 

affecting decision making process. It also 

affects communication networks, 

participation, satisfaction and reliance. 

Studies have shown that groups consisting of 

7 or less members have more advantages 

over larger groups. (Kerr and Tindale, 2004, 

p. 654) It has also been observed that 

uneven participations can be seen among the 

members of these larger groups. Besides, it 

is more difficult for the members of these 

large groups to unite compared to smaller 

groups and some members can not put 

forward their opinions clearly while some 

members speak a lot. As a result of this 

study, it is obvious that groups consisting of 

5-7 members are more efficient and effective 

rather than larger or smaller groups. 

Definition of GDSS 

It is very difficult for the decision maker to 

contemplate on all the details regarding a 

problem due to increasing complexity of the 

socio-economic environment. This is why 

most of the businesses choose to comply with 

group decisions rather than individual 

decisions. However, they do not only ground 

their decisions on human factor but also on 

technologic developments while choosing 

group decisions. One of them is GDSS. GDSS 

helps by ensuring interaction and exchange 

and therefore better and faster decisions 

without letting others know about 

preferences and opinion holders (Aiken and 

Vanjani, 2001, p.39) 

Types of GDSS 

They have variations according to the 

duration of decision making process and 

distance between the group members. 

(Dennis and Garfield, 2003, p. 292) There 

are three types of GDSS: 

� Decision Room 

� Local Decision Network 

� Teleconference 

503 

Decision Room 

First type of GDSSs is decision room. 

Decision room is equivalent to the meeting 

rooms where traditional decision meetings 

are held. However, decision room has some 

differences from traditional decision rooms. 

For example, there is a computer screen and 

a keyboard instead of a horse shoe shaped 

table and papers and pens. As well, 

decisions are made in electronic media. 

Another difference is that participants state 

their opinions by the help of a keyboard and 

these opinions are transferred to the big 

screen in the decision room and therefore 

they can be seen by everyone (Haag and 

Lagunoff, 2003, p. 112). Decision room is the 

simplest type among GDSSs. 

Communication in decision rooms is both 

verbal and by means of computer. 

Local Decision Network 

Second type of GDSSs is local decision 

network. There are fixed group members 

who are close to each other in local decision 

network. (Kim and Hiltz, 2002, p. 383) 

Actually, even if members of the group can 

change according to the decision to be made 

in GDSS, group members are fixed in local 

decision network. These members try to find 

solutions to the problems given to them 

depending on some grounds. (Kim and Hiltz, 

2002, p.383) Group members make their 

decisions using local decision network 

instead of using decision room. Meeting is 

held by connecting each other from their own 

studies by the help of local network. 

Teleconference 

Teleconference is a type of GDSS in which 

group members are geographically distant 

from each other, however they come together 

to make a decision. In this type of GDSS, two 

or more decision rooms connect via visual or 

communication tools. (Aiken and Vanjani, 

2001, p. 32) Teleconference includes all 

features of the decision room. The only 

difference is the employment of 

communication tools in teleconference. 

3. Study On Group Decision Support 

Systems 

Purpose and Importance of the Study

GDSS is one of the developments in the field 

of information technology. Purpose of the 

study is to introduce the degree to which 

GDSS is used in businesses in Turkey. 

Extent of the Study 

Within the extent of the study, analysis 

level, specifying universe and sample, prestudy 

results, preparing questionnaire form 

and garnering data were explained. 

Analysis Level, Universe and Sample 

Universe of the study consists of first 500 

businesses in Turkey published in 2007 

August issue of Capital magazine. We tried 

to find out which businesses implement 

GDSS by calling them on the phone in year 

2007. As a result of telephone interviews 75 

of the businesses using GDSS were reached. 

It was concluded that questionnaire method 

had to be implemented so as to obtain the 

optimum data from the businesses in this 

sample. Data by questionnaire were 

collected by face to face interview technique. 

As a result of this study, 

102 questionnaires from 34 businesses using 

GDSS were collected. 

Questions in the Questionnaires 

Questionnaires were filled in during face to 

face interviews. Questions focus on GDSS. 

Questions regarding the use of GDSS were 

cited from a survey of Delone and McLean 

called Success Model of Information Systems 

(1992) 

Descriptive Analysis of Businesses 

Using GDSS 

Findings regarding the employees of 34 

businesses using GDSS are shown in table 1. 

Participants have been working for their 

current employers at least for 2 to at most 

for 35 years. It is being observed that their 

range of age is between 35 to 67 years. 

Numbers of employees vary from 192 to 

34700. 

Table.1 Findings Regarding Employees 

N Min. Max. Averag Standard 

e Deviation 

Age 102 35 67 44.92 9.766 

Years 

of work 

Number 

of 

employees 

102 2 35 15.19 7.468 

102 192 34700 6049.5 6735.1 

504 

Valid N 102 

In Table 2, sectoral distribution of the 

participants is shown. It is being observed 

that most of the GDSS user businesses have 

been working in the field of automotive; this 

sector is followed by electronic and retailing. 

Table 2. Industry / Sector of the Business 

F % Valid Total 

% % 

Food and 

Beverage 

6 5.9 5.9 5.9 

Pharmaceutical 

Industry 

6 5.9 5.9 11.8 

Electronic 15 14.7 14.7 26.5 

Automotive 39 38.2 38.2 64.7 

Retailing 15 14.7 14.7 79.4 

Telecommunication 9 8.8 8.8 88.2 

Transportation 6 5.9 5.9 94.1 

Computer- 

Hardware- 

Software 

6 5.9 5.9 100 

Total 102 102 102 

There are various positions in GDSS. There 

are users using GDSS and a manager 

managing the system or a project leader. 

Findings regarding answers given to that 

question can be seen in table 3. 33.3% of the 

positions in GDSSs are managers, whereas 

58.8% are users and 7.8% are project team 

members. 

Table 3. Position of Employees in GDSS 


% % 

Manager 34 33.3 33.3 33.3 

User 60 58.8 58.8 92.2 

Project 

Team Member 

8 7.8 7.8 100 

Total 102 100 100 

Findings regarding the type of GDSS in 

businesses of the participants of the survey 

can be observed in table 4. According to the 

table, decision room is the most preferred 

type. However, as a result of the survey it 

has also been seen that teleconference 

besides decision room is also implemented 

especially in some international businesses 

and businesses having international 

contacts. 

Table 4. Type of GDSS in businesses


% % 

Decision Room 56 54.9 54.9 54.9 

Local 

Decision 

Network 

22 21.6 21.6 76.5 

Teleconference 24 23.5 23.5 100 

Total 102 100 100 

Findings regarding the number of 

participants in the decision room can be 

observed in table 5. It is seen that 35.3% of 

participants in the decision room consists of 

7 people. Even if different figures are given 

in literature regarding number of 

participants using GDSS, it is being 

observed that groups consisting of members 

from 5 to 7 are preferred as they are more 

efficient and active. As a result of the 

survey, it is found out that 35.3% of the 

businesses make decision by an optimum 

number. 

Table 5. Number of Participants in Decision 

Room 


% % 

6 15 14.7 14.7 14.7 

7 36 35.3 35.3 50 

8 12 11.8 11.8 61.8 

9 12 11.8 11.8 73.5 

10 15 14.7 14.7 88.2 

12 12 11.8 11.8 100 

Total 102 100 100 

Findings regarding the monthly average 

number of sessions of GDSS in the 

businesses of participants of survey can be 

seen in table 6. It has been found out that 

47.1% of the businesses hold 5 GDSS 

sessions in one month at average. As a result 

of survey, it has been specified that most of 

the businesses holding 2 to 3 sessions per 

month before the crisis raised the number to 

4 or above after the crisis. 

Table 6. Number of Average GDSS Sessions 

in Businesses 

F % Valid 

% 

Total 

% 

3 15 14.7 14.7 14.7 

4 27 26.5 26.5 41.2 

5 48 47.1 47.1 88.2 

505 

7 12 11.8 11.8 100 

Total 102 100 100 

Findings regarding people using GDSS most 

frequently can be seen in table 7. It has been 

concluded that employees who use GDSS 

most frequently are department managers 

and employees. 

Table 7. People Using GDSS Most 

Frequently in Businesses 


% % 

Department 

Managers 

48 47.1 47.1 47.1 

Department 

Employees 

54 52.9 52.9 100 

Total 102 100 100 

Findings regarding the most used function of 

GDSS are shown in table 8. It can be well 

seen in table 8 that most used function of 

GDSS is electronic brainstorming. 

Table 8. Most used functions in GDSS 

F % Valid 

% 

Total 

% 

Electronic 

Brainstorming 

33 32.4 32.4 32.4 

Classification 27 26.5 26.5 73.5 

Others 

(Group 

commenting, 

Commenting, 

Voting) 

27 41.2 41.2 100 

Total 102 100 100 

Findings regarding the types of decisions in 

which GDSS is implemented can be seen in 

table 9. As a result of the survey, it has been 

found out that GDSS is mostly used for 

strategic decisions. 

Table 9. Decisions in which GDSS is used in 

Businesses 


% % 

Strategic 

Decision 

81 79.4 79.4 79.4 

Managerial 

Decision 

6 5.9 5.9 85.3 

Operational 

Decision 

15 14.7 14.7 100 

Total 102 100 100 

Conclusions and Suggestions

In today’s world, it is very difficult for the 

decision maker to contemplate on the factors 

regarding the problems he/she encounters in 

detail due to increasing complexity of the 

socio-economic environment. This is why 

most businesses prefer group decisions to 

individual decisions in decision making 

process. However, not only the human factor 

but also the technologic developments play 

vital role in handling the group decisions. 

GDSS is one of these technologic 

developments. Studies regarding this subject 

show us the fact that, group members using 

the system take part in the discussions 

more, make more comments and they are 

more satisfied when compared to traditional 

decision making methods. (Aiken and 

Vanjani, 2001, p.41). Purpose of GDSS is to 

connect different decision processes of a 

group of members consisting of group 

managers, analysts and employees. (Costa et 

al, 2003, p. 290) 

Many different studies and 

researches have been conducted on the 

concept of GDSS so far. However, not a 

sufficient number of studies exist on the use 

of GDSS. The reason why there are a limited 

number of studies on the use of GDSS is that 

the number of businesses using GDSS is 

insufficient. (Lee, Kozar and Larsen, 2003) 

We tried to specify how the businesses using 

their GDSS are adapting the mentioned 

systems to Turkey. 

Findings obtained as a result of our 

study are summarized below: 

� It is seen that GDSS is mostly used 

by the companies having activities in 

the automotive sector. Automotive 

sector is followed by electronic and 

retailing sectors with regards to 

frequency of usage. 

� Businesses mostly prefer the type of 

decision room which is a listed type 

of GDSS. However, some businesses 

bearing an international status or 

having international connections 

also prefer teleconference type of 

GDSS besides decision room. 

� 35.3% of the participants in decision 

room consist of 7 people. In spite of 

the fact that different figures are 

given in literature regarding the 

number of participants using their 

GDSS, it is observed that groups 

consisting of 5 to 7 people are 

preferred as they are more efficient 

506 

and active. As a result of survey, it is 

found out that 35.3% of the 

businesses make decisions by an 

optimum number. 

� As a result of interviews, it has been 

specified that most of the businesses 

that had been holding 2 to 3 sessions 

before the crisis raised this number 

to 4 or above after the crisis. 

� It has also been observed that 

department managers and 

employees are the ones using GDSS 

most frequently. 

� Of the functions listed in literature 

that are electronic brainstorming, 

classification, commenting and 

voting; the function for which GDSS 

is most frequently used is electronic 

brainstorming. 

GDSS is one of the newest technologies 

and it can be referred that the use of GDSS 

is going to increase when the findings of 

studies are checked. 

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decision support system and facilitator 

effects on meeting outcomes. Management Science 

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communication mode and incentive structure on 

GDSS process and outcomes. Decision Support 

Systems 37 (2), 287-305. 

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guidance and problem modeling on group 

decision making. Journal of Mangement 

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DeLone & McLean Information Systems Success 

Model, International Journal of Electronic 

Commerce (9:1), Fall, pp 31-47. 

Dennis, A.R. ve B.H. Wixom (2002). Investigating 

the moderators of the group decision systems use 

with meta-analysis. Journal of Management 

Information Systems 18(3), 235-257 

Dennis, A.R. ve M.J. Garfield (2003). The 

Adoption and use of GDSS in project teams: 

toward more participative processes and 

outcomes. MIS Quarterly 27 (2), 289-323.

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foundation for the study of group decision support 

systems. Management Science, 33(5), 589-610. 

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support systems in Africa. Journal of 

Management Information Systems 15(3), 

197-234. 

Elbeltagi, I., McBride, N., & Hardaker, G. (2005). 

Evaluating the factors affecting DSS usage by 

senior managers in local authorities in Egypt. 

Journal of Global Information Management, 

13(2), 42-65. 

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139




THE IMPORTANCE OF COMMUNICATION IN PROJECT 

MANAGEMENT 

Abstract 

Project management is the application of 

knowledge, skils, tools, and techniques to 

project activities to meet the project 

requirements.Communication activity has 

many potential dimensions, like internal and 

external, formal and informal, vertical and 

horizontal, official and unofficial, written 

and oral and verbal and non-verbal. Most 

communication skills are common for 

management and for project management 

too, but not limited to: listening actively and 

effectively, educating to increase team’s 

knowledge so that they can be more effective, 

setting and managing expectations, resolving 

conflict to prevent disruptive impact, 

Communication in Project Management 

includes the processes required to ensure 

timely and appropriate generation, collection, 

distribution, storage, retrieval and ultimate 

disposition a project information. Project 

managers spend the majority of their time 

communicating with team members of other 

projects stakeholders, whether they are 

internal (of all organizational levels)or 

external to the organization. Effective 

communication create a bridge between 

diverse stakeholders involved in project , 

connecting various cultural and 

organizational backgrounds, different levels 

of expertise, and various perspectives and 

interests in the project execution or outcome. 

Key words: project management, 

communication, performance, information; 

management plan. 

PISTOL Luminita 

Spiru Haret University 

prolu2001@yahoo.com 

UNGUREANU Adrian 

Spiru Haret University 

aungureanu75@yahoo.com 

508 

Introduction 

Project management is the application of 

knowledge, skils, tools, and techniques to 

project activities to meet the project 

requirements. This paper present the 

important of comunication in project 

management. We know that communication 

activity has many potential dimensions, like 

internal and external, formal and informal. 

Most communication skills are common for 

management and for project management 

too. The paper is important becouse it 

reports the process of collecting and 

distributing performance information for 

realize a successful communication in a 

project management, starting with plan 

communication, than comunication 

technology with communication method,and 

finaly the management project plan. For 

prove all this, we try to explain clear the 

method of the project plan communication, 

which used to share information among 

project and can be broadly classified into: 

interactive communication, push 

communication and pull communication. 

Then we present tow project plans: a small 

one and a larger one. The small projects tend 

to have very simple and straight 

communication paths, usually do not need 

more than basic status reporting, in the 

second one, communication takes place in 

context of an overall. This paper can be a 

starting point of view for better project 

plans.Using this communication methods to 

share information among project the project 

manager can achieve the best format for the 

communications.

The Project Communications 

Management processes include the 

following: 

Identify Stakeholders—The process of 

identifying all people or organizations 

impacted by the project, and documenting 

relevant information regarding their 

interests, involvement, and impact on 

project success. 

Plan Communications—The process of 

determining the project stakeholder 

information needs and defining a 

communication approach. 

Distribute Information—The 

process of making relevant 

information available to project 

stakeholders as planned. 

Manage Stakeholder Expectations—The 

process of communicating and working 

with stakeholders to meet their needs and 

addressing issues as they occur. 

Report Performance—The process of 

collecting and distributing performance 

information, including status reports, 

progress measurements, and forecasts. 

These processes interact with each other and 

with processes in the other Knowledge 

Areas. Each process occurs at least once in 

every project and, if the project is divided 

into phases, it could occur in one or more 

project phases. 

Communication activity has many potential 

dimensions, including: 

� Internal (within the project) and 

external (customer, other projects, 

the media, the public) 

� Formal (reports, memos, briefings) 

and informal (emails, ad-hoc 

discussions), 

� Vertical (up and down the 

organization) and horizontal (with 

peers), 

� Official (newsletters, annual report) 

and unofficial (off the record 

� 

communications), 

Written and oral, and Verbal and 

non-verbal (voice inflections, body 

language). 

Most communication skills are common for 

general management and project 

management, such as, but not limited to: 

509 

Listening actively and effectively, 

Questioning, probing ideas and situations to 

ensure better understanding, Educating to 

increase team’s knowledge so that they can 

be more effective, Fact-finding to identify or 

confirm information, Setting and managing 

expectations, Persuading a person or 

organization to perform an action, 

Negotiating to achieve mutually acceptable 

agreements between parties, Resolving 

conflict to prevent disruptive impacts, and 

Summarizing, recapping, and identifying the 

next steps. 

Plan Comunication. Plan Communications 

is the process of determining the project 

stakeholder information needs and defining 

a communication approach. The Plan 

Communications process responds to the 

information and communications needs of 

the stakeholders. For example, who needs 

what information, when they will need it, 

how it will be given to them, and by whom. 

While all projects share the need to 

communicate project information, the 

informational needs and methods of 

distribution vary widely. Identifying the 

information needs of the stakeholders and 

determining a suitable means of meeting 

those needs are important factors for project 

success. 

Improper communication planning will lead 

to problems such as delay in message 

delivery, communication of sensitive 

information to the wrong audience, or lack of 

communication to some of the required 

stakeholders. A communication plan allows 

the project manager to document the 

approach to communicate most efficiently 

and effectively with stakeholders. Effective 

communication means that the information 

is provided in the right format, at the right 

time, and with the right impact. Efficient 

communication means providing only the 

information that is needed. On most 

projects, the communications planning is 

done very early, such as during project 

management plan development. This allows 

appropriate resources, such as time and 

budget, to be allocated to communication 

activities. The results of this planning 

process should be reviewed regularly 

throughout the project and revised as needed 

to ensure continued applicability. 

The Plan Communications process is 

tightly linked with enterprise

environmental factors, since the 

organization’s structure will have a major 

effect on the project’s communications 

requirements. 

Plan Communications: Inputs, Tools & 

Techniques, and Outputs 

Plan Communications Data Flow 

Diagram 

510 

The analysis of the communication 

requirements determines the information 

needs of the project stakeholders. These 

requirements are defined by combining the 

type and format of information needed with 

an analysis of the value of that information. 

Project resources are expended only on 

communicating information that contributes 

to success, or where a lack of communication 

can lead to failure. 

The project manager should also consider 

the number of potential communication 

channels or paths as an indicator of the 

complexity of a project’s communications. A 

key component of planning the project’s 

actual communications, therefore, is to 

determine and limit who will communicate 

with whom and who will receive what 

information. 

Information typically used to determine 

project communication requirements 

includes: 

Organization charts, 

Project organization and stakeholder 

responsibility relationships, 

Disciplines, departments, and specialties 

involved in the project, 

Logistics of how many persons will be 

involved with the project and at which 

locations, 

Internal information needs 

External information needs 

Communication Technology 

The methods used to transfer information 

among project stakeholders can vary 

significantly. For example, a project team 

may use techniques from brief 

conversations all the way through to 

extended meetings, or from simple written 

documents to material (e.g., schedules and 

databases) that is accessible online as 

methods of communication. 

Factors that can affect the project include: 

Urgency of the need for information. Is 

project success dependent upon having 

frequently updated information available on 

a moment’s notice, or would regularly issued 

written reports suffice?

Availability of technology. Are appropriate 

systems already in place or do project needs 

warrant change? For example, do the 

intended stakeholder(s) have access to a 

selected communications technology? 

Expected project staffing. Are the proposed 

communication systems compatible with the 

experience and expertise of the project 

participants, or is extensive training and 

learning required? 

Duration of the project. Is the available 

technology likely to change before the project 

is over? 

Project environment. Does the team meet 

and operate on a face-to-face basis or in a 

virtual environment? 

Communication Methods There are several 

communication methods used to share 

information among project stakeholders. 

These methods can be broadly classified into: 

Interactive communication. Between two or 

more parties performing a multidirectional 

exchange of information. It is the most 

efficient way to ensure a common 

understanding by all participants on 

specified topics, and includes meetings, 

phone calls, video conferencing, etc. 

Push communication. Sent to specific 

recipients who need to know the 

information. This ensures that the 

information is distributed but does not 

certify that it actually reached or was 

understood by the intended audience. Push 

communication includes letters, memos, 

reports, emails, faxes, voice mails, press 

releases etc. 

Pull communication. Used for very large 

volumes of information, or for very large 

audiences, that requires the recipients to 

access the communication content at 

their own discretion. These methods 

include intranet sites, e-learning, and 

knowledge repositories, etc. 

The project manager decides, based on 

communication requirements, what, how, 

and when communication methods are to 

be used in the project. 

Management Plan The communications 

511 

management plan is contained in or is a 

subsidiary of the project management 

plan. The communications management 

plan can be formal or informal, highly 

detailed or broadly framed, and based on 

the needs of the project. The 

communications management plan 

usually provides: 

� Stakeholder communication 

requirements; 

� Information to be 

communicated, including 

language, format, content, 

and level of detail; 

� Reason for the distribution of 

that information; 

� Time frame and frequency 

for the distribution of 

required information; 

� Person responsible for 

communicating the 

information; 

� Person responsible for 

authorizing release of 

confidential information; 

� Person or groups who will 

receive the information; 

� Methods or technologies used 

to convey the information, 

such as memos, e-mail, 

and/or press releases; 

� Resources allocated for 

communication activities, 

including time and budget; 

Escalation process 

identifying time frames and 

the management chain 

(names) for escalation of 

issues that cannot be 

resolved at a lower staff 

level; 

� Method for updating and 

refining the communications 

management plan as the 

project progresses and 

develops; 

� Glossary of common 

terminology; 

� Flow charts of the 

information flow in the 

project, workflows with 

possible sequence of 

authorization, list of reports, 

and meeting plans, etc.; 

� Communication constraints, 

usually derived from specific

legislation or regulation, 

technology, and 

organizational policies, etc. 

� The communications 

management plan can also 

include guidelines and 

templates for project status 

meetings, project team 

meetings, e-meetings, and email. 

� The use of a project website 

and project management 

software can also be included 

if they are used in the 

project. 

Project plan for managing communication on 

a small projects: Small projects tend to have 

very simple and straight communication 

paths. Small projects usually do not need 

more than basic status reporting. If the 

project manager is doing any hands-on work 

on the project, he probably has a very good 

idea of the overall status. 

Role Status Reporting (Small 

Projects) 

1. Team Create team status reports 

Members for the project manager 

Project team members send 

a status update to the 

project manager on a 

weekly basis. 

2. Project Create sponsor and 

Manager stakeholder status reports 

It is important for the 

project manager to use 

Status Reports and other 

communication methods to 

manage expectations. The 

project manager sends a 

status update to the project 

sponsor and stakeholders on 

a weekly or bi-weekly basis. 

If the project is small, the 

sponsor may get no updates 

before the project is 

completed – or maybe just 

one. This does not give the 

sponsor time to react if 

there is anything unusual. 

The project manager should 

report status bi-weekly or 

weekly in those cases. 

3. Project Schedule and attend status 

Manager, meetings (optional) The 

512 

Team 

Members, 

Clients 

entire project team should 

attend project status 

meetings. The meetings 

should focus on the status 

against the project schedule 

and uncovering any current 

issues, scope change 

requests or potential risks. 

The client should be invited 

to attend, but his 

attendance is not 

mandatory. The frequency 

of the meetings depends on 

the timetable for the project 

and the need to get 

information in a timely 

manner. For instance, if the 

project is three weeks, the 

team might want to meet 

twice a week. If the project 

is eight weeks, weekly is 

probably appropriate. The 

status meeting is optional 

since on small projects the 

project team is probably 

only a couple people (or 

maybe just one) and the 

chances are that you meet 

often anyway to discuss 

what is going on. 

Project plan for managing communication on 

a large project. All communication takes 

place in context of an overall Communication 

Management Plan. Status meetings and 

status reporting are required. In addition, 

there are many other types of proactive 

communication that need to be considered. 

This creative and proactive communication 

is laid out in a Communication Management 

Plan. A large projects also need to consider 

basic and more sophisticated techniques for 

managing the documentation on the project. 

ROLE Manage 

Communication (Large 

1 Project 

Manager 

Projects) 

Determine the project 

stakeholders In some 

cases these are 

stakeholder groups such 

as a project steering 

committee. In other cases, 

there may be a single 

person such as the 

sponsor.

2 Project 

Manager 

3 Project 

Manager 

4 Project 

Manager 

5 Project 

Manager 

Determine the 

communication needs for 

each stakeholder The 

project manager can 

categorize the 

communication needs into 

three areas. • Mandatory. 

This generally includes 

project Status Reports, 

legal requirements, 

financial reporting, etc. 

This information is pushed 

out to the recipients. • 

Informational. This is 

information people want to 

know or that they may 

need for their jobs. This 

information is usually 

made available for people 

to read, but requires them 

to take the initiative, or 

pull the communication. • 

Marketing. This 

communication is designed 

to build buy-in and 

enthusiasm for the project 

and its deliverables. 

For each stakeholder, 

brainstorm how to fulfill 

the communication need It 

is important for the project 

manager to use Status 

Reports and other 

communication methods to 

manage expectations 

Determine the effort 

required Estimate the 

effort required to create 

and distribute each of the 

identified communication 

options outlined in step 3. 

Also determine the 

potential benefit of the 

communication to the 

recipient and the project 

team. 

Prioritize the 

communication options 

Discard the 

communication options 

that require high effort for 

marginal benefit. Also 

discard those that provide 

marginal benefit even 

though they may take 

little effort from the 

513 

6 Project 

Manager 

7 Project 

Manager 

8 Project 

Manager 

9 Project 

Manager, 

Team 

Members, 

Client 

project team. Implement 

the communication options 

that provide high value 

and require low effort from 

the project team. 

Implement mandatory 

communications 

Regardless of the 

prioritization, implement 

any communication 

options that are 

mandatory for the project. 

This will definitely include 

project Status Reports, but 

there may also be 

government-required 

reports, legal reports, etc. 

Add the resulting 

communication activities 

to the schedule This will 

include assigning 

frequencies, due dates, 

effort hours and a 

responsible person(s) for 

each communication 

option implemented. 

Execute the 

Communication 

Management Plan The 

Communication 

Management Plan details 

the stakeholders, their 

information requirements, 

how often they should 

receive communications, 

the best format for the 

communications, etc. The 

project manager needs to 

execute the 

Communication 

Management Plan to make 

it real. This also includes 

responding to ad-hoc 

requests for information. 

Schedule and attend 

status meetings The team 

should attend status 

meetings on a weekly or 

biweekly basis. If the 

project manager prefers, 

there could be a status 

meetings for the project 

team and a separate 

meeting with the client. 

There should be a 

standard agenda for the

10 Project 

Manager 

11 Team 

Members 

meetings and the meeting 

should be kept to no more 

than one hour. In general, 

the purpose of the 

meetings is to 

communicate status, not 

solve problems. (An 

agenda for the meeting is 

included in the deliverable 

section.) 

Create sponsor and 

stakeholder status reports 

The project manager 

should send Status 

Reports to all stakeholders 

on a bi-weekly or monthly 

basis. Depending on the 

financial reporting cycle, 

the monthly Status Report 

should include a financial 

status as well. 

Create team status reports 

for the project manager 

The project team members 

should send a weekly or 

bi-weekly Status Report to 

the project manager 

detailing their progress 

during the reporting 

period. This information is 

used by the project 

manager to update each 

assigned activity in the 

schedule. This report is in 

addition to the status 

meeting. 

Conclusions 

Properly communicating on a project is a 

critical success factor for managing the 

expectations of the sponsor and the 

stakeholders. A project manager has to 

implement any communication options and 

all methods for achieve a success small 

project or a large project. Small projects 

usually do not need more than basic status 

reporting. If the project manager is doing 

any hands-on work on the project, he 

probably has a very good idea of the overall 

status. Small projects tend to have very 

simple and straight communication paths 

About large projects, it should utilize a 

Communication management plan to make 

sure the communications is proactive and 

multi-faceted. In a large project, all 

communication takes place in context of an 

514 

overall Communication management plan. 

status meetings and status reporting are 

required. For large projects especially, the 

project team should be creative in 

determining how, what, to whom, where and 

how frequently the communication takes 

place. 

References 

Prince 2, London: Stationery Office 

A Guide to the Project Management Body of 

Knowledge, PMBOK Guide - Fourth edition, 

Project Management Institute 

www.itil-officialsite.com 

www.mpmm.com 

www.pmi.org 

www.projectmanagement.com 

www.tenstep.com




COMPETITIVE STRATEGIES IN THE GLOBALISATION’S CONTEXT 

PLATIS Magdalena 

Faculty of Business and Administration, University of Bucharest 

Email: magdalena.iordache-platis@drept.unibuc.ro 

BABAN Eleonora Gabriela 

Faculty of Business and Administration, University of Bucharest 

Email: baban.eleonora@yahoo.com 

Abstract 

In the context of globalization, the modern 

market economy leads companies to cope 

with the dynamic and frequent changes of 

the business medium. Frequent changes of 

internal and external medium of the 

organization influenced the economic 

activity, redirecting them toward effective 

strategic options to meet their objectives. 

This paper aims to highlight the main 

marketing strategies used by leaders, 

"challengers", "chasers" and by the small 

firms. Significant objectives of the study are: 

1). Importance of the competitive strategy in 

the context of globalization; 

2).The relationship between marketing 

strategy and marketing firm’s position; 

3).The market strategy and its characteristics 

in the context of globalization; 

4). The normal competitive medium and its 

coordinated on the market. 

To obtain performance and business success 

organizations must implement a competitive 

strategy. 

Competitive market strategy is defined 

according to the aspects that characterize the 

competitive market. Competitive strategies 

depending on the position of an 

organizationon on the market determine the 

medium and long term actions (strategy) and 

the short-term actions (tactics). 

Keywords: leaders, competition, 

"challengers", globalisation. 

1. Importance of the competitive 

strategy in the context of globalization 

Today on the business market, marked by 

the globalization phenomena is necessary to 

implement competitive strategies which 

must contribute to the performance by the 

organization and to meet the needs of society 

515 

(consumer protection, privacy, the 

environment). G. Soros considers that the 

current business world relies on global 

markets expand.� Soros, 1999�. To rule the 

market a firm must sell on all major 

markets, must adopt effective competitive 

strategies for each product or service. 

Globalization is a complex process that 

allows the implementation of a modern 

economic policy and culture, emphasizing 

the concern for the environment or for the 

life itself. 

Frequent changes occurring in society and in 

the world economy amplifies the 

phenomenon of globalization, which is 

characteristic of the contemporary world. 

Companies are interested in entering global 

markets, and to cope with fierce competition 

existing are preparing and implementing 

effective strategies. The risks faced by the 

firms can not be accurately anticipated and 

are difficult to evaluate. 

To succeed in business, companies must 

implement successful competitive strategies 

and must exploit efficiently and profitably 

resources that are available. The strategy is 

the means by which firms meet their goals. 

C. Florescu considers that in the strategic 

management competence of any firm enters 

three key elements, namely: defining activity 

domain of an enterprise; setting targets and 

performance indicators to be achieved; 

developing strategies that creates the 

conditions most appropriate to deal the 

objectives [Florescu,1981]. The main 

objectives of a company are: an incentive 

profit, increasing market share, increase 

sales volume, recording a high return. Firm’s 

targets must be characterized by the 

following features: realistic, proper sizing in 

time, rigorously. Any objective should be

characterized by the ability to provide the 

efficiency utilization in real terms of the 

financial, material and human resource, 

efficiency that contributed to performance. 

Developing a competitive strategy is a 

complex process by which the company 

concentrates its efforts towards achieving its 

goals. Thus, the main competitive 

advantages and disadvantages in relation to 

the competition are key elements that 

characterize the substantiation of strategy 

competition. 

2. The relationship between marketing 

strategy and the marketing firm 

position. 

On the business market companies are 

showing an economic force and have a strong 

market position over competitors and 

customers. The main items on the market 

are: a). dominance position: belongs to a 

company with monopolistic behavior that 

has lead the market; this company can 

choose the right strategy from a wide range 

of strategic alternatives; b). strong position: 

belongs to economic entities that have a high 

economic power, acting independently, 

retains its position relative to competitors 

and has been preoccupied to lead the 

marketplace; c).sustainable position: belongs 

to the firms that can maintain market share, 

but moderate work, trying to resist to the 

influence and pressures of the business 

environment; d).viable position: belongs to 

small companies that are willing to improve 

business by finding alternatives for 

improvement. With poor results, the 

company is trying to establish relations of 

tolerance from large companies. Otherwise, 

if their situation doesn’t improve, the 

company will have to withdraw from the 

market; e). favorable positions: belongs to 

the firms that demonstrates strong potential 

development to increase market share, being 

able to continuously improve marketing 

enter position by exploiting the favorable 

market situations; f).unsustainable position: 

belongs to companies that are trying to 

survive, but they cannot improve their 

performance, which requires its exit from 

the market. Market strategies, in 

conjunction with categories of economic 

agents are as follows: market leader, which 

holds 40% of market share; challengers, 

companies aspiring to the first place and 

hold 30% of market share, the pursuing 

companies, holding 20% of market share and 

516 

the small firms that have 10% of market 

share. 

The strategies of the leading firm 

In every industry there is a firm that has 

market leadership and influencing economic 

activity of other firms that are operating on 

the market. 

Although the leading company holds a 

market position of supremacy, it can easily 

reach the second or even third place in the 

presence of a sophisticated product on the 

market which has a superior quality from its 

products. In this situation, ranked for the 

first leading place, the company is acting 

promptly and is trying to find ways to 

increase total demand by increasing market 

share strategy using both offensive and 

defensive strategies. 

Therefore, strategies of the leading 

companies are: direct defense, flank defense, 

preventive defense, counter, mobile defense, 

the withdrawal defense. 

The leading company must constantly 

defend their position, be attentive to the 

actions of other firms, because those firms 

could exploit a moment of weakness of the 

leading company and could obtain easily the 

leading place. It is necessary to be found the 

alternatives whereby the leading company 

may extend its activities by discovering and 

promoting new uses of the product, 

attracting new buyers who may not know 

that the product exists, by convincing the 

consumers to buy a larger quantity of the 

product they want. 

The leading firm tries to maintain its 

market position by applying strategic 

alternatives, being concerned about 

continuing to oversee the work, to 

permanently protect from the competitors’ 

attacks .Even when the leading company 

attacks, it must focus on the situation, and 

not leave any of the sides uncovered. By 

keeping costs low, by getting the prices lower 

and by taking account of business ethics, the 

company always tries to maintain its leading 

market position and to fully valuing 

business opportunities. 

Throw applying the: direct defense, the 

leading company strengthens its leadership 

position because of the pressure from the 

outside; flank defense, the leading 

company is looking to defend its place by 

driving priority resources to eliminate 

pressures came from its competitors; 

preventive defense, on the market are 

give out, in the opinion of Michael Porter,

signals from the leading company to the 

competitors for perusing them do not attack 

[Porter,1980]; counterattack, the leading 

company responds to other competitors who 

are trying to reduce the prices, or to sale 

superior quality products or to invade its 

area (the answer is by counterattack, the 

company leader mobilize all its forces to 

meet the attack, forcing the opponent to 

withdraw a part of “the troops” and to 

defend); mobile defense, the leading 

company tries to maintain its leading 

market position answering his opponent's 

attack by aggressive defense and by 

development of an innovative activity (by 

expanding market leading company need to 

focus not on his product, but on the real need 

that this product meets them, trying to 

improve itself, without excessive abuse of 

the market expansion; the diversification of 

assortment by developing new activities 

unrelated with the scope of the company, is a 

strategic choice to lead the company to 

maintain its market position); withdrawal 

defense the leading company admits 

temporary waiver to have control of a 

segment of the market (systematic 

withdrawal from the market of the leading 

company when competitors attack on several 

fronts is a smart strategy and is facilitating 

the temporary withdrawal on the 

competitive labor). 

The strategies of the “challenger” firm 

Philip Kotler believes that the “challenger” 

is a company which aggressively is trying to 

expand its market position by attacking the 

leader, other competitors or smaller firms in 

the same industry [Kotler, 1998]. The 

“challengers” are companies aspiring to the 

first place. The targets of these companies 

are to increase the market share, to improve 

economic activity, which inevitably will lead 

to achieving high returns. Knowing who the 

enemies are and who the competitors are, 

the “challenger” may establish and 

implement offensive strategies that will lead 

them to achieve performance and business 

success. The strategies of the “challenger” 

firms are: frontal assault- the company 

aspiring to the first place detected 

vulnerable elements of the leading company 

and is attacking its strengths (attacker 

exploit their own resources, reduce the price 

below that charged by his opponent and 

reducing costs production, improving its 

offer advertising to reach the level of his 

opponent); lateral attack -the “challenger” 

517 

detected the requested route, draws all its 

troops there, but launches the attack on the 

flanks or on the competitors’ back (the 

“challenger” identifies the weaknesses of the 

leading company and also the unmet needs 

of the customer and attacks in the place 

where the leading company does not expect 

to be attacked); encircling attack, 

“challenger” company is focusing its 

attention on a segment neglected by the 

competitors (for example, if the abuser has 

greater resources than his opponent, 

increase supply on the market by launching 

a broad offensive on several fronts); avoid 

attack – the “challenger” firm temporarily is 

focusing its attention on an item of tangible 

or intangible product and is avoiding direct 

contact with the leader; guerrillas attacks 

– the “challenger" firms with low financial 

power attacks leading company through 

intermittent actions in order to harass that 

firm. 

Strategies of the “pursuing” firm 

"The pursuer" is a company that decides to 

follow the market leader by copying its bid. 

Leading company can be a winner from a 

potential war with the both companies- 

“challenger” (which is fixing the lower prices 

than the leading company) and the “pursuer” 

(who copies the leading company’s products) 

- because it has the ability to easily achieve 

the same performances. However, "pursuers" 

apply their own growth strategies, 

emphasizing among them: the strategy of 

copying, imitation of the leading companies 

is total; the strategy of imitation, 

processing of product attributes is partially; 

adaptation strategy, the leading company 

processing action takes place through better 

products which are sold in different markets. 

The strategies of the small firms 

Philip Kotler considers that a company that 

serves a market niche is a small company 

which is operating on specialized market’s 

segments neglected by the large firms 

[Kotler, 1998]. Strategy of the small firms 

concerns to the application of measures for 

survival, namely: reducing production costs, 

development of after-sales services, 

improving quality, price adjustment to 

income customers, short product distribution 

channels, promoting low-cost products. 

3. The market strategy and its 

characteristics in the context of 

globalization 

The market strategy means a combination of 

several actions based on internal and

external business factors which are 

correlated in terms of several criteria. 

Strategy means development and correlation 

with the company’s mission and with the 

implementation process. 

The main factors to consider in developing a 

strategy refers to endogenous factors, 

including aspects that characterize internal 

synergy or all the elements that micro 

medium formed in the company, and group 

factors expressing exogenous stimulus 

outside of the organization. 

The market strategy is defined by finding 

the answers of many questions and 

expressing certain criteria based on defining 

strategic directions. These criteria are: 

1). market dynamics – according with this 

criterion the market strategy must include 

measurable elements reflecting the 

organization's position or a product on a 

particular market. 

The measuring element is the market share, 

and therefore strategic variants are: the 

strategy to increase market share, the 

strategy to maintain market share, the 

strategy of market share decline. 

2).the market structure- the market 

strategy under this criterion comprises 

several courses of action that reflect 

characteristics of the product in relation to 

market in terms of supply diversification. 

The strategic variants are: 

-differentiated strategy (product clearly 

stands out from other products on the 

market); 

-focused strategy (product can not be 

compared; 

-undifferentiated strategy (product 

homogeneity is linked with other products); 

Different elements may relate the diversity 

of organization’s activity on different 

markets. 

3).The change-market- according with this 

criterion strategy is characterized by the 

ability of the organization in response to 

different environmental challenges and it 

includes reaction rate. The main strategy 

options are: active strategy (marketing 

company initiated changes), adaptive 

strategy (the company is subject to changes 

and deal with them), the passive strategy 

(the company does not respond to changes 

and can lead to reduced market share); 

4). market demands- according with this 

criterion the market strategy is focused on 

issues related to product quality, features 

518 

typical consumer and other aspects of sellerbuyer 

relationship. Main strategic options 

are: market strategy high, medium and low 

demanding; 

5). the level of competition – according with 

this criterion the market strategy reflects 

courses of action through which the 

organization defines its market movements 

against competitors and this is causing 

reactions or side adapts to competitors. The 

main strategic options are: offensive market 

strategy (expressed the ability to initiate a 

movement by a firm), defensive strategy 

(expressed the attitude of an organization to 

the actions initiated by other firms). 

Strategies by this criterion relates to higher 

or lower differences in terms of temporary or 

percentage: reduce the price sooner or later, 

or more or less. To define a market strategy 

is means to identify a strategic option for 

each criterion (for example: market strategy 

at company X may be: to increase market 

share, indiscriminate, adaptive, and 

defensive than the requirement). The 

marketing strategy is focused on strategic 

options of marketing mix. The marketing 

mix expresses a set of market variables that 

are leading to implementation of strategies 

and of individual actions. 

4. The normal competitive medium and 

its coordinated on the market 

A strategy to demonstrate its efficiency must 

be applied by the merchandisers in terms of 

a normal competitive medium. The normal 

competitive medium is an economic 

environment which recognizes features of 

the legislative, social, informational, 

technological, cultural and demographic 

areas. 

The prerequisites for formation of a normal 

competitive medium are: 

1).Economic autonomy of the merchandisers 

– which occurs in the context of division of 

labor application; 

2). Private property is the main form of 

ownership that promotes free enterprise; 3). 

Intervention of the state that should be 

indicative and may become mandatory only 

under large disturbances; 

4). Acceptance of entrepreneurship as a 

priority element in creating the legislative 

framework in the spirit of the law so they 

can respond to questions like, “Where to 

invest?”, “When are we investing?”, and 

“Where to invest? “;

5). Prices in a market economy must be 

allowed to form freely and be admitted price 

limits only by public administration; 

6). Business development capacity to be 

managed by internal autonomous decisions 

trader. 

The normal competitive medium is an 

economic medium characterized by the 

following characteristics: 

-encourages formation and development of 

the company within the meaning of 

sustainability; 

-must be a dynamic medium, able to accept 

changes and act in the spirit of competition; 

-is an environment which recognizes cyclic 

fluctuations in the economy, but within 

limits accepted by achieving the main 

objectives of economic agents; 

-is a medium that must seek a balance 

between economic and political tools. 

The literature review identifies the following 

types of competitors: 

a). exceeded competitor - is a trader that can 

not focus on its efforts to counter 

competition, who tries to dominate him 

either directly or indirectly; 

b). selective competitor - is that economic 

agent that hasn’t got a stable position in the 

market and it is seeking ranges from a 

favorable position to an instable position. 

c). fierce competitor - is the trader who has 

the ability to influence decisions of others 

and act with solid defense strategies; 

d).unpredictable competitor- is the trader 

who has not an economic force on the 

market, but is acting after a period of time 

with unforeseeable and secure instruments. 

The strategic assessment of prices takes into 

account, the synchronization between the 

coordinates of two types of control: first is 

the management business and on the other 

hand is the local market management. 

Achieving the optimal objectives of an 

organization requires the involvement of 

business management strategies as price 

correlation with other marketing mix 

strategies. Involving local market manager 

is essential in customizing business-level 

segment of consumers especially when it 

comes the business expansion. 

The organisation is that economic agent who 

manages the best resources available to 

build upon the advantages of the market and 

if that organization is controlling very good 

the risk it can adopt a cost strategy or a 

differentiation strategy. These strategies are 

519 

presented in the figure number 1, anexes 

one. 

The main risks of the organization in terms 

of cost strategy are: decreasing the risk of 

profit, risk of competition affirmation with 

the superior products or lower costs, the risk 

of a negative perception product by the 

consumers in the form of direct correlation 

between price and quality. 

The main risks of the organization in terms 

of differentiation strategy are: the risk of 

imitation of a differentiation element by the 

competition, risk of confusion (beneficial or 

negative) generated by approximation with 

rival products, the risk of time gap in terms 

of price movement or introduction of a new 

level of differentiation if appears the 

competitive advantage destabilization. 

In the literature review there are presented 

five market forces with the purpose of gain 

and retain competitive advantage: the 

competition among existing firms, 

bargaining power of suppliers, bargaining 

power of customers, the risk of substitutable 

products, the risk of appearance of the 

newcomers.The relationship between the 

market forces and the type of competitive 

medium are presented in the figure number 

2. 

Figure number 2: The relationship 

between the market forces and the type 

of competitive medium 

Types of 

medium 

Market 

forces 

1. The 

competition 

between the 

firms 

2.The power 

of 

negociation 

of suppliers 

3. The power 

of 

negociation 

of clients 

4.The risk of 

substitutable 

products 

5. The risk of 

the 

newcomers 

Favorable 

competitive 

medium 

Relatively 

low 

Unfavorable 

competitive 

medium 

Large 

Weak Strong 

Small High 

Limitated Relatively 

high 

Large Moderate

If the market forces are weaker the 

competitive environment is more conductive 

to obtain good positions. If the organization 

wants to obtain competitive advantages is 

neccesary to take into account the ability of 

managers to implement strategy and 

therefore the effectiveness of communication 

strategy for all those involved . 


Organizations that operate under the 

economic dynamism that characterizes the 

current market are obligated to adapt to the 

process of globalization. 

With globalization increasing competition in 

markets, the firms are concerned with 

finding competitive strategies which should 

help the firm to operate in optimum 

conditions. 

Conducting dynamic globalization process 

involves research and development, 

production, marketing on the world market, 

the organization is forced to face some stiff 

challenges. Who does not participate at the 

process of globalization can not survive on 

the business market. Development on the 

market is a complex process whose action is 

inevitable. The process of globalization, also 

the process of development are inevitable 

even when are backed by political and 

economic forces. The mechanisms of 

globalization generates major social 

conflicts, affects economic efficiency, 

economic diversity and consumer protection. 

The market business strategies are inspired 

by the military strategy. 

The main rules of behavior are inspired by 

the military sphere: the company does not 

directly attack the main rival, but must 

exploiting the slightest error of his rival, the 

company must be with a real concern for 

prudent action (to avoid egotism). A firm 

must have a backup strategy on the business 

market and must act promptly, bold, be 

aggressive, but in a positive way. 

The competitive strategy of economic 

construction must follow a mandatory 

orientation after targeting profit. 

The development of strategy for the 

economic agents may follow one of the 

following four alternatives: the option of 

price war, the option of price competition, 

the option non-price competition, the option 

of differentiation or production niche. 

A competitive strategy in the context of 

globalization should have a competitive 

520 

approach to the chance of success in terms of 

the current economic dynamism conditions. 

To complete the process of setting strategy 

and position in the minds of potential 

consumers, traders implement and apply 

competitive strategies. 

References 

1.Ansoff, I., Strategie du developpment de 

l’entreprise, Les Editions d’organisation, Paris, 

1989. 

2.Anton,V.,Marketing interorganizaţional, 

Editura Expert, Bucureşti, 2006. 

3. Florescu, C., Marketing, Independenţa 

Economică, Piteşti, 1997. 

4. Florescu, C., Marketing, Editura Didactică şi 

Pedagogică”, Bucureşti, 1981. 

5. Hrebiniak, L.G., Strategia în afaceri. 

Implementarea şi executarea eficienţei, Editura 

All, Bucureşti,2009. 

6. Popa, I., Management strategic, Editura 

Economică, Bucureşti,2004. 

7.Porter, E. Michael, Competitive strategy, New 

York: Free Press, 1980. 

8. Porter, E. Michael, Despre concurenţă Editura 

Meteor Press, Bucureşti, 2008. 

9. Platis, M., Preţul şi formarea lui, Editura 

Economică, Bucureşti, 1997. 

10. Manfred Bruhn, Marketing, Editura 

Economică,Bucureşti, 1999. 

11. Munteanu, V., Medrihan, G., Bucur, M., 

Petrescu, Gh., Stirbu, E., Boier, R., Epuran, Gh., 

Marinescu, G., Bazele marketingului, Editura 

Graphix, Iaşi, 1992. 

12. Kotler, Ph., Principiile marketingului, Editura 

Teora, Bucureşti, 1998. 

13. Kotler, Ph., Managementul marketingului, 

Editura Teora, Bucureşti, 1998. 

14.Soros, G., Criza capitalismului global. 

Societate deschisă în primejdie, Editura Polirom 

Arc, Iaşi, 1999. 

15.Stiglitz, E. Joseph, Mecansimele globalizării, 

Editura Polirom, 2008. 

Annex 1- Figure number 1: Competitive 

advantage strategy

Total market�low 

cost: 

Low cost strategy 

to dominate the 

overall market 

Total market� 

product 

differentiation: 

Differentiation 

strategy on the 

total market 

Competitive 

advantage strategy 

521 

Partial market �low 

cost: 

Low cost strategy to 

dominate the partial 

market 

Partial market� 

product 

differentiation: 

Differentiation 

strategy on the 

partial market




A WORLD OF CHALLENGES: THE ACCELERATION OF FINANCIAL 

FLOWS AND OF FOREIGN DIRECT INVESTMENTS 

Abstract 

Although the issue of contemporary 

debate on globalization has been widely 

discussed, it was not always as it should 

have been. Nobody doubts that some very 

significant global processes - economic, 

social, cultural, political and environmental - 

are ongoing and that it affects (almost) 

everyone and (nearly) everything. However, 

there is no agreement on how exactly to 

define this thing we call “globalization” or 

which of its components are precisely good or 

bad and for whom. 

For most of us, within the analysis of 

globalization, its potential and pitfalls had a 

tremendous effect on people. The discussion 

regarding the connections between 

environment and globalization was similarly 

the result of several unjustified expectations 

and concerns about the connections between 

these two areas. 

While the GSEs dominated the securitization 

market during the 1980s and 1990s, by 2000 

they began losing market share to private 

financial institutions as more and more subprime 

mortgages began to be securitized. As 

the securitization market came to be 

dominated by the financial sector, it grew 

more complex, and more opaque. Not only 

did the market become riskier and less 

transparent, but it shifted into a financial 

world that was unregulated and little 

understood. As banks, brokers, hedge funds, 

and other institutions utilized new financial 

innovations to maximize their exposure to 

POPESCU N. Gheorghe; 

Academy of Economic Studies; 

popescu_gh_cafr@yahoo.com 

POPESCU Veronica Adriana; 


popescu_va@yahoo.com 

POPESCU Cristina Raluca; 


popescu_cr@yahoo.com 

522 

these products, they fuelled the demand for 

risky mortgages and inflated the bubble that 

ultimately burst in August 2007. 

Key words: financial flows, foreign direct 

investment, audit, accounting, globalization. 


The starting point of the globalization 

was the growth of the foreign direct 

investments during the period of 1980- 

1990. The foreign direct investments 

brought with them the informational 

revolution and the qualitative improvement 

of the technological systems in the 

communication domain. This led to the 

decreasing of transportation costs and to the 

dispersion of products production in different 

parts of the world in order to be assembled 

at the place where they will be 

commercialized. The globalization had a 

more rapid spreading after the collapse of 

the Bretton Woods system. The financial 

globalization brought the detailed 

knowledge of the foreign commodity markets 

as well as the development of financial 

transactions which now could have been 

made at any hour, in any corner of the 

world. The globalization phenomenon is 

supposed to be profitable for all the 

countries of this world but still it has 

been proven that powerful – developed 

and industrialized countries hold a 

considerable advantage in that which

means profits obtained after the 

globalization. As a result the less 

developed countries or in course of 

development have a small level of benefits 

obtained from the globalization. In most of 

the less developed countries the labor force 

is exploited by the multinational companies 

because there the per capita income is small 

and the labor force is very cheap. The 

standard of living has grown very little or 

not at all in the countries that are exploited 

after the globalization, countries such as 

Eastern or South-East Asia, the countries 

from Sahara – Africa. 

By allowing banks to sell whole loans off 

their books, and by distributing risk 

according to the risk appetite of investors, it 

has lowered the cost of lending for all and 

facilitated the extension of credit to new 

borrowers who otherwise would be shut out 

of credit markets. However, as the market 

became increasingly opaque and complex, 

new instruments based on technical 

computer models were wildly traded by 

highly leveraged institutions, many of whom 

did not even understand the underlying 

models. In good times, these arcane instruments 

were sources of enormous profits, but 

their complexity and the lack of any serious 

infrastructure and public information about 

them created a massive panic in the 

financial system that began August 2007. 

1. The Acceleration of Financial Flows 

and of Foreign Direct Investments 

A. Financial Flows 

The most dramatic element of the 

globalization in the last two decades was 

the rapid integration of the financial 

markets. The Bretton Woods system that 

was created after the Second World War was 

at the base of the accounts with closed 

capital and the fixed exchange rates. 

Therefore in contrast with the commerce and 

foreign direct investments where the 

gradual liberalization was initiated, the 

financial globalization was not even on the 

agenda of that time. The world was living 

with a system of separate national financial 

markets. 

This began to change in 1973 with the 

collapse of the Bretton Woods system. But it 

was not an immediate rush in liberalizing 

the capital accounts. This only began in the 

industrialized countries at the beginning of 

523 

the 1980’s with an ulterior increase of the 

capital flows between them. 

As it was mentioned, the global monetary 

system suffered three revolutions, all in the 

same time: liberalization, 

internationalization and innovation. The 

financial liberalization created the 

ecological politics for the extension of the 

capital’s mobility. However the rise of 

capital flows was impelled by the 

informatics revolution and the 

communication technology. This made 

possible the improved and faster knowledge 

of the foreign markets, the worldwide 

development and at any hour of the financial 

transactions and the appearance of new 

financial instruments especially of 

derivatives. 

The tendency towards the financial 

liberalization started even since the end of 

the 1980’s. This varied from simple steps 

such as unifying the trade rates and 

removing the surveillances of the credit 

allocations in the domestic market to the full 

development of the financial system’s 

liberalization that included opening the 

capital accounts. In the developing countries 

the second type of reform was initially 

restrained to a group of countries with 

medium wages, with a relatively larger 

range of activity of the institutions of 

financial intermediary that included the 

obligations and markets with their own 

capital. The action in terms of increased 

private financial flows from North to South 

was concentrated in these developing 

markets. 

These flows consisted of elements such as 

investments in the markets with their own 

capital of those countries by the investment 

accounts (a great deal which was from the 

part of the pension funds), the bank loaning 

the corporatist sector, and short term 

speculative flows especially in the monetary 

markets. Loaning through the international 

bank of bonds has also increased in the 

1990s at the beginning of the financial 


B. Foreign Direct Investments 

At the beginning of the 1980’s, the foreign 

direct investments started to increase 

absolutely as well as percentages from the 

gross domestic product. Even since the year 

1980 the political environment in the entire 

world has favored a lot more the increased

foreign direct investments. Throughout the 

1990’s the number of countries that adopted 

significant measures of liberalization of the 

foreign direct investments grew constantly. 

Indeed many of these hopes were not 

fulfilled. In spite of the rapid flow of growth 

of foreign direct investments in the 

developing countries the investments remain 

concentrated in approximately 10 countries 

of the world. 

Besides their increased volume the nature of 

these investments also changed. The 

informational revolution and the 

communication technology one, associated 

with the decreased transport costs, made 

possible on a multinational level the 

excessive growth of the goods and services 

production on a technical and economical 

level. The production processes could have 

been scattered and located along the globe in 

order to exploit the economical advantages 

that appeared from different costs, the 

salesmen’s availability and the propitious 

character of the investments climate. In 

consequence the components and parts can 

be sent in the entire world and assembled 

according to everyone’s own desire. The 

communication revolution made the 

coordination and control of these dispersed 

production systems possible. 

2. The Technique and Technology – a 

Continuing Evolving World 

The industrialized countries were the source 

of the technological revolution that 

facilitated the globalization but the 

revolution had an effect of a gradual 

influenced growth over the rest of the global 

economy. At some point the new technology 

changed the international advantage 

comparatively making the understanding an 

important factor of production. The 

advanced technology industry and the one 

based on knowledge are the fastest sectors 

that develop in the global economy and the 

successful economical development will 

eventually start to demand for the countries 

to be capable to enter and compete in these 

sectors. This implies that they will have to 

emphasize their investments in education, 

training and in knowledge distribution. 

Technology is the key element nowadays. 

The policy decisions we now take will 

influence future trajectories of technology 

development. Transport technologies, for 

example, have not only made “the world 

524 

smaller” and a more “global” planet, they 

have also resulted in new environmental 

“stress”, especially through increased 

atmospheric carbon concentrations. 

Technology has sped up prosperity for many, 

but it has also allowed extraction of 

resources - fish, timber, metals, minerals, 

etc. - at unprecedented rates, thereby 

placing new and massive pressures on 

stocks. 

Technological solutions will inevitably 

determine the future of globalization as well 

as the global environment. But they will do 

so within the context of global consumption 

demands. Technology cannot change the 

demands or help us satisfy all of them but it 

can, through globalization, help meet these 

demands in a more planet-friendly way. 

The trajectories of the future - as well as the 

technologies available - will be shaped by our 

aspirations of what a “good life” really is. 

The moral and spiritual dimension of 

planetary aspirations may not seem like an 

appropriate subject for policy discussions, 

but it lies at the very heart of the type of 

global society that we want to live in and the 

type of global society that we are 

constructing. 

Security is about protecting people from 

critical and pervasive threats. This ranges 

from the security of nations to that of 

individuals and of societies. 

For “winners” of the process, globalization 

becomes an integrating phenomenon - one 

that brings together markets, ideas, 

individuals, goods, services and 

communications. For the “losers” in the 

process, however, it can be a marginalizing 

phenomenon. 

The dependence within society on each other 

becomes diminished as trans-boundary 

dependence increases. The combined effects 

of globalization regarding marginalization 

can wreak havoc on whatever resilience poor 

communities might otherwise have 

possessed. 

In many ways, climate change is the 

ultimate threat to global security because it 

can existentially threaten security at every 

level from the individual to the planetary. 

Nevertheless there are serious imbalances 

between the North and South in the access 

to information and technology, like in the 

case of transactions and foreign direct 

investments. Almost all the new technologies 

originate from the North where most of the 

research and development processes take

place. This is an important resource in 

dominating the multinational firms on the 

global markets and their power of 

negotiation with regard to the developing 

countries’ governments 

The effects of this new technology have 

spread a lot over the economical domain 

although they are still developing now. The 

same technology that permitted the rapid 

economical globalization was also exploited 

for general use by governments, civil 

societies and individual people. With the 

distribution of the internet, electronic mail, 

low cost international phone services, mobile 

phones and electronic conferences, the world 

has become more interconnected. The vast 

and rapid growth of the information supplies 

that can be from science to general 

knowledge can now allow access from any 

location in the world that is connected to the 

internet. This can be transmitted and 

discussed just as easy. In the same time the 

satellite television and electronic press 

formed the forth veritable condition. 

3. Financial Securitization, an 

Innovation Extremely Beneficial for 

the Credit Markets 

One of the central reasons the current crisis 

has been so severe was that much of the subprime 

mortgage exposure has been 

concentrated in the leveraged financial 

sector. The term “leverage” typically refers 

to the use of borrowed funds to magnify 

returns on any given investment. If asset 

prices are rising, and the cost of borrowing is 

low, then banks will naturally try to 

maximize their exposure to rising asset 

prices by borrowing as much as they can. 

While borrowed funds are central to the 

concept of “leverage,” its definition can 

expand to any instrument through which a 

bank can magnify its exposure to a given 

asset. 

4. Collateralized Debt Obligations 

As the securitization of mortgages 

increasingly became an affair of the private 

financial sector, it spurred further 

innovation in products that in good times 

generated large profits, but have also been 

the source of some of the biggest losses since 

the crisis unfolded in 2007. Collateralized 

Debt Obligations (CDOs) represented a 

further step into the new world of 

525 

securitization that really exploded after 

2000. CDO issuers purchased different 

tranches of “mortgage-backed security” and 

pooled them together with other “assetbacked 

securities” (ABS). The other ABS was 

largely backed by credit card loans, auto 

loans, business loans and student loans. A 

“senior” CDO was made up predominantly of 

the highly rated tranches of MBS and other 

ABS, while “mezzanine” CDOs pooled 

together a higher share of junior tranches. 

Indeed, a CDO essentially re-applied the 

structure of an MBS. A CDO could thus 

further re-distribute the risk of its assets by 

re-tranching and selling off new securities. 

In a seemingly miraculous form of “ratings 

arbitrage,” a middle-sized CDO could pool 

together low-grade junior tranches of MBS 

and other ABS and could convert some of 

them into new senior AAA-rated securities. 

The payment stream of an AAA-rated 

tranche of a middle-sized CDO was thus 

based on junior-rated MBS and ABS. The 

issuers worked directly with ratings 

agencies to structure the CDO tranches so 

that they could optimize the size of highlyrated 

tranches in order to lower the funding 

costs of the CDOs; However, the higher the 

share of senior tranches, the lower the 

subordination and thus protection of those 

tranches. As an additional protection, CDO 

issuers would purchase credit default swaps 

(CDS) or credit insurance to raise ratings on 

the securities they issued. However, when a 

wave of CDO downgrades hit in 2007, many 

previously highly-rated tranches became 

exposed to losses. In practice, therefore, the 

reduced net risk exposure that CDOs 

appeared to embody was mostly illusory and, 

importantly, this second round of 

securitization made it even more difficult for 

investors to determine what risks they were 

actually taking. 

The first CDO was created in 1987 by the 

now-defunct Drexel Burnham Lambert, but 

this security structure was not widely used 

until the late 1990s when a banker at 

Canadian Imperial Bank of Commerce first 

developed a formula called a Gaussian 

Copula that theoretically could calculate the 

probability that a given set of loans could 

face correlated losses. Annual CDO 

issuances went from nearly 0 in 1995 to over 

$500 billion in 2006. As CDO issuances 

grew, so did the share of them that was devoted 

to mortgages: Mason and Rosner 

(2007) tell us that 81 percent of the

collateral of CDO’s issued in 2005 were made 

up of MBS, or about $200 billion total Thus, 

during the last several years of the housing 

bubble, CDOs increasingly funded mortgage 

loans, especially sub-prime ones. 

Indeed, Mason and Rosner (2007) go even 

further to explain the insight that CDOs 

added significant liquidity to, and thus 

helped fuel the demand for, sub-prime 

mortgages and MBS. They estimate that in 

2005, of the reported $200 billion of CDO collateral 

comprised of sub-prime MBS assets 

issued in that year, roughly $140 billion of 

that amount was in MBS. They then use 

figures from the Securities Industry and 

Financial Markets Association to estimate 

that roughly $133 billion in MBS tranches 

were issued in 2005. Thus, CDOs purchased 

more MBS tranches in 2005 than were 

actually issued that year! While these 

estimates are not precise, they make the 

clear case that CDOs provided nearly all the 

demand for lower-grade sub-prime MBS 

during the later boom years, and in so doing 

provided a critical credit source for subprime 

mortgages, fuelling demand and 

bringing the crisis near. 

5. Structured Investment Vehicles and 

Off-Balance Sheet Entities 

One of the constraints on banks and some 

other institutions is that they must meet 

capital requirements, that is to say, they 

must fund a given percentage of their assets 

with shareholders’ capital rather than with 

some form of debt. Capital requirements for 

banks are mandated jointly by the FDIC, the 

Comptroller of the Currency, and the 

Federal Reserve. As we will observe in a 

forthcoming article, since 1989, when the 

international Basel Accord went into effect, 

U.S. banks have had to meet both the Basel 

requirement and a separate U.S. standard. 

Capital requirements lower the profitability 

of the banks, since they limit the extent to 

which banks can leverage any initial 

shareholder investment. 

Naturally, therefore, banks looked for ways 

to circumvent the requirements. The 

favoured means of getting around these 

mandated capital requirements became 

what were known as Structured Investment 

Vehicles (SIVs), an off-balance sheet SPV set 

up by banks to hold MBS, CDOs and other 

long-term institutional debt as their assets. 

By dodging capital requirements, SIVs 

526 

allowed banks to leverage their holdings of 

these assets more than they could on their 

balance sheets. To fund these assets, the 

SIVs issued asset-backed commercial paper 

(ABCP) and medium term notes as their 

liabilities. Because they obtained the legal 

title of “bankruptcy remote,” SIVs could 

obtain cheaper funding than banks could, 

and thus increased the spread between their 

short-term liabilities and long-term assets. 

SIV assets reached $400 billion in July 2007. 

Until the crisis hit in August 2007, this 

business model worked smoothly 

because a SIV could typically rollover 

its short term liabilities automatically. 

Liquidity risk was not perceived as a 

problem, as SIVs could consistently 

obtain cheap and reliable funding, even 

as they turned to shorter term 

borrowing. Technically, the SIVs were 

separate from the banks and hence did 

not add to the banks’ capital or reserve 

requirements. Once the SIVs ran into 

financial trouble, however, the banks 

took them back onto their balance 

sheets for reputation reasons, to avoid 

alienating investors and perhaps to 

avoid law suits. 

6. Impact over the Economic Growth 

A basic step in evaluating the globalization’s 

impact is to look at what happened with the 

economic growth rate globally as well as 

across countries. The amazing factor here is 

that since the year 1990 the global increase 

GDP was slower than in the previous 

decades, the period of the most pronounced 

globalization. At least this result differs with 

the more optimistic prediction about the 

impact of the enhanced globalization growth. 

The growth was also unequally distributed 

between the industrialized countries and the 

developing ones. In terms of increased 

incomes per capital only 16 developing 

countries have grown to more than 3 

percentages per year between 1985 and 

2000. In contrast with this, 55 developing 

countries have grown less than 2 

percentages per year and of these 23 

countries suffered a negative growth. 

At the same time the income difference 

between the strongest and the poorest 

countries has significantly grown. 

This model of unequal growth shapes the 

new geographical world economy. The most 

striking change is the rapid economic growth

in China in the last two decades together 

with a great gradual but significant 

improvement in the India’s economic growth 

achievement, these two countries accounting 

together more than a third of the world’s 

population. 

Even though it is significant, China’s and 

India’s improvement is just a part of an 

image that reveals the unequal distribution 

of the globalization’s benefits between 

countries. The industrialized countries with 

their initial powerful economic base and the 

abundant capital, knowledge and 

technological advantage have been well 

placed in order to earn substantial benefits 

from the increased globalization of the world 

economy. 

Enlarging the global markets for goods 

and services provided new commodity 

markets for their exports while the 

emergence of the global systems of 

production and the liberalization of 

investments rules have generated new 

opportunities for their multinational firms 

thus increasing their area of global activity 

and the market power. Similar to this the 

growth of financial global markets has 

provided increased opportunities for 

investments with larger earnings in the 

upcoming markets. 

On the other extent excluding from the 

globalization benefits the less developed 

countries which includes the majority of the 

countries in the South-Sahara African 

region, remains a stubborn reality. The less 

developed countries are caught in a vicious 

circle of interconnected handicaps that 

include poverty and illiteracy, civil conflict, 

geographical disadvantages, bad government 

and rigid economies much dependent on a 

single base product. In return many are also 

burdened by high external debts and badly 

affected by the continuing decline of the 

primary basic products’ prices. These 

problems were aggravated by the continuous 

protection of the agriculture in the 

industrialized countries. This restricts the 

access to the market while the subsidized 

imports don’t oblige the local agricultural 

producers. 


So if we think better at the price of those 

mistakes on the monetary market, maybe it 

would have been worth the price in terms of 

slower economic growth 2004-2007 in order 

527 

to lessen the collapse we are now going 

through. While it is difficult to know for sure 

if there is an asset price bubble when it is 

happening, the fact that is crystal clear is 

that most careful observers of the housing 

market in 2006 knew that a collapse was 

very possible. Even if McCarthy and Peach 

were correct about there being no bubble in 

2004, there sure was one a couple of years 

later. We now conclude that monetary policy, 

which kept interest rates so low, was one 

reason for the financial crisis. 

Even so, it is a mistake to overstate the 

possible impact that might have resulted 

from different choices. Apart from Fed 

policy, one very important reason interest 

rates have remained low in the United 

States and around the world is because the 

supply of savings has been large relative to 

the demand for funds for investment. 

Because of the globalization of financial 

markets and because of all the money from 

around the world looking for returns, the 

U.S. economy was able to finance its housing 

boom at low interest rates. 

We cannot know exactly what would have 

happened should the issues have been 

approached differently. But it seems highly 

likely that there would have been higher 

U.S. interest rates and less of a housing 

boom. The discipline in the federal budget 

developed in the 1990s was justified, 

correctly, on this basis. Generally, it is better 

to finance investment with savings 

generated at home, but if those savings are 

not forthcoming, it is better to keep 

investing productively and borrow the 

money. Without access to foreign funds, the 

U.S. economy would have invested less in all 

kinds of capital. The problem was the 

diversion of too much investment into 

housing that was not productive at the 

margin. Moreover, foreign investors have 

taken a big hit from their lending to us as 

banks all across the globe have faced heavy 

losses on their assets related to US 

mortgages. 

References 

1) Dinu Marin, Cristian Socol, 2009, The 

Construction of the European Model: From 

the Spontaneous Market to the Market 

Regulation, The 2006 International 

Conference on Commerce, 25 – 26 March 

2006, Academy of Economic Studies

2) Alexandru Manole, 2007, Techniques of 

Turnovers’ Evolution and Structure Analysis 

Using SQL Server 2005, Theoretical and 

Applied Economics - 7/2007 (512) 

3) Anghelache Constantin Silviu, Manole 

Alexandru, „Implementarea sistemului 

software ERP la nivelul unei firme”, Revista 

Economie teoretică şi aplicată-Economistul 

nr. 489/2006, cod ISSN 1221-8669. 

4) Corina Ioanăş, Mirela Nichita, Mihaela 

Gruiescu - „Factors that afect dividend 

policies” Revista „Romanian Economic and 

Business Review” volume 4, number 2, 

summer 2009, ISSN 1842-2497 tip B+ 

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managementului cu raportările financiare”, 

lucrare susţinută la Conferinţa ştiinţifică 

internaţională „Competitivitatea şi 

inovarea în economia cunoaşterii”, Chişinău, 

septembrie 2009 

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Andreica, B. Nitu, R. Andreica, Iunie, vol. 1- 

2, 2008, A New Approach of the Risk Project 

from Managerial Perspective, Economic 

Computation and Economic Cybernetics 

Studies and Research, ISBN: 0424-267 

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Andreica, Nitu, B., Andreica, C., Iunie, 2008, 

Analysis of Alternatives in Early Stages of 

Project Management, Proceeding of the 9 th 

WSEAS International Conference on 

Mathematics & Computers in Business and 

Economics, ISBN: 978-960-6766-76-3 

8) Manole Alexandru, „Unele aspecte privind 

modelul de sistem informatic pentru 

contabilitatea financiara”, Revista Economie 

teoretică şi aplicată-Economistul nr. 

484/2006, cod ISSN 1221-8669. 

9) Manole Alexandru, „Tehnologii OLAP 

pentru exploatarea datelor 

multidimensionale”, Revista Economie 

teoretică şi aplicată-Economistul nr. 

481/2005, cod ISSN 1221-8669. 

10) Popescu Cristina Raluca, Popescu Veronica 

Adriana, Popescu N. Gheorghe, New 

Economy from Supremacy – to the Sudden 

Crisis, Metalurgia International vol. XIV 

(2009), special issue no.12, ISSN 1582-2214 

11) Popescu N. Gheorghe, Popescu Veronica 

Adriana, Popescu Cristina Raluca, 2009, “The 

Global Economy in Crisis” - The Reasoning 

Behind the Diagnosis to the World Economy, 

The Internationl Scientific Session, 

Challenges of the Knowledge Society, June 4- 

5th, 2009, 

http://www.univnt.ro/ro/sesiune_stiintifica.ht 

ml 


Adriana, Popescu Cristina Raluca, 2009, 

Romania’s Economy in the Context of Global 

Economic Crisis. Case Study on the Economic 

Situation in the Agro-Alimentary Sector of 

Romania, The Internationl Scientific Session, 

528 


5th, 2009, 


ml 

13) 2008 - Stanciu Victoria , Ali Eden. Titlu – 

„Auditing operational risk and security in 

banking institutions”. AMIS 2008- 

International Conference Accounting and 

Management Information Systems. Secţiunea 

XIV Audit II . Facultatea de Contabilitate şi 

Informatica de Gestiune, ASE Bucuresti, 26- 

27 iunie 2008, revista Contabilitate şi 

Informatică de Gestiune Supliment/2007, 

B+, ISSN 1583-4387. Cotată Ulrich’s 

Periodicals Directory 

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active involvement in the sustainable 

development”. Conferinţa internaţională 

Performanţa ecologică într-o economie 

competitivă. Bucureşti 2008. Lucrare 

publicată în Supplement of “Quality-access to 

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baza de date EBSCO, ISSN 1582-2559 

15) www.nineoclock.ro 

16) www.zf.ro 

17) www.forbes.com




NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING 

COMPETITIVENESS 

Abstract 

Work nowadays is not and does not have the 

same structure it had, say, 4 decades ago. 

Humans have evolved, science has evolved, 

and technology has evolved, it seems that 

even nature has responded to these 

developments. We can give here the example 

of Japan which in 1995 closed the Kobe 

harbour for 26 months because of an 

earthquake thus disturbing the production 

process of many firms and the examples of 

these natural disasters may continue. 

Nations must provide an environment to 

support the Extended Enterprise model. Also, 

nations can use this model as a tool to 

increase their prosperity. 

Globalization works because the developed 

nations can use their discount structure to 

attract investment, and, at the same time, to 

gain access to technology and knowledge. 

Even the least developed countries have a 

place within the global business 

environment, since the distance was greatly 

reduced by transportation and 

telecommunications. In such a world, even 

perishable products, such as fresh cut flowers 

and vegetables, can be delivered daily in 

Latin America or Africa or in shopping malls 

from America or Europe. 

One of the major risks of the Extended 

Enterprise model is that if a collapse arises 

in “the value chain” from a company 

somewhere in the world, it can spread 

quickly with devastating effects throughout 

the organization. 

POPESCU Veronica Adriana; 


popescu_va@yahoo.com 

POPESCU N. Gheorghe; 


popescu_gh_cafr@yahoo.com 

POPESCU Cristina Raluca; 


popescu_cr@yahoo.com 

529 

The extended enterprise model studied in this 

material shows that the business world 

involves many unknowns that must be taken 

into account. First, is the vulnerability of a 

chain of systems consisting of several 

companies, some of global size and some 

medium-sized or small, and the second is 

about the people involved within these 

structures and how effective they can be 

motivated to do their job as they should. 

Key words: growing competitiveness, 

information, financial security, globalization, 

knowledge. 


It is understood that these firms depend on 

each other regardless of their size, if an error 

occurs in the system all three categories of 

firms will be affected, so the best way to 

prevent the vulnerability is to study the 

market carefully and to find early solutions 

to combat the problems where businesses 

are vulnerable. Of course there are 

situations that can not be prevented in 

advance, as it was the case of the 

earthquakes or other natural disasters. 

The same type of model also implies a 

certain complexity that sometimes makes a 

company difficult to be managed, but there 

are people that are specially trained and 

they are called sophisticated managers and 

they know their field of activity. If we do a 

SWOT analysis of this enterprise model, on

the weaknesses list we may note the 

inefficiency of transactions, not because they 

are being made in an inappropriate manner, 

but because it takes too long with filling in 

the documents, administration and others. 

The Extended Enterprise model requires 

nations certain rules to thrive, among them 

being: speed and efficiency, zero tolerance to 

corruption, special attention to 

infrastructure, efficiency of transactions, 

protection of intellectual property and the 

list could go on. 

The point to be bear in mind is that 

everything is unpredictable and in ten 

years everything could be different 

than it is now, but until then we must 

learn to enjoy the benefits of the 

present structure of labour. 

Both nations and people are affected by 

the developments of the Extended 

Enterprise. People also experience a 

profound change in their working 

environment. In a world without 

boundaries, with assets that can be 

transferred easily from one place to 

another, working daily in an extended 

enterprise is very different. 

Job security is becoming more of a 

concept that disappears - loyalty and 

leadership do not have the same meaning as 

they had two decades ago. 

The purpose of work has changed. Some 

wonder whether competitiveness, as it 

promoted by the Extended Enterprise 

model is indeed a source of prosperity for 

the nation. 

Reorganizing the companies, reintegrating 

processes or relocating the assets and 

activities abroad, does not necessarily mean 

that in this way the prosperity of the people 

that live in the market economy is 

increasing. 

For many, globalization has become a bad 

word. The largest division today is not 

between capitalism and communism, but 

between those who support globalization 

and those who are against it. 

People are less affected by major theories 

than by the changes that take place directly 

within their working environment. 

Individuals have a direct, an even personal 

connection, to their job. 

Within the extended enterprise, the nature 

and structure of work has changed 

drastically. Employees realize they are at 

risk more than ever. Because they do not 

530 

understand why, they feel helpless to 

change. 

In addition, the company's value system 

is changing, placing more emphasis on the 

balance of life at work. 

The emergence of a new business model 

and the change of values lead to a 

situation in which work is now different 

from what it used to be - work is being 

practically “reinvented”. 

1. The Extended Enterprise model and 

the new rules for companies 

As we said before, thanks to the evolution of 

mankind in all respects the labour structure 

has changed as well, evolving into three 

concentric circles. The first circle is the 

“periphery”, and people that are occupying 

jobs within this circle are not very motivated 

to do the best job, those jobs being 

considered “second hand”. The third circle 

is represented by the people who know 

their objectives very well, are paid by 

the quality of their work and are 

motivated to perform their tasks best. 

These jobs are considered real privileges and 

their owners are considered to be privileged, 

but some employees are much stressed. The 

second circle belongs to the 

“independents” - if they can be called so – 

they do not belong in any company and their 

interest is to do their work as well as they 

can in order to cooperate in the future with 

those companies. 

Companies are especially careful to 

balance the cost benefits that are 

increasing the insured investments 

against the risk that a single local 

collapse can seriously interrupt 

operations. 

To cope with the extended enterprise model, 

nations should follow the following rules: 

1) A standard of excellence for 

investments worldwide: A low cost 

transaction does not represent an excuse 

for low quality – there can not be 

changes and compromises in the quality 

of international investments. A bad 

investment can affect the rest of the 

value chain. Nations must ensure an 

environment to support the 

standards required by the 

international investment grades. 

2) A global standard for speed and 

efficiency: Delays are as harmful as 

poor quality. Administrative procedures

must be fast and transparent to avoid 

bottlenecks in operations, which in turn 

hurt the profitability of companies 

worldwide. Nations should be very 

attentive to the speed and efficiency 

in their legislative and 

administrative processes. 

3) Zero tolerance to corruption and 

inappropriate practices: Many 

companies refuse to tolerate such 

unethical practices which are against 

their corporate cultures, and even 

against their national legislation. 

Practically speaking, companies can not 

operate in an opaque environment. They 

are lacking resources, time and skills to 

handle things on this issue. Leaders 

from many developed nations sometimes 

do not realize that for many global 

companies, appreciation is not 

negotiable and the committees must be 

provided in a transparent manner. 

Firms are facing difficulties in their 

attempt to balance the regulatory 

rigidities imposed by their own nation 

(maybe even more expensive) with the 

regulatory fluidity of the host nation 

(maybe also expensive), creating a major 

misunderstanding. 

4) The predictable framework for 

economic policy: Large investments, 

as sites for manufacturing chips or cars, 

are the investment of billions of dollars. 

A firm can not commit to such a level of 

investment, especially if it has a critical 

value in “the value chain”, if the local 

environment can become excessively 

moody, volatile and unpredictable. 

Companies can adapt and operate in 

almost any environment as long as the 

rules of the game are clear and stable in 

order to plan in advance their 

operations. 

5) Special attention to infrastructure: 

The assets must be transported through 

an efficient network that includes 

highways, railways, ports and airports. 

6) The efficiency of transactions: The 

efficiency of transactions is built on an 

advanced technological structure that 

supports traffic information. New 

management techniques such as ERP 

(Enterprise Resource Planning) or 

CRM (Customer Relationship 

Management) depend on the existence 

of a sophisticated communications 

infrastructure. When investing, firms 

531 

want to be sure that they can rely on 

integrated, fast and efficient 

transactions with official government 

channels, such as those related to taxes, 

finance, customs and immigrations. 

7) Protection of intellectual property: 

A network of partners can work 

effectively if all its members can share a 

similar level of knowledge, technology 

and management. Science, as property 

held by one or more partners, “flows” in 

the system and the owner’s rights must 

be protected. 

8) Security of foreign and personal 

assets: The assets and installations of 

foreign companies increase the target of 

political motivated assaults, especially if 

the brand is associated with country of 

origin. We can mention, in this sense, 

the assets of companies such as 

McDonald's, Coca Cola and HSBC, which 

have been the target of extremist groups. 

These companies refuse to send their 

employees and their families in countries 

they consider unsafe because they may 

be targets of violence. There are jobs in 

countries like Nigeria or Colombia that 

are still difficult to fill because of 

security factor. Such problems become 

extreme in war zones such as Iraq or 

Afghanistan, where kidnappings of 

foreigners have become common. In 

contrast, China, Japan and Singapore 

have focused on protection of business 

and foreign individuals. 

9) Support for small and medium 

enterprises: Providing support and 

promotion should encourage the local 

SME (i.e., small and medium 

enterprises) to develop the necessary 

skills and to enter the global network of 

enterprises. 

10) Emphasizing the role of education. 

The Extended Enterprise model needs 

“sophisticated” and talented people on 

every level of the organization. Global 

companies grant a considerable amount 

– between 3% and 5% of their income - 

for training and developing their 

workforce. 

The idea is that the implementation of the 

enterprise model has led to the emergence of 

new types of working relationships. Also, the 

relocation of physical and personal assets, 

controlled by the central enterprise defines 

the extended enterprise. The goal of most 

companies, especially those located in the

exchange market is to maximize profits, 

using as few physical assets and human 

resources. 

2. The structure of the Extended 

Enterprise Model in the 

Globalization Age 

The work structure has evolved in three 

concentric circles, due to the work 

place, the way work is carried out and 

its relations with the central enterprise. 

This new structure of work is complex 

and vaguely defined, because it keeps 

evolving. Companies make adjustments to 

the model, correcting the mistakes as soon 

as they occur. 

Within the extended enterprise, the centre of 

the company has the main knowledge 

regarding the key processes of the company. 

Conventionally, the best paid jobs are 

more likely to find within the centre of 

the enterprise rather than at its 

periphery. The employees from the central 

enterprise identify themselves with the 

enterprises’ objectives and also with the 

corporate culture and are more likely to 

develop long term careers. 

Certain jobs must not be carried out within 

the location of the central enterprise, these 

jobs being mobile jobs. Sales agents are the 

perfect example for this type of job. 

However, labour is not something that 

can be moved freely from one place to 

another, without consequences for the 

firm or company. Some changes in the 

work and relations structure must be 

decided and implemented carefully, because 

these changes have a strong 

psychological effect not only on 

employees but also on organizations. 

A strategy of “cut-costs” is not always the 

best way to get a work structure which is in 

fact increasing the company’s 

competitiveness. One can reach following 

undesirable situation: people and 

processes can be destabilizing, and thus 

it can lead to a very strong and deep 

impact on the minds of employees - 

those who remain and those who leave - 

and on the ground structure of the 

company. 

3. Supply Chain Management versus 

Customer Management 

532 

Companies must carefully balance the 

management of the two distribution 

channels - direct and indirect – and the 

impact on final customers. We give here the 

example of Hewlett Packard, who was a 

pioneer in developing an effective channel 

strategy. Today more than 80% of its sales 

come from indirect channels. Another 

example is Dell, which has proved very 

effective in using technology to create a 

“direct model”, which directs distributions 

and sales straight to the final consumers. 

Migrating from one channel to another 

is not easy; it can lead to increased 

aggression in terms of sales in the 

existing channels and to seriously 

increased tensions between partners if 

they lose profitable business. 

Most companies develop a strategy using 

both channels in parallel, but they are 

faced with the dilemma of defining the types 

of sales that are better made and by which 

channel. 

3.1. New strategies for the supply chain 

management 

Technology has increased the number of 

choices of available channels to reach 

customers as new business models arise. 

a) The simplification strategy: Great 

companies are trying to get rid of as 

many intermediaries as possible between 

the original vendors and final customers. 

PC companies like Dell, airports 

companies like Easyjet and Schwab for 

banks, are aiming at this type of 

simplification strategy. The significant 

reduction of distribution costs and 

turning to customers’ savings by 

directing the services is the key to this 

strategy. 

b) The re-intermediation strategy: Reintermediation 

occurs when a service 

provider is caught in the middle between 

the seller and the buyer. A company 

involved in this strategy comes between 

the central company, or the traditional 

distributors and the final customers to 

ensure a high quality service. Companies 

like Amazon.com, Yahoo!, eBay and 

lastminute.com are examples of such 

companies - they provide services to 

multiple partners on a common platform 

of consumers. 

c) The reverse auction strategy: 

reverse auction reverses the sale

process. In traditional sales, a seller 

specifies a price to a buyer and maybe, 

after some negotiations, the sale is 

made. In the process of reverse auction 

the buyer sets the minimum and 

maximum price for a particular product 

or service and invites vendors to compete 

to meet the lowest price possible below 

the price that was previous set. The 

sales from the reverse auction manage, 

in an increase rate to obtain large 

quantities of standardized products, 

such as supplies, food, and/or technology, 

especially in the “business to business” 

(B2B) platforms. 

Thanks to the revolution in business and 

technology processes, supply chain 

management is highly effective. When a 

company receives an order, generally it 

knows what to do with it and can carry it out 

effectively. The same level of efficiency does 

not apply for another part of the model – it 

could be used more in obtaining similar 

production profits generating new and 

repetitive orders, as well as improving 

customer relations. 

In many companies, the difference in the 

sophisticated process of handling both 

sides of the model is striking, while 

supply chain management is often very 

advanced, customer management is still 

lagging behind. 

3.2. New strategies for customer 

management 

It is one thing to find customers, and is 

something else and more importantly, 

to keep them in a long term 

relationship. Repeated relationships are 

cheaper to obtain and maintain in 

comparison to those of a new client. 

In most cases, large companies maintain a 

closer relationship between the central 

company and the consumer while remaining 

true to the three golden rules. 

The extended company: 

a) Understands the customer's business 

model and how to interfere its own 

value chain with the customer’s 

value chain; 

b) Identifies the most profitable 

customers determining which of 

them brings the greatest value to his 

company. 

533 

c) Maintains long-term relationship 

with the customers so as to benefit 

from repeated business. 

It should be noted that the size of the 

supply chain model is more productive 

than the part regarding the long-term 

relationship with the customer. 

Technology allows us to identify customers 

individually, better than ever. The objective 

is to recognize a certain type of behaviour 

and a buyer profile. The “One to One” 

marketing, as it is called, allows a company 

to target its key customers, to exploit its 

maximum and best potential. The aim is also 

to get rid of bad customers, to find out which 

are the customers on which money is spent, 

without too much profit. 

In this case, the 80 to 20 principle shall 

apply: 80% of the sales are generated, in 

general, by 20% of the consumers. 

A. Being competitive by developing 

equality of customers 

Being competitive requires developing 

equality of customers: a portfolio of loyal 

and dedicated customers who have a long 

term relationship with the company. 

Therefore, we mention the following ways to 

be considered by companies: 

� Firms should lead carefully the 

customer database. 

� Companies should remain in contact 

with the customers, even when they 

are not working on an important 

business, thus maintaining an open 

relation and creating the possibility 

of repeated sales. Repeated sales are 

more profitable than “cold selling”. 

B. Being competitive by creating a 

product “wrapped” in a service 

Being competitive means creating as well 

a product to present and then sell to 

customers as a service. Few are those who 

sell products from a single category. A 

product always comes “wrapped” in a 

service, the key components of customer 

being the product itself and the services that 

come together with the product. The system 

must be treated as a whole. The product 

itself must obey the imperatives of quality 

and cost efficiency. “The wrapped”, in other 

words, the service around the product, 

must express a rewarding experience to the 

customer. Lack of satisfaction of many

customers today, derives not from defective 

products, but from bad services around the 

product. 

One example is that of the types of close 

relationships within the private banking 

industry, which are set between the bank 

and its customers. Efficient managers 

develop a privileged and confident 

relationship with their clients for many 

years. They know everything about their 

business, their families, their financial 

statements, and about their private lives. 

They often become business partners and 

personal confidents. When bankers leave one 

bank for another, their clients usually 

follows them. The employment companies 

recognize their superior value not only by 

paying the newcomer bankers a salary, but 

also by giving them a contribution to health 

or a reward for the number of loyal 

customers that they bring with them. 

C. Being competitive requires 

simplicity 

Being competitive means also to act 

according to some simple rules that are 

as transparent as possible and easy to 

understand. 

Technology enables companies to have 

much better knowledge about the customers 

that lead to a “one to one” strategy that 

target promotions for the exact needs of each 

individual. 

Another example is that of Amazon.com, 

which keeps track of the sales made by the 

consumer and actively promotes particular 

products that match the buyer profile of each 

consumer. 

The idea to keep in mind here is that the 

Extended Enterprise model can become 

complex and sometimes difficult to 

manage. Sophisticated managers are 

able to conduct such operations. They should 

be skilful within the management process 

and able to conduct relations with a network 

of business partners. 

For the extended enterprises the 

reduction of business producers 

represents a priority. Partners in this 

model of business relationships are a 

common system that is transparent and 

easy to manage, allowing decisions to 

be implemented quickly, and this reduces 

the risk of collapse. 

534 

Lately, customers want a simple and 

profitable experience when buying a product 

or a service. 

We recall in this respect companies 

Amazon.com, Dell and Easyjet that have 

well-known models, and whose success 

factors cover their availability, speed and 

low cost. These companies are also 

successful because customers find their 

business models easy to understand and 

manage. Therefore, buying a book or a CD 

from Amazon, buying a computer from Dell 

or buying a ticket from Easyjet is very 

handy. 

The conclusion is that simplicity can be a 

very competitive advantage. So, being 

competitive also means to operate as simple 

and understandable as possible to 

customers. 


Modern technology, particularly IT and 

telecommunications technology, has 

made such a business model possible. Some 

transactions may be performed 

automatically. Systems like Epos create a 

link between the inventory of the shelves in 

a store or a customer’s warehouse and the 

adequate suppliers. The vulnerability has 

developed from the fact that the human 

factor is still present in many 

transactions. 

Transactions have increased the number of 

office and administration operations within 

large and international companies. 

A business model of the extended 

enterprise must be led and controlled 

by the centre. Since transactions are the 

source of inefficiency and collapses, most 

companies are monitoring closely and 

creating incorporated backup systems. As a 

result, companies draw new prices, the same 

as the multitude of financial controls, 

auditors, accountants and granting officials 

that infiltrate in the system. In addition the 

government increased the complexity of 

transactions due to the deviations from the 

law, regulations and procedures, which now 

companies must obey. 

Companies that operate under the principles 

of extended enterprise model have unleashed 

considerable productivity gains for 

themselves. 

The model is based, in fact, on increasing 

productivity through better working

methods, such as quality and producing 

without resources. 

The model was further boosted by coupling 

better work techniques with saving 

opportunities offered by globalization. In an 

open world, limiting activities wisely, one 

can lead to significant cost advantages. 

It should be noted however, that the 

enterprise model is more refined upstream, 

when it refers to interacting with the 

procurement of supplies and/or 

manufacturing, rather than downstream, 

when it refers to sales, generating orders 

(i.e., the speed of the transactions), 

customers’ satisfaction or services after sale. 

In addition the model depends on the 

transaction, which usually can be a source of 

vulnerability, and sometimes they can be 

ineffective. Thus, complexity and risk of 

becoming very extensive remain imminent 

for the model that needs to be fixed. 

Altering the business model will have 

profound consequences for the other 

representatives of the competitiveness of a 

nation – the state and the population. 

Enterprises as a primary source of 

competitiveness create short waves through 

the social system which changes anytime its 

operating models. Extended enterprises have 

changed drastically the work strategies and 

they expect people to accommodate them. 

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ml 


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11) www.zf.ro 

12) www.forbes.com




CENTRAL BANK MONETARISM TO KEYNESIAN GOVERNING 

IMPULSES 

Abstract 

Dissenting opinions have appeared as to the 

main objectives of stabilizing prices, reducing 

the unemployment rate and implementing 

monetary, budgetary, social, salary and other 

interwoven policies. These divergent 

standpoints have been adopted by different 

opinion poles concerned with maintaining 

their independent positions. 

For the European Central Bank (ECB), price 

stabilization, conditioned by the success of all 

economic and social policies, especially with 

reference to unemployment reduction and the 

reduction of other budgetary deficits, is 

regarded as condemnably lax. 

Policies are an answer given to monetarist or 

Keynesian theories. These references – 

approached in the present paper – are more 

or less explicit, acknowledged or created by 

central banks and governments. 

Key words: monetarist policies, Keynesian 

policies, monetary mass, credit based 

economy, market financial economy, M3 

monetary aggregate, exchange market, 

directory interest rate. 


European Central Banks maintain an 

orthodox monetary policy thanks to the 

rights they used to have before their recent 

joining the economic and Monetary Union. 

At the same time, governmental directions 

are determined by the unpredictable 

economic context and their electoral success. 

Nevertheless, governmental orientations led 

to the signing of the EU Stability and 

Growth Pact, which is bound to be applied 

directly. 

RĂDOI Mădălina-Antoaneta; 


aolteanu@univnt.ro 

OLTEANU Alexandru; 


aolteanu@univnt.ro 

536 

On the other hand, ECB is concerned – for 

achieving its objective of stabilizing prices in 

the Euro zone countries – with avoiding 

budgetary deficits, on the basis of the 

harmonious economic policy of the member 

states. 

That is why we have approached in the 

present paper the dominant conflicts that 

exist nowadays between governments and 

Central Banks, conflicts that are regarded as 

a current problem, while noticing that in 

particular circumstances these dissenting 

positions may become convergent. 


1. Theoretical Essentials of Monetary 

Orthodoxy 

Classic and Neoclassic Analyses set up the 

theoretical essentials of monetary analysis. 

Price evolution control is accomplished by 

controlling the monetary mass. 

Before these analyses were made, empirical 

studies, which lacked any theoretical 

approaches, outlined the connections 

existing between price evolution and the 

currently used currency. This connection 

appeared in the XVIth century, when the 

high rise of prices in France, e.g., led to the 

Bodin-Malestroit controversy. 

Jean Bodin was not a forerunner of the 

quantity monetary theory. In his “Answer to 

the Malestroit paradoxes”, which is an 

outline of such an analysis, Jean Bodin did 

not make any reference to this theory. 

Basically, he does not state that monetary 

tendencies exclusively act upon prices and 

not upon transactions. He belongs to the 

classics’ group that elaborated the first 

versions of such theories. David Ricardo

(1810) agreed with the “Currency School” 

theoretical approach. This school regards 

money circulation as the fundamental cause 

for an excessive bank notes issue and also as 

the basic supporter of integral convertibility 

of the bank notes into gold. 

According to this principle, provided in the 

Peel Act, 1844, England, only a small 

amount of the circulating bank notes was 

not converted into gold. Ricardo’s 

quantitative theory is well rendered by the 

exposed exchange equation created by Irving 

Fisher in the 1920’s. 

In the equation M = PT, Ricardo brought 

into evidence M’s incidence and monetary 

availabilities over P, which is the medium 

price level. Ricardo did not take into account 

the speed circulation currency. 

Many authors improved the quantity 

currency theory. Marshall and Pigon 

replaced the similarities implied by the 

Fisher transactions with the ones implied by 

monetary collections. However, the activities 

performed by Milton Friedman (1956) are 

incontestable. Milton Friedman has revealed 

the influences determined by the monetary 

fluxes over the price evolution. Milton 

Friedman’s theoretical approach is a 

reference point in monetary orthodoxy. 

For Friedman, inflation stands at the basis 

of currency origin. Price control is 

accomplished by controlling the monetary 

mass. It is important for price control to 

avoid governmental influence so that 

progress may be compatible with price 

stability. Currency must be protected by 

from governmental intervention and all the 

discretionary policies – as Friedman points 

out in his theories. This is the only 

possibility for the Central Bank to be 

independent. 

2. Relationships between ECB and Euro 

zone governments 

The main objective of the ECB is to ensure 

price stability. The answer is given by two 

poles: controlling the monetary aggregate 

rise – M3 and a composite pillar constituted 

by a series of economic and financial indices 

(securities and exchange market), which 

allow the assessment of price evolution 

approaches. 

For achieving European monetary unity, the 

relationships between ECB and the Euro 

zone governments were tense for 

governments did not intend to sanction an 

537 

economic increase that was already weak by 

restrictive budgetary measures. 

Public finances deviation, existing especially 

in France and Germany, is strongly 

criticized by the European Central Bank, 

which lacks the instruments necessary for 

applying the Stability Pact in the two states 

that, actually, initiated it. 

At the beginning of May 2005, in contrast to 

the requirements reiterated by several 

politicians and also by IMF, ECB refused to 

reduce the directory interest rate, 

pretending that “rate reduction is not an 

option”. Unless it had a worrying evolution 

as to the increasing unemployment in EU, it 

is obvious that ECB would not expect an 

accommodative policy to be implemented in 

the situation in which it would imitate 

American federal Reserves in their 

increasing the directory interest rates. 

Under these circumstances, all the relaunching 

policies, identified as Keynesian, 

seem to be inappropriate. 


Convergent Points between 

Governments and Central Banks 

All central banks aim at price stability and 

regard this as their main role. This was the 

case of the French and German Central 

Banks before the monetary unification. On 

the other hand, US Federal Reserves aim at 

more ambitious objectives: they do not 

confine to achieve price stability, but 

attempt to ensure economic growth. This 

might involve a weak currency if the price 

paid for encouraging growth and using 

workforce is determined by a medium 

inflationist risk. 

Two situations –totally opposed – are worth 

being mentioned. In France, prior to the 

monetary unification, policies convergence 

was exercised as a restrictive one, according 

to the monetary doctrine. However, in the 

USA, during 2001-2004, deliberately lax 

policies were applied in monetary and 

budgetary matters. 

(A) Objective: fight against inflation 

Some pretend that applying very restrictive 

monetary and economic policies leads to the 

triumph of the unique judgment. This was 

the case of France whose policy was second 

rated in comparison with the German one

implemented before the setting up of the 

ECB and the Euro zone. 

Despite the divergences existing between the 

French Central Bank and its government, a 

predominantly convergent opinion was 

formed when it became necessary to fight 

against inflation, fight which was followed 

by adopting an appropriate policy by the 

Manroy – Delors II, in 1983, after the three 

devaluations of the Franc in 1981, 1982 and 

1983. 

During the period that preceded the 

European Monetary unification, the French 

Bank statutes stipulated – as a main 

objective – the fight against inflation, which 

involved the acquiring of two secondary 

objectives: controlling M3 monetary 

aggregate and creating a strong currency. 

The control and evolution of monetary 

aggregates was a guarantee of success in the 

fight against inflation and, thus, the 

dissenting evolutions existing among the 

monetary mass and the prices evolutions 

were contested. The “currency directed 

against using the work force!” was 

denounced by the detractors of this policy. 

An aggressive interest rate was introduced 

by means of central banks in the 1990s, 

when economy penalization was forced and 

perverse effects were induced. 

The monetary mass counterpart – consisting 

of “the receivables over economy” - clarified 

the accusations brought against it thanks to 

the price flexibility offered for the numerous 

borrowing requirements. 

Managers and companies forced the 

reduction of the lending they offered. 

On the other hand, the directory interest 

rate reduction initiated by the French 

Central Bank and, consequently, of the 

debtors’ and creditors’ rate, implemented 

with the help of commercial banks, modified 

the behaviors and led to a serious 

restructuring of the economic agents’ 

monetary patrimony. The adoption of the 

regulated interest rate (the rate for saving 

bank-books, long-term savings …) instead of 

the market interest rate inverted the normal 

hierarchy existing between short term 

interest rate and long term interest rate, 

while large fiscality favored economic agents 

who invested on a short term in negotiable 

receivables and monetary securities of the 

Collective Investment Securities Bodies. 

The debtors’ interest rates may be modified 

as to the marginal efficacy of the capital for 

538 

companies prefer to receive negotiable 

securities. 

For a while, their purchase was predominant 

on the monetary market. 

The reallocations of the patrimony were 

considered important by the French Bank 

which took them into account when it 

amended the restructuring of the monetary 

aggregates and also when it analyzed total 

internal loan (TIL) - regarded as target 

aggregates in the replacement of the M3 

monetary aggregate. 

Consequently, a strong currency 

underestimates import prices and it is also a 

factor which favors disinflation, at the same 

time offering prestige to the state in which it 

circulates. 

The reaction of the public power and the 

Bank of France – which attempted to defend 

the Franc – appeared when the exchange 

rate crisis occurred in August 1933. This 

reaction was contrary to the one of the 

Italians and the British who, a year before, 

adopted the European Monetary System 

Exchange Mechanism before giving up the 

lira and the pound. The French reaction was 

favored by the application of swap 

agreements between the French Bank and 

the Bundesbank, the latter being an open 

gate for the loans that were meant to 

support the French currency by buying 

Francs on the exchange markets. 

The necessity to unify the convergent 

criteria in order to take part in the European 

economic and monetary Union favored the 

application of the orthodox economic and 

monetary policies. In order not to create a 

clash between governments and their 

political convictions made the states, 

particularly France and Germany, to 

conclude the Stability and Growth Pact. 

Such an agreement could not have been 

approved by the central banks of the 

Economic and Monetary Union (EMU). The 

convergence between central banks and 

governments existed before the European 

monetary unification. 

(B) Objective: fight against inflation and 

ensuring economic growth 

The famous independence of the US Federal 

Reserve is well-known. However, the Federal 

Reserve has not applied a monetary policy 

that conformed to the presidential will. 

Nevertheless, quite recently it has 

manifested as a defender of the value of the 

dollar, while regarding the concerns of the

American central banks as secondary. 

Consequently, the Federal Reserve has two 

objectives. 

Like all the issuing institutions, the Federal 

Reserve favors price stability but, equally, it 

takes into account the American economic 

growth objective. It presents a very 

important difference in relationship with the 

ECB status. 

Subsequently to the 2001 USA events, all 

the economic and monetary policy levers 

worked to encourage economic growth and 

unemployment prevention. 

An “accommodative monetary policy” 

Between 2001 and June 2004, the US 

Federal Reserves initiated 30 reductions of 

the main directory interest rate, the funds 

federal rates, and the inter-banking rates 

that had a lesser value after 1958, 

respectively of 1%. This represents the 

“accommodative monetary policy”, according 

to the expression used by Greenspan (the 

former FED president), and it refers to 

economic re-launching and the fight against 

unemployment. 

While protecting economic growth, the 

change of the monetary policy, partially 

operated in June 2004, determined the 

Federal Reserve to increase its interest 

directory rate “in a measured rhythm”. At 

3%, followed by eight successive raises of a 

quarter of a point, the funds federal rate 

became 2%, without favoring the dollar’s 

return on the exchange markets. 

A major budgetary deficit: 

Since inflation was not threatening, public 

finances deficits did not manifest themselves 

as an alarming war either to the executive 

power or to the Federal Reserve. These 

attitudes were not surprising, the dollar 

remaining the key currency, which 

unfortunately disappeared after the Bretton 

Woods that became public after the 1996 

Jamaican agreements. 

A weak dollar 

A strong dollar on the exchange markets 

favored American exports. They represented 

the engines for re-launching the USA. 

However, these attempts were discouraged 

in April 2005 by the extraordinary deficit of 

the commercial balance. 

Despite the important deficits, the Federal 

Reserve maintained its accommodative 

policy for the directory interest rate until 

539 

June 2004. Consequently, all this time, 

inflation did not seem worrying; it appeared 

as a mechanic effect of import higher costs 

alongside with the American currency 

depreciation which was lowered by reducing 

the prices invoiced by the US foreign 

suppliers who wished to protect outlets. 

The serious financial crisis starting in 2008 

determined to a massive Keynesian 

intervention of the state in economy, which 

led to a strong depreciation of the dollar, the 

concerning growth of unemployment and 

inflation. The Federal Reserve successively 

reduced the directory interest rate – which 

at the beginning of September 2009 was 0.25 

– 0% - in order to stimulate credit activity, 

consumption and economic growth. The 

Central European Bank also reduced the 

political monetary rate with 0.5% in 

September 2008. 

Monetarists and economists accused Alan 

Greenspan (the former FED president) of 

having reduced the interests to a minimum 

level between 2001 and 2004 in order to keep 

economy running and a low unemployment 

rate. Central Bank officials had recognized 

for a long time that it is not cautious to 

reduce interests in order to keep a low 

unemployment rate because the immediate 

consequence is an inflationary spiral. 

The aggressive reduction by the FED of “the 

rates under the natural level” has 

contributed to the appearance of the crisis. 

The Swedish economist Knut Wicksell 

defined “the natural level” in 1920 like this: 

“the interest at which – the whole domestic 

economy – the wished investments are equal 

to the wished savings, without involving 

pressures upward on the prices for 

consumption and resources or for salaries, 

when the aggregated demand surpasses the 

offer, or downward pressures when the offer 

surpasses demand”. 

Although we can say that Greenspan 

policies, formulated at the beginning of the 

2000’s, were wrong, we cannot state that he 

aggressively reduced the interest rate under 

its natural level. In fact, he failed in 

monitoring the market and omitted to 

increase the rate over the natural level to 

generate unemployment and to avoid the 

financial-real estate bubble.


The policies formulated and applied by the 

Central Banks and Governments were 

implemented by clarifying oppositions 

existing between these policies. Central 

Banks claimed to be independent in applying 

monetary policy, away from political games. 

Each of these institutions express their 

views from a political point of view which 

separate them, while Central European 

Bank expresses its ever growing regrets for 

the flexibility of the Stability Pact. The 

opposition existing between Governments 

and Central Banks is not immutable, 

however. Without establishing an exhaustive 

chronicle of the complicated relationships 

between Central Banks and Governments, 

they seem to be two symbolical cases of 

opposition between the two institutions with 

more frequent occurrences. One cannot 

exclude the emergence of convergent 

analyses and policies at present, these 

reconciliations could belong to Governments 

or Central Banks. 

References 

1. J.M. Keynes, The General Theory of 

Employment, Interest and Money, 

Reprinted in Keynes, Collected Writing, 

vol. 7, 1936, book I, Chapter I. 

2. David Ricardo, The High Price of 

Bullion. A Proof of the Depreciation of 

Bank Notes, London John Murray, 1810, 

Chapter I. 

3. Banca Nazionale del Lavaro, “European 

Monetary Union: the Transition to Single 

Currency”, Ed. BNL, Roma, 1996. 

4. Cukiermann Alex, “Central Bank 

Strategy. Credibility and Independence”, 

Cambridge, Mass. The MIT Press, 1992. 

5. Olteanu Alex, Rădoi Mădălina 

Antoaneta, „Politici si strategii naţionale 

şi comunitare în domeniul financiarbancar”, 

Ed. Dareco, Bucureşti, 2007. 

6. European Central Bank, „Monetary 

Policy Transmission in the Euro Area”, 

Monthly Bulletin, Tuly, 2000. 

7. Bank of England, „The Transmission of 

Monetary Policy”, 2000. 

8. Milton Friedman: 

9. „Studies in the Quantity Theory of 

Money”, University of Chicago Press, 

1956. 

10. The Optimum Quantity of Money”, 

Aldine Tranzaction, 2005, cap. II. 

540




FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS 

University Lecturer Liviu Radu, PhD 

University Lecturer Carmen Radu, PhD 

Nicolae Titulescu University, Bucharest, Romania 

Faculty of Social and Administrative Sciences 

lgradu2005@yahoo.co.uk 

Abstract 

At the present, Romania is 

confronting more than ever, from January 1, 

2007, the moment which marked its 

integration and Bulgaria’s in the European 

Union, with the globalization phenomenon 

and all its positive and negative influences. 

At the beginning of the financial crisis in 

2008, Romanian economy had been through 

a quite favorable period, of some years of 

economic growth, but accompanied by the 

increase of short-term external foreign debt 

and by the accumulation of a raised external 

deficit. The banking sector (which dominates 

the Romanian financial market) has evolved 

in an encouraging way in the crisis’ first 

manifestation period, resisting many external 

pressures. The deterioration of the 

international economic and financial 

environment in 2008 and 2009 has 

manifested increasingly powerful and the 

medium term economic evolutions are 

marked by high global and national 

uncertainties. The external economic climate 

influences Romanian economy by: worsening 

the risk perception (including by comparison 

with the regional economies’ evolutions); 

contracting the external sales markets; 

difficulties in the external financing; 

doubling the liquidity risk with that of 

economic solvency and not in the least, 

reducing the foreign direct investments. For 

Romania it is essential that the annual 

increase rate of foreign direct investments 

grows constantly. This paper aims at 

analyzing the influence of the economic and 

financial crisis, started in the year 2008 in 

the global and Romanian economy, over the 

direct foreign investments. 

Keywords: international financial 

crisis, multinational corporations, 

globalization, flows of foreign direct 

541 

investments, banking and financial sector, 

international economic system. 

Introduction 

The foreign direct investments are 

an important factor which directly influences 

an economy’s potential for a sustainable 

development growth. 

The development of foreign 

productive assets, based on some initial 

transfers of complex resources – FDI, can be 

traced back in humanity’s economic past, 

routs which remind us, for example, of the 

14 th century Hanseatic League or the British 

Dutch and Eastern Indian Companies from 

the beginning of the 17 th century, which 

were real precursors of the modern 

transnational corporations [1]. As it’s known, 

the Hanseatic League was contributing to 

Poland’s agricultural development, 

England’s sheep raising, Sweden’s iron 

production [2]. Nonetheless, a significant 

role of the foreign worldwide investments 

can only be mentioned starting with the last 

decades of the 19 th century. 

Until the Second World War started, 

the capital movements were associated with 

the great population displacements from 

Europe to America and especially consisted 

in portfolio investments. Between 1914 and 

1918 the first companies with transnational 

aspirations started to take shape [3], 

consequently 20 companies had already 

reached a high level of transnationalization, 

such as Saint-Gobain, Solvav, Nestle, Ciba, 

Siemens, Hoechst, Texaco, Kodak, 

Westinghouse. 

In spite of all this, the interwar 

period had not represented a special stage in 

international investments’ evolution. The

great economic crisis (1929-1933), which 

affected the United States and furthermore 

Europe, led to adopting economical policies 

which especially concerned the internal 

market. Therefore, establishing the currency 

control, trade barriers, currency 

depreciation, and prices cartels have affected 

the external investment phenomenon, 

mainly the portfolio investments. 

From a historical perspective, the 

flows of foreign direct investments (FDI) 

reached a new period within the 

international investments after the Second 

World War, when the United States made 

massive investments in Western Europe’s 

reconstruction. 

The most significant flows of foreign 

direct investments, statistically recorded at 

the end of the 20 th century, took place in the 

9 th decade. According to UNCTAD’s annual 

rapports regarding FDI’s international 

market, it can be observed that in the period 

1980-1990, FDI grew four times with an 

average annual rate of 15%. In the period 

marked by the most accelerated growth in 

the 9 th decade, that of 1983-1989, the annual 

average rate was that of 29%, three times 

larger than the one recorded by the global 

exports of material goods and services and 

four times larger than the one reached by 

global production. Transnational 

corporations represent genuine monopolies 

in the global bank financial system, making 

foreign direct investments of over 200 billion 

dollars and controlling of over half the 

activity of the global trade of goods and 

services. 

Therefore, we can affirm that the 

existence and development of transnational 

corporations represents a sign of changes 

(managerial, technological and human), 

initiated and imposed by these but also 

recognized by the countries in which these 

corporations extend their activity. In this 

respect, the recent dispute widely publicized 

in the Romanian and German press, that 

started from the transfer of the finish Nokia 

corporation’s production activity from the 

German city Bochum in Romania, near Cluj 

(Jucu locality), represents the best example 

in this case. In conclusion we can affirm that 

through the scale of events the transnational 

corporations can cause certain reactions both 

from the origin countries and especially from 

the host countries, which are motivated dew 

to the infusion of direct foreign investments 

flows realized by these corporations. 

542 

In the context of the actual financial 

crisis, the FDI flows are recording obvious 

falls, but, in the same time, promoting 

foreign direct investments can help global 

economy and national economies to relaunch 

the economic growth. 


The role of foreign direct 

investments in the economical development 

has been widely debated in the economics 

theory, the specialized literature has 

received competent responses from many 

famous authors, who have analyzed the 

activity of transnational corporations as 

main sources of foreign direct investments, 

among which are John H. Dunning 

(Multinational Enterprise and the Global 

Economy, Governments, Globalization and 

International Business, Global Capitalism, 

FDI and Competitiveness), William 

Northaus (Managing the Global Commons: 

The Economics of Climate Change) or Ngaire 

Woods (The Political Economy of 

Globalization). At the level of international 

organizations, the phenomenon of foreign 

direct investments is periodically analyzed 

(the global Bank, Centre European Bank, 

UNCTAD – the Global Report of 

Investments etc). In Romanian economical 

literature there are distinguished special 

contribution from the researchers Costea 

Munteanu and Alexandra Horobet, Finante 

transnationale (Transnational finances); 

Anda Mazilu, Transnationalele si 

competitivitatea – o perspectiva esteuropeana 

(Transnationals and 

competitiveness – an eastern-European 

perspective), Foreign direct investments and 

the increase of Romanian economy 

performance, in „Romania in contextul 

integrarii europene si globalizarii” (Romania 

in the context of European integration and 

globalization); Anghel Ion, Investitiile 

straine directe in Romania (Foreign direct 

investments in Romania); Misu Negritoiu, 

Salt inainte – dezvoltarea si investitiile 

straine directe (A step forward – 

development and foreign direct investments) 

as well as Liviu Voinea, Corporatiile 

transnationale si capitalismul global ( 

Transnational corporations and global 

capitalism).

1. Evolution of foreign direct 

investments on a global level, before the 

manifestation of the economical crisis’ 

effects 

1.1. States’ competitiveness in 

attracting foreign direct investments 

The situation of regional flows 

distribution does not provide details 

regarding the main factors which lead to the 

un-localization of production; however it 

provides only the whole picture over the 

FDI Attracting 

Performance Index 

The FDI Attracting Potential Index 

classifies countries in accordance with their 

potential for absorbing direct investments. 

This index quantifies the structural factors 

which tend to modify extremely slow, which 

generates a relatively stable value of the 

index on a short term. The FDI Attracting 

Potential Index comprises eight variables, 

considered as key factors for attracting 

FDI Attracting 

Potential Index 

UNCTAD has attempted to combine 

the two indexes, thus creating a world state’s 

typology. The classification of the countries 

depending on both the Performance Index 

and the Potential Index leads to the 

following matrix [1]: 

� countries with high performances in 

respect with the foreign direct 

investments and with high potential 

(“front-runners”). In this category there 

are included over 40 countries, among 

which developed countries (France, 

Sweden, Switzerland, Belgium and 

Luxemburg), Asian countries (Hong- 

Kong, Singapore), countries in Latin 

America (Brazil, Chile); 

= 

= 

evolution of foreign direct investments’ 

flows. In this respect, in order to establish 

the national economies’ competitiveness and 

potential in attracting external direct 

investments, UNCTAD has calculated two 

indicators, namely: FDI Attracting 

Performance Index and the FDI Attracting 

Potential Index. 

According to the FDI Attracting 

Performance Index, countries in which the 

index has a value larger than 1 (>1) attract 

external direct investments higher than 

expected, compared to their relative 

economic power. 

Share of the FDI flow in a country within the 

global flows / Share of the economy in the 

global GDP 

foreign direct investments: GDP/inhabitant, 

share of the exports in the GDP; real annual 

GDP growth; number of phone lines per 1000 

inhabitants; consumed energy per 

inhabitant; share of the research and 

development expenses and the growth in 

gross national revenues; share of students in 

the higher education system in the total 

number of population and the country risk. 

(Value of the country variable – Minimum 

value of the variable worldwide) / (Maximum 

value – Minimum value of the variable 

worldwide) 

543 

� countries with high performances in 

respect with foreign direct investments 

and with low potential (“above-potential 

countries”). In this category there are 

included most poor countries, without 

powerful industrial grounds and without 

stimulant structural factors, but which 

have been successful in attracting 

foreign direct investments; 

� countries with low performances in 

respect with foreign direct investments 

and with high potential (“bellowpotential 

countries”). In this category 

there are mostly included developed or 

relatively industrialized countries which 

have not recorded significant FDI 

inflows, according to their economic

potential, due to unfavorable or 

traditional investments policies (Italy, 

Japan, Korea, Taiwan), or due to 

unfavorable investments policies, social 

factors or low competitiveness. In the 

last mentioned category there have 

lately been included USA and the 

developing countries abounding of 

capital, such as Saudi Arabia. However, 

there must not be let aside that this 

index does not consider the portfolio 

investments, which are sometimes 

significant; 

� countries with low performances in 

respect with foreign direct investments, 

and with low potential (“underperformers”). 

In the said category there 

are included poor countries which for 

economic or other type of reasons do not 

benefit of the advantages of 

international production as economic 

growth factor (Algeria, Cameroon, 

Kenya, Turkey, Pakistan etc). 

Chart 1. The 2003* countries classification matrix after the performance and potential 

index 

FDI with high performances FDI with low performances 

front-runners below-potential economies 

FDI with 

high 

potential 

FDI with 

low 

potential 

Bahamas, Bahrain, Belgium and 

Luxemburg, Brunei, Botswana, Brazil, 

Bulgaria, Chile, China, Costa Rica, 

Croatia, Cyprus, Czech Republic, 

Denmark, Dominican Republic, 

Switzerland, Estonia, Finland, France, 

Hong-Kong, Hungary, Ireland, Israel, 

Latvia, Lithuania, Kazakhstan, Mexico, 

Holland, Panama, Portugal, Qatar, 

Singapore, Slovakia, Slovenia, Spain, 

Sweden, 

Vietnam 

Trinidad-Tobago, Tunisia, 

Argentina, Australia, Austria, Belarus, 

Canada, Germany, Greece, Island, Italia, 

Iran, Jordan, Japan, Kuwait, Lebanon, 

Libya, Malaysia, Malta, New Zeeland, 

Norway, Oman, Philippines, Poland, 

Korea, Russia, Saudi Arabia, Taiwan, 

Thailand, United Arab Emirates, USA, 

Ukraine, United Kingdom. 

above-potential economies under-performers 

Albania, Angola, Armenia, Azerbaijan, 

Bolivia, Columbia, Ethiopia, Ecuador, 

Gambia, Georgia, Guyana, Honduras, 

Jamaica, Mali, Morocco, Mongolia, 

Mozambique, Nigeria, Peru, Romania, 

Syria, Namibia, Nicaragua, Tanzania, 

Congo, Moldova, Sudan, Macedonia, Togo, 

Uganda, Zambia. 

Algeria, Bangladesh, Benin, Burkina 

Faso, Cameroon, Columbia, Ivory Coast, 

Egypt, Salvador, Gabon, Ghana, 

Guatemala, Guinea, Haiti, India, 

Indonesia, Kenya, Kyrgyzstan, 

Madagascar, Malawi, Nepal, Niger, 

Pakistan, Paraguay, Papua New Guinea, 

Rwanda, Senegal, Sierra Leone, South 

Africa, Sri Lanka, Surinam, Tajikistan, 

Turkey, Uruguay, Uzbekistan, Venezuela, 

Yemen, Zimbabwe. 

Source: United Nations – UNCTAD – “World Investment Report 2005. Transnational 

Corporations and the Internationalization of R & D”, New York and Geneva, 2005, page 

25 * the data are limited to 2003 dew to the unavailable data for 2004, for the Potential 

Index 

What conclusions can be drawn from 

this analysis? For the high performances 

countries in respect with foreign direct 

investments and with high potential, 

intending to remain important receivers of 

foreign direct investments, the issue is to 

maintain their competitiveness in order to 

attract FDI. Under-performers will have to 

improve the aspects regarding their 

544 

investments environment, whilst the 

countries oscillating between the last 

mentioned ones and the economies which are 

above average will have to make efforts in 

order to rapidly create competitive potential 

allowing them to attract investors.

1.2. Global foreign direct investments 

flows 

At the present moment, in the world 

economy three major power pillars are 

structured, known as the so-called “Triad”, 

around which groups of countries gravitate, 

connected to various economic relations, 

sometimes preferential or integration 

focused. 

From the data presented in figure 1, 

we can notice two major tendencies with 

chances for long term maintenance, which 

require deep implications towards the 

globalization and integration process of the 

global economy: the relative approach of the 

share owned by the most developed countries 

in the global stock of foreign direct 

investments; the realization of a superior 

level of combining the developed economies’ 

capital on an international scale. 

In order to invest abroad it is 

necessary for companies to have capitals and 

exceeding accumulations which could be 

profitably invested in other countries where 

the conditions are favourable. To these 

factors the reasons which determine the 

developing countries to invest beyond their 

national borders can also be added. These 

factors can be grouped as it follows [4]: 1. 

Market related factors, which consider that 

increased dependency on the internal 

markets represents a risk for modern 

corporations, such that more and more 

corporations will occur in the developing 

countries which will intend to develop their 

activity abroad. 2. Factors regarding the 

ever increasing production cost in the 

internal economies of the developing 

countries. 3. Factors which depend on the 

competitive pressures in the developing 

countries, which determine such to expand 

beyond national borders. And finally 4. 

factors regarding governmental policies 

applied in the host countries, policies which 

could be, even on a relatively short term, 

more attractive than in the developing 

country under discussion. 

Figure 1 Global flows of foreign direct investments, the first 20 economies, 

2004-2005 a (billions of dollars) 

A) foreign direct investments inflows) B) foreign direct investments outflows 

Source: UNCTAD, World Investment Report 2006 

The developed countries investments 

have reached in 2005 the amount of 542 

billion dollars, with an increase of 37% 

compared to 2004, whilst in the case of the 

developing countries, investments reached 

the highest level ever – 334 billion dollars. 

As percentage, the share of developed 

countries increased slightly, representing 

545 

59% of the global foreign direct investments 

inflows. The share of developing countries 

was of 36%, whilst Eastern Europe and the 

Independent States Community represented 

approximately 4%. 

Great Britain recorded an 

investments inflows increase of 108 billion 

dollars, reaching the amount of 165 billion

dollars, and thus becoming the largest FDI 

beneficiary in 2005. Despite the decline it 

faced in respect with investments, the 

United States of America was the second 

large receiver of foreign direct investments. 

In respect with the developing economies, 

the list of the larger FDI beneficiaries, 

compared to previous years, remained 

stable, with China and Hong Kong (China) 

leading the top, followed by Singapore, 

Mexico and Brazil (see figure 1). On a 

regional level, the European Union, by its 25 

members (in 2005) represented the favored 

destination, with inflows amounting to 422 

billion dollars, representing almost half of 

the global total. South Asia, Eastern and 

South-Eastern Asia received 165 billion 

dollars, or the fifth part of the global total, 

the amount received by the Eastern Asian 

sub-region representing approximately three 

quarters of the entire region. The next 

position is of North America, with 133 billion 

dollars, and of Central and South America, 

with 65 billion dollars. Western Asia 

recorded the largest increase in the direct 

investments inflows (85%), representing 34 

billion dollars. Africa received 31 billion, the 

largest FDI inflows in this region so far. 

Figure 2 The FDI intra and inter-regional flows in the developing countries, excluding 

the financial offshore centers, media 2002-2004 (millions of dollars) 

Source: UNCTAD, World Investment Report 2006 

In Africa, the foreign direct 

investments inflows have grown from 17 

billion dollars in 2004 to 31 billion dollars 

(unprecedented number) in 2005. 

Nevertheless, the percentage of the region in 

the global FDI remains small, around 3%. 

South Africa was the largest beneficiary of 

investments, receiving approximately 21% 

(6.4 billion dollars) from regional inflows, 

mainly dew to the ABSA acquisition (South 

Africa) by Barclays Bank (United Kingdom). 

Egypt was the second largest receiving state, 

followed by Nigeria. The 2005 foreign direct 

investments inflows in Africa were directed 

especially towards natural resources, oil in 

particular, although the services as well 

represented an important destination. The 

high prices of the consumer goods and the 

high demand for oil led to an expansion of 

546 

the exploitation activities in a series of 

African countries, including Algeria, Egypt, 

Equatorial Guinea, Libyan Arab Jamahiriya, 

Mauritania, Nigeria and Sudan. The 

multinational corporations in the United 

States and European Union have continued 

to dominate the industry, but a series of 

MNC from developing countries, as for 

example CNOOC in China, Petronas from 

Malaysia and ONGC Videsh from India are 

extending more and more in Africa. The total 

value of the FDI’ s which entered in six 

African oil-producing countries – Algeria, 

Chad, Egypt, Equatorial Guinea, Libyan 

Arab Jamahiriya, Mauritania, Nigeria and 

Sudan - is of 15 billion dollars, which 

represents approximately 48% of the region 

entries in 2005.

The foreign direct investments 

inflows in the South, East and South-East of 

Asia reached 165 billion dollars in 2005, 

representing 18% of the global inflows. 

Approximately two thirds were destined to 

two economies: China (72 billion dollars) and 

Hong-Kong (36 billion dollars). The South- 

Eastern Asian region received 37 billion 

dollars, the first position of the top being 

held by Singapore (20 billion dollars), 

followed by Indonesia (5 billion dollars), 

Malaysia and Thailand (each with 4 billion 

dollars). The South Asia capital inflows were 

a lot smaller (10 billion dollars), although in 

some states it increased significantly, India 

registering the larger level in its history – 7 

billion dollars [2]. 

The countries in Southern, Eastern 

and South-Eastern Asia continue to open 

their economy in order to receive FDI. 

Important steps were made in 2005 in this 

direction, especially in the services field. For 

instance, India receives at the present 

moment FDI in the single-brand commerce 

or in constructions, whilst China increased 

its geographic restrictions over the foreign 

banks and foreign tourism agencies 

operations. Several measures have also been 

taken in order to meet the concerns 

regarding the trans-borders mergers and 

acquisitions in countries such as Republic of 

Korea. 

Southern, Eastern and South- 

Eastern Asia are also becoming FDI sources 

(amongst the developing countries), with 

investments which reached 68 billion dollars 

in 2005, which meant a decrease of 11% 

compared to 2004. However, the capital 

outflows from China increased and are 

expected to further increase. Many of the 

countries in the region accumulated large 

foreign reserves, which could lead to an 

increase of FDI outflows. Amongst the most 

recent investments made by the companies 

in the region are the 2006 acquisition by 

Temasek (Singapore) of 11.5% of the 

Standard Chartered shares (Great Britain) 

and the 2005 taking over by CNPC (China) 

of Petrokazakhstan. China and India 

persistently intended to purchase oil related 

assets and in some cases they even 

collaborated [2]. 

The foreign direct investments 

outflows on a global level reached 779 billion 

dollars (the figure is different from the 

estimated inflows of foreign direct 

investments because of the various manners 

547 

in which countries gather and report data). 

Developed countries remain the main source 

of such outflows. In 2005, Nederland 

registered capital outflows in the form of 

investments amounting to 119 billion 

dollars, followed by France and Great 

Britain. The role of developing and 

transition economies as foreign direct 

investments sources is increasing. 

Insignificantly low until the middle 80s, 

investments flows coming from these 

economies reached 133 billion dollars last 

year, corresponding to a share of 17% in the 

global total. 

1.3. Foreign direct investments in 

Romania before the beginning of the 

crisis 

The evolution of FDI inflows received 

by Romania, in the period 2004-2006, 

reflects an unprecedented increase of the 

external investment activities, which 

strongly contrasts with the tendencies from 

the previous period. Comparing the average 

of FDI flows from the years 2004-2006, with 

the average of those received in 2001-2003, 

we will notice an increase of 4 times their 

volume, in the case in which the foreign 

direct investments’ flows received by 

Romania have reached the highest level, 

estimated to 9,08 billion EUR in 2006 

(according to NBR’s information[5]). 

Although under the terms of foreign direct 

investments stock attracted by our country 

until the year 2005 – the value of over 20 

billion EUR – the disparity while compared 

to other new state-members of the European 

Union is still very obvious (Poland – 70 

billion EUR, Hungary – 52 billion EUR, 

Czech Republic: 50 billion dollars). In this 

context, the dynamics of the foreign direct 

investments in Romania from the last years 

indicates a remarkable increase of 

Romania’s attractiveness as a destination 

country for the decisions of the great 

national corporations in locating foreign 

direct investments. 

In the same context, the UNCTAD 

(UNCTAD, WIR 2005) documents classify 

140 countries in the world under an index of 

foreign direct investments performance for 

the year 2004, using a movable average of 

the statistical data recorded over a period of 

three years. In this classification, Bulgaria 

obtained the best place, being placed on the 

12 th position. Croatia and Romania are on

the positions 33 and 35, Albany being on the 

42 nd and Macedonia on 72, while Bosnia 

Herzegovina and Serbia Montenegro are not 

included in the classification [6]. 

The inflows under the form of 

foreign direct investments (FDI) in Romania 

have gone over 9 billion EUR in 2006, have 

financed 86% of the value of the current 

account deficit. Without the amounts of 

privatization, the finance becomes 69%, in a 

slow increase compared to the previous years 

(Figure 3.). 

Figure 3 FDI structure and the financing of the current account(CA) through FDI 

Source: RNB(2007), Report on the financial stability- 2007, page 55 

Romania attracted in the year 2007 a volume of foreign direct investments of 7.25 billion 

EUR (Figure 4). The majority of the foreign investments come from greenfield projects, 

considering the fact that the great privatizations were concluded. 

548

Figure 4: FDI flows evolution in Romania between the years 2003-2007 

Relating to the Growth Competitiveness 

Index and to the Business Competitiveness 

Index, our country was on the 50 th place 

until the year 2003 and in 2005 on the 33 rd , 

considered to be a country in which, 

Source: RNB – Report over FDI 2008 

although the foreign direct investments’ 

value reached high rates, no opportunities 

existed on improving the national potential 

in the investors’ vision 

Figure 5: FDI in Romania at 31 of December 2007 – on countries of origin 

Contrary to the data mentioned 

above, the Romanian economy continues to 

present a relatively low level of 

competitiveness, in European context, 

Source: RNB – Report on FDI 2008 

549 

Romania attracts smaller investments per 

capita, compared to other countries in the 

region, due to the absence of a transparent 

framework and an emphasized regional

competition. The competitive disparity 

towards the other countries members of the 

EU cannot be ignored because the European 

market is important for Romania. Even if in 

the last years a continuous opening of the 

external commerce has been registered, 

Romanian exports are still not diversified 

enough. This is half caused by the fact that 

only few Romanian enterprises have 

innovative activities based on research for 

their products’ and services’ development. A 

closer look over Romania’s main exports 

easily reveals that the majority are products 

of the traditional sectors. On the Romanian 

economy level there are few industries that 

intensively use innovative technology, of last 

generation. Consequently, Romania needs to 

set as a strategic priority the maintenance 

on a high level of the competitive advantages 

of developing the capacity and competences 

of the exporting sectors, by attracting local 

and foreign investments, of creating an 

efficient economy capable to develop in the 

conditions of free commerce on a more and 

more global market. The foreign direct 

investments represent a source for capital, of 

know-how, technologies and managerial 

capabilities which stimulate economical 

growth. 

2. Foreign direct investments’ evolution 

on a global level after the manifestation 

of the economical crisis’ effects 

2.1. Global flows of foreign direct 

investments in the period 2008-2009 

The period 2000-2008 represented a 

continuing increase of the foreign direct 

investments. In the developed countries the 

FDI flows have decreased slower (-17%) than 

550 

the inflows. The United States maintained 

their position of the largest unique FDI 

source, followed by France and Japan (with a 

growth of 74% of the FDI flows) [7]. 

Generally, the flows from the developing 

countries continued to grow, reaching 293 

billion USA dollars in 2008, with important 

variations of achievement. From the 

developing and transition economies the 

biggest three sources of foreign direct 

investments were Hong Kong (China), The 

Russian Federation and China, which were 

ranked as the top 20 investors in the world. 

A major factor that contributed to the FDI 

global increase was the massive withdrawal 

on a global level of the great transnational 

corporations’ investments. Starting with the 

middle of the year 2008, these withdrawals 

outlasted the FDI gross flows in a series of 

countries. Significant in this context was the 

fact that approximately 30% of the crossborder 

mergers and acquisitions during the 

year 2008 and in the first half of the year 

2009 implied selling the foreign branches to 

other companies. 

Thus the cross-border mergers and 

acquisitions (a major growth source of FDI in 

the period before the crisis) have increased 

as the financial markets’ blockage took place 

in the second part of the year 2008. 

Politics are an important factor in 

attracting FDI in the European South-East 

region and NIS and most of the political 

changes were more favorable to the foreign 

investors. Some countries continued to 

liberalize some regulations referring to FDI 

in a series of sectors, such as the energy 

industry in the Russian Federation, but 

opened for a partial foreign participation 

other domains such as the banking one, 

retail sales and telecommunications in 

Belarus.

Chart 2. South-East Europe and NIS: FDI flows in the selected countries 2008-2009, on 

trimesters 

(millions of dollars) 

Source: UNCTAD, Global Report of Investments 2009: Transnational Corporations, 

Agricultural production and development 

Figure 6. Global FDI flows in the period 2007-2008 

Source: UNCTAD, Global Report of Investments 2009: Transnational Corporations, 

Agricultural Production and Development, annex table B.1 and FDI/TNC , 

(www.unctad.org/fdistatistics ) 

551

The international financial markets’ 

situation has strongly deteriorated since 

September 2008, along with the bankruptcy 

of the American investment bank, Lehman 

Brothers Inc. The level of trust from the 

participators on the financial markets 

dropped considerably and the risk premiums 

have increased to high levels. The interbanking 

market’s functioning was severely 

affected; the banks with excessive liquidity 

were reluctant to lend the surplus to other 

banks. This situation intensified in 

September 2008, severely affecting the 

global economical growth as well. The 

forecast of the economical advance on an 

international level for the year 2008 and of 

3.2 percent is estimated to be replaced by a 

decrease of 1.3 percent in 2009 (IMF, WEO 

April 2009). First, the financial crisis 

affected especially the developed countries. 

The risk aversion from these countries still 

passed on rapidly to the emerging areas and 

Central and Eastern Europe were more and 

more affected. 

Unfortunately, the amplitude and 

intensity of the financial-economical crisis 

were underestimated by authorities from the 

entire world. The uncertainties regarding 

the following evolutions are large. 

2.2. Foreign direct investments in 

Romania in 2008-2009 

The decrease in the level of foreign 

investments in our country is part of the 

international trend, where for 2009 it is 

estimated that the value of investments is 

fewer than 1200 billion dollars, compared to 

the 1700 billion dollars registered in 2008. 

The negative effects over Romania are 

caused by the contraction of the 

international sales market, increasingly 

difficult external financing (with all the 

considerable contributions and loans of the 

IMF and EU) and by the restraining 

activities of the great corporations operating 

in Romania. A special case is represented by 

Renault – Dacia, which benefited by the 

determined growth of orders due to the auto 

park’s renewal politics in the West-European 

countries. 

Romania’s region entered an area of 

high economical risk, our country being 

affected in its turn and the negative regional 

influences are manifesting more strongly. 

The forecasts for the regional economies are 

552 

negative: economical declines are 

generalizing (except Poland), transnational 

companies are reducing their investments 

and unemployment is approaching 10%, 

current account deficits are rising, fiscal 

deficits are significantly increased. More and 

more states feel they need agreements 

regarding international finance with The 

International Monetary Fond. 

The end of 2008 manifested through 

a strong decrease of foreign direct 

investments (FDI), according to the 

information provided by the National Bank 

of Romania (NBR). In December the 

investments registered only 384 million 

EUR, the smallest monthly volume of FDI in 

the year 2008. However, the large flow of 

foreign capital that entered in the previous 

months, generated a total FDI of 9.02 billion 

EUR, throughout the entire year of 2008. 

The areas that attracted the highest number 

of investments projects remained the 

automotive and auto components industry, 

construction materials industry, IT domain, 

electronic industry, wood industry, the sector 

of non-conventional energy and of services. 

Romania was situated in 2008 on the 

tenth position in the European Union, with 

foreign direct investments received from 

other state members (8.1 billion EUR) and 

on the 14 th position on the EU level, after the 

foreign direct investments received from 

outside the Union (0.8 billion EUR). 

In the year 2009 the foreign direct 

investments dropped with 47.9% in the 

period January – July, amounting to 3.097 

billion EUR, compared to 5.948 billion EUR 

in the similar period of the year 2008 

(according to information from the National 

Bank of Romania). 

From the total of the investments 

made in 2009, the participations on the 

capital represented 41.2%, the intra-group 

loans 48.6% and the reinvested profit 10.2%. 

Furthermore, according to the NBR 

information the foreign investments from 

this year have totally covered the current 

account deficit of 2.72 billion EUR. At the 

end of July, the foreign investors have 

realized investments of 2.894 billion EUR, 

with a decrease of over 42% compared to the 

same period of the year 2008. 

Conclusions 

The international business 

environment of the last 2 years has 

manifested through a strong financial

instability and massive governmental 

interventions in hopes of economical 

recovery. Concerning the public politics’ 

protectionism towards the great 

investments, modifications are noticed to be 

generally favorable to the legislation and 

national regulations in the FDI domain (over 

110 new measures- from which 85 are 

favorable to foreign investors). 

The actual global crisis has 

determined the reduction of the 

international production of goods and 

services, offered by the 82,000 transnational 

corporations and by the 810,000 branches of 

theirs, which function on global grounds. At 

the transnational corporations’ level there 

have registered decreases in profit, capital 

withdrawals, massive layoffs, restructurings 

and even bankruptcies. 

The economical activity in the main 

partner states of Romania has diminished in 

2009, causing a decrease in the national 

consumers trust and thus affecting the 

external goods demand. Consequently, 

Romanian exports’ sales markets are 

negatively influenced and the exterior 

commerce domestic firms encounter great 

difficulties in their activity. The national 

currency depreciation is a factor which 

modifies these difficulties. 

In spite of the crisis’ negative 

effects, the transnational corporations have 

continued through their branches to 

represent a major economical force (10% of 

the global GDP and 78 million employees). 

The UNCTAD reports estimate a gradual 

recuperation of the FDI inflows in 2010 

(around 1400 billion dollars) and a more 

substantial increase in 2011 (an estimation 

of 1800 billion dollars). 

References: 

[1] Ghibutiu, Agnes (Coord.), Mazilu, A. Pencea 

S., et alias (2001) - tTendinte iin reglementarea 

amultilaterala a fluxurilor tinternationale de 

servicii ssi de tinvestitii directe (Tendencies in 

the multilateral reglementation of international 

flows of services and direct investments). 

Incidente asupra integrarii Romaniei in Uniunea 

Europeana (Incidents on Romania’s integration in 

the European Union), Romanian Academy, The 

Global Economy Institute, Bucharest; 

[2] Dunning, J. H. (1993), “Multinational 

Enterprise and the Global Economy”, Edison- 

Wesley Publishing Company, Wokingham, 

England, pages 97-98; 

553 

[3] Wilkins Mira and Franko G. Lawrence (1970) - 

The Emergence of Multinational Enterprises, 

Harvard Press; 

[4] United Nations – UNCTAD – “World 

Investment Report 2005. Transnational 

Corporations and the Internationalization of R & 

D””, New York and Geneva, 2006, page 25; 

[5] NBR (National Bank of Romania) (2007), 

Directorate of Statistics, Payment Balances 

Statistics; 

[6] UNCTAD (2005) – World Investment Report 

2005, New York and Geneva, 2005; 

[7] Global investment report 2009: Transnational 

corporations, agricultural production and 

development, annual study of the UNCTAD- 

United Nations Conference on Trade and 

Development- regarding the investment trends. 

(www.unctad.org/fdistatistics )




DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION SYSTEM - A 

NEW INSTITUTION CONSTRUCTION WHICH ENTAILS EFFICIENCY 

AND EQUITY? 

Author: Roman Mihaela, PhD student at the National School of Political Studies and 

Public Administration, 2 nd year of study, political studies 1 

mihaela.roman@gmail.com 

Decentralization of pre- 

University education system is a topic 

on the Romanian public agenda, in the 

context of launching the new education 

law project in March 2010 - the law 

into force was adopted 15 years ago - 

which proposes a series of radical 

measures on the organization and 

operation of the system by transferring 

administrative and financial powers 

onto the school and local authorities. 

The International Conference of 

Economics and Administration ICEA- 

FAA 2010 is the appropriate framework 

of discussions between researchers, 

scientists, experts and students from 

all branches of economy and 

administration, adding international 

experience to Romanian perspective, an 

idea that addresses issues such as 

education, administrative 

decentralization and local government 

altogether. The question that I am 

launching with this scientific debate is: 

"Is the new institutional construction 

emerging from decentralizing the 

school education system leading to 

efficiency and equity?" 

The institution that brought to the 

forefront of public attention the need 

for public administration 

decentralization in Romania, but also 

the need to speed up the education 

reform is the presidential institution. 

The Presidential Commission for 

Analysis and Elaboration of Education 

and Research Policies in Romania was 

incorporated in 2007, and made a 

diagnosis on the current status of 

Romanian research and education. The 

Commission’s report conclusions point 

out that the Romanian pre-university 

education system is a centralized one, 

even as we speak, funded on nontransparent 

criteria, schools have no 

contribution to the construction and 

implementation of the budget and the 

budget is not linked to the educational 

policy priorities. Centralization makes 

it difficult for school and students to 

get closer to the community, it does not 

encourage civic participation and social 

responsibility. The Commission’s report 

qualifies the educational system as 

inefficient and inequitable. 

1 1 Beneficiary of the project “Doctoral scholarships supporting research: Competitiveness, quality, and cooperation in the 

European Higher Education Area”, co-funded by the European Union through the European Social Fund, Sectorial 

Operational Programme Human Resources Development 2007-2013 

554

The results of students’ international 

evaluations rank Romania below the European 

and the international average and inequity 

between rural and urban environments is 

high. The proposed solution to the problems of 

efficiency, quality and social equity is the 

decentralization of the educational system, 

which “gives school the opportunity to regain 

its central role and prestigious position within 

the community.” Bringing Romanian 

education to the public agenda made all the 

stakeholders sit around the negotiation and 

debate table: the Presidency as an institution, 

the Parliament, the Government, the Ministry, 

education establishments, teachers, students, 

parents, civil society, trade unions, academia, 

experts outside the political environment, etc. 

Thus, the necessary framework for coherent 

and long-term measures was created and the 

consensus on the objectives a new education 

law should reach, including decentralization 

was expressed by signing a National Pact for 

Education in 2008. 

Decentralisation involves the transfer 

of administrative and financial competence 

from central public administration to local 

public administration or to the private area in 

order to provide the citizens with better public 

services which shall better meet their real 

needs. The principles of decentralization refer 

to the minimum measures that must be met so 

that it may be efficiently organized, namely: 

competence performed by the citizens’ closest 

authority, ensure adequate resources to 

transferred competences, achieving quality 

standards in the service performed by 

authorities, rendering them responsible and 

ensuring all local community citizens’ access to 

the services provided. 

Decentralization, efficiency and equity 

are among the principles governing the pre- 

University education system under the new 

law. Decentralization includes both the 

administrative and financial component. 

From the administrative point of view, 

the new law proposes schools to be run by a 

Board of Administration comprising the 

representatives of the teachers, local council 

and parents, one third each. The Board of 

Administration will organize the competition 

for the school principal position and will sign a 

management contract therewith. I think this 

measure will settle a very good relationship 

between all these school decision makers 

which will be beneficial both to the school and 

the students. A new competence transferred to 

555 

the local authorities is to organize the school 

network. In terms of curriculum, 

decentralization has two components: 20% 

School Decision Curriculum for gymnasium 

school and 30% for high-schools and the 

curriculum to the teacher’s disposition who 

will decide how to use 25% of the time for each 

subject. The curriculum also offers the 

opportunity for local community and 

associations and employers to get involved in 

the education act. 

The financial decentralization of the 

system will be conducted on three levels: basic 

funding, complementary funding and 

additional funding. Basic funding shall be 

provided from the state budget and consists of 

the standard cost per student / preschooler and 

will go directly into the school’s account. 

Complementary funding is provided on 

different categories of expenditures and shall 

be managed by local authorities. Additional 

funding is a way of awarding excellence that is 

- schools with outstanding results in terms of 

inclusion or school performance. Education 

establishments may also be self-funded. The 

new funding mechanism will be supervised by 

the ministry and the county school 

inspectorates. 

Starting with the general principles of 

public educational policies, decentralization 

should lead to increased education quality, 

efficiency and equity of the educational 

system. Decentralization as a solution to the 

system malfunction shall solve the 

administrative and financial issues, but will 

the newly proposed institutional framework 

solve the efficiency and equity problems? How 

will we measure the effectiveness of the 

educational process and the equity of the 

educational system? 

I believe that the public debate at the 

International Conference of Economics and 

Administration ICEA-FAA 2010 will bring 

new and more objective and documented 

approaches and perspectives on the measures 

proposed by the new education law in Romania 

to achieve the objective of decentralizing the 

pre-University education system and unlike 

any other debates in Romania attended by 

decision makers directly concerned with the 

outcome of these proposals, this meeting is 

attended by researchers, scientists and 

specialists with extensive expertise in economy 

and administration involved in the process of 

reorganizing the system.




CHALLENGES FOE A GLOBAL ACADEMIC RANKING 

Abstract 

Universities’ ranking is the nowadays major 

subject mainly for mass media. A deep 

analyze show that it is difficult to draw up a 

fare ranking system because of diversity of 

education units, the handling with teaching 

and research activities in the same time and 

the new transformation of training system. 

More, the relations with mass media must be 

handled to avoid false messages towards 

population and public funds administrators. 

IREG has started a good practices’ 

dissemination and the works for a 

methodology in organizing a ranking tool 

that might be general admitted. The 

conclusion of Astana meeting and their 

implementation in Romania are presented 

too. 

Key words: ranking, ranking methodology, 

hierarchy, IREG. 

The universities ranking is a “hot” subject 

not only in Romania. It is generally admitted 

that the strong high education system is a 

key of a competitive economy, the goal that 

every country and people is looking for, 

mainly during a global economic crises like 

the nowadays’ one. Is a ranking system an 

issue? How can such a system supply an 

advantage in the global competition? For 

small countries, such as Romania, with a 

relatively young university net, still under 

reconstruction after being for half a century 

into the Soviet domination with a socialist 

structure looks like obvious to count itself 

among the ones in the top. Unfortunately 

none of the global universities ranking count 

any of the Romanian universities among the 

first 500’s. A close look on the subject has 

relieved interesting views that are less 

known in our country. The new education 

law (still a project when registering this 

paper) claims to introduce the ranking of 

ROTARIU Ilie; 

“Lucian Blaga” University of Sibiu; 

Ilie.rotariu@ulbsibiu.ro 

556 

universities with the direct effect of 

enlarging or restricting the access to public 

funds for students’ training. 

Ranking the universities is a wide approach 

and several bodies of operating procedures 

public regularly their own ranking among 

the world universities. We have not found 

the will to be among, and a technical 

approach was carried out in order to check 

the subject. IREG Observatory on Academic 

Ranking and Excellence, an association with 

the declared goal in global ranking, is 

finalizing a methodology and procedures for 

audit system of university rankings. Their 

last conference in Astana (June 2009) and 

the next one in Berlin (October 2010) allow a 

technical and competent approach of the 

ranking subject. As ranking principles are 

less know by almost all the universities 

communities this paper intend to advocate 

the IREG’s principles in order to start a real 

and professional debate on universities 

ranking. 

The 23 interventions presented in Astana by 

well known specialist in high level education 

all round the world have allow a synthesis 

that might offer a real view on ranking and 

its implications and might lead to the 

decision that more Romanian universities 

will join the ranking process. 

Any member of the academic community is 

ready to acquire more information on 

ranking system. He is also aware of existing 

ranking list that are published periodically 

as well as the general principles behind 

them. The literature in the matter is few, 

and rare in Romania. 

The IREG group transformed itself into an 

international non-profit association IREG 

Observatory on Academic Ranking and 

Excellence in October 2009, and registered 

in Brussels under the Belgian law. The 

proceedings of its 3 international conferences

and the presentation and the debates during 

Astana conference has supply the 

information that underlies the ideas of this 

paper. The subject was analyzed by several 

specialists with different cultural 

background and relevant experience, 

representing the Jiao Tong University in 

Shanghai, China, Directorate General for 

Education and Culture, European 

Commission, Belgium, U.S. News & World 

Report, USA, Research Evaluation and 

Bibliometric Data, Thomson Reuters, 

Elsevier, the Netherlands, Center for College 

Affordability and Productivity, Ohio 

University, USA, Human Development 

Network, The World Bank, Universities and 

Researchers, DG Research, European 

Commission, Belgium as speakers. 

To stress the expertise of IREG we cote (the 

Economist March 27, 2010)”IREG 

Observatory is finalizing a methodology and 

procedures for audit system of university 

rankings. The “IREG audit” will be carried 

out upon those producing rankings and 

assess their rankings against the highest 

methodology standards. Those rankings that 

will pass the IREG audit will be entitled to 

use “IREG Recognized” label. Such audits 

will become an important force to give both 

the public and academia confidence that 

higher education rankings are being 

conducted using high standards. The audit 

criteria of university rankings will be based 

foremost on the Berlin Principles on 

Ranking of Higher Education Institutions 

which were established by IREG in Berlin in 

2006” 

The first idea when talking about 

universities ranking is to look the list. Next 

on the top is to see why, how and which are 

the criteria the top rely on. For a small 

university is become irrelevant to think 

about being into the top. For a nation it is a 

problem of pride that night affect personal 

and collective feelings. Romanian cannot yet 

be found on the list of the first 300 

universities, even if the general opinion 

about the national high education system is 

either a good one or an adverse one. Mass 

media has press on public by highlighting its 

fails. We do not intend value the Romanian 

high education, but to see its positioning on 

ranking system. 

In spite of the fact that one of the vice 

presidents of IREG is a Romanian and 

ranking seems to be pressing, the 

557 

methodology of ranking, except the key 

principle of the most known global 

hierarchies are less known among the 

majority of academic community members. 

We can state that a graduation diploma of 

my university allows the same legal rights 

on labor market all over the world as an 

Oxford’s one and by that fact they are equal, 

there is no difference between them. Except 

600’s years! And this is the first assertion we 

highlight: there is a huge number of high 

education units all round the world: ones 

famous, others useful and necessarily on 

labor market. Ranking will not be useful if it 

will try to split the universities between 

good or bad. Ranking must not be a 

hierarchy but a way of evaluating the 

level of development of every unit, stating 

not necessarily standards (this is the 

mission of accreditation bodies) but goals. As 

long as the accreditation methodology is 

general international accepted any 

accredited university has the right and 

should benefit of the academic privileges. As 

long as we based the academic system on the 

principle that the university is the 

communion of professors and students to 

look for truth (Ortega Y Gasset 1949) any 

small community has to have the liberty to 

express itself and as the world academic 

community as a global body. 

The nowadays economic system is based on 

open competition as a market economy, 

including the universities as high studies 

formers. They compete on the market for 

students but mainly for funds either for 

education or research activities. An upper 

position in a ranking table is a definitive 

advantage in the competition. This might be 

one of the reasons we face a strong pressure 

on using a ranking tool. IREG state as its 

goal: “taking into consideration the 

increasing importance of rankings among 

future students, and the fact that rankings 

can influence financial decisions of 

government bodies responsible for higher 

education”. 

It is but natural that the units of excellence 

should enjoy appropriate resources in order 

to provide best training or requested funds 

for research. But even the small ones cannot 

be neglected as they are carrying the large 

amount of forming the labor force and the 

routine research activities. 

We can conclude that ranking is compulsory 

for all kind of universities. It must be a tool 

to regular evaluate themselves versus past

and others. There is one challenge: how to 

manage the mass media? It is looking for 

news to feed its public, not for professional 

explanations; the dedicated ones are not 

available among the mass of future students, 

parents of funds managers. And the general 

conclusion, as long as someone is looking for 

a specific one that is missing, is a bad one, as 

in Romania. 

The general conclusion of IREG discussions 

was that it must be settled a methodology on 

how to manage or administrate the 

communication between the ranking maker, 

universities and mass media, in order to 

keep a fear competition. 

Another sensitive subject is about the huge 

diversity of the universities. To summarize it 

is about how to add “apples” with “pears”, 

that is how to compare a gold medal on 

Olympics with a Nobel Prize, or an Oscar 

with a prize on mathematics. The diversity 

of teaching fields is huge and it is practically 

impossible to use the same criteria for total 

different domains. More, there is a large 

diversity a high education units: some 

organized as universities, assembling a 

number of teaching domains and others very 

specialized, acting only in one field: to have 

the picture it is enough to have a tour of 

high education institutions in Romania: 

specialized only on one field: economics or 

medicine, or agriculture or assembling under 

the same roof from history and philosophy to 

sport, engineering, economics etc. It is 

senseless to measure with the same units 

such different academic institution. This is 

one more reason to distribute the ranking 

findings among the academia that can judge 

professionally on the matter and only an 

agreed version to be distributed later on to 

mass media. 

More, it is generally admitted that a high 

education institution must carry a research 

activities. And this activity must be funded 

and its findings must be materialized into 

“teachable” results as innovations, registered 

brands, articles in specialized publications, 

rewards on art, sport, new theories, know 

how etc. It is impossible to “add” so divers 

results in order to evaluate them by a single 

label. High standard researches need large 

funds and investments into research labs 

that might be prohibitive to small 

universities. But this do not exclude that the 

last one are not able to provide high 

standard training. Again the methodology of 

558 

ranking must be adjusted in order to fit the 

restrictions of diversity and seize. 

The research activity of university stresses 

again the advantage in competition for funds 

in favor of some bodies using the ranking 

list. It is also clear that the high class 

research need to use a minimum size. As 

well as in order to allow a competitive 

advantage for some universities, just for 

their research activities in spite of teaching 

ones. A high education institution is 

supposed to teach students and form the 

future labor force, including researchers! It 

is an edge position and there is no common 

accepted way of evaluating. The progress is 

still obvious: once a problem stated it will 

have a solution, sooner or later. 

Our world is a more and more competitive 

one. EU has organized the Bologna Process 

in order to shorter the gap between its 

education system and US’s. The new 

architecture of the European high education 

system is similar with the American one. 

There is one piece missing that – in our 

opinion – as leaded to fail: the listing 

vacancies system. In EU life working 

contract are still majorities and have blocked 

the push for long life training. A short time 

working contract for 3-7 years is much more 

convenient and lead to permanent learning. 

The education system has by now some 

levels as expertise: college, master, doctor 

and post doctoral studies, and as time: 

bachelor, master, doctor and long life 

learning. A specialization is compulsory. But 

how can meet the accreditations rules of 

different countries with the ranking 

methodology still in progress. There are few 

bodies to analyze and discuss the matter and 

the conclusions of the few existing ones are 

not disseminate among the academic 

community, even among the decision makers 

of it. It seams compulsory that such a 

structure must be created in Romania. Still, 

it seems there is a research in progress to 

settle the rules of a national ranking system 

and draw up the first national ranking. But 

it might not be useful for international 

competition if it will not incorporate the 

global existing rankings: but which ones, as 

there are several and everyone based on 

other principles. More, in order to exist you 

must notify your presence: there are few 

data sources from Romania available to 

actual major ranking organizers. Romania 

and its universities has to join and be active

in international structure involved in global 

ranking no matter the annual subscription. 

The conclusions are: 

- Romania has to join the global ranking 

organizations and dissipate the 

information among the large academic 

population: professors, students and 

officials. 

- Ranking methodology is still in progress 

and the specificity of our system must be 

presented and our specialist has to 

contribute to the works in course, 

including necessary funding. It is the 

save way to ask for being included into 

the circles where the future decision will 

be taken 

- To organize works (books, articles, 

conferences etc.) about ranking should be 

considered by Romanian academic staff. 

- A system of relating with mass media 

about the ranking publications must be 

settled for the benefit of the population, 

students and professors as well as funds 

administrators of public sector 

References 

a. Ortega y Gasset, O interpetare a 

Istoriei universale , Editura Stiintifica, Bucuresti 

1999 

b. Presentations at Astana IREG 

conference June 14-16 June, 2009: 

1. Liu Nian Cai, “Academic Ranking of 

World Universities (ARWU): Purpose and 

Methodology” 

2. Peer Eider: “The Lisbon Council 

University Systems Ranking: Measuring the 

Contribution of Tertiary Education Beyond 

Research” 

3. Claude Sauvageot, Gero Federkeil, 

“Mapping, Ranking and Typology of Higher 

Education Institutions: the European Approach” 

4. Stefaan Hermans, “Sustainable Data 

Collection as the Basis for Classification and 

Ranking – New perspectives – New Initiatives” 

5. Yung-chi Hou (Angela),”New 

Personalized Ranking of the Taiwanese 

Universities” 

6. Nova Jayne Heath, “Complete University 

Guide and Its Interactivity and Accessibility” 

7. Richard Vedder, “The Forbes Rankings 

and Beyond: The Future of Rankings in the 

United States” 

8. Koenraad Debackere,” Bibliometric and 

the ‘Multi-dimensionality’ of Research Activity: 

Implications for University Ranking” 

9. Jeffrey Clovis, “Assessing Faculty 

559 

Productivity and Institutional Research 

Performance: Using Publication and Citation Key 

Performance Indicators” 

10. Robert Reisz, “Soft and Hard Data and 

Definitions for University Ranking” 

11. Yukum Harsono, “How Can "Research 

Leadership" be Measured – The View of the 

Scientific Publisher” 

12. Ying Cheng, “International and National 

Academic Rankings: Commonalities and 

Differences in Ranking Indicators” 

13. Robin van Ijperen, “Towards a Multi 

dimensional Ranking: The View of the European 

Commission on Transparency in Missions and 

Performances of Higher Education Institution” 

14. Robert J. Morse, “Why Academic 

Rankers Should Not Stop Publishing New 

Rankings until the Financial and Economic Crisis 

Ends”



ICEA – FAA Bucharest, 4-5th June 2010 

REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN THE 

EDUCATIONAL SYSTEM 

Abstract 

In any democratic system, the debate on 

how policies are designed and 

implemented occupies a large space, and 

this is visible even in the most stable, 

predictable and institutionalized systems 

of government. In a society in constant 

transformation, social problems change 

rapidly, public policy must adapt to new 

requirements and meet the needs of people 

in difficulty. This article aims to make a 

diagnosis of public policy instruments 

implemented in Romania, in general and 

in the educational system, presenting 

also possible solutions. 

Key words: Public, policy, 

implementation, education, reform 

1. Importance of public policies and 

implementation process 

In any society, governmental entities 

enact laws, make policies, and allocate 

resources. This is true at all levels. Public 

policy can be generally defined as 

a system of laws, regulatory measures, 

courses of action, and funding priorities 

concerning a given topic promulgated by a 

governmental entity or its 

representatives. 

Politics is a "domain of human activity 

targeting relations, events and guidelines 

between social groups and other 

organizations active in a state or between 

citizens and confrontations to capture, 

consolidate, develop and maintain power 

and control its functioning" 

ROVENTA IRINA 


Irina.roventa@yahoo.com 

560 

By extending the previous definition, the 

public policy express manifestations and 

guidelines set by the authorities as public 

bodies, central or local, to key areas or 

activities that take place either at 

national or territorial-administrative 

levels. 

A public policy is a network of interlinked 

decisions on election goals, means and 

resources to meet them in specific 

situations. 

There are three parts to public policymaking: 

problems, players, and the policy. 

The problem is the issue that needs to be 

addressed. The player is the individual or 

group that is influential in forming a plan 

to address the problem in question. Policy 

is the finalized course of action decided 

upon by the government. In most cases, 

policies are widely open to interpretation 

by non-governmental players, including 

those in the private sector. 

The public policy cycle explains the 

policies as a logical series of steps: agenda 

settlement, policy formulation, policy 

implementation and policy evaluation. 

Synoptic pattern, made by Herbert Simon 

(1945), involves the following steps: 

� problem formulation; 

� investigate the current situation; 

� develop a range of potential 

solutions; 

� assess the consequences for each 

of the alternatives considered; 

� optimal solution; 

� implementation of the solution; 

� checking how to implement; 

� assessment. 

Implementation stage is probably the 

most important public policy process since

on the success of this stage is based the 

achievement of the specific public policy. 

As Martin Rein and Francine Rabinovitz 

noted, the implementation process has 

three “imperatives”: 

� respect for legal intend 

� civil servants` concern for 

instrumental rationality 

� general expectation that concerted 

action requires consensus both 

within the implementing agencies 

and in their external political 

system. 

The efficient implementation of a public 

policy option involves tracking a realistic 

implementation plan. While the 

implementation process is being 

developed, the purpose of monitoring 

reports is to assess the outcome and the 

status of implementation of public policy 

in terms of specific objectives, results and 

performance indicators for each activity. 

This information is extremely important 

for the implementation coordinators team 

to intervene in time and fix any difficulties 

or irregularities in the implementation 

process. 

The idea that government institutions 

have as their main activity the process of 

structuring and implementation of public 

policies, penetrated with difficulty in our 

country. 

Public policy implementation is often seen 

as a blocking point of the policy as a 

system. A total of 57 senior officials were 

asked whether: "Implementation of sector 

policy has created problems inside or 

outside their field of activity?". 68% of 

them responded affirmatively. The main 

obstacles mentioned were the bureaucracy 

(42%), time pressure (33%), lack of 

cooperation of civil servants (25%), 

coordination problems (23%) and 

information problems (17%). 

Implementation is an interactive process, 

involving not only public authorities but 

also representatives belonging to the 

target area of policy and other interested 

groups. The characters involved in this 

561 

process have their own motivations and 

resources, apart from direct political 

action, are influenced by many 

circumstantial factors. An old problem is 

that most studies on implementation are 

focused on finding explanations for 

success or failure of policy. 

Public policy is what public officials within 

government, and by extension the citizens 

they represent, choose to do or not to do 

about public problems. Public policy 

advocates help government officials to 

make sound decisions in respects to public 

problems for their clients. In any given 

case, the choice depends on how the public 

defines the problem and on prevailing 

societal attitudes about private action in 

relation to the government’s role. Public 

policy is a course of government action or 

inaction in response to public problems. 

These elements of public policy can be 

found in many different legal expressions 

such as laws, executive orders, 

regulations, and judicial rulings. Public 

policies reflect not only society’s most 

important values but also conflict between 

values. Policies represent which of many 

different values are given the highest 

priority in any given decision. 

2. Legislation 

Starting with 2006 there is an integrated 

system of developing the public policy, to 

increase the coherence of governance act 

and significantly reducing the number of 

legal acts adopted by the Government. 

From the perspective of initiating the 

public policy by adopting the legislation at 

the central level and in response to the 

need for technical foundation of the 

proposed legislation was necessary to 

regulate activities undertaken at the 

ministries and central public 

administration, pre-elaboration of 

normative acts. 

In this respect, was adopted no. 775/2005 

Government Decision approving the 

Regulation on procedures for drafting, 

monitoring and evaluating public policies

at central level, which covered the 

following issues: 

- activities of development, monitoring and 

evaluating the public policies in the 

ministries and other bodies of central 

government which are initiating 

normative acts; 

- A coherent and cohesive framework of 

developing the public policy to be included 

in each ministry and specialized body of 

central government; 

- Adequate technical substantiation of 

legal acts in order to avoid further 

challenged and where the regulations are 

difficult or impossible to enforce; 

- Establishment of tools to help increase 

the coordination capacity of the 

Government regarding development 

procedures for public policy by ministries 

and other bodies of central government; 

- Establishment of unique forms to be 

completed in all ministries to be set 

milestones and research results 

substantiating a draft of a legislative act; 

- Creating at the ministries level, special 

public policy organisms to coordinate 

preliminary activities of laws` elaboration 

that work in conjunction with specialized 

departments of the Government. 

3. The particular case of educational 

policies 

Although the overall educational level in 

Romania is quite high, qualifications 

structure is not yet adapted to the society 

movements and the ability to react of the 

labor market to these mutations is still 

weak. 

The great difficulty of reform initiated at 

all levels of education - vocational, 

primary, secondary and university- 

remains the at low level of allocated funds 

by public authorities for maintaining and 

improving educational infrastructure. It 

can be added to other risks such as limited 

capacity of government to assume 

562 

responsibility in the preparation, training 

and specialization of human resources, 

primarily, the implementation of modern 

methods and, secondly, countering 

resistance to change required nationally 

and locally. 

Romanian school network, consisting of 

nearly 30,000 schools, 1300 high-schools, 

1200 post-secondary, 800 vocational 

schools and over 300 universities, strive, 

relying on European Community 

programs, to adapt educational system at 

the current and future changes. In the 

absence of appropriate trainings, scarcity 

of relevant specialization will reduce the 

effectiveness of reforms and human 

resource, negativelly affecting the labour 

market. 

The development of coherent policies and 

plans is crucial to bring about real and 

sustainable change in education systems 

throughout the world. 

Development of national education to 

prepare a society and economy based on 

knowledge, in order to ensure an equitable 

access to a lifelong education, to prevent 

the risk of social exclusion and facilitate 

the growth of the occupancy rate in the 

labor market, is a policy priority of the 

Romanian Government. 

Ministry of Education, Research and 

Youth, as a specialized body of central 

public administration, leads the national 

system of education, youth and research, 

exerting also duties established by laws 

and other normative sphere of activity. 

Ministry designs, develops, implements, 

monitor and evaluate policies and 

strategies, in line with the strategy and 

governance program in education, youth, 

scientific research, technological 

development and innovation, as well as 

with the European policies and 

international commitments. 

According the Presidential Commission 

Report for analysis and preparation of 

policies in education and research area 

elaborated in 2009, the Romanian system 

has four major problems: it is inefficient, 

irrelevant, unfair and poor quality.

Maintaining the current education system 

in Romania jeopardize competitiveness 

and prosperity of the country. 

Positioning Romania in relation to the 

Lisbon indicators 

In the Lisbon Agenda, the EU has 

established 5 indicators showing how 

one country and the EU as a whole, are 

able to face challenges of knowledge 

economy. Positioning Romania in relation 

to knowledge economy indicators (“Lisbon 

indicators") the analysis of these data 

show a clear conclusion: the current 

education system is unable to ensure to 

Romania a competitive position in 

knowledge economy. 

Current educational system is unfair. The 

proportion of rural students who obtained 

poor results in Romanian, mathematics 

and science is of 2-6 times higher than 

those in urban areas, the proportion of 

those who obtain good results in the same 

subjects is 2-3 times less! Approximately 

80% of youth out of school are rroma 

people, of whom 38% are functionally 

illiterate. The proportion of rroma people 

children enrolled in primary schools is 

LISBON INDICATORS ROMANIA UE NOW UE PURPOSE 

Early leaving of education system * 23,6% 14,9% Max. 10% 

Share of population 22 years who 

has completed at least 

lyceum (upper secondary 

education) 

Share of pupils of 15 years who fail 

to meet 

even the lowest level of 

performance (PISA 

2001) 

The proportion of graduates in the 

fields of mathematics, science and 

Technology 

Adult participation in lifelong 

learning 

Performances of students in Romania to 

major international assessments: (PISA, 

TIMSS and PIRLS) is well below 

International Media. 

Olympic results are hardly relevant to our 

system: they reflect their personal 

excellence and a few teachers who prepare 

them, not the system. Romania occupies 

the position 34 of the 42 participating 

countries in the OECD Program for 

International Students Assessment. 

66,5% 77,3% Min. 85% 

41% 19,4% 15% 

23% 24,1% +10% 

1,6% 10,8% 12,5% 

563 

64% compared to 98.9% - national 

average. 

Infrastructure and resources of the 

education system are of poor quality. In 

summary, the current educational system 

has serious problems of efficiency, equity, 

quality and relevance knowledge economy. 

In order to improve the educational 

system in Romania, it was implemented 

the National Strategy of Innovation, 

Research and Development. Ensemble 

forward consultations led to a list of 25 

priorities grouped in 8 areas, described in 

the document as priorities of Public 

investment in research. 

The strategy reaffirms the role of the state 

in creating conditions and incentives 

firstly for creating knowledge, and 

secondly to apply knowledge for general 

interest, through innovation. 

Its main purpose is to recover the existing 

gaps compared with the level of 

European countries and prepares the CDI 

system in Romania to identify and 

consolidate the areas in Romania where to 

excel. 

Quality and leadership for the Romanian 

higher education Project has as its general

objective to develop, by involving all 

relevant partners, the vision for the 

Romanian higher education, on which to 

base policies and actions of the medium 

and long term, to contribute at the 

improvement of strategic management, 

finance, human resources and educational 

resources in universities, to promote 

innovation, cooperation and partnership 

between universities, businesses and 

research centers for development of 

Knowledge Society in Romania. 

It will be elaborated a vision document with 

the 2025 time horizon and a set of 

strategical recommendations embodied in 

the Higher Education Strategy 2009-2013, 

providing that the Romanian universities 

will develop and will act as key players in 

the socio-economic development of Romania 

4. Conclusion 

What is the implication of the new world 

of governance for the old issues about the 

implementation process? 

Application in practice of public policy is 

not a simple process. It is presented as a 

series of activities spread over a fairly long 

period of time, whose beginning and end is 

difficult to differentiate, involving also 

numerous actors. 

This article tries to briefly present the 

current situation of the Romanian public 

policies and some measures taken in this 

direction. 

PREFERENCES: 

Bertram H. Raven, Policy Studies, Review 

Annual, Volume 4, SAGE Publications Ltd., 

London ECITY 8QE, England, 1980 

Cabinet Office, Regulatory Impact Assessment 

Guidance, Great Britain, 2005 

General Secretariat of Government, Public 

Policy Unit, Manual for developing public 

policy proposal, 

General Secretariat of Government, Legislative 

procedures of government: problems and 

possible improvements 

Miroiu Adrian, Zulean Marian, Radoi Mireille, 

Public Policies, Editura Politeia 

(2002) 

564 

Popescu Luminiţa Gabriela, Sectoral policycourse 

support, Bucuresti 

Presidential Commission for Analysis and 

Policy Making in Education and research in 

Romania, Presidential Commission Report for 

analysis and preparation of policies in 

education and research areas, Bucuresti, 2007 

Rein M, Rabinovitz F, Implementation: a 

theoretical perspective, Eds W Burnham, M 

Weinburg (MIT Press, Cambridge, MA, 1980) 

Secretariatul General al Guvernului României, 

Manual de Metode Folosite în Planificarea 

Politicilor Publice şi Evaluarea Impactului, 

2006 

http://edu.ro/ 

http://edu2025.ro/ 

www.sgg.ro




THE MACROECONOMIC EFFECTS OF 

EUROPEAN FINANCIAL INTEGRATION 

Abstract 

The European financial integration process 

is one of the most dominant trends that is 

manifesting at the European level. Having a 

direct effect not only on the financial markets 

but also on the general European economical 

environment, it is one of the central pieces of 

the European integration process. Even if the 

efforts undertook for the realisation of this 

process have been fruitful, the results are 

very different within the financial markets. 

The aim of this paper is to present, using an 

extended literature review, the main opinions 

expressed in the studies undertaken so far on 

the subject. We will also present in a nonexhaustive 

meaner the advantages and 

disadvantages of the European financial 

integration process, using an empirical 

analysis, with the accent on the euro zone, as 

it’s providing a more European integrated 

economical environment. 

Key words: European financial integration, 

euro zone, financial development, 

international risk sharing, systemic risk. 


In order to understand the European 

integration process we must take into 

consideration its roots. The motivation 

behind this process has been always 

political, aiming at achieving what Jean 

Monnet called “The United States of 

Europe”, but the means to achieve this goal 

have been always economical. The second 

article from the Treaty of Rome from 1957 

identifies as the main objective of the 

European Community the creation of an 

economically integrated area with a fully 

ŞARGU Alina Camelia; 

“Alexandru Ioan Cuza University”, Iaşi; 

s_alina_camelia@yahoo.com 

CHIRLEŞAN Dan; 

“Alexandru Ioan Cuza University”, Iaşi; 

danch@uaic.ro 

565 

functional European common market. In this 

regard the financial integration process 

appears as the back-bone of the whole 

European integration process. The mater 

raise here is what effects - positive and/or 

negative - will the European financial 

integration process have on the European 

economies, as it deepens, touching every 

aspects of the European economical 

environment. 

It has become especially important to take a 

deeper look at the financial integration 

process, as it can no longer be praised as an 

all good transformation. This has become 

especially evident since the contagion of the 

recent financial crises has proven that the 

systemic risk can have a devastating effect on 

the integrated European economies, striking 

both: developed and emerging economies. 

Thus, a more carefully evaluation of the 

effects of the financial integration process 

must be taken, starting from the main 

academic theories regarding its benefits and 

compare them with the empirical data that 

emphasising the true effects of the process 

on the European economies. 

In order to achieve this, the paper, uses an 

extensive literature review, which 

underlines the main concepts regarding the 

financial integration process of the European 

financial markets. Using empirical data the 

paper provides an image of the evolution of 

the financial integration process first by 

underling the convergence of the main 

indicators for financial development and 

secondly, using the model Backus-Smith, 

emphasising the evolution of risk dispersion 

in the euro-area – the most integrated zone 

from the European Union.

The paper comes to complete the existing 

academic literature, providing an overview of 

the different ideas embodied in the studies 

undertaken so far on the effects of the 

European financial integration process while 

also providing its own original conclusions 

on the subject. 

2. The current state of knowledge 

regarding the European financial 

integration problems – Literature 

Review 

Taking into account the various implications 

of the integration process at the European 

level, the issue regarding the degree of 

European financial markets integration 

represents a subject of real interest, both, for 

the political decision making factors and also 

for the participants on these markets, like 

listed companies, investors or financial 

intermediaries. Thus, on the one hand a 

higher degree of integration leads to 

sustainable economic growth, facilitates 

portfolio diversification and access to 

funding, improves risk-sharing opportunities 

and increases market liquidity. But on the 

other hand, it could also lead to the raise of 

the interdependence of European economies, 

which can facilitate the emergence of 

systemic risks and the eventual eruption of 

crisis, like the one that started in 2007. 

For a better understanding of the 

implications of this process we must first 

underline the conceptual meters regarding 

the process of integration. Although there is 

a vast academic literature covering this 

field, there is no unanimous accepted 

definition for the concept of integration. 

Thus, in the case of the financial sector, the 

markets are considered completely 

integrated only when the regional factors 

(European) have a determined role in the 

homogenisation of prices, and partially 

integrated when the local factors (national) 

have, also, a determined role (e.g. Adler and 

Dumas, 1983; Stulz, 1981; Errunza and 

Losq, 1985; Flood and Rose, 2005; Stoll, 

2008). A more wide definition regarding the 

integration of the financial markets 

emphasises the importance of strong and 

real financial connections between the 

economies (see, inter alia, Dumas, Haevey 

and Ruiz, 2003). In general, the testing of 

the first definition implies the carrying out 

of sophisticated analyses regarding the 

convergence of prices (e.g. Bekaert and 

566 

Harvey, 1995 and 1997, Rockinger and Urga, 

2001). Instead, the second definition implies 

the analysis of the changes in cross-border 

financial flows between countries, as a result 

of integration (e.g. Dumas, Harvey and Ruiz, 

2003). 

During the process of establishing the 

current state of knowledge regarding the 

European financial integration problems we 

have observed that the most empirical 

studies have been focused especially on the 

more developed European markets (e.g. 

Jorion and Schwartz, 1986; Korajczyk and 

Viallet, 1989; Campbell and Hamao, 1992; 

Carrieri, Errunza and Sarkissian, 2004; 

Baele et al., 2004, and Flood and Rose, 2005) 

and only lately the European emerging 

economies have been taken into 

consideration (e.g. Bekaert and Harvey, 

1995 and 1997; De Santis and Imrohoglu, 

1997; Bekaert et al, 1998; Bekaert, 1999; 

Bekaert and Haevey, 2000; Rockinger and 

Urga, 2001; Gerard, Thanyalapark and 

Batten, 2003; Jong and de Roon, 2005; Ang, 

2008). Still, only few studies have been 

focused exclusively on the new member 

states of the European Union, despite their 

interesting economical characteristics (e.g. 

Dvorak and Geiregat, 2004; Reininger and 

Walko, 2005; Lorenzo Cappiello, Bruno 

Gérard, Arjan Kadareja and Simone 

Manganelli, 2007; Iorgova and Ong, 2008). 

Thus, we must account the fact that the real 

economy of these countries has gone, in less 

than twenty years, from a centralised 

economy to a market economy and forth to a 

fully open market. In parallel, it was 

necessary the development of the economy 

and the liberalisation of the financial 

markets, this process being undertaken 

approximately in the same time by all new 

member states. Nevertheless, we must 

acknowledge that these countries will adopt 

in the near future the single European 

currency. All these aspects underline the 

necessity for studding the European 

financial integration process, both from the 

perspective of the developed and the 

emerging economies, emphasising the 

interrelations between them. 

For a better underling of the evolutions in 

this field, the analysis will focus especially 

on the euro area, mainly because these 

economies are much more alike from a 

structural and development point of view, 

emphasizing with a higher fidelity the 

European integration process in general.

3. Financial integration, financial 

development and economic growth 

Various studies, regarding the international 

environment and also some more focused on 

the European Union’s particular situation, 

proved that financial development leads to 

sustainable economic growth (Guiso et al 

2004, Levine 2005, Papaioannou 2007, 

Jappelli and Pagano 2008, Caporale et al 

2009). More precise, the results of the 

studies, undertaken at micro and macrolevel, 

prove the fact that financial 

development raises the productivity of the 

inputs in the developed economies, while 

also enhancing the economic growth through 

the reduction of capital costs both in the 

developed and the emerging economies. 

Similar, the financial integration at 

European level contributes directly to the 

overall financial development and implicitly 

to the gaining of long term economic benefits 

for the European Union. 

The financial integration process can 

promote financial development through a 

series of mechanisms. Thus, the more 

integrated and liquid financial markets 

should lead to a reduction of capital costs, 

because of a greater risk dispersion perceived 

by investors at international level and also 

because of the diminishing of transaction 

cost, through the enhancement of 

transactions volume and the raise of 

specialisation in financial services delivery. 

Moreover, the extension of financial markets 

diversifies the firm’s possibilities for 

financing, because it won’t be made no more 

only through the banking system, but also 

through other viable sources (e.g. financing 

through capital markets). Also, the academic 

research shows that the enhancement of 

financial development optimises the process 

of allocation of capitals at inter-sector level, 

because the firms’ facile access to financing 

sources allows a quicker sector development 

(Hartmann et al 2007). Additionally, the 

dispersion of risk can facilitate the financing 

of more risky projects that could generate, in 

time, higher revenues (e.g. Obstfeld 1994). 

But the main mechanism through which the 

financial integration contributes to the 

financial development of the internal market 

is represented by the enhancement of 

competition through the arrival of foreign 

financial intermediaries, which are more 

sophisticated or are offering financial 

services at a lower price. This competition 

567 

pressure leads to the reduction of costs, 

especially for the private persons and the 

firms from the lesser financial developed 

countries, leading implicitly to the 

development of these local financial markets. 

The development of foreign banks through 

branches and subsidisers in these markets 

diminishes, in general, the profit of the local 

banks. Still, if through these mergers and 

acquisitions the activity of the local banks 

becomes more efficient, then the process will 

be associated with a drop in the price of 

financial intermediation. Intense 

competition combined with cost cuts 

translates, ultimately, into a higher volume 

of credits and/or a reduction of the interest 

rates. 

Another important aspect necessary in order 

for the financial integration to lead to 

financial development, regards the 

harmonisation of the legislative environment 

from the national level with the European 

one, which will lead to an enhancement in 

cross-border transactions and the raise of 

the activity of foreign investors on the 

European financial markets. 

In another train of thoughts, the removal of 

structural barriers in the process of financial 

integration can lead to the enhancement of 

the way in which financial services are 

provided and the spur of their convergence, 

aspect that can be highlighted through the 

raise of value of some indicators for domestic 

financial development, like domestic stock 

market capitalization and the volume of 

bank lending relative to GDP. Figure 1 

underlines the convergence in time, through 

the coefficient of variation for the euro zone 

economies, of three such indicators: the 

percentage of the stock market capitalisation 

in GDP, the capitalisation of the bond 

market issued by the private sector in GDP 

and the capitalisation of the private credit 

sector in GDP. 

The enhancement in convergence for the 

euro area countries implies the decreasing of 

the degree of dispersion of these indicators, 

between 1990 and 2009. And in fact it can be 

observed a constant decreasing of the 

coefficient of variation in the case of the 

bonds issued by the private sector, from 

approximately 0,7 percentage points in 1990 

to less than 0,4 percentage points in 2009, 

while in the case of the private credit sector 

the decrees is not that big, but still 

considerable (from 0,4 to 0,3), mainly 

because in this case there was a bigger

homogenisation of the cross-border markets 

even since 1990. In the case of the coefficient 

of variation for the stock markets there is no 

clearly visible trend, mainly because this 

coefficient is influenced by the variation of 

the stock prices, which is determined 

especially by country-specific factors. 

Graphic 1. Indicators of financial development in 

the euro-area between 1990 and 2009 

Source: Author’s calculations based on the International 

Monetary Fund (http://www.imfstatistics.org/imf/) and 

the European Central Bank (http://sdw.ecb.europa.eu/) 

data 

It can be acknowledged that from analysing 

all the three markets, the private bonds 

market has registered the biggest progresses 

regarding its convergence while the private 

credit market and the stock market have 

registered the smallest ones. Even if when 

compared with the private bonds market and 

the wholesale banking market, the stock 

market and the retail banking market from 

the European Union are the least integrated, 

the premises for their integration already 

exist. 

4. Financial integration and the 

diversification of cross-border risks in 

the euro area 

Basically, the diversification of risks at crossborder 

level can serve as an alternative 

stabilisation mechanism, taking into 

consideration the fact that the investments 

and the local consumption can be protected 

from shocks determined by local factors 

through the compensation of the loses 

registered at national level with the gains 

from the international exposure. Moreover, if 

the preferences for consumption in the euro 

area are similar, then the efficiency of the 

single monetary policy will be grater. A 

higher degree of cross-border risk 

diversification can enhance the growth rate 

of the economy on the long run, since the 

various hedging possibilities should 

encourage entrepreneurs to invest in more 

568 

risky projects, which could offer higher 

paybacks (Obstfeld, 1994). 

As we have mentioned earlier, in order to 

better underline the evolutions in this field, 

the analysis will be focused especially on the 

euro area, because of the higher closeness 

degree and structure of these economies, 

allowing a better underlining of the 

relationships between the European 

financial integration process and the 

diversification of the cross-border risks. 

Keeping all the other factors constant, the 

increase of the international investments in 

the euro area has lead to a better 

diversification of the cross-border risks. 

Therefore, for example at the microeconomic 

level, the fact that after the adoption of the 

common monetary policy the households 

portfolios of assets and financial product 

held in pension funds are more 

internationally diversified in comparison 

with the period preceding the monetary 

union represents a explicit fact (e.g. the 

study of Jappelli and Pistaferri, 2008 – 

which analyses the impact of the euro 

currency on the Italian households 

portfolios). In the case of the corporate 

sector, the increase of the direct foreign 

investments meant a greater geographical 

diversification of incomes, while in the case 

of the banking sector an important 

proportion of the total assets is held by 

foreign banks (from other EU countries). 

Graphic 2. Percentage of other EU banks assets 

in total euro-zone banking assets 

between 2004 and 2008 




data 

Moreover, the increasing level of financial 

development leads to a better diversification 

of risks. Because of the financial 

development it has become possible to better 

capitalise the income flows and implicitly to 

better allocate the capitals at European 

level. Accordingly, the capacity of

individuals and firms to share risks at 

national and cross-border level is directly 

dependable to the level of financial 

development that their origin country has. 

The empirical measurement of 

diversification of risks at macroeconomic 

level is difficult to realise at the euro zone 

level, especially given the short period of 

time since the single European currency has 

been created. Still, staring from the 

condition of the Backus-Smith, it is possible 

to empirically underline the diversification 

of risks at the euro zone level, through the 

cross-country standard deviation of 

consumption growth. 

Graphic 3. The dispersion in consumption growth 

rates for the euro zone between 1970 and 2009 




data 

Analysing the standard deviation of 

consumption growth in the case of the euro 

zone countries, we can observe that despite 

the drop after 1999 in comparison to the 

1970 it is difficult to establish a clear 

difference from the 1980 and 1990. In other 

words, despite the raise in the diversification 

of the risks at the euro area level since de 

adaptation of the single currency, the level is 

far from the optimal figure, which a fully 

integrated zone could provide. 

5. Limits of the European financial 

integration process 

The more recent academic literature has 

underlined the potential cost of the 

European financial integration, which 

counter-balance the benefits offered by the 

enhancement in cross-border risk 

diversification. Therefore, in a world with 

imperfect financial markets, the integration 

process could enhance the vulnerabilities of 

the countries to external macroeconomic 

shocks and financial crises. The contagion 

569 

effects, amplified by the relative 

“inconstancy” and the mimetic behaviour of 

the financial institutions, can lead to a raise 

of the volatility of the output and consume, 

instead of diminishing it, as the 

diversification of risks theory emphasises 

(Rogoff, Kose, Prasad and Wei, 2006). 

Probably the high risk of contagion because 

of the integration process is not that 

pronounced in the case of the euro zone 

countries than in the case of the emerging 

European economies, as the more advance 

economies, like the ones from the euro zone, 

tend to be less vulnerable when faced with 

financial crises (Lane and Milesi Ferretti, 

2006). The most vulnerable are the countries 

which liberalise their financial sector 

without having the strong institutions and 

the correct macroeconomic policies for this 

process (Demirgüc-Kunt and Detragiache, 

1999). On this line, the analysis of Kose, 

Prasad, Rogoff and Wei (2009) underlines 

the minimal condition which must be met in 

order for the financial integration process to 

lead to economic growth and the diminishing 

of the systemic risk. These conditions refer to 

some economic characteristics – like a 

developed financial sector, the institutional 

quality governance and the integration of 

the goods and services markets – and also to 

the macroeconomic policies employed. 

Graphic 4. Basic conditions for the success of the 

financial integration process 

Source: Kose, Prasad, Rogoff and Wei (2009), 

Thresholds in the process of international financial 

integration 

It cannot be denied the fact that there are 

ways/modalities in which the financial 

integration process can enhance the 

vulnerability of the European financial 

system, but this can only happen if the raise 

of the contagion risk in not coherently 

compensated through a clear, complete and

harmonize legislation and through 

appropriate measures. 


The European financial integration process 

has progressed a lot in the last decade, 

especially as a result of the adaptation of the 

single currency and the implementation of 

various new European directives and plans 

(e.g. the Financial Services Action Plan). The 

implications of those progresses are really 

important, because they have lead to 

profound changes in the structure of the 

European financial sector, facilitating, in the 

end, an enhancement of the overall European 

Union financial development which was 

translated into sustainable economic growth 

- at least until the end of 2007 which 

prompted the beginning of the international 

financial turmoil. 

More and more financial intermediaries are 

adopting a pan-European perspective as 

some components of the European financial 

markets have become increasingly 

integrated (e.g. money markets segment, 

wholesale banking segment). Even if there is 

still a long road ahead until a fully 

integrated European financial market, the 

benefits of the integration process are already 

visible. But we must not underestimate the 

hazards and the risks associated with an 

integrated financial market and in order for 

these threats to be diminish the legislative 

and the institutional framework must be 

updated in order to meet the challenges of 

the new integrated economical environment. 

6. Acknowledgements 

I hereby acknowledge the support of the 

“Alexandru Ioan Cuza” University of Iasi, in 

the development of this article through the 

grant POSDRU/88/1.5/S/47646, entitled 

“Studii doctorale: portal spre o carieră de 

excelenţă în cercetare şi societatea 

cunoaşterii”, co-financed through the 

European Social Fund, within the Sector 

Operational Programme Human Resources 

Development 2007-2013. 

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571




IMPROVING THE MANAGEMENT OF A COMPANY USING BI 

INSTRUMENTS 

Ph.D. Lecturer ŞERBANESCU Luminiţa, 

University of Piteşti, Romania 

luminitaserb@yahoo.com 

Ph.D. Associate Professor RĂDULESCU Magdalena, 

University of Piteşti, Romania, 

magdalenaradulescu@yahoo.com 

Abstract 

All companies need information in order to 

make decisions. There is usually too much 

data spread in the IT systems of the 

company, but transforming the data into 

information that can be analyzed in order to 

make decisions is a difficult process. 

Considering the demands imposed by the 

knowledge society, each organization strives 

to become an intelligent organization and, by 

the means of new and innovative Business 

Intelligence(BI) strategy, to gain a market 

competition advantage. The new BI era 

integrates information into the decision 

process through the means of decision 

services, relates business processes to 

business rules that may be changed at any 

time, and integrates BI benefits to 

capabilities provided by teamwork, 

cooperation, and business process 

management. In this article, I will present a 

BI solution, implemented through QlikView 

Application, thanks to which it is possible to 

analyse the employee expenses and for 

management sales. 

Key words: business intelligence, sales, 

human resource, reports, QlikView 


The goal of BI solutions is to offer 

customized analyses to the right users, at 

the right time, enabling them to make better 

business decisions. The companies need to 

implement analyses to hundreds or even 

thousands of users, assuring, at the same 

time, that they all have access to the latest 

operations. 

572 

The demand for dynamic multidimensional 

systems used to support the intelligent and 

predictive decision making processes, has 

determined the development of the systems 

of BI type. These systems become more and 

more complex, being able of a 

multidimensional analysis of data and 

display real abilities of statistics and 

predictive analysis in order to serve much 

more to the decision- assisted systems. 

Business intelligence represents the 

assembly of the activities of researching, 

collecting, treating and transmitting useful 

information to the economic agents, with a 

view to get competitive advantages, by its 

exploitation in a defensive or/and offensive 

way. The BI applications of assisted 

decisions facilitate a great number of 

activities, including the multidimensional 

analysis, data mining, the predictable 

capacity, the business analysis, the inquiry, 

reporting and graphics designing facilities, 

the geo-space analysis, the knowledge 

management etc. 

The BI concept represents an architecture 

and a collection of applications and 

integrated operative databases, as well as of 

systems based on decision assistance, that 

provide to the business community easy 

access to the data on the respective business. 

The BI concept represents a series of 

marketing techniques and analyses which 

can be fulfilled with the help of a special 

software. By means of this system, the 

experts analyse the internal data of a 

company. The BI concept focuses on the 

interdepartmental activities of a company, 

the analysis of material and informational 

flows as well as the improvement strategies 

of the activities inside of the company.

Because of the large amount of data and of 

huge processing needs, both the dynamic 

reporting solutions and the data mining 

require a powerful informational 

infrastructure designed to enable storage, 

interconnected, processing and huge 

correlation capacities (we can talk here not 

only about the hardware but also about the 

software capacities, including here the 

specific parameters for every organization). 

The central warehouse that shelters the 

totality of the collected data from the 

computer systems represents the central 

part of the system. It is best known under 

the name of Data Warehouse. In order to 

collect data in the data warehouse from 

more computer structures, that can be later 

correlated, even if they come from other 

systems, it is usually necessary a computer 

layer to collect, clean, filter and transform 

the ultimate data of the operational systems. 

Usually, this task is fulfilled by the ETL 

services (Extract, Transformation, Load) of 

BI systems. 

BI integrated systems offer data extraction, 

data analysis removes irrelevant 

information, the risk management and offers 

support for managing decisions at high 

speed and with almost perfect relevance. 

Business is run through IT systems within 

BI and do not depend on the computer 

department. 

2. The implementation of BI solutions 

with the Qlikview application 

In order to design the reports on sales 

analysis inside of a company we used the 

QlikView application, which is an excellent 

tool in analyzing the critical information on 

a business, such as sales. QlikView is a 

complex and powerful BI software package 

and data analysis which offers a better way 

to work with the data of a business. The 

graphic interface offers an increasing 

interaction to the users. With a few clicks on 

the mouse, they have immediate access to 

information that goes from the general level 

to the level of the slightest details. The 

organizations, thus, succeed in discovering 

still unsuspected information, in 

understanding better what is going on in 

their current activity and, as such, in 

making the best decisions for their 

development. 

The extensive facilities on personalization 

and visualization of information, combined 

573 

with advanced capabilities in collaboration 

and implementation work, make the 

QlikView application easily adaptable inside 

the organizations (companies or public 

institutions) that intensively use electronic 

stored data. The QlikView applications are 

developed rapidly, they are easily 

administered by the IT department within a 

company, and they offer to the final users an 

unlimited freedom of queries, at any level of 

database. 

A. Example of sales management 

In order to exemplify, we considered a 

company which deals with products delivery. 

The company has many warehouses situated 

in different locations and supplies products 

to a lot of customers around the country. 

All the accounting papers can be easily 

modified, by a few clicks, by setting and 

changing the respective dimensions, such as: 

time, the warehouses location, the 

customers, the products, etc. These can be 

combined by defining certain groups. 

Further on, some reporting analysis on sales 

are presented: 

1.1 Variations on sales. In this chart, 

there are determined the differences 

between two days in different months. Thus, 

to exemplify, I considered a day in August 

and at 20days’ distance, a day in July (see 

Figure 1). There can be noticed the 

differences between the sold quantities, the 

products value, and the price for every 

product which is found in the existing group 

of products. 

Figure 1 – Variations on sales

This chart can be modified easily by 

changing the dimensions, in this way, 

visualizing the same information grouped 

differently. For instance, we can find 

differences in the quantities, values and 

prices for a group of products , or for other 

customers or types of customers (partners or 

non-partners), or from certain warehouses, 

or from a locality, etc. Selections can also be 

made, for example, we can choose to draw a 

statistics only for a certain group of 

products, for a certain customer, a certain 

geographic area or for a certain group of 

customers etc. In fact, these selections can 

be made in all accounting papers built by 

means of this QlikView application. 

1.2. Evaluations „What-if”. This report 

shows how sales value modifies if the price 

or the quality of the products changes, or 

both simultaneously. 

Figure 2 – What if 

Usually when the price raises the quantity 

decreases, and when price drops the 

quantity raises. When both the quantity and 

the price raise a new market should be 

found, depending on the competition. 

1.3 Comparisons on certain periods such 

as: 

- Comparisons between the days of the week. 

We build the evolution on a certain day of 

the week of the value, average price and sold 

quantity. For example, establishing the date 

of 01.08.2007 we get specific data for the 

three dimensions only for the day of 

Wednesday from the current or previous 

month (we take in account the last 4 weeks) 

and we compare these days to one another in 

order to establish if there was or not an 

evolution of the sales. 

574 

Figure 3 – Days of the week comparisons 

- Period comparisons era done using the 

same dimensions, but we establish a certain 

period for which we want to visualize sales 

evolution. For example, if we use a 7 days 

period, this does not mean that we built the 

evolution for that week, but for a 7 days 

period previous to the analysis date. 

- Monthly comparisons – we draw the sales 

evolution following the three dimensions for 

each of the 12 months previous to the 

analysis date. 

B. Example of human resources 

analysis 

For exemplifying, I consider a firm which 

deals with the human resources analysis 

within a company. 

A part of the designed reports for 

accomplishing an analysis on human 

resources within a company are presented in 

the following: 

2.1. Evolution of costs contains the graphic 

with monthly values on net salary, gross 

salary, standard salary and on the total cost 

for a three-month period of time. This 

graphic enables the manager to notice the 

monthly differences between the expenses 

with the employees and it offers computer 

support for controlling the salary increases 

within a firm with a decentralized decision 

and with many employees. The total cost 

and the wages display the same trend, 

because they are in a direct connected. 

Anyway, the share of wages in the total cost 

is more than 55%. If the manager makes a 

connection between this trend of the wages

and of the total cost with sales development, 

he will have a full image of the firm 

profitability and its development. So, his 

decisions can be supported with concrete 

data and can aim each worker or each 

department. 

Figure 4 - Costs Evolution 

2.2 Bonus analysis contains for each 

department of the company the sums in the 

incentive category (bonus) given to the 

employees every month (see figure 4). The 

chart can be used for statistics on the 

bonuses given by a company to its employees 

in a month or over a certain period of time. 

At the same time, the sums in the incentive 

category given by the company to its 

employees can be compared, for the whole 

company or for each department. By placing 

the mouse on a certain department in the 

chart (a certain color) detailed information 

on department, month and the incentives 

given to employees are shown. We can notice 

that in August, which is a holiday month, all 

departaments and workers got primes, while 

in the rest of the months, only some 

departaments got primes, namely, again, the 

logistic operations department and the sales 

department were in top. 

575 

Figure 5 - Bonus analysis 

2.3 The analysis of extra work hours 

done by the company per month (see figure 

5). The average of total expenses, the 

average number of extra hours, and the 

value of the extra hours per employee are 

calculated for the company. The last column 

shows the ratio of the value of the extra 

work hours to the total expenses of the 

department. The supplementary working 

hours are noticed here at the logistics 

operations department and that explains the 

larger wages and primes given by the 

company to these departaments that 

contribute to the increase of the firm 

performances. If the firm manager will 

correlate the increase of the total cost due to 

the supplementary working hours with the 

sales increase due to these working hours, 

he can decide if it is efficient or not to ask for 

such enlarged working program and pay for 

it. 

The features of this report can be modified 

and thus the total expenses per department, 

per salary earner or per budget group can be 

carried out. 

Figure 6 - The analysis of extra hours 


We must admit that these technologies are 

at the beginning of a long journey, in a world 

where the key to success lies on the ability to 

make better decisions and in a much shorter 

period of time than the competition. 

However, the life of a company depends 

more and more on such decisions, fact that

makes impossible to deny the benefit that 

the BI can bring. 

The cost of implementing the BI systems is 

rendered by a visible save of time that is 

accomplished by the company’s management 

for the period when it gets the information 

and by the earnings of money that come 

from the quality of decisions. 

This information system is a Business 

Intelligence product offers informational 

support to those with analysis and decision 

powers in the „HR” and „Sales” departments. 

Implementing a business intelligence 

solution has the following benefits: 

- It places at the users’ disposal all relevant 

information about the business they need in 

due time. 

- Simplifies the search for complex data and 

automatizes business processes 

- The solution is adapted to the specific 

requirements of the organization, unlike a 

prefabricated and difficult to adjust one 

- It makes use of the existing technologies: 

Excel and requires little training as it is 

based on the present knowledge of the users. 

-It reduces the period of time for decision 

making, allowing rapid reaction to changes 

and generating a competitive advantage. 

Even though in Romania the interest for this 

kind of solutions does not raise to the level of 

the developed markets, it seems that the 

situation has changed lately. At the world 

level there have occurred changes in the 

basic philosophy of the BI software solutions. 

References 

1. Krizan, L., Intelligence Essentials for 

Everyone (Washinghton: DoD, Joint Military 

Intelligence College, 1999), www.scip.com. 

2. Moss, L. T., Atre, S., Business Intelligence 

Roadmap: The Complete Project Lifecycle for 

Decision-Support Applications (Addison Wesley: 

2003). 

3. QlikTech International, QWT Business 

Intelligence (Enterprise Script: 2009). 

4. QlikTech International, QWT Business 

Intelligence (Professional Layout: 2009) 

5. Thompson, Olin, Business Intelligence 

Success, Lessons Learned (2004) 

http://www.technologyevaluation.com. 

6. Turban, E., Aronson, J.E., Liang, T.P., 

Sharda, R., Decision Support and Business 

Intelligence Systems (New Jersey: Pearson, 

Prentice Hall, 2007) 

576




SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA 

FOLLOWING THE COUNTRY’S ACCESSION 

TO THE EUROPEAN UNION 

Associate Professor Ph.D. SÎRGHI Nicoleta 

West University of Timisoara,Faculty of Economics and Business Administration 

nicoleta.sirghi@yahoo.com 

Abstract 

According to the disequilibrium theory, 

the prices for goods and services, as well as the 

salaries are fixed, and any imbalance on the 

labour goods/services market entails a 

restriction of quantities. EU accession has 

modified Romania’s internal market/external 

market ratio as compared to the other 26 

Member States. Low intraeuropean demand is 

the result of insufficient competitiveness. In 

terms of economic policy, the attempt to remedy 

the Keynesian unemployment by a greater 

flexibility of the labour market does not solve 

this situation as long as the production is low, 

regardless of the salary level. On the other 

hand, relaunching the demand will have no 

effect on classic unemployment, because the 

high labour costs affect the return on 

investment in a negative way. 

Statistical data indicate lower 

employment in Romania as compared to the 

EU average, extremely low participation of the 

workforce to life-long education, higher 

unemployment level of the young population as 

compared to the European average. Romania 

must face the challenges of low employment 

and continue to promote the objectives of the 

Lisbon strategy, through a more efficient 

distribution of the internal resources and by 

using the financing opportunities provided by 

the structural instruments. 

Keywords: labour market, employment policies, 

unemployment, new labour market theories 

PhD Candidate HOHAN Dumitru 

CNSLR Fratia, Bucuresti 

economic@cnslr-fratia.ro 

577 


Labour market is one of the most 

complex market forms in the economy, since 

labour represents the transaction factor. This 

factor is made up of several biopsychological, 

demographic, academic, professional and 

behavioural features, which clearly 

differentiate it from any other factor involved 

in the exchange relationships on other 

markets. Labour market transactions are 

focused on the workforce, defined as the whole 

of the physical and intellectual human 

abilities that are used when the human being 

creates economic goods [1]. The functioning 

state of the labour market is reflected in the 

dynamics of the total population, the 

employed population and the number of 

employees. 

EU Member States have several 

common objectives in terms of employment, 

which aim at modernizing the labour markets 

and the structural policies. Employment 

policies in the EU Member States are based 

on common objectives such as: full 

employment, increased labour quality and 

productivity and increased social cohesion and 

inclusion. 

The aim of the Lisbon Agenda was to 

make the EU “the most competitive and 

dynamic knowledge-based economy in the 

world capable of sustainable economic growth 

with more and better jobs and greater social 

cohesion,” by 2010. The new, relaunched 

strategy proposes the transformation of the 

EU in a more attractive area for investments 

and work, the promotion of knowledge and

innovation and the creation of more and better 

jobs. For the financial perspective 2007-2013, 

Member States shall allocate sums from the 

structural funds they will receive to finance 

projects related to reaching the Lisbon targets. 

2. Theoretical Considerations on the 

Labour Market 

Labour market is the meeting point of 

labour offer and demand. There are several 

points of view regarding the labour demand. 

According to J. M. Keynes, labour demand 

from companies depends on the anticipated 

demand of households, which, in its turn, is 

influenced by the salary of the people who are 

already employed. Following high 

unemployment rates and social tensions which 

characterised the 1929-1933 crisis, Keynes 

identified the socio-economic implications of 

unemployment and social inequalities, as well 

as the necessity to take measures that 

contribute to saving the economic and political 

order. Keynes was mostly concerned with 

identifying macroeconomic equilibrium, which 

cannot be achieved without using a maximum 

extent of labour force. Keynes points out that 

workers formulate their demand in terms of 

nominal salary and not in terms of real salary 

[8]. A high level of employment can be 

achieved by stimulating demand and 

investments. Keynes suggests the state 

intervention to unblock the economy and 

stimulate insufficient demand. Keynes states 

that the state must stimulate individual 

consumption and redistribute income to those 

willing to spend in the detriment of excess 

savings. 

Full employment is the main pillar of 

the classical employment and unemployment 

theory. In the classical theory, unemployment 

is a consequence of the labour market game, 

but the imbalance that can occur between 

demand and offer is annulled by salary 

adjustments. According to the neoclassical 

theory, unemployment is a consequence of the 

rigid functioning of the labour market. Labour 

is a good like any other, subject to market 

exchange. Labour offer is an increasing 

function of the real salary. The neoclassics 

state that the labour demand is a decreasing 

function of the real salary. 

578 

In modern economies, workers sell 

their services to capital owners within the 

labour market. According to neoclassics, 

labour demand depends on the real salary, i.e. 

the increase of the real salary causes the 

decrease of labour demand, while the latter 

causes the increase of unemployment. These 

divergences in terms of labour demand factors 

may be explained by the ambivalence of the 

notion of salary. In the neoclassics vision, 

salary is a production cost (which should be as 

low as possible) while in the Keynesian theory 

salary is viewed as an income (which should 

be as high as possible). 

Companies offer jobs and demand 

workforce in exchange, while the active 

population offers workforce and demands jobs, 

in its turn. Thus, we can state that labour 

offer is equivalent to the jobs demand, and the 

jobs offer corresponds to the companies’ labour 

demand. 

The neoliberal theory brings into focus 

the classical and neoclassical views of the 

labour market and emphasizes the notion of 

voluntary unemployment to explain the 

sufficient unemployment of the population. 

The neoliberal theory is based on the idea that 

voluntary unemployment is opposed to 

involuntary unemployment, i.e. the labour 

market offers jobs, but many refuse these jobs, 

due to low salary or other considerations. With 

this idea in mind, the neoliberal theory 

develops several theories which have marked 

the study of economics. 

Labour market may be approached 

both at microeconomic level, with accent of the 

employer-employee relationship, and at 

macroeconomic level (unemploymentinflation). 

This paper analyses the labour 

market at company level, since any 

relationship between the company and the 

employer is materialized in a work contract. 

The implied contract theory was initiated by 

Azariadis (1975), Baily (1974) and Gordon 

(1974) [12]. Salary and unemployment are the 

main issues analysed. By partially 

abandoning the hypothesis of a perfectly 

competitive world, the contract theory sees 

labour as an exchange object between 

companies and employees. This type of signed 

contract is characterized by a high degree of 

uncertainty, as the employers are unaware of 

the “state of nature”, i.e. what will happen in

future. To avoid such risks, the economic 

agents must conclude various insurance 

contracts which anticipate certain possible 

risks. Applied on the labour market, this idea 

breaks off from the traditional neoclassical 

theory and has numerous consequences both 

on jobs and on salary. 

Generally speaking, a contract is an 

agreement concluded between two parties. 

The effective materialization occurs 

subsequently, and the “state of nature” may 

occur in the meantime. Let us suppose, for 

example, that a company may face two 

situations: in the first situation, the demand 

for its goods increases, therefore the economic 

conjuncture is favourable; this is a case of 

“good state of nature”; in the second 

situation, the demand for the company’s goods 

decreases and this is a case of “bad state of 

nature”. 

If companies could set the number of 

jobs and the salaries after observing the 

evolution of the demand for goods and 

services, there would be no uncertainty, as 

they would know the economic conjuncture 

before any decision-making. This is a 

theoretical situation which can only occur on a 

perfectly competitive market. Salary changes 

more than the jobs level according to economy 

variations. However, in reality, the situation 

is completely different, as the salary is rigid to 

decrease and economy changes only affect the 

jobs level [10]. 

A company can act as an insurer to its 

employees, in the following way: it will obtain 

an “insurance premium” from its employees 

in case of a favourable economic conjuncture 

and, in exchange, will preserve the same 

salary level regardless of the economic 

situation. This is the case of an optimum 

contract which implies a constant salary level, 

regardless of the state of nature. In this 

situation, the company shall grant its 

employees a complete insurance against the 

economy fluctuations. The more favourable 

the economic conjuncture, the higher the 

number of jobs. On a perfectly competitive 

market, jobs are characterized by production 

efficiency, as the real salary is equal to the 

marginal productivity of labour. Within this 

type of contract, there is no production 

efficiency, because the salary is lower than the 

work productivity. In contract theory, salary 

579 

plays an important part in setting the 

occupational level. 

In 1957, Leibenstein’s paper Economic 

Backwardness and Economic Growth, 

dedicated to developing countries, states that 

the productivity of an employee depends 

directly on the real salary. According to this 

relationship, salary increase determines an 

increase of the labour cost, and, at the same 

time, of the work productivity [11]. When 

employers set the level of salary for their 

employees, they must choose between a high 

work productivity level and implicitly a high 

production cost or a low productivity level. 

The resulting optimum salary is called 

efficiency wage, and it does not depend on the 

labour market fluctuations, but on the 

objectives set by employers regarding labour 

efficiency. 

In early 1980s, several economists 

(Solow 1979, Salop 1979, Calvo 1979 etc.) 

began developing this concept. There are four 

versions in the economic theory which explain 

the link between salary and productivity. The 

most popular is based on the hypothesis that 

employees’ actions are unknown to the 

employers. In this situation, the employees 

have the possibility to set the level of effort 

they make, while the employers must set a 

mechanism to reach their objectives 

(maximize profit). Another explanation is 

based on the idea that a company manager 

cannot observe the whole set of individual 

competences of the employees. In this case, a 

high salary level could be set in order to 

attract the best employees. According to the 

third, more traditional explanation of 

efficiency wages, lower salary level determines 

the rotation of the workforce, which causes the 

decrease in productivity, both in the short run 

and in the long run. An explanation of the 

productivity-salary relationship has a 

sociological determination, i.e. the employers 

should normally induce the employees the 

feeling that they are well treated. The Solow 

model explains the theory of efficiency wages 

starting from the traditional company theory, 

where a certain production level is associated 

to each production factor. The effort made by 

each employee becomes an individual variable, 

because the employee will choose the level of 

effort made according to certain advantages or 

disadvantages. The following factors can be

taken into account by an employee when 

setting the level of effort to be made: the 

salary level, his/her career objectives, the fair 

play feeling and the work environment. 

Solow (1979) starts from the 

hypothesis that the effort of an employee 

depends on the real salary the company offers 

its employees. The effort function is in direct 

relationship with the employee, and the 

productivity scale of a company is considered 

as decreasing from a certain employee level. 

Labour has a different role from the other 

production factors in a company, since the 

incentive mechanisms offered by the employer 

to the employees must be maintained 

permanently, so that the latter make the 

highest possible efforts in their activity [3]. 

Setting the salary level depends on the effort 

function and is not a result of the 

confrontation between labour demand and 

offer. Thus, there is a certain rigidity of the 

real salary to economy fluctuations as to the 

occupational level. 

We will continue to analyse efficiency 

wages by focusing on the workforce rotation 

cost, which can confirm or infirm the salaryproductivity 

relationship. Workforce 

fluctuations occur when the employees of a 

company decide to leave their current jobs, for 

various reasons. When an employee leaves 

his/her job, the company incurs significant 

costs (training costs), because it is forced to 

hire other staff. The decrease of the workforce 

fluctuation rate at company level is an 

indicator of the increase of the work 

productivity duet o salary increase. Thus, we 

can infer a positive relationship between the 

salary level and productivity [4]. 

The first models that are the basis of 

the existing relationship between salary, 

fluctuation rate and productivity were 

formulated by Stiglitz (1974) and Salop (1979). 

The relationship between the three variables 

may be explained starting from the following 

model formulated by Carmichael (1990) and 

Picard (1993). In analysing this model, we 

start from the hypothesis that the work 

relationships evolve in two stages. In the 

first state, new employees are trained 

according to their respective position. At the 

end of the training period, each employee has 

the right to leave the company if he/she is not 

satisfied. Those who stay will integrate in the 

580 

company activity according to the competences 

they acquired during their training. 

During the training period, the 

employees can determine whether they will be 

satisfied or not by staying in the respective 

company. The satisfaction level is marked 

with θ, while the company offers its employees 

a real salary equal to w. In this case, the 

utility level obtained by the employees is 

equal to: w+θ. q represents the level of utility 

the employees can acquire by leaving the 

company. A condition for an employee to stay 

with the company at the end of the training 

period is that the level of utility they get if 

they stay should be higher than the utility 

they should have by leaving the respective job, 

i.e.: w+ θ>q. 

Each employee’s satisfaction from a 

certain job is subjective. We can therefore 

consider θ as a random variable, while H is its 

repartition function. At company level, the 

probability that employees leave their jobs 

should not be confused with the exit rate. For 

this reason, the exit rate is calculated as 

follows: p (w) = H(q-w), and p’(w) < 0, i.e. an 

increase in salary decreases the workforce 

fluctuation rate [5]. 

Let us consider the case of a company 

whose production function is marked with F. 

If the company decides to hire L employees, it 

will only benefit from (1-p(w))L employees in 

the end, as the rest will leave the company. 

For each person employed, the company will 

pay a training cost equal to c. In this 

situation, the company’s profit is equal to: 

Ð= F[(1 – p(w))L] – Cl – w(1-p(w))L 

(1.1) 

In this case, the efficient work quality 

becomes: Le=(1-p(w))L. If we take formula (9) 

into account, the profit can be expressed as: 

Ð=F(Le) – c - wLe Ð = F(Le) – Le 

(1.2) 

To obtain the optimum salary w*, the total 

unit cost of the workforce must be minimal: 

w* = min CTL, and CTL= 

; (1.3) 

The efficient occupational level L*e 

corresponds to the equality between marginal 

production and marginal cost of the workforce,

as follows: F’(L*e) = CmgL(w*). Starting from 

L*e one can calculate the occupational level 

L*, which is equal to the ratio between: The 

efficient occupational level which results in 

maximum profit for the company and the “jobkeeping” 

rate (employees who wish to remain 

in the respective company after the probation 

period): 

L*= . 

(1.4) 

This method of labour market analysis 

is the basis of the conclusions formulated by 

Solow, as the salary is not set by confronting 

labour demand and offer, but depends on the 

work productivity. Efficiency wage may also 

be approached from a sociological perspective, 

as work productivity depends on the way the 

employers treat their employees. 

The sociological approach was 

elaborated by Akerlof (1984), with the aim of 

theorising the concept of efficiency wage [4]. 

Akerlof believes that the productivity of an 

employee can increase if the employee feels 

that he/she is treated well by his/her 

employer. In these conditions, if the company 

offers the employee a higher salary than the 

reserve salary (i.e. a salary he/she can obtain 

from another company), the employee’s 

productivity will grow. In his approach, 

Akerlof starts from the premise that the 

employees generally make similar efforts to 

their peers. We can therefore speak of an 

“effort norm” at the company level. In its 

turn, the company sets an effort norm for each 

salary level, which it imposes to employees. 

According to Akerlof’s model, there are 

two types of employees within a company: 

those who make greater efforts than the 

group’s norm and those who do not feel the 

effort as a utility and tend to offer lower effort 

levels. The proportion of the two groups in the 

total number of employees allows the 

calculation of the average work efficiency. 

Akerlof’s conclusion is that the company is 

interested in setting a lower norm than that 

adopted by each group, thus inducing its 

employees the feeling that they are well 

treated. As an effect to this reward, employees 

make greater efforts, and work productivity 

will grow. 

Efficiency wage may be explained 

starting from the premise that a company 

581 

manager cannot observe the whole set of 

individual competences of the employees. This 

is a case of adverse selection. 

Adverse selection and efficiency wage 

show that each potential employee has certain 

competences that cannot be known to the 

employer after a simple job interview. The 

employer could get information from former 

employers or test the employee, but such 

procedures are time-consuming and would 

involve high employment costs. 

In this situation, candidates for a job 

must inform the potential employer as to the 

amount of money (reserve salary) they wish to 

receive. For the employer, this is a signal 

which reflects the level of knowledge the 

candidate holds. In other words, the reserve 

salary is an increasing function as compared 

to the competences of each potential employee. 

The optimum salary which results from these 

conditions is called efficiency wage. The 

company will have no interest in reducing this 

salary level, because work productivity and, 

eventually, the company profit would 

decrease. If an employee accepts to work for a 

lower salary than the one for which he/she 

qualified, he/she will reduce his/her chances to 

get the job. The employer will believe that the 

candidate’s productivity is lower based on the 

signal he/she transmitted. 

The reserve salary, i.e. the salary 

requested by the candidate for a job has 

certain interesting aspects. The company 

declines a candidate who requests a lower 

reserve salary than the one the company set, 

based on the assumption that the respective 

candidate has a low productivity. However, it 

is possible that the candidate to a job requests 

a lower salary on purpose, with the objective 

of getting the job. This is a case of adverse 

selection [10]. Reserve salary represents a 

selection criterion for the employer. If the 

efficiency wage is set at a higher level than 

the equilibrium wage, this will lead to 

involuntary unemployment. Due to salary 

increase, there will be fewer jobs, and there 

will be no opportunities for those who wish to 

get hired for lower salaries. On the other 

hand, those who request a higher reserve 

salary than the efficiency wage will also be 

unemployed, since they respect the “signal 

theory”.

This paper approaches the labour 

market at a microeconomic level, as the 

employer-employee relationship plays an 

important role on this market. By 

understanding the labour market at a 

company level, we will better understand the 

labour market at a macroeconomic level. The 

employer must stimulate the employee to 

make as much efforts as possible in carrying 

out his/her tasks, without being able to 

quantify these efforts. That is why the 

employer must offer the employee an 

efficiency wage, which is expressed by the 

positive correlation between the work 

productivity and salary. On his/her turn, in 

order to obtain an efficient work contract, the 

employee, must ensure a “good signalling” on 

the labour market, i.e. a reserve salary that 

matches his/her competences and knowledge. 

The contract concluded between the two 

parties is optimum when the salary is 

constant, regardless of the economic 

conjuncture, but at an employment level 

which is below optimum. 

3. Dimensions of Employment and 

Unemployment in Romania in the First 

Years after the EU Accession 

Employment and unemployment – two 

complementary concepts – are among the 

most burning problems of today’s society. 

They are influenced by a complex set of factors 

generated by various conditions, within 

different dynamic processes. The level, the 

structures and the efficiency of employment at 

a certain moment reflect the macroeconomic 

performances, the ability of the economic body 

to use and value the available resources, 

including the human resources and its 

competitive force. Setting the point where the 

economy is in a state of full employment (plein 

emploi) is a major problem of the economic 

policy. Full employment is characterized by 

the complete use of the workforce. 

The employment policy is a set of 

public interventions on the labour market, to 

stimulate the creation of jobs, to improve the 

appropriateness of work resources to the 

needs of the economy, to ensure fluidity and 

flexibility on the labour market. Since the 

creation of the Single Market, employment 

has equally represented a preoccupation for 

the European Union. The first action in this 

respect was materialized in the 1991 Treaty of 

Maastricht, which anticipated the objectives of 

the future European Strategy for 

Employment. Romania is facing an 

employment crisis due to the privatisation and 

restructuring of the Romanian economy, 

which had a significant influence on the 

labour market and caused massive 

unemployment. The negative demographic 

trends determined low involvement of the 

population in economic activities, while the 

economic problems further reduced 

employment opportunities [13]. 

Figure 1: Employment rate by age groups 

Source: Institutul Naţional de Statistică (National Statistics Institute) 

582

Figure 1 shows that the employment 

rate of active population (age 15-54) in the 

third quarter of 2009 was 60.4%, up from 2008 

(59%). There is a gap of 9.6 points to 70%, 

which was Lisbon Agenda’s target for 2010 

[13]. During the second quarter of 2009, 

Romania had an active population of 10226 

thousand inhabitants, of whom 9527 thousand 

were employed and 699 thousand were 

unemployed BIM [13].The 60.4% employment 

rate was lower as compared to the third 

quarter of 2008 (0.1%), but higher than the 

second quarter of 2009 (+1.2%). Employment 

rate of young population (age 15-24) was 

26.1%. 

The main causes for these facts were: 

the general economic downturn, the decrease 

of the production volume, especially in the 

industrial sector, the narrowing down of the 

internal market and the loss of several 

significant segments on the foreign market, 

the late privatization, the decrease of 

investments and the restructuring of several 

unprofitable economic agents, low workforce 

mobility, the global economic trends, mainly 

the economic crisis. 

Unemployment translates in an 

imbalance on the labour market, when offer is 

higher than demand. As an economic 

phenomenon, unemployment has deep social 

implications, as it has a negative impact on 

the development of the society. It is a direct 

result of the restructuring process and the 

adaptation of the national economy to the 

requirements of an open market economy. In 

the developed countries, unemployment is 

regarded as a natural phenomenon which 

generates a competitive climate for both job 

seekers and employers. Due to the relative 

nature of the institutional data in analysing 

unemployment, the possibility of greater 

amplitude of the phenomenon should be 

considered. 

In early 1990s, women accounted for 

the majority of unemployed citizens (58.9% in 

1993 as compared to 41.1% men), but since 

1997, the percentage of unemployed women 

has decreased, as unemployment mainly 

touched the sectors with predominantly male 

staff (mining, civil engineering etc.). Another 

factor that contributed to reducing female 

unemployment was the development of the 

textile industry, including clothing and shoes 

manufacturing, where the workforce is 

predominantly feminine. In most countries, 

the level of female education and training is 

increasing. When the global employment level 

decreases, the feminine workforce tends to be 

more affected due to the female implication in 

the process of demographic reproduction. The 

analysis of unemployment according to age 

groups shows that young inhabitants with age 

under 25 are the most affected, followed by 

the age group 25-34. 

Figure 2: BIM unemployment rate Figure 3: BIM unemployment rate 

by age groups 2007 by age groups 2008 

583

BIM unemployment rate in 2008 was 

highest (18.6%) in young population (age 

15-24), lower than the previous year (21.2%) 

and higher than the following year (22.3%), 

due to the global economic downturn [13]. 

Although labour laws stimulate the 

employment of young population, the economy 

has reduced capacities to absorb newcomers, 

which shows that the labour market has 

discriminatory elements. According to 

qualifications, the labour force includes: 

workers, high school graduates and higher 

education (university) graduates. 

Unemployment mainly affects workers and 

high school graduates. In 2008, 30.6% of the 

total BIM unemployed citizens had low levels 

of education, while 62.7% were high school 

graduates. A higher percentage of those with 

low education were males (34.7%) as 

compared to females (23.3%). There were 

10.3% of unemployed university graduates in 

2009, among whom 14.4% females and 7.8% 

males. The unemployment rate according to 

the education level was highest in high school 

graduates and citizens with low education 

(7.2%). University graduates were less 

affected by unemployment (only 4.7%). A 

higher rate of low level education is registered 

in rural areas. 

Long-term unemployment is a problem 

for all European countries and it shows the 

flexibility of the labour market. In Romania, 

long-term unemployment (more than 12 

months) has registered a steady decrease 

between 2003 and 2008, from 61.9% in 2003 to 

41.3% in 2008. In 2008, very long-term 

unemployment (at least 24 months) accounted 

for almost 20% of the unemployment total, 

following a 40% peak between 2003 and 2004. 

In the period 2007-2008, long-term 

unemployment rate decreased both in the 

rural and the urban areas [13]. 

Romania has a lower unemployment 

rate than the UE27 average of 9.5%. The 

unemployment rate in the Euro zone (UE16) 

is 10%. Compared to the same period of the 

previous year, there was an increase of 2%, 

from 8% in November 2008 to 10% in 

November 2009. The global economic 

downturn is the main reason for this increase. 

The Netherlands has the lowest 

unemployment rate: 4.2%, while Latvia has 

584 

the highest unemployment rate: 22.9%, 

followed by Spain with 18.8%. 


Employment and unemployment are 

two important components of the labour 

market both on the national and international 

level. Although they receive significant 

attention, they are far from showing a positive 

evolution. Both employment and 

unemployment show trends that may be 

considered as threats to the social peace. 

Unemployment has negative effects both at 

the society level and especially at individual 

level, because it involves personal and moral 

losses, behaviour deviations that are related 

to violence and criminal acts. 

The current employment rate in 

Romania (60.4%) is significantly lower than 

the European average and especially as 

compared to the targets set by the European 

Commission through the Lisbon strategy 

(9.6% lower than the 70% target). The 

unemployment rate in 2007 and 2008 

decreased as compared to the previous years. 

In 2009, the unemployment rate increased 

from 3.9% in September 2008 to 6.9% in 

September 2009, mainly due to the global 

economic downturn. The unemployment rate 

according to the education level was highest in 

high school graduates and citizens with low 

education (7.2%). University graduates were 

less affected by unemployment (only 4.7%). A 

higher rate of low level education is registered 

in rural areas. 

The challenges Romania must face 

pertain to the employment level - statistical 

data shows an employment rate lower than 

the European average - (60.4% as compared to 

58.8% in 2007), the unemployment rate 

(according to the National Agency for 

Employment, the unemployment rate reached 

8.1% in 2010, from 7.8% at the end of 2009 

and 4.9% in January 2009), reduced level of 

employment of the population in the age group 

55-64, the extremely reduced participation of 

the workforce in life-long learning schemes, 

the higher unemployment rate than the EU 

average for young population (19.6% in 2009, 

as compared to the EU average of 18.3%, 

according to Eurostat) and the need to 

promote the Lisbon strategy.

Romania has high quality human 

resources that can sustain the socio-economic 

development of the country, if used 

appropriately. However, part of the human 

resources are confronted with problems such 

as inappropriate work management, hard 

working conditions, obsolete technologies, 

which may have a negative impact on 

productivity and competitiveness, in the 

competitive context of European integration. 

It is estimated that the total population of 

Romania will decrease annually by 

approximately 0.4% until 2013, and will 

undergo significant changes in terms of age 

groups, i.e. young population under 15 will 

decrease, while ageing population will 

increase. 

In conclusion, all processes and trends 

in the employment area and the means used 

up to now must be reconsidered in order to 

take more effective political and employment 

measures. Enhanced efforts are required to 

strengthen the administrative ability to 

manage and implement the Social European 

Fund. Significant progress had been made in 

the fields of social inclusion and social 

protection, but the success in implementing 

measures lies in the existence of sufficient 

resources. 

References 

[1] Beveridge, L., 1954, Full emplyment in Free 

Society, Ediția a III-a, Londra; 

[2] Constantin Daniela-Luminiţa, 2004, Elemente 

fundamentale de economie regională., Editura ASE, 

Bucureşti; 

[3] Dinu M., Socol C., Marinaş M., 2005, Mecanisme 

de convergenţă şi coeziune, Editura Economică, 

Bucureşti; 

[4] Dinu M., Socol C., Niculescu Aura,2006, 

Fundamentarea şi coordonarea politicilor economice 

în Uniunea Europeană, Editura Economică, 

Bucureşti; 

[5] Dornbusch R., Fischer S., Startz R., 

Macroeconomie, Editura Economică, Bucureşti, 

2007; 

[6] Egger P., 2005, Spatial beta and sigma 

convergence: Theoretical foundation, econometric 

estimation and an application to the growth of 

European region, Paper prepared for Spatial 

Econometrics Workshop, University of Kiel; 

[7] Frankel J.,2004, Real convergence and Euro 

Adoption in Central and Eastern Europe: Trade 

Gaubert N., La politique regionale europeenne 

585 

entre convergence et cohesion, Colloque ASRDLF – 

Bruxelles ; 

[8] Keynes, J. M., 1919, The Economic 

Consequences of the Peace, MacMillan, Londra, 

[9] Iancu Aurel, 2006, Problema convergenţei 

economice, Supliment al Revistei de Economie 

teoretică şi aplicată: România în Uniunea 

Europeană. Potenţialul de convergenţă, Bucureşti; 

[10] Silaşi, Gr., Sîrghi, Nicoleta, 2008, 

Macroeconomia în fişe, Editura Mirton, Timişoara; 

[11] Silaşi, Gr., Rollet, Ph., Trandafir, N., Vădăsan, 

Ioana, 2005, Economia Uniunii Europene: o poveste 

de succes?, Editura de Vest, Timişoara; 

[12] Stiglitz, J. E., Walsh C. E., 2005, Economie, 

Editura Economică, Bucureşti; 

[13] ***- Institutul Naţional de Statistică, Forţa de 

muncă România. Ocupare şi şomaj în trimestrul 

III, 2009

LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL 

MEANS 

University Assistant Dr. Camelia STĂNCIULESCU 

Faculty of Business and and Administration 

Bucharest University 

Abstract 

In an unwritten opinion, but tacitly 

and unanimously accepted by the doctrine, 

the civil legal act, regardless of its form, 

whether it is at a unilateral level, as a 

contract or a collective act, is presumed to 

be validly closed. Thus, until the moment 

of determining (or pronouncing) judicial 

nullity, the legal act will determine its 

pre-established effects. 

Previously to invoking the cause of 

nullity before the court, civil law admits 

other institutions meant to avoid the 

nullity of legal act that, eventually, will 

lead to the closing of judicial will. 

The most common means to lower 

the effects of nullity are: partial nullity, 

relative nullity, confirmation and 

regularization. 

1. Introduction To Partial 

Nullity 

The doctrine unanimously admits 

that relative nullity must become a 

subsidiary sanction of the contract, which 

should be apllied only when 

regularization is not possible, either 

materially or legally or when the 

cancellation of the contract appears to be 

the only possibility to repair the damage 

suffered by the victim. 

In its turn, relative nullity can be 

partial or total. 

Partial relative nullity will be used 

whenever the preservance of the contract 

itself will be relevant for the victim, fact 

that brings together the legal regime of 

this sanction to that of regularization. 

In exchange, total relative nullity 

will be used in those cases when the 

convention can be retroactively abolished 

in its whole, precisley because it does not 

preserve any use for the victim. 

Applying the sanction of partial 

nullity implies the study of contractual 

elements - which were not subjected to the 

586 

will agreement of parties – with the 

consequence of exclusive dissolution of 

provisions, over which a genuine 

agreement of wills could not be identified. 

The evolution in the process of launching 

partial nullity as a rule, appears together 

with the rectification brought to the 

theory of will autonomy and with the 

recognition of inequality between 

contractors. 

Partial nullity is a sanction enacted 

in the interest of the party that hires a 

contract from a lower position, case when 

the preservance of the contract has a 

special use for the latter, because it gives 

the possibility to exclusively annul the 

illegal provisions that are in its 

disadvantage. 

The imbalance caused by the vice of 

consent at the closure of a contract, can be 

eliminated only by removing the 

contractual provision in conflict with the 

law, most often placing the victim back in 

the previous situation involving a positive 

act, an amendament to the contract. This 

amendment to contractual provisions 

could materialize in a price adjustment or 

even in a change of the object of the 

contract. 

The doctrine often raised the 

question whether a judge may intervene a 

contract? It was unanimously agreed that 

court interference in a contract was 

possible only in special circumstances, 

when there was a legal provision in that 

respect, such as, the possibility provided 

in art. 1021 of the Civil Code, to grant the 

debtor some grace periods in order to 

fulfill his obligation. 

The judge’s intervention in order to 

re-establish the contractual balance, even 

between these boundaries, is the result of 

a long evolution, often stopped by the 

principle of will autonomy. The contract, 

being the consequence of fusion between 

at least two autonomous free and 

responsible wills, can be altered,

according to the principle of symmetry of 

civil legal acts, only through the same will 

agreement that determined it. 

2. Relative Nullity- The 

Possibility To Save Legal Act 

Absolute and relative nullity 

classification is of utmost importance for 

the legal system, because of the different 

character each of the fore-mentioned 

nullities has. 

The legal regime of relative nullity 

focuses on the following rules: 

a. Relative nullity can be invoked 

only by the interested party 

This rule is justified by the fact that 

relative nullity is meant to protect an 

individual interest. 

But we have to underline that, 

although the rule in discussion is 

formulated restrictively, however, the 

possibility to invoke relative nullity of a 

legal act belongs to a wider range of 

persons. 

Thus, relative nullity can be 

invoked by the individual whose interest 

was ignored when the legal act was closed 

or by the legal representative, by the 

inheritants of the party tutored, by the 

prosecutor, by the simple contract 

creditors of the protected party (using the 

oblique action method). 

But the doctrine does not 

comprehend a unitary agreed point of 

view regarding the issue if relative nullity 

can be invoked also by the legal tutor of 

the under-aged with limited power of 

decision. 

Another preffered opinion 

acknowledges the right of the legal tutor 

to invoke relative nullity, relying on an 

extensive and theological interpretation of 

art. 9, paragraph 2 from the Decree no 

167/ 1958. 

b. Relative nullity is prescriptible 

Being conceived for the protection of 

some individual interests, relative nullity 

is about to yield in favour of some general 

interests that the institution of extinctive 

prescription provides. 

The Decree no 167/ 1958, does not 

excusively consider that the action in 

587 

relative nullity is subordinated to 

extinctive prescription, but it establishes 

the moment from which the prescription 

term starts to run. 

We underline that the issue 

whether the invocation of relative nullity 

as an exception (using the background 

defense) is subjected or not to extinctive 

prescription, did not receive a unitary 

solution in the specialty literature. 

One opinion considers that invoking 

relative nullity as an exception, is 

imprescriptable (quae temporalia sunt ad 

agendum, perpetua sunt ad excipiendum). 

Another general opinion, to which 

we subscribe, considers that relative 

nullity is prescriptible if invoked 

exceptionally. 

The expiry date of the extinctive 

prescription assumes the tacit 

confirmation will of the legal act struck by 

relative nullity. 

3. Confirmation (expressively or 

tacitly). 

Conceived as ’the act whereby a 

person yields unilaterally to take 

advantage of the relative nullity of a legal 

document and which, expressly or tacitly, 

may come from a spontaneous execution’, 

confirmation is a cause of prescription of 

the regularization action and of the action 

in annulment of the legal act affected by 

the vice of consent. 

The coverage area of confirmation is 

limited by legal acts altered by the 

sanction of relative nullity. 

At a first analysis, the favored area 

of confirmation is that of legal acts 

affected by incapacities or vices of 

consent, but confirmation is that 

unilateral legal act through which one 

gives up his right to invoke relative 

nullity. 

Confirmation may be either express 

or tacit. 

The possibility of express 

confirmation with general character, 

results from art. 1190 of the Civil Code, 

according to which ’the act of confirmation 

or ratification of an obligation, against 

which the law admits the action in 

nullity, is valid only when the object, the 

cause and the nature of obligation, are 

included, and when it specifies the reason 

of the action in nulity, as well as when it

mentions the intention of repairing the 

vice the respective action relies on’. In 

order to become valid, the act of express 

confirmation must meet the following 

requirements: 

- to come from the person entitled to 

invoke relative nullity and to be done in 

full knowledge of facts; 

- the vice that affected the legal act 

struck by relative nullity (the cause of 

relative nullity) to be ceased upon 

confirmation (otherwise, the act of 

confirmation itself is doomed to 

annulment); 

- to include the object, the cause and 

nature of obligation and to remind the 

reason of the action in relative nullity; 

- the intention to cover the nullity 

area should be obvious from the content of 

the act. 

Tacit confirmation results from 

deeds that leave no doubt on the intention 

to cover relative nullity. Thus, the 

voluntary execution of a legal document 

struck by relative nullity is a tacit 

confirmation (however, it is necessary for 

the respective person to have known the 

cause of relative nullity and to have 

executed the act in full knowledge of the 

facts). 

Similarly, art. 1167, paragraph (1) 

of the Civil Code, states that ’without an 

act of confirmation or ratification, it is 

sufficient for the obligation to be executed 

voluntarily, after the period when the 

obligation could have been validly 

confirmed or ratified’, and, according to 

paragraph 2 of the same article 

’confirmation, ratification and voluntary 

execution, in the form and period 

determined by law, can replace the 

renunciation regarding the means and 

exceptions that could be opposed to this 

act, without any harm to the rights of 

third parties 1 .’ 

Confirmation, whether express or 

tacit, has the effect of validating legal 

acts struck by relative nullity, and this 

effect occurs retroactively (ex tunc), and 

dates since the confirmed legal act has 

been closed. 

1 In case of not invoking relative 

nullity during the extinctive prescription 

period, it is estimated that a tacit 

confirmation would be involved, too. 

588 

Please note that the institution of 

confirmation must not be confused with 

ratification, the latter being the document 

whereby a person becomes part of the 

legal act closed in absence or in excess of 

empowerment necessary to close the act. 

Confirmation cannot also be 

mistaken with the re-writing of the act, 

because in such a case a new legal act 

comes into being and takes effect from 

that very moment, while the confirmation 

operates retroactively 2 . 

4. Conclusions On Regularization – A 

Sanction Characteristic To Civil 

Contracts Affected By A Vice Of 

Consent 

Curative sanctions can be divided 

in: sanctions that allow the maintaining of 

the contract itself (the regularization) and 

sanctions that annul the contract (relative 

nullity). 

Depending on the contractual 

imbalance the victim suffered because of 

the vice of consent, which may belong to 

present or future, contractual sanctions 

can be either of curative or preventive 

nature. 

In order not to deprive the victim of 

an effective protection of consent, the 

French doctrine makes the apology of an 

unheard-so-far sanction, alternative to 

the nullity of the contract: regularization, 

that is very likely to preserve the 

desirable effects of the convention, 

ensuring simultaneously the repairing of 

prejudices caused to the victim of the 

alteration of consent through objective or 

subjective contractual imbalance. 

This institution can be sometimes 

mistaken with the confirmation, because 

regularization is a voluntary 

manifestation of the co-contractor’s will 

2 Do not confuse confirmation with the 

recognitory act, the latter being used to 

acknowledge a pre-existant legal act 

refering only to its existance, and not in 

reference to its validity.

who could have claimed the annulment of 

the contract 1 . 

Regularization refers to the action 

of returning not only to status quo ante, 

but also to the situation that would have 

existed if the rule had been observed, to a 

state ’cured’ of any vice. Therefore, 

regularization can be defined as a 

sanction of the contract touched by a vice 

of consent that has as result the repairing 

of the consequences determined by 

consent alteration, thus the victim is 

brought back in the situation he/ she 

would have gone through if the vice hadn’t 

affected his/ her consent. 

Regarding the legal mechanism for 

the operation of regularization, it can be 

noticed that this gives to the already 

mentioned sanction the particularity to 

easily adjust to the victim’s necessities: 

regularization enables the integration of 

different forms of redressing, such as the 

elimination of an abusive provision 

(negative regularization) or the alteration 

of an obligation (positive regularization) 2 . 

If negative regularization is a legal 

mechanism easier to understand, and if 

taking into account the possible analogies 

to the legal regime of other sanctions, 

such as partial nullity or winning an 

abusive provision as unwritten, some 

observations are required concerning the 

legal mechanism of positive 

regularization. It should be noticed that 

positive regularization raises particular 

difficulties determined by the fact that, 

sometimes, this sanction imposes on the 

co-contractor – victim task, the execution 

of another obligation instead of the 

already assumed one by contract, fact that 

violates the principle of the compulsory 

force of the contract. 

On the other hand, similar results 

to positive regularization can be rather 

1 The French literature supports the 

idea that regularization, unlike 

confirmation, is ’an objective validity 

procedure’(s.n.) 

2 Positive regularization consists in 

the alteration of the contract, either from the 

initiative of the parties or from the 

interference of the judge, concerning the 

readjustment of obligations undertaken by 

the co-contractor in front of the victim. 

589 

met in the area of contract execution, 

when the creditor, being entitled to the 

execution of obligation in its specific form, 

may constrain the debtor to fulfill the 

exact claim of the undertaken service, by 

means of execution by force. 

A major obstacle, that hampers the 

implementation of positive regularization, 

is the admission by law on the judge’s 

limited possibility to interfere in the 

contract. 

Positive regularization would 

suppose the acknowledgement of the 

judge’s creative role, since, under this 

sanction, the judge should be able to alter 

the contractual provisions, changing the 

object, the nature and even the extent of 

obligation of the contractual partner of 

the victim with the purpose to restore the 

contractual balance. 

The French doctrine estimated that 

the judge may issue a positive 

regularization, but the mentioned 

regularization must, materially speaking, 

give the possibility to the contractual 

partner of the victim to be able to fulfill 

it. For example, a trader can positively 

regulate his obligation if he made an 

inconsistent delivery of goods, offering 

other goods according to the obligations 

taken, while the seller of a land- that 

afterwards proves doomed to building- 

cannot regulate his contract. 

Regularization, due to the 

advantages it brings, comes as a useful 

sanction (because of the flexibility of its 

legal nature). 

The national doctrine chose in 

favour of a legal regulation of 

regularization, fact that would lead to a 

restoration of the efficacity of civil 

sanctions in relation to vices of consent. 

References 

G. Boroi, Civil Law. General part. 

Individuals., 3rd edition, Hamangiu 

Publishing House,Bucharest, 2008 

M. Nicolae, Extinctive Prescription, 

Rosetti Publishing House, Bucureşti, 2004 

T. Pop, Romanian Civil Law. General 

Theory, Lumina Lex Publishing House, 


T.R. Popescu, Civil Law, vol. I, General 

Introduction, Oscar Print Publishing House, 

Bucharest, 1994

E. Poenaru, Civil Law. General Part. 

Individuals, All Beck Pusblishing House, 


D. Alexandresco, Principles of Civil 

Law, vol I, Socec Publishing House, 


A. Ionaşcu, Civil Law. General Part, 

Pedagogical and Didactical Publishing 

House, Bucharest, 1963 

Tr. Ionaşcu, E. Barrasch, Civil Law 

Treaty, vol. I, General Part, Academy 

Publishing House, Bucharest,1967 

D. Cosma, General Theory On Civil 

Legal Act, Scientific Publishing House, 


O. Căpăţînă, Treaty Of Civil Law. 

General Introduction, vol I, The 

Academy Publishing House S.R.R., 


P.M. Cosmovici, Civil Law. 

Introduction To Civil Law, All 


E. Chelaru, Civil Law. General 

Introduction. All Beck Publishing 


590 

D.M. Fruth-Oprişan, The Execution In 

Nature Of The Obligation To Do, in R.R.D. no. 

8/1986 

O. Gout, Le juge et l anulation du 

contract, PU Aix, Marseille, 1999, p. 253. 

C. Ouerdane-Aubert de Vincelles, 

Alteration du consentement et efficacite des 

sanction contractuelles, Dalloz, Paris, 2002 

M. Mureşan, Civil Law. General 

Introduction, Cordial Publishing House, Cluj- 

Napoca, 1994 

V.V. Popa, Civil Law. General 

Introduction. Individuals, All Beck Publishing 


G. Couturier, La confirmation des actes 

nulls, LGDJ, Paris, 1972 

I.R. Urs, Roman Civil Law.General 

Theory, Oscar Print Publishing House, 


Ph. Merle, Droit commercial. Societes 

commerciales, Dalloz, Paris, 2000 

G. Berlioz, Le contract d adhesion, 

LGDJ, Paris, 1973

THE NECESSITY TO HARMONIZE THE MECHANISMS 

CHARACTERISTIC TO ’THE CONTRACT OF CONSUMPTION’ TO 

GENERAL RULES 

Abstract 

Together with the issue of the 

consumption contracts, the doctrine was 

confronted with new specific mechanisms 

imposed by law, among which we mention 

the precontractual obligation to information, 

the consent of consumption, the unilateral 

denunciation and the abusive clauses. 

Starting with the premise that the 

consumption contract is included within the 

general rules of the contract, it is compulsory 

for its specific institutions to find 

immediately the right place in the general 

background of the contractual structure. 

The harmonization of the special 

institutions of 'the contract of consumption’ 

with the general rules is an activity that 

needs to be realized by the doctrine and the 

national jurisprudence. 

Key words: consumption contract, 

unilateral denunciation, harmonization with 

the general rules. 

I. Introduction. 

The differences between the general 

rules established by the teory of obligations 

which frame the institution to civil contract 

and special rules introduced in the field of 

consumption contract created an apparent 

dispute vain but in our opinion it can be 

overcome through the harmonization action 

is doctrine and national jurisprudence. 

Taking into consideration the space 

issue, the present study intends to briefly 

and exclusively analyze the institution of 

unilateral denunciation of the consumption 

contract and to propose some solutions of 

harmonization with the general rules. Thus, 

one of the questions that requires a solution 

is: how can consumer’s law of ’unilateral 

denunciation’ (such as the case of a 

consumption selling, for example) be 

interpreted, justified and harmonized? 

Professor Ph. D. Liviu STĂNCIULESCU 

Faculty of Law , Bucharest 

„Nicolae Titulescu” University 

591 

II. Supports and solutions. 

The reference point of our approach 

relies on the one hand, on the provisions of 

Art. 1177 of the Civil Code 2009 1 according 

to which ’the contract closed with consumers 

is subjected to special laws and additionally, 

on the other hand, to the ’provisions of the 

present code’ and , on Art. 5 from 

Government Ordinance No 130/ 2000, 

according to which ’if parties have not 

agreed otherwise, the contract is considered 

a distance contract when the consumer 

receives the confirmation message of his 

order.’Thus, relating to the ’receival’ of the 

confirmation message’(the content of the 

message is not relevant, its receival counts), 

the theory of reception can be defined and 

therefore, the contract is closed with the will 

of both parties, respectively, the vendor and 

the consumer 2 . 

The doctrine considers that 

consumer’s right of ’unilateral 

denunciation’ was and is a subject of 

continuous debate. 

In a nutshell, two questions raise 

juridically: 

- the right of the consumer to 

’unilateral denunciation’ is 

related to the drawing up of 

the contract or to the closing 

phase? 

- if consumer’s right to 

’unilateral denunciation’ is 

related to the phase of closing 

the contract, then: Which 

condition of validity will suffer 

(the consent, the capacity or 

the cause)? 

1 Enclosed in title 2 nd , ’The Springs of 

Obligations’, Chapter 1 ’The Contract’, Section 2 nd , 

‘Different categories of contracts’. 

2 L. Pop, Treaty Of The Civil Right. Obligations. 

2nd Volume. The Contract, The Legal Universe 

Publishing House, Bucharest, 2009, p. 298 and the 

following.

Trying to find an answer to the forementioned 

questions, we begin by stating 

that in the specialized literature the 

concept of consumerism of ’unilateral 

denunciation’ received several 

qualifications. 

Relying on the principle of compulsory 

force (pacta sunt servanda) valid closed 

contracts have judicial effects (of compulsory 

nature) for contractual parties. 

According to the principle of 

irrevocability, the contract cannot be 

unilaterally denounced. 

Hence, once the parties consented and 

the contract was validly signed, the parties 

cannot unilaterally have second thoughts 

over the existance of the contract, being 

obliged to put into force the contractual 

clauses. 

As an exception, contracts can also 

come to an end on unilateral denunciation 

(from the will of a sole party). Under these 

circumstances, the right of unilateral 

denunciation (enforced by law or by the will 

of the parties 1 ) is only an exception to the 

principle of irrevocability (and a reason to 

end the contract). 

Taking into account the dispositions of 

the community acquis regarding the 

protection of consumer’s interests, the 

buyer’s right of unilateral denunciation (of 

contradiction) was regulated as a rule (this 

time), established in favour of the consumer. 

Hence, according to Art. 82 from Law No 

296/ 2004 (The Code Of The Consumer), the 

contract of purchasing the products and 

services must stipulate a precise clause on 

consumer’s right to ’unilaterally denounce’ 

the contract. 

We underline that, together with the 

right of unilateral denunciation of the 

contract, the French legisation also defines 

the institution of a ’time of reflection’ 2 . 

1 The clause of contradiction is a contractual 

provision through which one of the parties 

reserves its right to require the cancellation of 

the contract (before the expiry term and 

sometimes against the payment of a 

contradiction tax is imposed; 

2 The term ’reflection’ (given to the consumer 

before closing the contract, for example, when 

purchasing a property) or the term of grace 

period (given by the Court to the debtor in 

order to pay out his debt) cannot be mistaken 

with ’the term of reflection’ that is one of the 

592 

The right of unilateral denunciation 

(called in the community directives and in 

the legislations of other states, ’the right to 

retract’) is justified because it allows the 

consumer a plus of protection, given by the 

possibility to think over the decision taken 

and to check the way the vendor fulfills his 

duties. The same way ’through its effects, 

the law of denunciation compels the vendor 

to have a behaviour as honest as possible 

towards the consumer and to execute the 

contract properly. 

The doctrine considers that consumer’s 

right to ’unilateral denunciation’ 

(established by law) was and still is a theme 

of discussions, especially in the terms of its 

juridical nature. 

Consumer’s right to unilateral 

denunciation in the Code of Consumption 

and in its special laws is a legal and free 

right. Because it does not involve the 

agreement of a professional person, it is a 

potestative right 3 . 

Although, only consumer’s right to 

unilateral denunciation is regulated, we do 

not exclude the possibility that proffesionals 

can also benefit from a similar right. 

In the specialized literature, the law of 

unilateral denunciation belonging to the 

consumer received several qualifications. 

One opinion of the French doctrine 4 , 

shows that the signing of the contract by the 

consumer is only a stage in the gradual 

formation of the consumer’s will. The will of 

the consumer is not irrevocable, because he 

has the possibility to think over the 

denunciation term. Subsequently, the right 

of denunciation does not affect the 

compulsory force of the contract, as it is used 

at a moment in which the contract is not 

compulsory minimal clauses, the contract of 

purchase and services must include (1 st 

paragraph, letter g, from the enclosure to the 

law) 

3 See I. Reghini, Considerations on potestative 

rights,in RDC no 4/2003, p. 236 

4 See Fr. Terre, Ph. Simler, Y. Lequette, Droit 

civil. Les obligations, Dalloz, Paris, 1999, p. 

189; Ch. Larroumet, Droit civil. Les 

obligations. Le contrat, Economica, Paris, 

2007, p. 248 and the following

completely closed’ 1 . It is also explained why 

the contract cannot produce effects as long 

as the contract is not fully drawn up 2 . 

Another opinion 3 estimates that the 

right of denunciation is a faculty of 

contradiction that can be applied only within 

a certain term, thus taking into discussion 

the compulsory force of the contract. 

The doctrine supported the theory of 

formation of the contract ’in stages’, 

according to which although, in a first phase 

the professional consent met the consumer’s 

consent, the contract was not completly 

drawn up (was not signed), but only at a 

provisional stage. If , in the terms of 

contradiction, the consumer does not exert 

his right of retraction, his consent will 

become better and the contract will 

strenghten up to its final drafting 4 . 

We do not share the opinion of gradual 

formation of the contract as the legal clauses 

do not prove that the gradual constitution of 

consent was taken into account. The same 

way, in certain cases, the term of exertion of 

the right of denunciation is calculated from 

the date the contract was closed. Even more, 

the contract produces effects, too, and thus, 

the consequences of the right of denunciation 

over services already done are being 

regulated. 

We consider that consumer’s right of 

’unilateral denunciation’ is a faculty granted 

(ad legem) to ’the purchaser’ to ’renege on 

signing the contract’, which juridically is 

understood as one’s possibility to contradict 

(change one’s mind) regarding the consent 

1 Consumer’s right to unilateral denunciation is 

not an issue to revoke the contract ; see G. 

Boroi, op. cit, p. 208. 

2 See J. Goicovici, The Right Of 

Consumption;The Juridical Sphere Publishing 

House, Cluj-Napoca, 2006, p. 101. 

3 See V. Stoica, Al. Bleoanca, The 

Enumeration from the list comprised in annex 

of The Governamental Ordinance no 

130/2000, regarding the juridical regime of 

distance closed contracts, is limitative or 

exemplifying?, in RDC no. 11/2002, p. 31. 

4 See J. Goicovici, Protecting the consent of’ 

the weak party’ through Law no 289/ 2004 

concerning the legal regime of consumption 

contracts destined for consumers taken as 

natural persons, in Law no. 8/2005, p. 28-32. 

593 

given at the perfect termination of the 

contract. 

On the above mentioned terms, the 

contradiction (se rétracter,see French word: 

to contradict from what it has originally 

been said) is not a way to put an end to a 

contract (such as the unilateral denunciation 

of the location closed on an indefinite term), 

but it is a way of ’retracting the consent’ 5 . 

The exertion of the right of 

denunciation determines the retroactive 

cancellation of the contract, having as 

consequence the paying back of services. 

Although the right of denunciation is a 

more advantageous alternative for the 

consumer, this one can use other means put 

at his disposal whether by the common law, 

or by the specific regulations of this domain, 

with the purpose of defending his own 

interests. For example, one can claim the 

annulment of the contract on the ground of 

consent vice or the annulment of a clause on 

the ground of being abusive. A special 

provision cannot eliminate the applying of 

another provision having the same 

character, as well as it cannot exclude the 

occuring of a general rule with a different 

judicial basis. 

III. Conclusions. 

Nowadays, the general theory of the 

contract is subjected to a new pressure 

exerted by the new rules, ’full of 

vitality’belonging to the right of consumption 

or to the right of competence (and, generally, 

of its adjustment to the present social and 

economic conditions). Thus, the doctrine 

admits unanimously that the general theory 

of the contract undergoes a period of 

reassessment and reconstruction 6 . 

The main difficulty of adjusting the 

contract to the new conditions, consists in 

the fact that the lawman (belonging to 

modern times) created a legislative 

5 See C. Toader, Opinions on the ordinance 

regarding the contracts closed outside 

commercial spaces, in RDC no. 12/1999, p. p. 

164. 

6 See I. Picod, E. Davo, Droit de la 

consommation, Armand Colin, Paris, 2005, p. 

92. Y. Picod, Le devoir de loyaute dans l 

execution du contract, L.G.D.J., Paris, 1989, p. 

122.

ackground meant to meet the present social 

and economic interests, without caring about 

its (real) implementation within the existant 

judicial system. Therefore, the translation 

and adoption of some new institutions 

generated by the market economy (such as, 

consumer’s right of retraction) can lead to 

the reconsidering or even to the elimination 

of some contractual rules (that are against 

the pure economic standards). 

Under these circumstances, the role 

of harmonization the new rules to the present 

legal system is played by the doctrine and the 

jurisprudence, which must be present in the 

finding of some effective solutions. But we 

mention that although the influence of the 

right of consumption over the common right 

of contracts is confirmed, the role of 

protecting the customer is still played by 

common law. 

References 

1. G. Boroi, Civil law. General part. 

Persons, ediţia a III-a , Hamangiu,Bucureşti, 

2008 

2. J. Goicovici, The Right Of 

Consumption;The Juridical Sphere Publishing 

House, Cluj-Napoca, 2006 

3. J. Goicovici, Protecting the consent of’ 

the weak party’ through Law no 289/ 2004 

concerning the legal regime of consumption 

contracts destined for consumers taken as natural 

persons, in Law no. 8/2005 

4. Ch. Larroumet, Droit civil. Les 

obligations. Le contrat, Economica, Paris, 2007 

5. I. Picod, E. Davo, Droit de la 

consommation, Armand Colin, Paris, 2005 

6. Y. Picod, Le devoir de loyaute dans l 

execution du contract, L.G.D.J., Paris, 1989 

7. L. Pop, Treaty Of The Civil Right. 

Obligations. 2nd Volume. The Contract, The 

Legal Universe Publishing House, Bucharest, 

2009 

8. I. Reghini, Considerations on 

potestative rights,in RDC no 4/2003 

9. V. Stoica, Al. Bleoanca, The 

Enumeration from the list comprised in annex of 

The Governamental Ordinance no 130/2000, 

regarding the juridical regime of distance closed 

contracts, is limitative or exemplifying?, in RDC 

no. 11/2002 

10. Fr. Terre, Ph. Simler, Y. Lequette, 

Droit civi. Les obligations, Dalloz, Paris, 1999 

11. C. Toader, Opinions on the ordinance 

regarding the contracts closed outside commercial 

spaces, in RDC no. 12/1999 

12. Law nr. 294/2004 (Comsumption 

Code) 

594 

13. Law nr. 289/2004 on the legal for the 

consumer credit 

14. O.G. nr. 130/2000 on the legal status 

of contracts remote 

15. Civil Code of 1864 

16. Civil Code 2009 (Law nr. 287/2009)




IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN THE 

INTEREST RATES AND THE STOCK PRICES IN ROMANIA 

STEFANESCU Razvan 

University “Dunarea de Jos” Galati, Faculty of Economics 

rzvn_stefanescu@yahoo.com 

DUMITRIU Ramona 

University “Dunarea de Jos” Galati, Faculty of Economics 

rdumitriu@ugal.ro 

Abstract Very often the crisis induces 

changes in the linkages between the financial 

variables. This paper explores, through a 

Vector Autoregression model and Granger 

Causality tests, the impact of the global crisis 

on the relation between the Romanian stock 

prices and the interest rates. We found this 

relation was very weak before the crisis, when 

the Romanian stock market experienced an 

ascendant trend. Instead, it became quite 

significant during the crisis when the 

financial markets are very sensitive to the 

external stimuli and the monetary policy has 

to take into consideration the impact of 

interest rates on the stock prices. 

Key words: Granger causality, Vector 

Autoregression, Romanian stock market, 

interest rates, global crisis 


In this paper we approach the changes 

induced by the global crisis in the relation 

between the interest rates and the stock 

prices from Romania. The study of this 

relation is important for the monetary policy 

decisions and for the attempts to predict the 

stock markets evolution. In this article we 

explore the linkages between the interest 

rates and the stock prices from October 2008 

to March 2010, when the Romanian economy 

was affected significantly by the global crisis. 

As a base for the comparison we use a period 

of time from January 2007 to September 

2008. In our analysis we use the daily values 

of ROBOR 3M, a reference for the interest 

rates at which the banks could borrow three 

months unsecured funds from other banks in 

595 

the Romanian interbank market and BET – 

XT, a representative index compound on the 

most liquid 25 shares traded on the 

Bucharest Stock Exchange (BSE). We 

identify the linkages between the two 

variables using a Vector Autoregressive 

(VAR) model and Granger Causality tests. 

During the year 2007, ROBOR 3M 

experienced an ascendant trend reflecting a 

prudent monetary policy applied by the 

National Bank of Romania (NBR). During 

the first ten months of 2008, in the context of 

substantial threats for the monetary 

stability, the interest rates were raised until 

much higher levels. Between 15 and 20 

October, facing significant speculators 

attacks against the national currency, NBR 

determined a major growing of ROBOR 3M 

from 15 to 49 percents. After this episode, in 

an attempt to stimulate the national 

economy affected by the global crisis, NBR 

slowly reduced the interest rates (Figure 1). 

After Romania’s adhesion to the European 

Union, in January 2007, BET – XT 

experienced months of substantial increase. 

During 2008 the Romanian stock market 

was in decline, induced by the evolution of 

the international financial markets. After 

that, the stock prices regained the ascendant 

trend, but their values were much lower in 

comparison with those from 2007 (Figure 2). 

The impact of crisis on the linkages between 

interest rates and stock prices was revealed 

in several papers (for example, Blanchard; 

1981, Kindleberger and Aliber; 2005, Bordo 

et al.; 2007). To our knowledge, until now no 

attempt was made to evaluate the impact of

the actual global crisis on the relation 


prices from Romania. Although the end of 

this crisis is still far, this paper could provide 

a basis for further researches on this theme. 

The rest of this paper is organized as follows. 

The second part approaches the specialized 

literature, the third part describes the data 

and the methodology employed, the fourth 

part presents the empirical results and the 

fifth part concludes. 

2. Literature Review 

The relation between the interest rates and 

the stock prices was largely approached in 

the specialized literature. Bernanke and 

Kuttner (2005) studied the mechanisms by 

which the stock prices were affected by the 

interest rates. In general, the investors 

compare the earnings offered by the stocks 

with the earnings provided by the bonds or 

by the bank deposits. They are also sensitive 

to the operations financing cost. 

It is well known that an increase of the 

interest rates lead to a decline of the 

economic activity which reduces the 

dividends. Such potential evolutions 

influence the expectations regarding the 

stock prices which have an important role, at 

least on short term. The impact of the 

interest rates variation on the stock prices 

was approached in the Efficient Market 

Hypothesis (EHM) framework. According to 

this theory, in case of rational expectations 

of the investors, only unanticipated changes 

could generate shocks in the stock prices 

evolution (Fama; 1970). 

The influence of the stock prices on the 

interest rates is related to the monetary 

policy issues. Bernanke and Gertler (2001) 

describe the circumstances in which central 

banks reacted to asset prices evolution. In 

general, a central bank has adequate tools to 

determine the interest rates evolutions. In 

implementing the monetary policy a central 

bank has to take into consideration the 

impact of the stock market evolution on the 

macroeconomic stability (Cecchetti et al.; 

2000). 

The asset booms and the busts could have 

inflationary effects, while a stock crush could 

bring the national economy into recession 

596 

(Kent and Lowe; 1997). The extent to which 

the monetary policy should react to the stock 

prices changes is still a controversial subject 

(Goodfriend; 2003). 

Very often, the financial crisis induced 

substantial transformations in the relation 


prices. In such a context the financial 

markets become more sensitive to the 

external evolutions, while the central bank is 

much careful not to aggravate the stock 

prices decline (Kindleberger and Aliber; 

2005). 

3. Data and Methodology 

In our analysis we employ daily values of 

ROBOR 3M, provided by the National Bank 

of Romania (NBR) and daily closing values of 

BET-XT, provided by the Bucharest Stock 

Exchange (BSE). Our data cover the period 

of time between 3 January 2007 and 31 

March 2010. We divide this sample in two 

sub – samples: 

- The first sub-sample, from 3 January 

2007 to 30 September 2008, 

corresponding to a relative tranquil 

period of time; 

- The second sub-sample, from 1 October 

2008 to 31 March 2010, when the global 

crisis affected substantially the financial 

markets from Romania. 

We use the returns of the two variables: 

RROB=(lnROBOR 3Mt – lnROBOR 3Mt-1)*100 

(1) 

and: 

RBETXT 

(2) 

where: 

= (ln BET-XTt – ln BET-XTt-1) * 100 

- ROBOR 3Mt and ROBOR 3Mt-1 are 

the values of three months ROBOR 

in the day t, respectively t-1; 

- BET-XTt and BET-XT t-1 are the 

values of BET-XT 

index in the day t, 

respectively t-1. 

The descriptive statistics of the two variables 

for the two sub – samples are presented in 

the Tables 1, 2, 3 and 4. They indicate 

significant differences between the 

evolutions in the two periods of time. For all

four time series the hypothesis of non 

normality was rejected. 

In order to avoid the spurious regression we 

test the stationarity of the four time series. 

We begin with the classical Augmented 

Dickey-Fuller Test. The numbers of lags 

were chosen based on the Akaike 

Information Criterion. Based on the 

graphical representation we use two forms of 

test: one with no constant and no trend, 

other with constant and no trend (Figures 3, 

4, 5 and 6). The results, 

presented in the 

Tables 

5 and 6, indicate the stationarity of 

all four time series. 

Because of the two variables complex 

evolutions we double the Augmented Dickey- 

Fuller Test with the test proposed by 

Saikkonen and Lutkepohl (2002) and Lanne 

et al (2002) which allows taking into account 

the eventual structural breaks. The shift 

functions were chosen based on the graphical 

representation. For RROB we used an 

impulse dummy for both sub – samples, 

while for RBEXT we use, also for both sub – 

samples, a shift dummy. In the Tables 7 and 

8 there are presented the results of the tests 

indicating 

the stationarity of all four time 

series. 

The interactions between RROB and RBEXT 

for the two samples will be studied using the 

Vector Autoregressive (VAR) models. The 

number of lags for the VAR model is chosen 

based on the Schwartz Bayesian Criterion. 

In the VAR framework we test the Granger 

causality between the two 

variables. 

4. Empirical Results 

Based on the graphical representation we 

used intercept and trend as deterministic 

variables for the VAR equations of the first 

sub-sample. The coefficients of the two 

equations are presented in the Table 9. The 

values of R-squared 

coefficients suggested, 

for 

both equations, weak linkages between 

the variables. 

The impulses – responses between RROB 

and RBETXT are shown in the Figure 7. A 

shock in RROB leads initially to a decline in 

RBETXT. However, after some fluctuations, 

RBETXT is back to the initial level. A shock 

in RBETXT provokes the decline of RROB 

followed by a recovery. In the Table 11 there 

597 

are presented the results of the Granger 

causality tests 

for the first sub-sample. They 

indicate 

no causality between the two 

variables. 

For the second sub – sample the graphical 

representation suggests using only intercept 

as deterministic variable for the VAR 

equations. In the Table 10 there are 

presented the coefficients of the two 

equations. The values of R-squared 

coefficients indicate a significant influence 

for the first equation (with RROB as 

dependent variable). The Figure 8 shows the 

impulses – responses between RROB and 

RBETXT. A shock in one of the two variables 

provokes a fluctuant evolution of the other 

variable which finally is back to the initial 

level. The Granger causality tests for the 

second sub-sample are presented 

in the 

Table 

12, proving a bi-directional causality 

between the two variables. 


In this paper we studied the relation 

between the Romanian stock prices and the 

interest rates before and during the global 

crisis. 

We use a VAR model employing daily 

values of BET – XT and ROBOR 3M. 

The results indicate quite weak linkages 


prices before the global crisis. This situation 

could be explained by the economic trend 

from this period of time. The stock market 

experienced an ascendant trend which was 

quite insensitive to the 

interest rates. The 

monetary 

policy was applied with less regard 

to the stock market. 

During the global crisis we found significant 

linkages between the two variables. A bidirectional 

Granger causality was revealed 

by the tests, suggesting that in the global 

crisis context the stock prices became much 

more sensitive to the interest rates 

evolution. In these circumstances the 

management of the monetary 

policy has to 

take 

into consideration the interest rates 

impact on the stock market. 

This investigation could be continued in the 

future, in the next phases of the global crisis, 

when 

the relation between the interest rates 

and the stock prices could 

suffer changes.

References 

1. Bernanke, B. S. and Gertler, Mark. (2001) 

Should Central Banks Respond to Movements in 

Asset Prices?, American Economic Review 91(3), 

pp. 253-57. 

2. Bernanke, B. S. and Gertler, M. (1999) 

Monetary Policy and 

Asset Volatility, Federal 

Reserve Bank of Kansas City Economic Review 

84(4), pp. 17-52. 

3. Bernanke, B. S. and Kuttner, K.N. (2005) What 

Explains the 

Stock Market’s Reaction to Federal 

Reserve Policy?, Journal of Finance 60(3), pp. 

1221-57. 

4. Bordo, M.D., Dueker, M. J. and Wheelock, D. 

C. (2007) Monetary Policy and Stock Market 

Booms and Busts in the 20th Century, Federal 

Reserve Bank of St. Louis, Research Division. 

5. Blanchard, O. J. (1981) 

Output, the stock 

market, and interest rates, American Economic 

Review, 71, pp. 132–43. 

6. Cecchetti, S.G.; Genberg, H.; Lipsky, J. and 

Wadhwani, S. (2000) Asset Prices and Central 

Bank Policy, Geneva Reports on the World 

Economy 2, International 

Center for Monetary 

and Banking Studies and Centre for Economic 

Policy Research. 

7. Fama, E.F. (1970) Efficient 

capital markets: a 

review of theory and empirical work, Journal of 

Finance, 25, 383-417. 

8. Flannery, M.J. and James, C.M. (1984) The 

Effect of Interest Rate Changes in 

The Common 

Stock Returns of Financial Institutions, Journal 

of 

Finance, Vol. 39, 1141-1153. 

9. Goodfriend, M. (2003) Interest Rates Policy 

Should Not React Directly to Asset Prices, in 

William C. Hunter, George G. Kaufman, and 

Michael Pomerleano, eds., Asset Price Bubbles: 

The Implications for 

Monetary, Regulatory, and 

International Policies. Cambridge, MA: The MIT 

Press, pp. 445-57. 

10. Granger, C.W.J. (1969) Investigating 

Causal 

Relations by Econometric Models and Cross- 

Spectral Methods, Econometrica. 

APPENDIX 

11. Hayford, M. D. and Malliaris, A.G. (2004) 

Monetary Policy and the U.S. Stock Market. 

Economic Inquiry, 42(3), pp. 387-401. 

12. Kent, C., Lowe, P. (1997) Asset price bubbles 

and monetary policy, Research Discussion Paper 

9707. Reserve Bank of Australia. 

13. Kindleberger, C. P., and Robert Z. A. (2005) 

Manias, Panics and Crashes: A History of 

Financial Crises, Fifth Edition, Palgrave- 

MacMillan. 

14. Lanne, M., Lütkepohl, H. and Saikkonen, P. 

(2001) Test procedures for unit roots in time series 

with level shifts at unknown time, Discussion 

paper, Humboldt-Universität Berlin. 

15. Lütkepohl, H. (2007) Econometric Analysis 

with Vector Autoregressive Models, European 

University Institute, Working Papers, ECO 

2007/11. 

16. Rigobon, R. and Sack, B. (2003) Measuring the 

Reaction of Monetary Policy to the Stock Market, 

Quarterly Journal of Economics, 118(2), pp. 639- 

69. 

17. Saikkonen, P. and Lütkepohl, H. (2002) 

Testing for a unit root in a time series with a level 

shift at unknown time, Econometric Theory 

18:313-348. 

18. Shiller, R. J. (2005) Irrational Exuberance, 

2nd Edition, Princeton: Princeton University 

Press. 

19. Schwartz, A. J. (1995) Why Financial Stability 

Depends on Price Stability, Economic Affairs 

15(4), Autumn, pp. 21-25. 

20. Titman, S. and Warga, A. (1989), Stock 

Returns As Predictors of Interest Rates and 

Inflation, Journal of Financial and Quantitative 

Analysis, Vol. 24. 

21. Wicker, E. (2006) Stock Market Speculation 

and the Federal Reserve, Indiana University 

working paper. 

Table 1 - Descriptive Statistics of variable RBETXT for the first s ub – sample 

Mean M edian Minimum Maximum 

- 0.151964 -0.0298130 -6.67267 5.08820 

Std. Dev. C.V. Skewness Ex. kurtosis 

1.75067 11.5203 -0.452883 1.19925 

Doornik-Hansen test = 19.9756, with p-value 0.000001 

Jarque-Bera test = 39.3374, with p-value 0.000001 

598

T able 2 - Descriptive Statistics of variable RROB for the first sub 

– sample 


0.102417 0.000000 -6.43700 8.54417 


1.28606 12.5571 0.433076 10.0646 


Jarque-Bera 

test = 1777.31, with p-value 0.000001 

Table 3 - Descriptive Statistics of variable RBETXT for the second sub – sample 


0 .00749916 0.142541 -11.7104 10.6842 


3.01230 401.685 -0.413574 2.07939 


Jarque-Bera 

test = 82.0064, with p-value 0.000001 

Table 4 - Descriptive Statistics of 

variable RROB for the second sub – sample 


- 0.212636 -0.0949217 

-42.7784 50.6237 


4.79044 22.5288 2.66813 75.2595 


Jarque-Bera test = 93214.2, with p-value 0.000001 

Table 5 - Augmented Dickey-Fuller Test for the observations from the 

first sub-sample 

V ariable Deterministic terms Lagged 

differences 

T est statistics 

RROB No constant and no trend 1 -10.5592*** 

Constant and no trend 1 -10.6393*** 

RBETXT No constant and no trend 8 -5.5584*** 

Constant and no trend 

8 -5.7076*** 

Note: 

*** denotes significance at 1% level. 

Table 6 - Augmented Dickey-Fuller Te st for the observations from the second sub-sample 

Variable Deterministic terms Lagged differences Test 

statistics 

RROB No constant and no trend 10 -5.8861*** 

Constant and no trend 10 -5.9570*** 

RBETXT No constant and no trend 4 -7.8536*** 

Constant and no trend 

4 -7.8433*** 

Note: *** denotes significance at 1% level. 

599

Table 7 - Unit root tests with str uctural breaks for the observatio ns from the first sub-sample 

V ariable Shift Break Date Lagged 

Test 

statistics 

Function 

differences 

RROB Impulse 

dummy 

406 1 -1 0.4370*** 

RBETXT Shift dummy 266 6 -2.6492* 

Note: * and * ** denote significance at 10% and 1% levels, respectively. 

Table 8 - Unit root tests with structural 

breaks for the observations 

f rom the second sub-sample 

V ariable Shift Function Break Date Lagged differences 

Test 

statistics 

RROB Impulse dummy 34 10 -6.4166*** 

RBETXT Shift dummy 31 4 -5.1239*** 

Note: *** denotes significance 

at 1% level. 

Table 9 - VAR system for the first sub - sample 

Equation 1 (with RROB as dependent 

variable) 

Variable Coefficient 

Std. Error t-ratio p-value 

const - 0.0781013 0.149184 -0.5235 0.60089 

RROB1_1 0.156001 0.0895539 1.7420 0.08226* 

RROB1_2 0.179452 0.0684053 2.6234 0 .00903*** 

RBETXT1_1 -0.00235969 0.0295597 -0.0798 0.93641 

RBETXT1_2 -0.00387094 0.0307654 -0.1258 0.89994 

time 0.000729586 0.000631028 1.1562 0.24828 

Mean dependent var 0.110875 S.D. dependent var 1.272631 

Sum squared resid 620.1673 S.E. of regression 1.229879 

R-squared 0.077309 Adjusted R-squared 0.066057 

F(5, 410) 2.573525 P-value(F) 0.026191 

rho -0.001465 Durbin-Watson 1.997403 

Equation 2 (with RBETXT as dependent 

variable) 

Variable Coefficient Std. Error t-ratio p-value 

const 0.163944 0.147939 1.1082 0.26843 

RROB1_1 -0.0164433 0.0674078 -0.2439 0.80740 

RROB1_2 -0.0703323 0.0622556 -1.1297 0.25925 

RBETXT1_1 0.0553248 0.063359 0.8732 0.38307 

RBETXT1_2 0.0138408 0.0564917 0.2450 0.80657 

time -0.00141276 0.00 0690961 -2.0446 0.04153** 

Mean dependent var -0.153410 S.D. dependent var 1.751596 


600


F(5, 410) 1.861435 P-value(F) 0.099988 

rho 0.002886 Durbin-Watson 1.990960 

Note: *, ** and *** denote significance at 10%, 5% and 1% levels, respectively. 

Table 10 - VAR system for the second sub - sample 

Equation 1 (with RROB as dependent 

variable) 

Variable Coefficient 

Std. Error t-ratio p-value 

const -0.199001 0.187959 -1.0587 0.29048 

RROB2_1 0.891966 0.110021 8.1072

Mean dependent var -0.222211 S.D. dependent var 4.897979 



F(38, 335) 24.93559 P-value(F) 4.43e-76 


Equation 2 (with RBETXT as dependent 

variable) 

Variable Coefficient Std. Error t-ratio p-value 

const 0.0282105 0.150269 0.1877 0.85120 

RROB2_1 0.0206103 0.0513611 0.4013 0.68847 

RROB2_2 0.000917498 0.060439 0.0152 0.98790 

RROB2_3 -0.114261 0.0645741 -1.7695 0.07773* 

RROB2_4 0.0757979 0.0669618 1.1320 0.25846 

RROB2_5 -0.208128 0.0742494 -2.8031 0 .00536*** 

RROB2_6 0 .00149619 0.0803933 0.0186 0.98516 

RROB2_7 -0.125922 0.0872155 -1.4438 0.14973 

RROB2_8 0.107818 0.0849681 1.2689 0.20535 

RROB2_9 -0.0264117 0.0842908 -0.3133 0.75422 

RROB2_10 -0.0494278 0.0791032 -0.6249 0.53249 

RROB2_11 -0 .00684864 0.0672442 -0.1018 0.91894 

RROB2_12 0.0534905 0.057183 0.9354 0.35024 

RROB2_13 0.018557 0.0648056 0.2863 0.77479 

RROB2_14 -0.065045 0.0625035 -1.0407 0.29878 

RROB2_15 0.112218 0.0559006 2.0075 0 .04550** 

RROB2_16 -0.0293258 0.0592641 -0.4948 0.62104 

RROB2_17 0.0978468 0.0598187 1.6357 0.10284 

RROB2_18 -0.154919 0.0569951 -2.7181 0 .00691*** 

RROB2_19 0.130532 0.0400809 3.2567 0 .00124*** 

RBETXT2_1 0.0751265 0.0784733 0.9574 0.33908 

RBETXT2_2 -0.0443009 0.0790436 -0.5605 0.57554 

RBETXT2_3 - 0.0606551 0.0699589 -0.8670 0.38656 

RBETXT2_4 -0.0439212 0.0608598 -0.7217 0.47100 

RBETXT2_5 0.137539 0.0630806 2.1804 0 .02993** 

RBETXT2_6 - 0.0411248 0.0554856 -0.7412 0.45910 

RBETXT2_7 -0.0814389 0.0561202 -1.4512 0.14767 

RBETXT2_8 0.138557 0.0569236 2.4341 0 .01545** 

RBETXT2_9 0.0747237 0.0511981 1.4595 0.14536 

RBETXT2_10 0.000996279 0.055267 0.0180 0.98563 

RBETXT2_11 -0.0625423 0.0591501 -1.0573 0.29111 

RBETXT2_12 0.0438554 0.0656953 0.6676 0.50488 

RBETXT2_13 -0.0826586 0.0672691 -1.2288 0.22002 

RBETXT2_14 0.0397776 0.0557052 0.7141 0.47568 

RBETXT2_15 0.0971288 0.072878 1.3328 0.18352 

RBETXT2_16 0.138811 0.0752119 1.8456 0.06583* 

RBETXT2_17 0.095425 0.069736 1.3684 0.17211 

RBETXT2_18 0.00680669 0.0719774 0.0946 0.92472 

RBETXT2_19 0.0498156 0.0529737 

0.9404 0.34770 

Mean dependent var 0.060230 S.D. dependent var 2.959718 


602


F(38, 335) 6.342439 P-value(F) 3.05e-22 


Note: *, ** and *** denote significance at 10%, 5% and 1% levels, respectively. 

Table 11 - Granger causality be tween RROB and 

RBETXT for the first sub – sample 

Null hypothesis 

F-statistic P-value 

C ausal inference 

RROB do not Granger-cause 0.6227 0.5368 RROB do not Granger- 

R BETXT 

c ause RBETXT 

RBETXT do not Granger-cause 0.0090 0.9911 RBETXT do not Granger- 

RROB cause RROB 

Table 

12 - Granger causality between RROB an d RBETXT for the second sub – sample 

Null hypothesis 

F-statistic P-value 

Causal inference 

RROB do not Granger-cause 3.5885 0.00001 RROB Granger-cause 

R BETXT 

R BETXT 

RBETXT do not Granger-cause 4.8550 0.00001 RBETXT Granger-cause 

RROB 

RROB 

BETXT 

1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

2007 2008 2009 2010 

Figure 1 - Evolution of BET-XT from 3 January 2007 to 31 March 2010 

603

ROBOR3M 

50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

2007 2008 2009 2010 

Figure 2 - Evolution of ROBOR3M from 3 January 2007 to 31 March 2010 

RBETXT1 

6 

4 

2 

0 

-2 

-4 

-6 

-8 

Mar May Jul Sep Nov 2008 Mar May Jul 

Figure 3 - Evolution of RBETXT from 3 January 2007 to 30 September 2008 

604

RROB1 

10 

8 

6 

4 

2 

0 

-2 

-4 

-6 

-8 

Mar May Jul Sep Nov 2008 Mar May Jul 

Figure 4 - Evolution of RROB from 3 January 2007 to 30 September 2008 

RBETXT2 

15 

10 

5 

0 

-5 

-10 

-15 

Sep Nov 2009 Mar May Jul Sep Nov 2010 Mar 

Figure 5 - Evolution of RBETXT from 1 October 2008 to 31 March 2010 

605

1.4 

1.2 

0.8 

0.6 

0.4 

0.2 

RROB2 

1 

60 

50 

40 

30 

20 

10 

0 

-10 

-20 

-30 

-40 

-50 

Sep Nov 2009 Mar May Jul Sep Nov 2010 Mar 

Figure 6 - Evolution of RROB from 1 October 2008 to 31 March 2010 

RROB1 -> RROB1 

0 

0 5 10 15 20 25 30 

0 

-0.001 

-0.002 

-0.003 

-0.004 

-0.005 

-0.006 

-0.007 

periods 

RBETXT1 -> RROB1 

-0.008 

0 5 10 15 20 25 30 

periods 

RROB1 -> RBETXT1 

0 

-0.01 

-0.02 

-0.03 

-0.04 

-0.05 

-0.06 

-0.07 

-0.08 

-0.09 

-0.1 

0 5 10 15 20 25 30 

periods 

RBETXT1 -> RBETXT1 

1.8 

1.6 

1.4 

1.2 

1 

0.8 

0.6 

0.4 

0.2 

0 

0 5 10 15 20 25 30 

periods 

Figure 7 - Impulse – response analysis in a VAR framework for the first sub - sample 

606

3 

2.5 

2 

1.5 

1 

0.5 

0 

-0.5 

-1 

-1.5 

RROB2 -> RROB2 

-2 

0 5 10 15 20 25 30 

0.8 

0.6 

0.4 

0.2 

0 

-0.2 

-0.4 

-0.6 

-0.8 

-1 

periods 

RBETXT2 -> RROB2 

-1.2 

0 5 10 15 20 25 30 

periods 

0.3 

0.2 

0.1 

0 

-0.1 

-0.2 

-0.3 

-0.4 

-0.5 

RROB2 -> RBETXT2 

-0.6 

0 5 10 15 20 25 30 

3 

2.5 

2 

1.5 

1 

0.5 

0 

periods 

RBETXT2 -> RBETXT2 

-0.5 

0 5 10 15 20 25 30 

periods 

Figure 8 - Impulse – response analysis in a VAR framework for the second sub - sample 

607




FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND DEVELOPING COUNTRIES 

Abstract 

The global financial crisis emerged in the 

advanced economies has a brake on growth in 

the rest of the world in 2008 and 2009. 

However, some countries have fared better than 

others. Should we attribute these results to 

their best level of trade openness and financial, 

lack of basic weaknesses, which makes them 

less vulnerable to external forces, or the quality 

of their economic policies, which would have 

made the away from the global turmoil. 

For developing markets, the shock was mainly 

transmitted through financial channels, 

including rapid credit growth and high debts, 

the consequences are worse if the fixed 

exchange rate. The debt alone explains almost 

the revised growth rate of the least affected 

group. 

In this paper we try to present some factors 

which could explain why in some countries the 

balance is better, and also the impact of the 

recent developments on the public debt 

evolution. 

Key words: 

financial crisis, public debt, developing 

countries 


(1) The paper presents some factors affecting 

the financial position of developing countries, 

represented by the evolution of public debt, 

mainly the government, under the browsing of 

the current financial crisis. (2) The current 

financial crisis has affected most countries in 

the world, turning a crisis generated by a 

mismanagement of the U.S. housing market 

into a deep economic crisis, a systemic one, the 

worst affected countries beeng those with 

weaker economies, namely developing 

countries. In this situation, identifying the 

factors that generate risks in the development 

STOICA Emilia Cornelia 

Nicolae Titulescu University 

liastoica@gmail.com 

608 

process, finding tools to improve the evolution 

and the resumption of economic growth is 

crucial. (3) In the article, we propose to 

examine indicators that are key points of 

financial market development and their 

correlations with macroeconomic indicators, 

namely those tied to the country's public 

finances, since the latters are subject to policy 

intervention of public authorities in the 

domestic economy. (4) Numerous papers and 

then many books have debated since the 

beginning of the crisis that triggered the fall of 

the great aspects of financial institutions in 

developed countries and how to spread it all 

over the globe. But as the crisis develops dress 

very different issues in countries around the 

globe, to highlight the causes that lead to 

continuous shocks and economic failures in 

some countries, compared with gradual 

resumption of growth in others a need for new 

approaches. Thus, specialists in international 

institutions, and non-financial, economic 

analysts from various corporations, economic 

or media, including summonses can be found 

in literature of this article, follow carefully the 

evolution of the phenomenon. 


Analysis of the evolution of public debt subject 

to a rich literature, even in our country: the 

treaty of "Public Finance", led by academician 

Vacarel Julian and others, etc..and foreign 

literature, where may be mentioned both the 

extensive manual on public finance and hence 

public debt issued by international financial 

institutions. Paper now is to make a 

correlation between the recent evolution of the 

financial crisis and its impact on public debt 

management, which developing countries 

must take the issues different from those in

developed countries, which already shows 

signs of a resumption of growth. 


The public debt managers operate in financial 

contexts very sophisticated and complex. A 

global capital market can be the source of 

many benefits, including access, lower costs, 

an expanded pool of capital, the most efficient 

domestic financial markets and the 

opportunity to better adapt to the 

circumstances the risks of using new financial 

instruments. By cons, strategies for managing 

the public debt may become vulnerable as a 

result of such unforeseen deterioration in the 

balance of the private sector, capable of 

triggering fiscal crises, financial and economic. 

Economic shocks can affect the external debt 

and make vulnerable the strategy for 

managing public debt, and such vulnerability 

may in turn affect the economy and be 

detrimental to the alarming financial situation 

of a government. Some recent examples among 

emerging economies has shown that shocks 

are likely to turn into financial crises, 

problems with debt management and 

budgetary consequences. 

The debt managers, eager to protect the 

financial position of their government, must 

create solid strategies for debt management 

and sound risk management practices. 

One of the most significant challenges we 

faced at that time is to find the capacity and 

flexibility to coordinate the various policy 

instruments such as economic, fiscal policy, 

wage, monetary, competition and so on to cope 

with the various tensions in our societies. It is 

highly necessary to implement regulatory 

affairs for the promotion of economic growth 

without neglecting the monetary stability and 


In the first term, we can point out that the 

economic prospects of developing countries are 

quite different from those corresponding to 

other periods marked by financial turbulence. 

For the first time, we're not at the epicenter of 

a crisis as well as the conditions of infection, 

are less obvious. 

While in developed countries there are some 

signs of exceeding the financial crisis, 

609 

emerging countries continue to confront gross 

financial difficulties. 

This is mainly due to the impact of the 

external financial crises, but also to 

macroeconomic policies adopted in recent 

years, including weak fiscal and monetary 

policies which encourage consumption rather 

than investment, promoting credit rises above 

the productivity of industry, construction and 

other sectors that produce value added. The 

consumption exceeding the production, 

economic and financial deeping, the macrofinancial 

situation further deteriorate. 

A way out of this vicious circle is builds upon 

the local economies, both by decentralization 

public services and by attracting funding for 

local investment. 

To develop a market in local currency, the 

reduction in macroeconomic volatility so 

typical in the develloping countries, is 

undoubtedly a precondition. In that sense, it is 

necessary not only to maintain but also 

strengthen the pillars that characterize this 

new paradigm macroeconomic cyclical 

components with clear (Manasse, 2003): 

- tax solvency, because the tax liability in most 

emerging countries is not a political slogan, it 

is simply common sense; 

- robustness and consistency of money; 

- exchange rate regimes more flexible; 

- reduction of external debt and exposure to 

currency risk. One lesson of the present 

financial turmoil is only emerging in a 

situation of fiscal deficit and current accounts, 

asset prices have been more negatively 

affected. We can conclude that such countries 

are in a position more vulnerable position to 

sudden movements in capital flows.; 

- realize dynamic business, diversifying 

destinations and products; 

- accumulation of international reserves which 

became an insurance deal with external 

shocks. This is a common behavior among 

emerging countries. Currently, without a 

lender of last resort in the world, there is not 

an adequate substitute for the policy of 

accumulating external assets in each country. 

The construction of a stock of international 

reserves as a preventive mechanism is 

particularly important in the developing 

countries, where there is a closer relationship

etween fiscal policy, monetary policy and 


Several changes in supply and demand in 

domestic and foreign markets have greatly 

increased the availability of capital in the last 

decade. Debt securities were issued through 

the deepening of domestic markets and new 

information technologies and new financial 

instruments evolved. 

Other factors may explain the proliferation of 

international loans, including those held by 

contracted emerging economies and 

developing countries: the decline in interest 

rates on world markets, which prompted 

investors to favor emerging markets with a 

rate high yield on their investments, the 

improvement in credit ratings, through the 

restructuring of external debt, deregulation 

and structural reform macroeconomic 

'stability' apparent, resulting from fixed 

exchange rate regimes, the 

internationalization of financial institutions, 

access to bank consortium. All these factors 

led to the escalation of private capital flows - 

mainly in the form of short-term loans in 

foreign currency-, to emerging economies and 

developing countries, due to low perceived 

risk, with a high yield. 

The big volume of outstanding capital loaned 

led economic booms and used to finance 

current account deficits. The managers of the 

debt of emerging economies and developing 

countries are facing capital markets in 

different conditions. The absence of capital 

markets deep and liquid which could absorb 

domestic debt, forced many governments to 

issue debt in foreign currency without power, 

very often, adequately cover the exchange risk 

or interest rates. 

On the one hand, the increased access to 

capital in international financial markets has 

likely led to significant economic benefits such 

as economic growth, rising living standards, 

reduction of poverty. However, on the other 

hand, the sensitivity of capital markets may 

lead to instability in weaken economic 

conditions and some games of gross capitals 

may come out unexpectedly from the capital 

markets. 

Poor management of debt and risk, including 

the management of foreign reserves, the 

provision of inadequate information and 

610 

monitoring functions in the weak financial 

services sector are all factors that increase the 

vulnerability of financial a government and its 

sensitivity to economic shocks. For example 

(Bill Gross, 2010), significant volumes of 

public and private external debt, including 

short-term debt in foreign currency, 

uncovered, can expose governments to 

financial risks. Many developing countries and 

emerging countries have recourse to capital 

inflows to finance their economic growth, the 

large deficit in current account, public 

spending and massive public debt 

Despite these current weaknesses, emerging 

and developing economies are able to attract 

capital because very often they have adopted 

fixed exchange rate regimes or determined by 

reference to another currency or, furthemore, 

a managed exchage rate regime. These plans 

give investors the impression that they have 

the possibility to transfer to the government 

the risk of volatility of exchange rates. 

However, the fixed exchange rate regimes, 

determined by reference or weakly managed 

float regime may become unbearable and 

being the target of speculators if, for example, 

monetary policy does not show a strong 

commitment to low inflation, the banking 

system includes deficiencies or international 

reserves are considered insufficient. 

Economies with large debt in foreign currency 

and practicing the exchange rate regimes 

described above can be very vulnerable if they 

face attacks speculators. 

Governments that choose a floating exchange 

rate and lenders are not immune, as a fall in 

market confidence triggered the depreciation 

of currencies. The monetary authorities could 

intervene if they deem it necessary, by 

involving foreign currency assets or raising 

interest rates to protect the currency. A 

currency crisis is likely to cause higher 

domestic interest rates. Regardless of the 

current system, governments, especially in the 

presence of large external debts public and 

private not covered adequately, are likely to 

see increases dramatically the cost of servicing 

debt and have difficulty in accessing markets 

international capital (Overseas). The financial 

markets will determine the adequacy of the 

exchange rate regime based on its credibility. 

As long as fiscal policy is sustainable, that the

anking system is adequately controlled and 

regulated, that monetary policy is credible and 

that foreign reserves are adequate, the 

significant vulnerability to external shocks 

should be minimal. 

After the financial crisis and economy is still 

uncertain. In large economies, which have 

been responsible for the outbreak of financial 

crisis, we observed clear signs of recovery and 

growth in 2009 was a sluggish than expected. 

That being so, the crisis has had serious 

repercussionssur the labor market and the 

situation deteriorated s poor (ONU 184 

EX/10). 

In addition, prospects for 2010 are still 

unclear. In developing countries, the effects of 

the crisis on the macro-economic contrast has 

been more. For many such economies, the 

crisis has resulted in a reduction in the rate of 

growth. However, it has often been heavy 

consequent socially. In countries where growth 

has been maintained or restored through the 

adoption of the Budget Measures vigorous, the 

magnitude of the deficit undermines the 

future development and it is difficult to decide 

between on the one hand, the necessity of 

maitena longer intervention of public 

authority can and secondly, the desire to 

restore budget balance 

Since the beginning of the century and 

millennium, many financial crises that have 

affected various parts of the world have 

affected the ability of governments to repay 

their debts, a situation which led to financial 

difficulties and economic disruption. In 

addition, they have been serious consequences, 

such as reduced growth rates, increased 

poverty, economic instability, social unrest, 

and so on. The financial vulnerability of 

governments forced to refinance debt in the 

economic conditions becoming less and less 

good (including high interest rates, devalued 

currencies, the collapse of the banking sector, 

the refusal of lenders) has increased 

considerably 

The combination of financial markets risk 

averse and vulnerable domestic situations can 

pose challenges to managers of public debt. 

The origin of the shock varies from one 

country to another. They arise sometimes 

domestic macroeconomic imbalances, such as 

unsustainable fiscal policies, an economic 

611 

downturn reducing state revenues, monetary 

and exchange rate policies resulting in 

inadequate depreciation of the currency or a 

mismatch of assets and liabilities private 

sector, which require costly rescue of the 

government. Moreover, exogenous shocks can 

be. The international interest rates that affect 

the service the public debt, world prices of 

commodities down causing balance of 

payments problems, currency devaluations or 

simply contagion from neighboring countries 

are all external shocks that could weaken the 

financial position of a government. 

The quality of management practices in public 

debt will affect the financial vulnerability of a 

government and its sensitivity to shocks. If the 

strategy for public debt management is not 

sufficiently focused on the risks and costs, as 

well as the possible macroeconomic and 

financial shortcomings, the government may 

have difficulty meeting its obligations to 

service debt. Policymakers should aim 

particularly delicate balance between the 

desire to minimize the cost of servicing the 

debt and that of minimizing exposure to risks 

like those of the market and rollover risks. 

The debt managers should identify and 

recommend sound policies governing the 

public debt in order to protect the 

government's financial position. This 

recommendation must be based on sound risk 

management practices. This means that 

managers should manage public debt in 

relation to the probability of occurrence of 

certain events and consequences and costs 

that they might have on the government's 

financial position. Managers must pursue 

affordable strategies that government will 

cover, as much as possible, financial risks. 

Emerging economies and developing 

Given the consequences of recent financial 

crises and complexity of financial markets, 

debt managers from emerging economies and 

developing countries (Dominique Strauss- 

Kahn, 2009) may wish to consider strategies 

aimed at reducing financial vulnerability. 

Thus, when seeking to balance the costs and 

risks, they would be well advised to give 

preference, to the extent of their financial 

resources, minimization of risks. 

The political, economic and institutional will 

influence the management of public debt, and

managers will adjust their business to the 

risks and costs posed by the environment. 

Note in this regard, the existence of inverse 

relationships between the size of an economy 

and its vulnerability. Emerging economies and 

developing countries, whose domestic financial 

markets are underdeveloped, which have 

limited access to foreign capital and that 

diversification is restricted are, in all 

likelihood, more vulnerable and exposed than 

others to economic shocks, including contagion 

from neighboring countries. 

We must reach a compromise between the 

desire to minimize the risks and reduce costs. 

Both can be expensive. Long term running 

means reduce the risk but can be very costly if 

the yield curve is positive. In short terms to 

maturity in foreign currency resources are 

attractive in terms of servicing the debt, but 

they can involve significant risks and increase 

the government's financial vulnerability. The 

government depends too of floating rate 

securities or short-term instruments, even if 

they are relatively inexpensive and may have 

to bear a greater degree of vulnerability 

because of the potential impact of higher 

interest rates the cost of servicing the debt. It 

may also be disadvantaged by the 

continuation of low foreign exchange reserves 

because of the increased risk of non-payment 

in time of crisis. 

Regarding emerging economies and developing 

countries, they may be advantageous to 

assume a heavier burden of costs of service in 

order to develop a term structure that protects 

the financial balance. 

Managers of public debt may want to consider 

also the strategy is to use as possible to 

domestic capital markets. It might be unwise 

to borrow on foreign markets and the use of 

foreign currency securities are not covered, 

because of the risks and potential 

consequences that this entails. Debt 

denominated in foreign currencies are not 

covered can dramatically increase the liability 

and vulnerability (eg the risk of non-payment) 

if the exchange rate decreases when the 

maturity and the refinancing of debt. In this 

perspective, what seems a solid management 

strategy that minimizes the cost of service, 

could become an unwise decision if market 

conditions deteriorate. Where domestic capital 

612 

markets are limited and massive borrowing in 

foreign markets unavoidable, managers will 

clearly limit the exchange risk by using, where 

possible, to derivatives, with the aim of 

mitigating the effect the fluctuation of 

currencies. However, because of the nature 

and complexity of derivatives, debt managers 

should be aware that a program of mitigation 

poorly designed may actually have the 

opposite effect and further increase the 

exposure . 

Moreover, given the dominant role of 

government as an issuer of securities in the 

market economies in this category, debt 

managers should pay particular attention to 

their market approach and be wary of 

opportunism . 

Arguably, the recent financial crisis could at 

least be mitigated if a more rigorous 

regulatory framework was in place and if the 

financial sector had been subject to greater 

supervision that would have resulted in better 

practices regulated capital flows and loan and 

financial systems more transparent, including 

financial statements accurate. 

It is estimated that widespread adoption of 

standards and practices recognized 

internationally and bearing in particular on 

risk management, the need for transparency 

and disclosure, public governance, business 

ethics and accounting standards could 

contribute to the good performance of financial 

markets and the strengthening of 

international financial systems. While 

promoting international financial stability, 

improving the functioning of markets and 

reducing systemic risks, these initiatives could 

diminish if they prove effective, the financial 

vulnerability of governments. 

Recent developments have shown that 

economic vulnerability and global financial 

markets can be an explosive mixture. It is 

feared that sound fiscal policies that lead to a 

smaller ratio of public debt to GDP is not 

sufficient to protect the financial position of a 

government against economic shocks. 

Recent financial crises have shown that the 

financial position of governments that could be 

vulnerable not only to traditional 

shortcomings as a deficit or an increasing 

trade imbalance, but also the impact of

volatile financial markets may have on public 

and private debt . 

For emerging economies and developing good 

practices for debt management and risks 

include substantial foreign reserves in light of 

the entire foreign debt of the economy, 

reducing rollover risk by increasing the longterm 

debt, lengthening the average term to 

maturity and the issue of debt securities in 

national currency gradually abandoning 

currency loans. 


(1) The paper tries to make a review of key 

issues facing developing countries regarding 

government borrowing in terms of a major 

financial crisis, which and can not be overcome 

without attaching decisive measures both in 

taxation, and in the monetary and exchange 

rate regime. (2) Proposed measures relate 

primarily to a sustainable fiscal policy and 

correlated with socio-economic characteristics 

of the country. (3) Future works will need to 

focus on specific developing and emerging 

countries, and the possibilities of using 

613 

adequate economic and/or financial 

instruments, to encourage employment 

through the implementation of development 

projects and improve, also, the national 

financial balance, both in the private sector 

and in the public one. 

References 

Bill Gross, PIMCO Investment Outlook, The Ring of 

Fire, February 2010 

Dominique Strauss-Kahn, Managing Director, 

International Monetary Fund, At the Brookings 

Institution, The Impact of the Financial Crisis on 

Low-Income Countries, , Washington, D.C., March 

3, 2009 

Mannasse P., Roubini N et Schimmelpfennig A., 

2003, « Predicting Sovereign Debt Crises », IMF 

Working Paper n° 03/221. 

ONU 184 EX/10 “Effet de la crise financiere et 

economique actuelle sur les efforts fournis par les 

pays en developpement pour atteindre les objectifs 

de l’education pour tous (EPT) 

Overseas Development Institute The global 

financial crisis and developing countries, ODI 

Working Papers (Online) ISSN 1759 2917

HUMAN BEHAVIOUR BETWEEN THE HOLISTIC TRIAD AND THE 

TRAGIC TRIAD * 

Abstract: 

The authors embracing the new holistic vision 

regard economy as a living entity consisting of 

human beings and social systems interacting 

continuously one another and with the 

ecosystems of which part they are and on which 

our life depends. 

Human behaviours, under the form of choices 

in the economic life and not only, are to be 

studied under the perspective of unavoidable 

aspects of human existence resulting into „the 

tragic triad”, circumscribed to: 1) suffer; 2) 

guilt; 3) death and „ the holistic triad”, defined 

by: 1) limits; 2) uncertainty and 3) open 

interdependencies. 

This interaction regarding nature and human 

society, in certain circumstances characterizing 

coexistence and generational succession, leads 

to the failure of our choices that we do when 

fighting against „ the nature greed”, the 

evolution uncertainties, peoples’ injustice facts 

and age disadvantages. 

The interpretation of human behaviours, from 

the perspective of „tragic optimism” based on 

the interactions of „ twin triads”, joining 

naturally coexistence and human life 

succession, stands for a way of taking our 

microcosms as a sole living organism of 

processes reciprocally expressed by the 

following formula: „One in All; All in One; One 

in One; All in All ”. 

Authors: PhD Professor Constantin Popescu 

PhD Professor Alexandru Taşnadi 

The Academy of Economic Studies, Bucharest 

*This paper was supported by CNCSIS- UE FISCSU, PN II- 774/ 2007 

614 

Key phrases: tragic optimism, tragic triad, 

holistic triad, economy of the tragic optimism, 

ecological economy.




OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY: A 

CASE STUDY ON THE TRANSACTION PATTERNS IN A TURKISH 

ASSEMBLY PLANT 

Abstract 

In this paper, authors explore the strategic 

choice of transaction patterns between 

automakers and suppliers with an emphasis 

on the outsourcing of designing and 

manufacturing of auto parts. The study is 

based on a case study in a Turkish assembly 

plant to explore the transaction patterns 

classified as detail controlled parts, black box 

parts and supplier proprietary parts 

depending on the supplier involvement in 

product development. The relationships 

between the assembler and suppliers are 

discussed and conclusions are drawn 

concerning supplier switching costs, tier 1 

suppliers’ willingness to share information, 

supplier capabilities on designing and 

manufacturing, assumed quality 

responsibility, the need for advanced 

technology, market structure and etc. in 

relation to the transaction pattern explored. 

Key words: outsourcing, transaction 

patterns, supplier involvement, Turkish 

automotive industry. 


Automotive industry adopted a global 

perspective during 1990s and automakers 

began to implement a set of strategies 

(Velosa and Kumar, 2002). The competition 

in the industry led the auto transplants to 

acquire a global identity in order to find a 

solution to the overcapacity, cost pressure 

and low profitability problems of Original 

Tuğba GÜRÇAYLILAR YENİDOĞAN 

Akdeniz University 

Antalya, Turkey 

gurcaylilar@akdeniz.edu.tr 

Fulya SARVAN 

Akdeniz University 

Antalya, Turkey 

fulyas@akdeniz.edu.tr 

615 

Equipment Manufacturers (OEMs). First 

tier suppliers immediately reacted to this 

new formation with a strategy called follow 

policy and began to relocate near the auto 

transplants. Some of them even located in 

the assembler’s supply park named as inhouse 

outsourcing by Bonazzi and Antonelli, 

(2003). The second important strategy was 

the reorganization of vehicle portfolio around 

product platforms in order to protect 

automakers from short product life cycle 

problem of vehicle models. Modular 

production strategy basically aims to 

globalize manufacturing system through 

outsourcing and higher integration with 

suppliers (Shamsuzzoha etc., 2008). In this 

system modules are assembled by outside 

suppliers on their subassembly lines and 

delivered and assembled into finished 

products on the main line of the automaker 

(Takaishi and Fujimoto, 2001). Modularity is 

not only a modular assembly strategy, but 

also a product design strategy. The concept 

of product design modularity is used to 

describe the outsourcing of product 

designing and a component in product 

design is treated as a ‘black box’. The driving 

forces behind outsourcing of product design 

and manufacturing are defined as a 

combination of financial issues, need to focus 

on core competence, quality improvement, 

increasing pace of innovation and cost 

efficiency (Larsson, 2002, Brandes etc., 

1998). In this connection, outsourcing 

strategies cause transfer of competencies 

from OEMs to suppliers (Caputo and Zirpoli,

2002; Chanaron, 2001). As a result, related 

literature has witnessed ongoing research on 

supplier involvement in product 

development which gives assemblers the 

opportunity to concentrate on the overall 

architecture of the production process. 

Sourcing decision is explored by three 

streams of the literature: transaction cost 

theory, core competencies approach and 

resource based view. Transaction cost 

theory defines the three major governance 

mechanisms for economic activities and 

provides an explanation to firms’ boundary 

choices by focusing on the minimization of 

transaction costs (Williamson, 1985). Two 

extreme alternatives among the three basic 

modes of governance structures offered are 

market and hierarchy governance, meaning 

that either a firm makes a component itself 

or buys it from an autonomous supplier 

(Williamson, 1981:556). Hierarchy is directly 

linked with insourcing while the market and 

hybrid structures are relevant to outsourcing 

strategies. The focus of core competencies 

approach is on strategic importance of 

transactions for a company and its main idea 

is that a good or service should be insourced 

if it is considered as a core competence 

(Arnold, 2000). According to the resource 

based view (Wernerfelt, 1984; Barney, 1986) 

the firms are differentiated in resource 

endowments and each firm possesses some 

heterogeneous resources and capabilities 

which may be both valuable and inimitable. 

The suggestion of the view is to access 

complementary resources which are 

necessary for business success via 

outsourcing. 

In this article authors focus on the 

outsourcing strategies in the automotive 

industry. Firstly they explain the evolution 

of supplier involvement in product 

development in three phases: 

Interchangeable parts in the USA, mass 

production at Ford Company and Toyota 

Production System. Secondly a literature 

review on classification of transaction 

patterns in automotive industry is 

presented. Lastly this paper employs a case 

study in a Turkish assembly plant to explore 

the existing transaction patterns and draw 

conclusions concerning supplier switching 

costs, tier 1 suppliers’ willingness to share 

information, supplier capabilities on 

designing and manufacturing, assumed 

quality responsibility, the need for advanced 

616 

technology, market structure etc. in relation 

to the transaction patterns explored. 

The aim is to explore how the outsourcing 

strategies have created transaction patterns 

according to part type in exchange relations 

between automakers and suppliers, rather 

than giving support to outsourcing decisions 

on product design and manufacturing of 

automakers in globalized world. The paper 

will contribute to the related literature by 

combining transaction patterns with part 

type in a case study. 

2. Supplier involvement in product 

development in the history of 

automotive industry 

Joint engineering concept is usually defined 

in relation to the Japanese style production 

system which has provided Japanese firms 

competitive advantage by focusing on core 

competencies. Indeed the American 

automotive suppliers often participated in 

component design before 1920’s (Hochfelder 

and Helper, 1997; Fujimoto, 1994). In the 

early American automotive industry, the 

engineering contributions to make a car 

attractive with features of low price and 

reliability were expected from the suppliers 

by Henry Ford and Alexander Winton who 

designed their cars in detail. Between the 

years 1903-1908 more than hundred 

automakers entered into the market after 

solving critical design problems. Almost all 

of those firms assembled their automobiles 

from outsourced parts such as motor, 

carburetor, transmission, brakes, electrical 

system, axles etc. The components were 

usually off-the shelf parts because the 

suppliers were sharing proprietary designs 

with competitors. Between the years 1910- 

1920 Ford and GM implemented vertical 

integration strategy in design activities in 

order to raise the entry barriers into the 

industry. Prior to the mass production era in 

the USA, marketed goods (supplier 

proprietary parts) were used in the industry, 

and then automakers started to rely on 

detailed controlled parts with the advance of 

mass production. Consequently, the 

engineering capabilities of auto supply 

industry weakened. Until the 1980’s, 

suppliers increasingly produced components 

according to the automaker’s drawings and 

specifications and technical information that

could easily be provided to the other 

suppliers (Hochfelder and Helper, 1997:40). 

The first attempts in automobile production 

in Japan started with Ford’s knock-down 

(KD) assembly plant that was built in 1925 

in Yokohama and GM’s subsidiary that was 

established in 1927 in Osaka (Fujimoto and 

Tidd, 1994). Japanese government prevented 

the operation of foreign automakers in 

Japan with the Act of Automobile 

Manufacturing Enterprise in 1936 and 

subsidized the domestic companies, Toyota, 

Nissan and Isuzu. At the beginning Toyota 

followed in-house production policy for most 

of the parts and relied on part designs by 

Ford and GM due to the quality problems of 

imitation part makers in Tokyo and Osaka. 

In 1939 Toyota changed its procurement 

policy and reduced the number of purchased 

parts per vehicle by emphasizing on in-house 

production (Fujimoto, 1994). After the 2nd 

World War, Toyota changed its procurement 

policy again and stressed the importance of 

outsourcing. In 1949 Nippondenso, the 

electric parts division of Toyota, was 

separated from Toyota and made its part 

drawings based upon specification drawings 

(rough assembly drawings) provided by 

Toyota. In this system known as black box 

parts system or approved drawing system of 

Toyota supplier’s drawings must be 

submitted for approval. In 1952 

Nippondenso expanded its operation through 

non-Toyota makers such as Mazda, 

Mitsubishi and Honda. 

3. Transaction patterns in automotive 

supply system 

The architectural attributes of auto parts 

and their transaction patterns have been 

classified according to the supplier 

involvement in product development in the 

related literature. Clark and Fujimoto 

(1991) identified three basic categories called 

supplier proprietary parts, black box parts, 

and detail controlled parts. In the first 

category the supplier develops a component 

entirely from concept to manufacturing as its 

standard product, and the assembler simply 

orders the item from the supplier’s catalogue 

(Clark and Fujimoto, 1991:132). The 

assembler creates basic design information 

such as cost/performance requirements, 

exterior shapes and interface details 

according to the total vehicle planning and 

layout while the supplier makes detail 

617 

engineering in the second category. There 

are two sub-categories of black box parts as 

approved drawings and consigned drawings. 

In both sub categories the suppliers carry 

responsibilities for detailed engineering such 

as drafting of parts and subassembly 

drawings, prototyping and unit testing while 

the functional specifications are set by the 

assembler. Then the assembler approves the 

design after checking the part drawings to 

determine if they are in compliance with 

related specifications. The difference 

between them concerns property rights. In 

consigned drawings system called “designin” 

in the USA, the assembler pays for the 

design to the supplier as a separate contract 

and is free to switch suppliers at the 

manufacturing stage. While approved 

drawings tend to be applied to functional 

parts, consigned drawing system is found 

more often among press and plastic parts 

(Clark and Fujimoto, 1991:133). Ge and 

Fujimoto (2004) used drawing entrusted 

system instead of consigned drawings 

system in their study on the strategic choice 

of transaction patterns in the Japanese auto 

industry. In the third category the assembler 

carries both functional specifications and 

detailed engineering while the supplier only 

manufactures the part according to the 

drawings supplied by the assembler. 

Clark and Fujimoto (1991) classification is 

almost the same with Asanuma (1989) 

classification which is based on 

differentiation of supplier capabilities in 

manufacturing and product development. 

Asanuma (1989) defined auto parts in two 

categories as marketed goods and ordered 

goods. Marketed goods are directly 

purchasable by selecting from the supplier 

catalog while ordered goods are supplied 

according to specifications issued by the 

assembler. In his classification ordered goods 

are divided into two categories as drawings 

supplied (DS) parts and drawings approved 

(DA) parts. The definition of DS parts 

corresponds to detail controlled parts in the 

former classification. He did not make a 

distinction according to the property in the 

definition of DA parts. DS suppliers are 

providing basically only capabilities for 

manufacturing of the parts transacted, while 

DA suppliers are providing capabilities for 

product development as well (Asanuma, 

1989:15).

Hsuan (1999) characterized the supplier 

involvement in engineering by the degree of 

functional specification and detailed 

engineering responsibilities carried out by 

the supplier. She added the definition of 

question mark parts into the classification of 

Clark and Fujimoto. In this transaction 

pattern supplier defines the functional 

specification of a part while the assembler is 

responsible for the detail engineering. This 

case is observed in Japanese practices in 

which suppliers invest in developing ideas 

and plans. 

Twigg (1998) developed a typology of 

supplier involvement using the 

classifications of related literature. In this 

typology, assembler makes in-house design 

when a part is aesthetic critical or its design 

is a core competence. The major systems and 

subsystems such as clutches, brakes, drive 

assemblies and seating which are similar to 

black box, but more reliant on proprietary 

technology are called proprietary parts. The 

black box parts are characterized by major 

design authority of the supplier and 

specifications of the assembler. Electrical 

accessories and modular doors can be shown 

as examples. Detail controlled parts are 

divided in two categories as functional parts 

and aesthetic parts. In both the 

specifications are set by the assembler. But 

performance requirements are critical in the 

functional parts while aesthetic aspects are 

critical in the aesthetic parts. Inlets and 

exhaust manifolds, cylinder heads, blocks, 

valve springs can be shown as examples of 

functional critical detail controlled parts, 

and exterior trims like bumper, wheel trim 

and interior trims like fascias, steering 

wheels are examples of aesthetic critical 

detail controlled parts. The parts purchased 

by the supplier’s standard parts catalogue 

are called standard catalogue parts (off-theshelf) 

in the typology. The suppliers make 

their technical development in-house for a 

wide range of customers. Fasteners, gaskets, 

audio equipment and batteries can be given 

as examples. 

4. A case study on examining 

transaction patterns of an assembly 

plant in Turkish automotive industry 

The purpose of this study is to identify the 

transaction patterns of an assembly plant in 

the Turkish automotive industry after 

exploring its sourcing decisions. Semi- 

618 

structured interviews were conducted with 

the manager of the quality development 

directorate and two experts from the 

directorate of project coordination & systems 

management. These directorates are 

reporting to the purchasing department. The 

quality development directorate selects the 

suppliers which are able to fulfill its 

requirements, and works with suppliers to 

sustain their continuous improvement. The 

task of the directorate of project coordination 

& systems management is to design and 

develop systems to coordinate the 

relationships between assembler and 

suppliers. The interviewed staff described 

the outsourcing policy and the qualification 

process of suppliers and the decision making 

strategies on the design and manufacturing 

of specific parts determined by the 

interviewers. Each interview lasted from 90 

to 120 minutes and was tape recorded. Upon 

completion of the interview sessions the 

interview data were transcribed. 

Concurrently some observations were made 

on the occasion of the visit to the assembly 

plant. 

There are three purchasing divisions in the 

assembly plant. One of them purchases 

indirect materials such as gloves for 

workers, oil used in molds, pistol, turning 

tip, drill etc. which are not directly used in 

manufacturing of the vehicle, but that are 

requisite for the manufacturing process. The 

other two divisions purchase direct materials 

necessary for manufacturing a vehicle. These 

are also divided into two groups depending 

on commodity basis. One of them mainly 

purchases interior trimming materials such 

as plastics, roof coating, steering, seat, 

textile etc. while the other part purchases 

body parts and chassis parts such as sheet 

metal parts, absorber, spring etc. 

The assembly plant works with a supplier 

portfolio selected by its members by using 

certain criteria generally concerning quality 

requirements. As a result of an achievement 

in specific performance measurements set by 

the company, the suppliers will be eligible to 

obtain the certificate issued by the company. 

The fundamental condition for suppliers to 

work with the assembler is to have this 

quality certification. The company also 

works with suppliers that have the potential 

to get this document within 1 year. If the 

supplier can not obtain the quality 

certificate in the required time period, first

no new project will be given and then the 

supplier will be replaced with another 

supplier in the same business. The certified 

suppliers are classified according to the 

points obtained in their performance data. 

Also in certain commodities they have 

specific suppliers defined as strategic 

supplier. For example, there are too many 

suppliers producing plastic injection parts 

and all of them have the requested 

certificate, but some of them are considered 

as strategic suppliers. The difference is 

arising from the technical capabilities and 

performance data. Currently the company is 

working with 262 suppliers and aims to 

reduce this number in order to facilitate the 

coordination. 

The land of the assembly plant consists of 

welding, painting and assembling production 

lines, administration building and supplier 

park. The units in the supplier park are 

rented to the suppliers identified as full 

service suppliers. In the supplier park of the 

assembly plant there are 7 supplier firms 

producing seats, ABS brakes, airbags etc. 

Full service suppliers can identify the needs 

of the assembler and design, manufacture 

and assemble those parts in compliance with 

the specifications. Also they are liable for the 

quality of the products. This relationship 

provides these suppliers low rental charges 

and higher payments for their services. In 

this way as the suppliers locate closer to the 

assembly plant they can feed the production 

line faster. As a consequence transaction 

costs like stock costs, coordination costs etc. 

are minimized. The supplier is responsible 

for quality defects while the assembler is 

responsible for funding the necessary 

investments to improve the quality of the 

suppliers. 

The outsourcing strategies of the company 

may vary for each part type according to 

manufacturing capabilities, basic and detail 

designing capabilities, assumed 

responsibility of quality and ownership of 

drawings (Figure 1). After reviewing the 

related literature the respondents were 

619 

asked to select some parts of their best 

selling vehicle model (seen in the sample 

column) which differed from each other with 

respect to outsourcing strategies, and the 

interviews were conducted on these specific 

parts. At the end of the interviews the 

selected parts were placed on Fujimoto’s 

(1999) matrix. In the present study the 

approved drawing parts category was 

classified as utility model, patented products 

and patented standard products and the 

authors expect to make a contribution to the 

related literature from this perspective. 

Fuel tank and rear bumper were given as an 

example to detail controlled parts. The 

assembler designs fuel tank and rear 

bumper and then relies on the 

manufacturing capabilities of suppliers. 

These suppliers do not have any technical 

detail of the parts. The company is working 

with 3 fuel tank suppliers and 2 rear bumper 

suppliers in the same project period. 

Although the parts can be manufactured via 

matured technology by a broad supplier 

portfolio in the market, switching of the 

suppliers is not preferred because of 

transaction costs like the costs of finding a 

new supplier, installing the drawings on a 

new supplier’s system, adapting a new 

manufacturing process. However ownership 

of the assembler on drawings makes supplier 

switching costs relatively low. 

Black box parts usually consisting of 

functional parts are perceived as non-core 

business and outsourcing is preferred in 

designing and manufacturing of these parts. 

Designing of head lamps and steering wheel 

require the assembler and supplier to work 

together because of their aesthetic 

importance. As a result of this the assembler 

provides only rough drawings and their 

completion is entrusted to the supplier. The 

company is working with 3 head lamps 

suppliers and 2 steering wheel suppliers at 

the same project period. Both of them are 

manufactured via matured technology and 

supplier switching costs are relatively low.

Outsourcing 

Interfirm task partitioning Responsibility and 

Parts Detail design Basic 

authority 

Drawings Quality 

Sample 

production 

design ownership responsibility 

Detail-controlled parts S A A A A fuel tank, rear 

bumper 

Consigned drawings 

S S A A A head lamps, 

steering wheel 

Utility S S A A/S S exhaust/shock 

model 

absorber 

Black box parts 

Approved 

drawings 

Patented 

product 

Patented 

standard 

product* 

S 

S 

S 

S 

A 

A 

S 

S 

S 

S 

ABS brakes, 

airbag 

tires, battery 

*Defined as supplier proprietary parts in the literature. 

A=Assembler, S=Supplier 

Figure 1. Supplier Involvement in Product Development and Transaction Patterns of 

the Assembly Plant, adapted by Fujimoto 

(1999:137). 

suppliers are not willing to share information 

and have high level of tacit knowledge. 

Depending on the characteristics of the 

oligopolistic market there are few competitors 

and supplier switching costs are high. 

For black box parts such as exhaust and shock 

absorber the assembler only provides 

specifications and performance requirements 

and then relies on both designing capability 

and manufacturing capability of suppliers. 

Although the manufacturing and designing of 

these parts are realized by matured technology 

and explicit knowledge, they are defined as 

black box parts because they require specific 

engineering effort for each vehicle model. But 

the suppliers do not apply to patent 

registration for these parts because developing 

the product does not require technological 

innovations. Utility models are considered 

particularly suited for suppliers that make 

minor improvements in and adaptations of 

existing products. The ownership of drawings 

belongs to the suppliers and in this way they 

can prevent imitation of the product for a 

certain period. 

Nevertheless utility model is applied 

differently in some specific products like 

exhaust in the Turkish automotive industry. 

Exhaust is recognized as a special component 

due to its effect on the performance of the 

vehicle. Accordingly the assembler receives the 

ownership of the picture of the exhaust 

developed as a utility model with an additional 

agreement after paying the right of 

engineering in cash or by reflecting the full 

cost per part. Thus assembler may replace the 

supplier with another supplier any time. The 

company is working with 2 suppliers both for 

the exhaust and the shock absorber. 

ABS brakes, airbag, tires, battery etc. are 

patented products. Manufacturing of these 

parts require advanced technology and their 

620 

However it is necessary to distinguish between 

patented products and patented standard 

products. Although patented standard parts 

are designed in accordance with the 

specifications of the assembler, they can be 

sold with standard features in the 

aftermarket, and are called either “off the shelf 

parts” or “supplier proprietary parts” in the 

literature. All these parts could easily be 

selected from the supplier’s catalogue and 

assembled to all vehicles. Although these parts 

are called supplier proprietary parts in the 

literature, in this study the authors called 

these parts black box parts and defined them 

as a sub-category of approved drawings, 

because the original parts in this category 

have different specifications from the parts 

sold in the aftermarket. The low adaptation 

costs of patented standard products make the 

supplier switching costs lower. The company is 

working with 2 suppliers for the above 

mentioned four parts. 

Conclusions 

This paper explored the transaction patterns 

of a Turkish assembly plant. The outsourcing 

strategies of the assembly plant were 

illustrated according to the specifications of 

part type and the transaction patterns were 

identified in basically two categories as detail 

controlled parts and black box parts. The 

transaction patterns constituted by 

outsourcing strategies were analyzed and 

conclusions were drawn concerning supplier

switching costs, tier 1 suppliers’ willingness to 

share information, supplier capabilities on 

designing and manufacturing, assumed 

quality responsibility, the need for advanced 

technology, market structure depending on the 

part type. As the designing and manufacturing 

capabilities of the suppliers improve and 

advanced technology is required, the switching 

costs will be higher, the supplier’s willingness 

to share information will be lower. 

References 

Arnold, U. (2000) New dimensions of outsourcing: a 

combination of transaction cost economics and the 

core competencies concept, European Journal of 

Purchasing & Supply Management, 6(1), 23-29. 

Asunuma, B. (1989) Manufacturer Supplier 

Relationships in Japan and the Concept of Relation 

Specific Skill, Journal of the Japanese and 

International Economies, 3(1), 1-30. 

Barney J. B. (1986) Organizational Culture: Can It 

Be a Source of Sustained Competitive Advantage?, 

The Academy of Management Review, 11( 3), 656- 

665. 

Bonazzi, G., Antonelli, C. (2003) To Make or to Sell? 

The Case of In-House Outsourcing at Fiat Auto, 

Organization Studies, 24(4), 575-594. 

Brandes, H., Lilliecreutz J., Brege S. (1997) 

Outsourcing-Success or Failure?: Findings from Five 

Case Studies, European Journal of Purchasing & 

Supply Management, 3(2), 63-75. 

Caputo, M., Zirpoli, F. (2002) Supplier Involvement 

in Automotive Component Design: Outsourcing 

Strategies and Supply Chain Management, 

International Journal of Technology Management, 

23(1-3), 129-159. 

Chanaron, J. (2001) Implementing technological and 

Organizational Innovations and Management of 

Core Competences: Lessons from the Automotive 

Industry, International Journal of Automotive 

Technology and Management, 1(1), 128-142. 

Clark K. B., Fujimoto T., Product Development 

Performance: Strategy, Organization, and 

Management in the World Auto Industry, Harvard 

Business School Press, Boston, 1991. 

Fujimoto T. (1994) The Origin and Evolution of the 

Black Box Parts Practice in the Japanese Auto 

Industry, 

www.e.utokyo.ac.jp/cirje/research/dp/94/f1/dp.pdf, 

accessed on 08.11.2008. 

Fujimoto, T., The Evolution of a Manufacturing 

Systems at Toyota, Oxford University Press, New 

York, 1999. 

621 

Fujimoto, T., Tidd, J. (1994) The UK & Japanese 

Automobile Industries: Adoption & Adaptation of 

Fordism, Actes du GERPISA, no. 11, University of 

Tokyo, Japan. 

Ge, D., Fujimoto, T. (2004) The Architectural 

Attributes of Auto Parts and Their Transaction 

Patterns in Japan’s Automobile Industry, 

Manufacturing Management Research Center, 21 

COE, University of Tokyo MMRC Discussion Paper 

No. 20. 

Hochfelder, D., Helper S. (1997) Suppliers and 

Product Development in the Early American 

Automobile Industry, International Motor Vehicle 

Program, FY ’97 IMVP Working Papers. 

Hsuan, J. (1998) Modularization in Black Box 

Design: Implications for Supplier Buyer 

Partnerships, DRUID Winter Conference, 7-9 

January, Holte, Denmark. 

Larsson, A. (2002) The Development and Regional 

Significance of the Automotive Industry: Supplier 

Parks in Western Europe, International Journal of 

Urban and Regional Research, 26(4), 767-784. 

Shamsuzzoha, A., Helo, P., Kekäle T. (2008) 

Literature Overview of Modularity in World 

Automotive Industries, PICMET 2008 Proceedings, 

27-31 July, Cape Town, South Africa. 

Takeishi, A., Fujimoto, T. (2001) Modularization in 

the Auto Industry: Interlinked Multiple Hierarchies 

of Product, Production and Supplier System, 

International Journal of Automobile Technology and 

Management, 1(4), 379-396. 

Twigg, D. (1998) Management Product Development 

within a Design Chain, International Journal of 

Operations & Production Management, 18(5), 508- 

524. 

Veloso, F., Kumar, R. (2002) The Automotive Supply 

Chain: Global Trends and Asian Perspectives, Asian 

Development Bank, Working Paper No.3, 

Philippines. 

Wernerfelt, B. (2006) A Resource Based View of the 

Firm, Strategic Management Journal, 5(2), 171-180. 

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Capitalism, The Free Press, New York, 1985. 

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Organization: The Transaction Cost Approach, The 

American Journal of Sociology, 87(3), 548-577.




PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS: 

THE CASE OF SECURITY STUDIES 

Abstract 

This paper discusses the methodology of 

problem structuring in policy analysis and 

proposes a normative model that contributes 

to an objective and scientific definition of 

national security policy. 

Key words: public policy, policy analysis, 

problem structuring, national security, 

security policy. 


The process of structuring a policy 

problem—“what is the problem?”— is the 

key initial step in policy analysis. By 

defining policy analysis as the process of 

producing knowledge of and in the policy 

process we may find that this is as old as the 

civilization itself (Dunn, 1984:70). Both 

Delphi’s Oracle in Ancient time, or 

contemporary Romanian Public Policy Units 

have the same functions: to define a policy 

problem and guide the decision-makers’ 

actions to solve the problems. 

According to William Dunn the policy 

problems are unrealized values, needs or 

opportunities, which however identified, 

may be attained through policy actions. 

There are many doubts about a correct 

assessment and definition of the problems 

because of human nature. The way in which 

people agrees on the definition, classification 

and explanation of a problem depends on 

what values and needs people consider most 

important. 

The study investigates the way in which a 

problem is structured and the contribution of 

problem structuring to the larger process of 

policy analysis. 

Literature on policy analysis and problem 

structuring is a pretty new domain in 

Romania. Only after Romanian was invited 

ZULEAN Marian 


mzulean@faa.ro 

622 

to apply for the EU membership some 

twinning programs taught public servants 

what is policy analysis while the system of 

education introduced such courses as public 

policy or policy analysis in curriculum. 

This paper not only that brings the most 

relevant literature on policy analysis and 

explain the methods for problem structuring 

but also exemplifies the methodology in one 

of the most complex domains: security 

studies. 


Professor William Dunn considers that 

policy analysis is “an applied science 

discipline which uses multiple methods of 

inquiry and argument to produce and 

transform policy relevant information that 

may be utilized in political settings to 

resolve policy problems”. However, an 

analyst should distinguish between policy 

problems and policy issues. As Dunn pointed 

out, the policy problems have the next 

characteristics: 

• Interdependence (Public problems 

are not independent realities); 

• Subjectivity (Public problems are 

products of thought); 

• Artificiality (Problems have no 

existence apart from individuals who define 

them); 

• Dynamics (There are many solutions 

for a given problem). 

The policy issues are the result of prior 

dispute about the definition, classification, 

explanation and evaluation of a problem. 

On the other hand, an analyst should keep 

in mind that there are three main classes of 

policy problems: well-structured; moderately 

structured and ill-structured. 

The well-structured problems are those 

which involve one or few decision-makers

and a small set of policy alternatives. 

Moderately structured problems are those 

involving one or a few decision-makers and a 

relative limited number of alternatives. Ill 

structured problems are those which 

typically involve many different decisionmakers, 

whose utilities are either unknown 

or impossible to rank in a consistent fashion. 

Many of the most important problems are ill 

structured. 

Problem structuring is a creative and 

iterative exercise and, similarly, the 

methods used in the process must be based 

on creativity and sensitivity to competing 

perspectives held by the various 

stakeholders, rather than a rigid, 

thoughtless application of a ready-made 

technique 

Problem structuring in policy 

analysis may be viewed as a process with 

three distinguishable but independent 

phases: 

• Problem conceptualization; 

• Problem specification; 

• Problem sensing. 

Although the process of structuring may 

begun in any phase, a prerequisite for 

problem structuring is the recognition of a 

problematic situation and moving on toward 

a substantive problem (Dunn, 1984: 107). 

This process of moving from substantive to a 

formal problem is carried out through 

problem specification, that typically involves 

a model of substantive problem. The main 

risk in problem specification is to choose a 

wrong formal representation (model) of the 

substantive problem. Policy models are 

simplified representations of selected aspects 

of a problematic situation for particular 

purposes (Dunn, 110). They are very useful 

for an analyst but hang as a Damocles’ 

sword. Choosing a descriptive or normative 

model, a verbal or symbolic one makes the 

analyst to choose the method of study for 

argumentation. 

Until recently, quantitative analysis as a 

tool of the positivist mainstream in social 

sciences has been considered the most 

objective method, if not the only one 

scientific. But failures in econometric models 

made reconsideration of qualitative 

arguments. 

King, Verba and Keohane have 

demonstrated that the differences between 

quantitative and qualitative analysis is only 

stylistic and substantive unimportant. In 

principle, the same problems of inference 

623 

exist for both. Only that, a qualitative 

researcher, in order to make valid 

inferences, needs to be more attuned to 

methodological issues. All these methods 

and types of arguments depend by the mode 

in which we have structured the problem. 

Nevertheless, the problem structuring is the 

most critical phase of policy analysis. Since 

the majority of problems are ill structured it 

seems that much of policy analysis is 

properly devoted to problem structuring and 

only secondarily to problem solving. 

Therefore, the problem structuring plays the 

fundamental role. 

3. Problem structuring in security 

studies 

This paper brings in discussion an example 

of structuring an ill-structured problem in 

national security domain. After the end of 

Cold War, the East European countries have 

faced the problem of re-defining national 

interests and building national security 

policy. The process of designing a security 

policy as public policy is an ill structured 

problem. Problem conceptualization as the 

first phase of problem structuring is difficult 

because the concept is bi-dimensional: a 

subjective perception of the threats by main 

actors (do the people feel threatened?) and 

an objective evaluation (is the danger really 

present?). That makes the issue of problem 

specification in security policy the core of 

analysis. Security for whom: an individual, a 

social class, the elite, an ethnic group or the 

nation? A theoretical and heuristic model 

could be useful in problem sensing and this 

chapter imagines such a model (see the 

Figure 1). 

I assume that a policy analyst in security 

studies has a very thin line in designing the 

policy, which should propose a course of 

action to move the people’s state of mind 

from insecure status to a secure one. The 

analyst has to avoid the pitfalls of obsession 

and false security and imagine goals and 

means to achieve security.

Actors feel 

threatened Presence of danger 

Yes 

No 

Figure 1 

Present absent 

insecure obsession 

false security 

Security policy 

secure 

The avoidance of obsession is very difficult in 

that area because historical legacy built a 

diffuse feeling about the danger of foreign 

intervention. Therefore the population is 

very sensitive to national-extremist 

messages and can push the policy maker to 

adopt a “paranoid” security policy. 

The avoidance of false security is hard to be 

avoided as well. This is the situation of 

Romania between the WWI and WWII. That 

security system failed when the WW II was 

triggered. 

To build a democratic security policy, the 

political elite should correctly evaluate the 

threats and vulnerabilities and to take into 

consideration the public perception and the 

international security environment (Ghica, 

Zulean, 2007: 39). 


Therefore, the problem structuring is the 

main step in a policy analysis. The way in 

what a policy problem is defined influences 

the next steps of analysis. It should avoid 

the error of type III (solving the other 

problem). 

On the other hand, the qualitative or 

quantitative arguments have the same type 

of inference but since the most important 

constraint I consider is financial one 

(resource) I think that a quantitative cost- 

624 

benefit analysis is most appropriate and 

desirable. 

National security policy formulation could be 

seen as a public policy and policy analysis 

helps in understanding what are the policy 

issues, what are the risks and threats and 

what objectives are feasible. The problem 

structuring as an analytic tool needs to be 

adopted by the military and security 

bureaucracy in order to avoid manipulation, 

waste of resources or miscalculations. Thus 

the transformation of security sector and 

changing the curricula for both military 

academies or public administration have to 

incorporate policy analysis as core course. 

References 

Dunn, William N. 1984. Public Policy Analysis, 

An Introduction. Prentice Hall, Engelwood Cliffs, 

NJ 07632. 

Ghica, Luciana, Zulean, Marian (Eds.). 2007. 

Politica de Securitate Nationala, Editura Polirom, 

Iasi. 

King, Gary, Keohane, Robert, & Verba, Sidney. 

1994. Designing Social Inquiry: Scientific 

Inference in Qualitative Research. Princeton, NJ, 

Princeton University Press. 

Miroiu, Adrian, Radoi, Mireilel, Zulean, Marian. 

2002. Politici Publice, Editura Politea, Bucuresti.

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