international journal of economics and law

Transcription

FACULTY FOR EDUCATION OF THE EXECUTIVES
INTERNATIONAL JOURNAL
OF ECONOMICS AND LAW
Vol. 2, No. 1,
August 2010.
Novi Sad, Serbia
International journal of law & economics
Vol. 1 (2011), No. 1 (1-170)
THE ROLE OF MANAGEMENT IN REALIZATION OF
ECONOMIC, SOCIAL AND HUMAN RIGHTS
Mehmed Avdagić*, Dţevada Avdagić**, Radić Maja***, Muamer Dţinović****
* ALFA Univerzitet Beograd, Sarajevo, Bosnia and Herzegovina
** Dom zdravlja Kantona Sarajevo, Bosnia and Herzegovina
*** ALFA Univerzitet Beograd, Sarajevo, Bosnia and Herzegovina
**** Samostalni sindikat PPDIVUT, Sarajevo, Bosnia and Herzegovina
Abstract: This document could be summarized into a single description: "using management to
improve the implementation of socio-economic and human rights." Why management, among the
other things? Answer is in the very essence of this function in every organization where people
work. Management is a social necessity, which evolves with the development of society itself,
modernizes existing and introducing new features. One of these functions is the promotion of
economic and social, and human rights.
Keywords: management, economic development, social and human rights
INTRODUCTION
Factors that determine management lies in the fact that it is a process aimed at achieving
of set goals, to achieve these (and desired) goals based on the human resources in the
organization. It is a process that covers all parts of the organization; in both profit and
nonprofit organizations, and that it is a kind of technology of disposing limited
resources.
In simpler terms, the contents of each management function and role is the planning,
organizing, and controlling the working process and its outcomes.
Any organization as a subject of economic development within the state as a form of
organized society, is composed of people who access it as free, primarily to meet their
needs and interests under predetermined conditions of employment contract. They are
not „means of production“, „nor funds in production“, they aren't input to transform into
the final product according to the will of manufacturers and market demands, but they
are capable, creative product manufacturers and operators of means (resources). People
are, therefore, essential, necessary, integral part of the organization of society and the
perpetrators of the roles and functions in the organization and its environment, while in
the organization and outside of it they are in different positions.1
Therefore, management must be understood, practiced, and developed in accordance
1
Mehmed Avdagić, Osnove i teorije menadžmenta, Sarajevo, 2010.
6
International journal of economics & law
Vol. 1 (2011), No. 1 (1-170)
with the type of activity and characteristics of the organization and when there are some
common grounds and features. This common, typical component of the relationship
between owners, management, employees and government - the government, in which
management is authorized by the owner agent to the perpetrators, and an environment
that includes the state and its other entities.
MANAGEMENT AND LEADERSHIP
Contemporary understanding of good managing emphasizes in the foreground concern
for human potential, because human potential is what specifically contributes to the
quality of achievement in all areas of human work. Such development determined
desired profile of a good manager. He should no longer be a leader but a manager. What
is the difference between management and leadership (managing), i.e. managers and
leaders?
Management and leadership are often in colloquial speech, and often in the literature,
used as synonyms. In recent times, however, the specialist literature emphasizes a clear
distinction. As the main criterion in their delimitation, the attitude towards people and
their values is imposed. Management is mainly associated with the appearance of
organizational life, such as planning, analyzing, organizing, financing, supervision, etc.,
while the leadership/management associated with humans, their behavior, work style,
communication, motivation, etc.
In highlighting the differences between managers and leaders often is stated that „the
manager maintains systems, relies on control, looks at things in the short term, accept
the status quo; the leader motivates, stimulates, gives the energy, looks at things in the
long term and has the vision, causes and change the status quo.“ „Managing is carried
out over things, leadership over people. The function of the management commands and
controls, and function of managing is to explain the direction of changes and attract
members of the organization to participate in the process of changes.“2 Leadership
means having enlightened vision of what institution is and what can become, but the
ability of directing others to embrace that vision.
Successful management is just one of many skills that a good manager should have.
Managers follow regulations and the policies of superiors, and while leaders follow their
personal intuition and encourage innovation. While managers are rational, leaders are
emotional. Managers incline to traditional solutions, the leaders shy away from them.
While manager government people seeking obedience, people follow leader at their
choice. Manager uses formal procedures and rational methods, while leader set things in
motion and incite passion.3
2
Middlehurst, R., Elton, L. (1992) Leadership and management in higher education. Studies in
Higher Education, 17: 3, 251-264.
3
Green D. Lee MY. Lim AC. Chmiel JS. Vetter M. Pang T. Chen D. Fenton L. Yarkony GM.
Meyer PR Jr. Prevention of
thromboembolism after spinal cord injury using low-molecular-weight heparin. Annals of Internal
Medicine. Str. 113, 1990
Oct 15.
7
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Management and leadership are different, but both are important. The challenges faced
by modern organizations include the full reality of management, and commitment to
prudent conducting towards the attractive vision.4
Discussions about the difference between management and leadership/management
preoccupied and still preoccupy theorists of organizations. Some claim that management
and leadership are inseparable; the other says those are two independent things but with
complementary concepts, while a third believes that leadership is only one of the
management areas. Still, the attitude on the transfer of the essence to leadership prevails.
DEVELOPMENT FUNCTION OF MANAGEMENT
Social environment, depending on the achieved level of social development, is the
source of social knowledge and skills, which is an important basis of social powers
through the application and its important demonstration. The origin of management lies
in the power and usefulness of human social skills, because managing, on the one hand,
and the knowledge and skills, on the other, inevitably interweaved.
People individually and human society are developing, which means that, over time,
reach different levels of development - knowledge, skills, abilities,5 power and
influence, various types of organization and a variety of ways and properties of
management. In this sense, management is only one form and one phase of
development management of social processes, primarily the management of the
4
Bolman, L. G., & Deal, T. E. (1997). Reframing organizations (2nd ed.). San Francisco: JosseyBass.
5
Learning, Education, Training and Development - CES-Finnish Cooperation in the Education
Sector of Bosnia and Herzegovina, Pedagoški zavod Tuzla, "Obuka trenera iz demokratskog
školskog menadžmenta," maj-jun 2005, Internet, www.effectivetraining.org.
James AF Stoner, R. Edward Freeman, Gilbert, Jr. Daniel R., "Menadžment", Ţelnid, Belgrade,
2002,
pp.
344-364.
Gordana Milosavljevic, "Trening i razvoj", Beograd, 2008, pp. 61-72: "Specificity for education is
the effect on people, their abilities and character by creation, selection, interpretation and transfer
of knowledge, skills and awareness through the formation of habits, beliefs and convictions."
Also, „... The usual or the most common classification of education according to the criteria of
content: general, general professional, close professional, specialist and expert. ... General
professional education is the broadest educational basis of a profession. This is a link that
connects the general education to the general theories, laws and principles that apply within a
single profession. ... Expert knowledge is the most narrow expertise in volume but the highest
level
in
a
scientific
field.“
Training in the organization – The same, 70-72: - „The training is a part of the development
process, which employees innovate knowledge and skills needed to accomplish these tasks and
still
is
an
investment,
providing
expertise
for
future
tasks“.
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Vol. 1 (2011), No. 1 (1-170)
specified action of organizing people.6 However, human life and the life of societies and
of human society taken as a whole takes place in many areas of life and activity,
including the area of organized labor - a creative work is just one area that has clear
terms and expressed properties. It is in this field, the field of industrial production, there
is a specific form of management7 as a specific form of managing.
Aspirations of a management as the structure that manages the organization lies in the
fact that current and potential abilities of members of these organizations - human
resources must be used as much as possible to achieve the objectives of the organization
(company) and that immediate, live, human labor is replaced by technical technological inventions as much as possible. The era of automation, robots, electronics
and lasers proves. Indeed, the scientific - technological progress greatly humanizes the
work in the sense that it reduces the physical risk and effort, but tremendously
accelerates the production process, increases the consumption of resources in total
quantity and increases the possibility of the work and behavior of employees.
In addition, it is the obligation of the strategic management to include the entire
collective in the design of successful organization. “Ignoring this fact can lead managers
in the situation that the collective, despite the good will, does not understand them and
that something like that become one of the reasons for failure. Involving collective in
creating organization is not just a need, but also managerial wisdom. The organization is
created for people, but no one can create it more effectively than employees who spend
their lives in one organization.”8
6
See: Upravljanje ljudskim resursima i upravljanje organizacionim promjenama, u: Stoner
Dţejms A.F., Friman
R.Edvard, Gilbert, Jr. Daniel R., „Menadžment“, Ţelnid, Beograd, 2002, str. 344-370, 378-386.
Vidjeti o upravljanju strateškim pozicijama: Mašić Branislav, „Strategijski menadžment“,
Univerzitet „Braća Karić“, BK
Institut, Beograd, 1996, str. 35-37.
7
Since the mid of 18th century as forerunners of modern management are Robert Owen (17711858),
Charles
Babbage (1792-1871), Daniel McCallum (1815-1878), who has done much to motivate workers
and applying of their inventions. For example, R. Owen has been developing the motivation of
workers evaluating each day workers outcome by emphasizing certain colors on a piece of wood
on a worker’s machine: black - poor; green - good, yellow - very good and white - great
performance. Other authors, for example C. Babbage, back in 1922, first invented and show the
world a mechanical calculator, and later the first computer that had all the elements of today's
computers. In the area of management, Babbage proposed a profit sharing plan, where part of
wages depended on the profits realized by factory.
8
Ţivota Radosavljević i Radovan Tomić, „Menadžment u modernom biznisu“, Novi Sad –
Privredna akademija
2006. godine, str. 195.
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AFFIRMATION OF ECONOMIC AND SOCIAL HUMAN RIGHTS
The focus of modern development encompasses the entire corpus of human rights, civil
and political, and economic, social and cultural rights.
All of these rights, regardless of their content, are based on two principles: the principle
of equality between women and men and the principle of non-discrimination on any
ground such as sex, language, religion, political commitment and national, ethnic, or
social origin. The concept of development based on human rights integrates norms,
standards, and principles of international human rights system into the plans, policies,
and processes of development, which are placed in numerous international documents.
Development based on human rights demands to determine the levels of responsibility
for the process of identifying the entities, the holders, and the responsible entities. In
this respect positive obligations (to protect, enhance and secure) and negative
obligations (to abstain from violations) are equally taken into consideration. Subjects of
responsibility are individuals, states, local governments, private companies, donors, and
international institutions. Instead of providing aid, the conception of development based
on human rights gives priority to training strategies. It relies on right holders who are
those that drive development. Therefore, the emphasis is on human beings as the center
of the development process. The goal is to empower people to create their own lives and
their communities. Therefore, such a development concept calls for participation of
local and regional communities, civil society, minorities, women, and other subjects.
This presupposes access to information, institutions, decision-making, and creation of
economic and other policies. The concept of development based on human rights
implies that the creation of economic development arises from the creation of conditions
that will provide enjoyment and protection of economic, social, and cultural rights, and
therefore, the civil and political rights.
This group of rights includes:
- The right to work and employment and fair compensation;
- The right to fair and favorable working conditions;
- The right to protection in the workplace, including the right to strike and association
and
participation
in
trade
unions;
- The right to social justice, including the special protection of mothers and children,
health and social insurance, pension insurance, social assistance, etc.
- The right to access to means of production: land, capital, credit, infrastructure,
technology and equipment;
- The right to a decent standard of living and quality of life, including nutrition, access
to
drinking
water
and
adequate housing;
- The right to health: the right to basic health cares and conditions to lead healthy life,
including reproductive and sexual rights;
- The right of persons with special needs (disabled persons);
- The right to education and further education;
- The right to participate and gain the benefits of science and research
- The right to participate in cultural and artistic life
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Vol. 1 (2011), No. 1 (1-170)
The fact is that the realization of economic, social and cultural rights is largely
dependent not only on the will of the state, but also on its economic development and
available resources. In this sense, these rights are “long term” and cannot be achieved at
once or in the short term. However, this does not relieve the state of obligation to act in
this field. Although the degree of implementation of these rights depends on the
economic development of countries, all countries, regardless of their level of
development, must provide to its citizens at least minimum rights guaranteed by the
International Covenant on Economic, Social and Cultural Rights.9
When we talk about organizations in which people perform their daily tasks, then we
should especially underline that it is precisely in those institutions many of their rights
are created. The organization needs to understand better what people want, to try to
consulted them and let them feel that managers really care about them.
In addition to the individual, there are a group approaches to designing jobs. Thus,
instead of one, more task assignments assigned to employees within the integrated
working groups, and determine purpose of autonomous working groups, and the
employees themselves determine the work tasks, holidays, etc.
Managers and management style are also very important factors of building a
comprehensive motivational system, because they by understanding what people want,
significantly influence their organization and operation of the employee’s motivation. In
the area of management style, democratic style has the highest motivating potential as
managers realize that strengthening their co-workers they strengthen themselves.
Participation as the degree of participation of employees in decision-making on
important aspects of the business significantly influences the raising employee
motivation, and overall development of creative potential of people, improving the
quality of decisions, and overall organizational success.
Management by objectives is an important strategy in modern management in raising
motivation, quality of decisions, human resources, and flexibility and responsiveness to
changes in the environment. This is approach that set organizational, departmental and
individual goals, which are the basis for establishing action plans for their
implementation, monitoring, evaluation and rewarding performance through
cooperation and participation of all stakeholders. This will identify areas of
accountability and standards of behavior for each unit, with periodic transferring those
goals into measurable, time-specific goals.
Those are very important for employee motivation and other non-material motivation
strategies, such as flexible working hours, recognition of success, feedback to the
employee for its work, and organizational culture of companies.
One of the biggest problems is the resistance of the workers themselves who often do
9
http://www.fes.ba/publikacije/2010-12-EU-monitoring-O-ekonomskom-.pdf
11
Vol. 1 (2011), No. 1 (1-170)
not believe that the system of incentive compensation is objective and honest. It is
therefore an important condition of success of incentive compensation to gain the trust
of employees in that system, a necessary condition is that they are well informed. Thus,
for example, salary system should be supplemented by a well-designed job, not to be
compensation for a bad design job.
Very widespread motivation mechanisms are security and continuity of employment,
awards, promotion, greater informality and social equity, removing the formal,
functional status and barriers to communication, and others. In other words, maximal
affirmation of the individual - human and common - social rights.
Search for the opportunities to increase motivation and interest for the development of
the employee organizations has led to a complete reorganization, changes in climate and
culture and relations in modern enterprises, which can be further attributed to another
function of management, which is creating the conditions for the promotion and
development of economic and social - human rights of employees.
RESUME
Management, the overall economic development of society, and integration of world
economy and the economy certainly is evolving and its functions take on some new
qualitatively contents. The fact is that modern business increasingly not tolerates any
discrimination against people as individuals, or endangering human and social rights. If
that happens, then the administration of companies and its managements assume the risk
of conviction of a wider social and international environment, and the market does not
accept such companies any more. Therefore, it becomes very questionable “the cost” of
such processes, and more attention in modern business and progress of work processes
and activities is dedicated to human resources and work force as a creative source of
economic power and competitiveness. This results in a completely new approach to
promotion of social and human rights of employees whose knowledge is increasingly
becoming
the
working
capital
of
modern
companies.
That is why the function of management as a generator of affirmation of economic,
social and human rights of employees is becoming necessity of modern business and
economic trends.
12
Vol. 1 (2011), No. 1 (1-170)
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
Bolman, L. G., & Deal, T. E. (1997). Reframing organizations (2nd ed.). San
Francisco: Jossey-Bass.
Mehmed Avdagić, Osnove i teorije menadžmenta, Sarajevo, 2010.
Green D. Lee MY. Lim AC. Chmiel JS. Vetter M. Pang T. Chen D. Fenton L.
Yarkony GM. Meyer PR Jr. Prevention of thromboembolism after spinal cord
injury using low-molecular-weight heparin. Annals of Internal Medicine, 1990,
Oct 15.
Mašić Branislav, „Strategijski menadžment“, Univerzitet „Braća Karić“, BK
Institut, Beograd, 1996
Middlehurst, R., Elton, L. (1992) Leadership and management in higher
education. Studies in Higher
Education, 17: 3
Milosavljević Gordana, „Trening i razvoj“, Beograd, 2008.
Stoner Dţejms A.F., Friman R.Edvard, Gilbert, Jr. Daniel R., „Menadžment“,
Ţelnid, Beograd, 2002.
www.effectivetraining.org
Ţivota Radosavljević i Radovan Tomić, „Menadžment u modernom biznisu“,
Novi Sad – Privredna akademija, 2006.
13
Vol. 1 (2011), No. 1 (1-170)
IMPORTANCE OF FLEXIBLE EMPLOYMENT IN
TERMS OF NEW TECHNOLOGIES
Doc.dr Draško Bosanac, FORKUP, Novi Sad, Alfa Univerzitet Beograd
Abstract: Besides working in employment for an indefinite time and of working methods that are
employed there are shapes and forms of employment with the characteristics of an employee or
part-time employees, whose use in given moments and instances, flexible and adaptable to
specific requirements and nature work. Flexible forms of employment were created as a result of
the introduction of new technologies in the workflow (automation, computerization, robots) and
employers' reactions to so-called, standard (typical) form of work-time employment with full-time.
Flexible forms of employment have become, because of their increasing importance in the
practice of employment and manpower, the subject of intense national and international
regulation. Flexible forms of employment law scholars systematized in different ways,
highlighting their characteristics through a greater or lesser importance to influence the
employment situation. Flexible forms of employment in our country, through the solution in the
employment law, make certain types of employment, that is, more or less, made more flexible
employment (employed part-time, employed part-time employment to perform outside the
premises of the employer and the employment of household helpers) and forms of work-time
employees (temporary and part-time jobs, contract for professional training and development /
volunteer work / self-employment). And the short and long term projections of employment must
seriously take into account the possibility of using flexible work through the available shapes and
forms of employment.
Keywords: flexible forms of employment, adaptability to the labor needs, new technologies,
human resources
PHENOMENOLOGY OF FLEXIBLE EMPLOYMENT
Flexible employment, through certain forms and shapes, represents the adaptation to
changes and needs of the labor market. Nature, technology, intensity, durability of
performing business and its conditionality and determination of various factors preclude
the possibility of its performance through the permanent forms of work (permanently
employed or employed full-time), it is essential that this work is in the second institution
form. Therefore, the practice impose the need to create multiple types and forms of
work and the employment and part-time employees, whose use in such cases, must be
adaptive to needs of the particular job, and the state formed these needs, with more or
less understanding, and institutionalized in specific forms of work, creating a basis for
rational and successful pursuit of economic activities.
General characteristic of shapes or forms of flexible employment is that these are forms
of engagement of non-permanent employment or employment for an indefinite period of
time (here we think on other types of employment and part-time employees), but the
theory emphasizes the importance of some of these forms or forms of work in relation to
others, given their prominent feature of applicability. Thus, the essential definition of
flexible forms is as follows, “forms of engagement that does not represent the classic
14
Vol. 1 (2011), No. 1 (1-170)
full time work.”10 Mass business relationships and versatility concentrated on the labor
market through the process of supply and demand required a multitude of forms of
engagement so that employers could choose the most optimal form of the elections on
time executive in status form that are most rational ones. Although some of these means
of engagement, sometimes, abuse of the real needs of the employer for permanent or
more permanent work, though it is a form of legal employment.
“Flexible forms of employment have arisen as a result of the introduction of new
technologies in the workflow (automation, computerization, and robots) and the reaction
of employer to the so-called standard (typical) form of work. The standard or typical
form of employment is that an employer is devised with the employee for an indefinite
time with full working time.”11 From this definition, it follows that flexible forms or
forms of employment are also called “non-standard” forms of work, which supports
much of the theory that deals with this issue. Non-standardization means that
temporality of application, when using the character of the adaptability of each form of
specific needs of the employer or client.
INTERNATIONAL STRUCTURE OF FLEXIBLE EMPLOYMENT
FORMS
Flexible forms of employment have become, due to their increasing importance in the
practice of employment and labor, the subject of intense national and international
regulation. At the international level, the Institute are engaged in: International Labor
Organization (ILO), Organization for Economic Cooperation and Development
(OECD), European Union (EU), European Council (EC) and the International Industrial
Relations Association (MRA).
International Labor Organization, bearing in mind the importance of flexible forms of
work, introduced great number of conventions and recommendations, to give the
impetus to national laws to enrich their own equal labor theory and practice of new
forms of employment and create mechanisms for their significant impact on reducing
unemployment. These are 122 Employment Policy Convention; Convention No.177 on
the work at home of 1996, and Recommendation no.184 on the work at home since
1996; Recommendation br.189 on providing jobs in small and medium enterprises of
1996, Convention No.175 on working part-time and Recommendation no. 182 on parttime work of 1994.
The importance of this problem is not neglect by the European Union (EU), which in
1991 adopted The Directive on the part-time work (based on previous collective
agreement for the territory of the EU) and the directive on part-time work since 1999
(also derived from the signed collective agreement). In addition, the largest trade union
and managers organizations (UNICE, ETUC, CEEP) are engaged in, among other
things, the conclusion of the European collective agreement on temporary work (as a
valuable form of flexible employment).12
10
Prof. dr Radoje R. Brković, „Radno pravo (novo zakonodavstvo)“, Projuris, Beograd, 2005., str.
99.
11
B. Šunderić, „Pravo Međunarodne organizacije rada“, Beograd, 2001., str. 244.
12
S. Jašarević, „Fleksibilne forme zapošljavanja u Zakonu o radu“, Radno i socijalno pravo, br.13/2002, Beograd, str. 93
15
Vol. 1 (2011), No. 1 (1-170)
The importance of international regulation of flexible employment to solve the
unemployment problem is confirmed by the fact that within the European Union over 60
million employees working in one of the flexible forms of employment. Usually those
are part-time employment, work at home, occasional, and temporary employment, selfemployment (in various forms of individual, team, or cooperative engagement); work on
weekends, help at home work.13 Flexible forms of employment, law theorists
systematize in different ways, highlighting their characteristics through a greater or
lesser importance to influence the employment situation. S. Jasarevic emphasize the
systematization of flexible forms of employment such as 1) part-time, 2) fixed-term
work, 3) self-employment, work at home, self-employment, and informal sector jobs.14
The types of contracts on temporary work conduct flexible forms of employment, such
as, for example, zero hours contract (contract with deferred fulfillment), which requires
the performer that it must always accept a job offer, but the employer does not have to
provide him with job. Some modalities of this contract are on call and stand by contracts
(usual type of these agreements are preliminary agreements and contracts with deferred
fulfillment). In case when employer is calling the performer regularly to do, this deal
with deferred fulfillment can be considered as a normal part-time employment contract.
The practice of job contract used for contracting of flexible forms of employment,
except stand-by agreement (work on invitation) knows fixed-term contracts concluded
for certain time and so-called, minimum maximum contract showing the minimum and
maximum hours of work per week. The main question in these contracts is whether the
mutuality of these obligations of contracting parties (employer and job performer) is a
necessary element for the validity of contracts. Reciprocity would be, legally and
socially, should exist but the practice is another thing.
FLEXIBLE FORMS OF EMPLOYMENT IN SERBIA - LEGAL
SOLUTIONS
Flexible forms of employment in our country, through the solutions in Employment
law15, make certain types of employment, that is, more or less, made more flexible
employment (employed part-time, employed part-time employment to perform outside
the premises of the employer and the employment of household helpers) and forms of
work-time employees (temporary and part-time jobs, contract for professional training
and development and self-employment).
1) Fixed-term work is based on time whose duration is predetermined when it
comes to seasonal jobs: work on a project, increasing the volume of work that
takes some time and so on, but cannot last more than 12 months, continuously
or intermittently. This form of employment can be established to replace a
temporarily absent employee, until his return to work. This form of
employment has its practical justification in engaging in activities that do not
have permanent characters, but it is often misused by the statutory extension of
13
Fleksibilni oblici zapošljavanja u Srbiji, Studija, Beograd, 199., str. 56-kod Borivoja Šunderića,
Pravo meĊunarodne organizacije rada, op.cit., str. 245.
14
S. Jašarević, ibidem.
15
„Sluţbeni glasnik RS“, br.24/2005, 61/2005 i 54/2009.
16
2)
3)
4)
5)
Vol. 1 (2011), No. 1 (1-170)
time that can be deployed and through the nature of the work that is not
covered by legal norms as a possible reason for the use of the employment
relationship.
Part-time work may be established for an indefinite or specified period. The
duration of this type of employment depends on the specific needs of the
employer (in practice, this is usually half of working time). Employees in this
form of employment have all employment rights in proportion to the time spent
at work, unless some rights by general laws and the contract provides
otherwise. Part-time work represents flexible component of this work, and
when employees by working for another employer achieves full-time, and both
are full-time works, it is no longer a flexible form of employment, but a “fulltime” work. However, flexible work in this form is a significant for employee,
whether to stay at part time work, whether to realize full time.
Employment for performing work outside of the employer's premises in
the previous legislation presented work outside of employment, which
emphasized the flexible nature of its methods of work and employment. This
work is usually done at employee’s home, and legally this type of work is
known as “service providing”. The nature of work, although it is in the form of
non-fixed work, it is characterized by flexible form of employment, because
the physical location (space at employee’s home or some other place outside of
the headquarters of the employer) that factor of adaptability makes relationship
specific, as the way of doing business, because the employee in performing the
duties and may be assisted by close family members, unlike in other forms of
work.
Employment with domestic assistance (home work) was introduced by the
previous Labor Act. Otherwise, work of domestic assistance is a senior legal
institution, which dates from the early twentieth century in the German labor
law doctrine and legislation. The flexibility to this form of employment, which
is part of comparative law outside of employment, gives the nature of work
place and working conditions, and the fact that the earnings of the employee
can be paid in kind (food, shelter), but no more than 50% of earnings. Revenue
share to be paid in kind shall be expressed in monetary form. This form of
employment or work in general is essential for the reduction of “illegal
employment”, regardless of its poor applicability in our practice.
Temporary and part-time jobs are a form of the work outside of
employment, where the employer can conclude a contract for these works with
the unemployed person or with the employee working part-time - to full-time
and retired person for the jobs whose duration will not be more than 120
working days per calendar year. Employer may for performing temporary and
occasional jobs to conclude a contract with a person who is a member of the
youth cooperative, up to 30 years old.
Performing temporary jobs is renowned form of flexible employment, which,
in the context of our labor market, important, especially for performing jobs
that have not permanent character, but they appear in a certain continuity, with
a regularity of time, in specific seasons, cycles of work processes and the like.
Predictability of common needs for these jobs in future periods allow the
employer and the potential performer of the work, either individually or
through cooperatives, to count on work engagement and a significant portion of
17
Vol. 1 (2011), No. 1 (1-170)
the unemployed of the possibilities of this work, no matter what it is, mostly,
less complex and mainly physical work.
6) Contract on vocational education and training represent the return of the
voluntary work into labor regulations (which former legislator unjustly thrown
out of regulation), differently named, but with almost identical content, so the
essence of the previously formulated voluntary work - internship and the
professional exam, acquiring of the necessary knowledge and skills to work in
the profession and specialization – is taken over as the contents of contracts for
professional qualification and training.
The motive of the employer to engage performer from the labor market under
this contract is the low cost of such engagement, the ability to qualify the
experts of certain profiles, and, simultaneously, show to the community its
effort to help reducing unemployment. On the other hand, a volunteer, although
aware of the shortcomings of its status and temporary work, of the performer
whose work, due to lack of qualification and experience in the labor market is
very cheap, finishing voluntary work become more competitive to solve its
status adequately to its abilities.
7) Self-employment The labor law defined as the probability that an individual
performs work independently as an entrepreneur, in accordance with the law
governing the issue of entrepreneurship. Prediction of this institute, the
legislator seeks to emphasize the importance of self-engagement of
unemployed persons to find job, especially if there is some important
assumptions of self-employment (received severance pay, the action of the
former employer to finance incentives offered by the state in certain
employment programs, etc.). Therefore, self-employment, as a flexible form of
employment, may be a transitional form of engagement to one type of
employment, even permanent.
NEW FORMS OF
TECHNOLOGIES
EMPLOYMENT
IN
TERMS
OF
NEW
The problem of unemployment is a continuous problem of states and societies and with
creation of economic conditions for its solution, it was necessary to look into new forms
of engagement that would suit the needs of employers and opportunities. In places
where no opportunities and conditions for the establishment of a permanent working
relationship, it is expected that theory and legislators to establish new forms of
employment, which meet the needs of the labor market. These forms of employment
characterize flexibility and adaptability. In addition to objective determination of
employment in market conditions, this employment requires a complete change of
consciousness about the role of their own work and attitude towards work in general,
where the required maximum engagement of each employed performer, expertise,
competence, high levels of work culture and efficiency is necessary.
In the introduction, we pointed out that flexible forms of work incurred as a result of the
introduction of new technologies in the work process. Although from the standpoint of
the general progress of mankind new technology are a means to achieve a new quality
of life, they carry certain difficulties which are reflected differently on individual
companies, depending on their overall development. New technology, in general,
reduces the need for labor or abolishes jobs, reducing the need for live performance and
18
Vol. 1 (2011), No. 1 (1-170)
was replaced by materialized labor. Maximizing the impact of new technology requires
significant changes in the ways of engaging and organizing the work force so employers
require a change of working mode, or in many cases, replacement of other employment,
and flexible (adaptive) forms of work. Mode of employment makes it difficult for
employers to get rid of redundant employees.
Redundancy does not apply to workers in certain production and other work processes,
but also some management structure and managers. The abolition of permanent
employment in certain cases would allow the employer to manage the workforce in line
with the characteristics of new technologies. A new approach for organized labor,
caused by the introduction of new technologies, needs to make full use of production
and employment potential, so that their work is most productive when it is most needed,
“a flexible organization of work requires a flexible and mobile workforce.”16 In addition
to introducing flexible forms of, a flexibilization of working hours is also done, to
ensure the optimal use of production and processing capacity and working capacity of
employees or hired employees. New terms and conditions are determined by specific
technological and organizational changes and they are changing models of human
resources utilization, in relation to the legal basis of their work involvement (types of
work that is not full-time employment) and flexibility of their working abilities.
Methods of human resources utilization are different in given circumstances, but
directed towards the full-time employment. Reduced volume of work and termination of
the need for certain types of work obliges the employer to reorganize operations, and
personnel restructuring of the professional human resources management, to maximize
the available human resources. Personnel restructuring of the employer goes through
three related processes, 1) the restructuring of knowledge and skills of employees, 2) the
restructuring of work motivation and morale, and 3) restructuring the system of
organizational roles.17
Recently, flexibility in employment is a formula used as a concept for solving the
employment problems in terms of “new fields of work” conception.18 In relation to
outlined, the flexibility involves a range of interventions in all spheres, and some of
them are “reducing wages, changes in terms of collective bargaining at the national
level, changes in regulations on protection of workers, changes in regulations of laying
off workers, changes in social security (Euro-Flexibility and Jobs, Myths and Realities,
Brussels, 1985).”19
Dr Brana Marković, Nove tehnologije, radniĉka klasa i sindikati-kod Borivoja M.
Šunderića, Pravo MeĊunarodne organizacije rada, op.cit., str.244.
17
B. Ĉukić, Ljudski resursi firme (u okviru teme "Zapošljavanje i socijalni problemi"),
Pravni fakultet Univerziteta u Beogradu, Beograd, 1966., str.27-29.
18
V. Brajić, Dileme i koncepcije u pogledu zapošljavanja (u okviru skupne teme:"
Trţište radne snage i pravo na rad"), Zbornik radova sa savetovanja pravnika 8-12. juna
1998.g., Budva, Beograd, 1998., Budvanski pravniĉki dani, str.120-122.
19
Ibidem.
16
19
Vol. 1 (2011), No. 1 (1-170)
RESUME
Flexible forms or forms of employment differ from so-called standard (typical) ways of
making a work contract for an indefinite time and full work time. Flexibility of work is
related to its duration, by temporary and specific conditions in which they perform. The
significance of these forms of work confirms the fact that within the European Union
over 60 million employees working in one of the flexible forms of employment. Usually
those are the part-time employment, work at home, occasional and temporary
employment, self-employment (in various forms of individual and team or cooperative
engagement); work over the weekend, home care and so on.
Short and long-term projections of employment in our country must seriously take into
account the possibility of involvement of the work through legally available flexible
forms of employment. The state should ensure effective functioning of the labor market
functioning in which supply and demand many types of work will find, whose shape
and method of engagement is not a permanent employment.
Reducing unemployment is not the only objection of the use of flexible forms of work,
but also the suppression of “illegal employment”, in a variety of informal and illegal
work, which also affects the increase of employment and provides a more realistic
insight into the employment situation in society.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
20
Brajić V., Dileme i koncepcije u pogledu zapošljavanja (u okviru skupne
teme:" Trţište radne snage i pravo na rad"), Zbornik radova sa savetovanja
pravnika 8-12. juna 1998.g., Budva, Beograd, 1998., Budvanski pravniĉki dani,
str.120-122.
Brković. R., Radno pravo (novo zakonodavstvo), Projuris, Beograd, 2005.
Ĉukić B., Ljudski resursi firme (u okviru teme "Zapošljavanje i socijalni
problemi"), Pravni fakultet Univerziteta u Beogradu, Beograd, 1966., str.27-29.
Jašarević S., Fleksibilne forme zapošljavanja u Zakonu o radu, "Radno i
socijalno pravo", br.1-3/2002, Beograd.
Marković B., Nove tehnologije, radnička klasa i sindikati, Beograd
Šunderić B., Pravo Međunarodne organizacije rada, Beograd, 2001
Bosanac D., Ugovori o radu kojima se ne zasniva radni odnos-doktorska
disertacija, Beograd, 2006.
Vol. 1 (2011), No. 1 (1-170)
GLOBAL CORPORATIONS AND DIPLOMACY
Prof. dr David Đ. Dašić
Ĉlan Foruma za meĊunarodne odnose Evropskog pokreta u Srbiji
Abstract: "Economization" of the foreign policy is a global trend. Economic diplomacy is the core
of modern diplomacy. The rise of the global corporations. The triangle of the world economy. The
role of corporate diplomacy. Format and mandate of the economic diplomat. The suggestions for
better economic diplomacy organization in the Republic of Serbia.
Keywords: economy, global corporations, foreign policy, diplomacy, economic diplomats
Economy never had so much significance and role in foreign policy and diplomacy as
today. Foreign policy cannot be detached from the market realities. Diplomacy is much
more concerned with financial and economic crisis, rather than disarmament.
Diplomacy is now, in fact, economic diplomacy.
Economic diplomacy, its notion often eludes chains of conceptual definition, is raising
everywhere in the world. It has become a strategic concern of every prosperous country
and progressive society. The process of economic "diplomacy" and "economization" of
diplomacy has grown into a truly global trend.
Today, the success of nation states diplomacy, and their diplomats appraise by how
much they and their contribute to increasing the flow of needed foreign capital,
acquisition and application of advanced foreign technologists, all political and business
climate created in the receiving country for the performance of its export-oriented
enterprises to all the more demanding world markets by its activities, in the end, what
foreign income or profits, makes the economy of the country of accreditation in the
economic cooperation and relations with the world i.e. in the receiving countries.
Americans said long ago “Diplomacy business is business.” In the first line of American
diplomacy are the interests of American corporations, in the spirit of the famous urban
myth of U.S. businesses, “which is good for General Motors is good for the United
States.”
Particularly important form of economic diplomacy is so-called corporate diplomacy,
made in the lap of global corporations to expand business worldwide, often referred to
as multinational corporations, transnational corporations, multinational companies, big
companies, et al.
It is estimated that at the beginning of the 21st century the world has over 65.000 global
(multinational) companies and around 500,000 corporate branches located in other
countries. The largest part of export business in the world is accomplished through a
global corporation. The value of annual exports of only 250 most powerful global
corporations reached one third of world gross product (GWP), which in 2009 amounted
to about 70 trillion U.S. dollars. Global (multinational) corporations controlled over
80% of the world's financial capital (foreign direct investment and portfolio
21
Vol. 1 (2011), No. 1 (1-170)
investment). It is estimated that two thirds of world trade will be carried out by global
corporations (third through intra-firm trade and the third part through inter-firm trade),
and about a one third through classical forms of foreign trade.20
Income of some global (multinational) corporations is higher than the gross domestic
product (GDP) of many national economies. For example, only 30 countries in the
world in 2006 had a higher GDP from the income of American corporations Wall-Mart
Stores, which is the biggest multinational company in the world.
Wall-Mart Stores Corporation revenue in 2006 was nearly 8 times higher than GDP of
Serbia. Danish GDP in 2006 was slightly higher than revenues of Chevron U.S.
corporation.
Corporate
income
of
German
Siemens
in 2006 was more than twice than GDP of Slovenia. Croatian GDP in 2006 was equal to
the income of American Costco Wholesale Corporation, and so on.
Global (multinational) corporations have entered into all sectors of the economy and
services, particularly those that are technologically and financially most propulsive, who
make the most profit, such as computer technology, pharmaceuticals, oil and
petrochemical industries, banking, and other services. It is estimated that approximately
60% of global corporations are engaged in the industrial sector, 37% in the service
sector, and 3% in the primary sector of the economy. The largest number of
multinational corporations (90%) is concentrated in the triangle of the world economy the U.S., EU, and Japan.
Political and economic prestige of a country in the world is often equated with prestige,
which has its global corporation in the world.
The names of many global corporations have become a trademark the country of origin
itself. For example, corporations such as Coca Cola, Nike, Boeing, and McDonalds are
tied to the U.S., Nokia to Finland, Sony to Japan, Nestle to Switzerland, Rolls Royce to
UK, Mercedes Benz to Germany, etc.
Leaders of global corporations (CEO - chief executive officers) and their owners have
become the most important part of a global "superclass" that holds the actual (though
not formal) levers of power and influence around the world, in all countries, including
the United States as the most powerful super power. For a description of power and
influence of global corporations in the world, and their leaders, a new term
“faktokratija” (actual rather than formal power) appeared which comprises the
possession of real rather than formal authority. Therefore, for example, it is believed
that in the U.S. presidential election win, as a rule, the candidate on whose side are most
CEOs of American corporations, i.e. U.S. corporate elite. The leading figures of global
corporations (management and owners) are among the richest people in the world.
Global corporations have become the driving force of globalization and world economy
20
Miroslav M. Raiĉević, Internacionalna ekonomija sa osnovama ekonomske diplomatije,
Fakultet za
internacionalni menadţment, Beograd, 2000, str. 13
22
Vol. 1 (2011), No. 1 (1-170)
in general, and economy of each country. They have become a “global companies” in
the true sense of the word, spreading the awareness that “the world is one and
indivisible”, that the world is a comprehensive economic area. They bring new, modern
forms of economic organization and management, and offer a new global way of
thinking about solving global economic problems of the world. In addition, they are
more and more powerful influential, directly or indirectly, in shaping the foreign policy
of many countries in the world. Wherever they have appeared so far in any country in
the world, global corporation brought and bring appropriate economic revival, allowing
the rapid economic growth, increased investment, job creation, raising the standard of
people, etc. Only those states who observe the contemporary world through categorical
terms that are narrower than global are in conflict with global companies.
Global corporations have realized they must hold in their hands the responsibility for its
position in numerous markets worldwide, in the production regions and distribution
channels, that themselves should do care about their capital and their economic power,
that responsibility for sustainable corporation development must not shift to political
actors and the current administration of given state or given countries, and to use their
knowledge to widen their horizons to better understand the complexity of contemporary
global agenda, economic, political, and social.
In every global corporation, and any in any greater successful company that does
business with foreign countries, organizationally a special service (sector) for “foreign
affairs”, international cooperation, international relations, and similar, to communicate
and negotiate with foreign entities is established, no matter where they are located. Its
“foreign affairs” and functions that service usually realized (1) in relation with the state,
(2) in relation to other corporations and business entities, and (3) in relation with
branches within the company, located in countries outside of the site management of the
corporation.21
Under the auspices of a global corporation new and special kind of diplomat, called.
corporate diplomats, workers of the global corporations with special knowledge and
skills in the development of strong corporate identity, responsible and efficient in
communicating with different communities, interest groups, activists, governments and
international shareholders, who truly feel as the citizens of the corporate world, who
know local conditions and the needs of the host country (receiving), know the effective
use of modern forms and all available resources for the implementation of strategic
communication with foreign public opinion.
Corporate diplomacy is engaged in activities and issues of greatest importance for the
successful functioning and development of global corporations, such as, for example,
how to create the best global business environment and global atmosphere of friendship
and trust, how to effectively negotiate with the government of the country where
business is located and governments of countries where its subsidiaries are located, how
21
David Đ. Dašić, Savremena diplomatija, Multidisciplinarni centar za podsticanje integracionih
procesa i harmonizaciju
prava/Privredni savetnik, Beograd, 2008, str. 375 - 278
23
Vol. 1 (2011), No. 1 (1-170)
to build relationships with business associations and chambers of commerce,
associations of trade unions, NGO networks, media, and others.
None of this depends on the success of global corporations in business operations
around the world. Not a single global business can survive in a hostile environment.
That is why global corporations were forced to create and develop their own
“diplomatic services” to have their own diplomats, their own protocol, and other
mechanisms that are required for the establishment of various forms of cooperation and
relations, both within the corporate world and outside it. Foreign affairs departments of
some global corporations are more numerous than the diplomatic services of certain
states.
Corporate diplomacy is on the rise around the world. It is practiced in the U.S. on a
daily basis. Diplomatic representatives of corporations require local, state, and national
legislators to adopt laws and measures that are vital for successful and efficient
operations of the corporation. Diplomatic representatives of European corporations
directly communicate not only with governments of the state where they are located and
where they have their branches, but with the highest political bodies of the European
Union also.
The success and rapid growth of global companies in China, Japan, and South Korea is
directly related to the effects of global corporate diplomacy. In these social
environments, diplomacy is appreciated as a separate business value, equal to ethics and
morality of past civilizations and cultures and treated as an art in the truest sense of the
word.
Many global corporations and the governments of many countries have established
some kind of partnership. State diplomacy, as a rule, does not confront corporate
diplomacy, and the purpose of most of them is achieving the strategic goals of global
organizations.
Diplomatic potential of global corporations become some sort of diplomat nursery
necessary to state diplomatic sector (Ministry of Foreign Affairs and other departments).
Similarly, in the modern industrial world is increasingly practiced that career diplomats
fluctuate from the MFA to global corporations and other large national companies that
do business with foreign countries.
New time requires a new foreign policy, new diplomacy models, and new profile
diplomats. If the annual income of a global corporation is bigger that GDP of a country,
then some influence the foreign policy and diplomatic performance of given state
towards them is unavoidable.
The future of the world is on the side of global corporations. They are the economic
future of both Serbia and the entire Western Balkans region. The presence of some of
the world of global corporations (U.S. Steel, Coca Cola, Fiat, etc.) in Serbia has been
significant but far from necessary and possible. Their number in the near future must
increase significantly. Development and stability of the Serbian economy largely
depend on that.
24
Vol. 1 (2011), No. 1 (1-170)
The relation of the Serbian state to global corporations today is a real challenge to its
foreign policy and diplomacy. A viable strategy for Serbia's foreign policy is not
possible without adequate evaluation of the place and role of global corporations and the
corporate world of economic factors in contemporary international relations. Some
global corporations have big importance for Serbia, and not just for Serbia, not only in
economic sense, they are more important than big number of individual nation states,
not only small ones but also those of medium size.
Therefore, Serbia, as a state and society, should quickly adapt to the changes that have
already taken place on the global economy and world markets, and that “set” its foreign
policy and diplomatic activities according to the real power of global corporations,
which became one of the indispensable pillars of modern international relations, foreign
policy, and diplomacy. Global corporations are the economic future of Serbia and the
entire Western Balkans region.
RESUME
New times require new forms of organizing the diplomatic service, and a new profile of
diplomat. Classic, traditional patterns of organization of diplomatic service, some
inherited from the 19th century, do not fit the challenges and needs of the 21st century. In
addition, instead of general profile diplomats, diplomats of emphasized specific
professional orientation, such as, for example, economic diplomats, a special type of
government workers in charge of promoting business cooperation with foreign countries
are needed.
One of the strategic objectives of foreign policy of Republic of Serbia and the specific
tasks of its foreign minister and diplomatic service is that with its performance on the
world political and economic scene, particularly the market, create conditions for a large
global corporations arrival in Serbia, so Serbia could become a “corporate”. Cause,
more global corporations in Serbia means the faster route and its faster pace towards
EU. “Corporate” Serbia is, in fact, the other side of “European” character of Serbia. In
this context, two questions arise:
First, why the Republic of Serbia, in cooperation with the authorities of the receiving
state, would not sent their economic diplomats directly to work in the selected or
selected by global corporations around the world, on the basis of received special
approval from them (so-called “agrément”), rather than in its Embassy offices, as it is
now the practice, and
Second, why in the Ministry of Foreign Affairs of the Republic of Serbia wouldn’t be
organized a special, unified sector (DG) of bilateral and multilateral economic
diplomacy, in which, inter alia, could be a special management of corporate diplomacy,
with the economic diplomats that would communicate with selected global corporations
around the world, in the immediate interest of the country, its economy, and businesses.
25
Vol. 1 (2011), No. 1 (1-170)
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
26
Barston, R. P., Modern Diplomacy, Second Edition, Longman, London and
New York, 1997.
Bayne, Nicholas & Woolcock, Stephen, The New Economic Diplomacy:
Decision - making and Negotiation in International Economic Relations,
Ashgate, Aldershot, England, 2003.
Berridge, G. R. & A. James, A Dictionary of Diplomacy, Second Edition,
Palgrave, New York, 2003
Dašić, David, Đ., Savremena diplomatija, Multidisciplinarni centar za
podsticanje integracionih procesa i harmonizaciju prava/Privredni savetnik,
Beograd, 2008.
Dţombić, Ilija J., Ekonomska diplomatija Bosne i Hercegovine, Univerzitet za
poslovni inţinjering imenadţment, Banja Luka, 2008.
Prvulović, Vladimir, Ekonomska diplomatija, Megatrend univerzitet
primenjenih nauka, treće izdanje, Beorgad, 2006.
Raiĉević, Miroslav M., Ekonomska diplomatija, Institut za ekonomsku
diplomatiju, Beograd, 2006.
Steger, Ulrich, Corporate Diplomacy: The Strategy for a Volatile, Fragmented
Business Environment, John Wiley & Sons, Ltd., Hoboken, NJ, 2003.
Vol. 1 (2011), No. 1 (1-170)
THE NECESSITY OF USING EXPERT SYSTEMS IN
STRATEGIC DECISION MAKING
Miloš Dašić*, Slaviša Trajković**, Branko Tešanović***
*Military Academy, Belgrade
**Faculty of Economics, Priština - Kosovska Mitrovica
***Military Academy, Belgrade
Abstract: Strategic management is an extremely complex process of monitoring and collecting all
relevant information on different internal and external critical success factors, which affect or
may affect the operations of a company. On the other hand, all collected information should be
adequately processed and presented, in order to reach managerial quality. For strategic decision
making, it is not sufficient to obtain relevant representative information and indicators, which
give insight into the existing business environment and the current strength of the company,
because the choice of future development strategies is often directly connected to intuition,
assessment and personal reasoning of decision makers. Expert knowledge is often unavailable at
the time when it is required to solve complex problems, because there are only a few people in
each company who are considered experts and they are often too busy. The appointment of other
experts for each complex strategic problem is in most cases expensive and irrational, if not
impossible. Therefore, the use of expert knowledge in the form of expert systems is a considerably
cheaper, more rational and more accessible way of solving problems in the field of strategic
management.
Keywords: expert systems, strategic management, information, knowledge, decision making,
artificial intelligence
INTRODUCTION
The necessity of using expert systems in strategic management is constantly
increasing, especially under strong dynamics of change within business
environment. If this process is to be successful and efficient, it is essential that
the person who makes decisions on future development strategies be an expert
in the field of the issue he is trying to solve and to have sufficient experience in
order to decide how to react in the exisiting business conditions. Prompt
response to changes in existing business conditions involves practical problemsolving in real time. The availability of expert knowledge at all times in certain
problematic areas, which is possible with a well-designed expert system, is an
important success factor in modern companies. Late decisions are often equally
detrimental as the wrong ones, and so the company’s possibility to use a certain
expert system for its business management at the moment when it needs to
27
Vol. 1 (2011), No. 1 (1-170)
provide a quick response to change, constitutes an important element of gaining
advantage over the competition.
Expert systems in strategic management don’t aim to fully replace humans in
strategic decision making. However, they can serve as an extremely useful
expert adviser for numerous management issues, as they have the possibility of
reasoning on an expert level in a given field. Due to complexity and lack of
structure, which is characteristic of the problems within strategic management,
it is possible to solve them with the help of expert systems. Great
interdependence of certain factors on business results and future development
guidelines leaves space to strategic decision makers to use empirical and
heuristic knowledge, which on the other hand implies the need to formalize such
knowledge in a programme. In that respect, expert systems offer great
possibilities, which, if used correctly, guarantee business success.
THE APPLICATION AREA OF EXPERT SYSTEMS IN STRATEGIC
MANAGEMENT
The use of expert systems in strategic management has considerably
enhanced efficiency and consistence levels of strategic decisions which were
based on them. It is best expressed in the manner, quality and time dimension of
a decision making process. Adequate application of the portfolio concept, one of
basic instruments of strategic management, has become more successful since
expert knowledge became constantly available for an unlimited number of
problems in the field. In that way the assessment of conditions in which
companies conduct their business and the extent of their abilities to respond to
the existing as well as future challenges, with the choice of appropriate
development strategies, can be conducted on an expert level at any moment and
for an unlimited number of requests. With decreased impact of the human
factor, management decisions that were based on the use of expert systems were
standardized to a great extent, without subjective impact and bias from the
decision maker. [3]
With the use of expert systems in strategic management, there have been
changes in the organization of the management structure within a company.
These changes are reflected in the management hierarchy within the company,
where the authority at middle and senior management levels can be transferred
to lower levels, since even complex management problems can be successfully
solved within the scope of operations management with the help of expert
systems. Thus additional time is left to middle and senior managers, which they
28
Vol. 1 (2011), No. 1 (1-170)
could use to solve other management problems within the company. Therefore,
the functioning of the entire management system in the company is raised to a
higher quality level.
As possible application areas of expert systems in strategic management, there
are all segments of this complex process which can be considered difficult
enough to require a certain level of expertise in their realization. These are
mostly the fields in which adequate software solutions, or expert systems, can
serve as a strong support for strategic analysis, strategic choice and finally,
strategic change. We should stress the following as the most significant possible
application areas of expert systems in strategic management:










Strategic analysis of turbulent business environments in the conditions of
discontinued changes,
Script development for strategic planning and assessment,
Trend analysis, cross-sectional analysis for long-term assessment and
multifactor analysis,
Strategic planning and sensitivity analysis,
Risk assessment,
Experience curve analysis,
Opportunities and threats analysis, as well as strategic changes in the
formulation of an adequate business policy,
Development of the company’s strategic plan
Identification and selection of particular programs and projects whose
implementation should be supported,
Financial analysis for strategic management, etc.
Each of these fields of strategic management has its own specific qualities,
which have to be taken into account in the assessment and development of an
expert system, which would solve the problems in that field. We should also pay
attention to the adequate choice of tools with which particular expert system
will be developed, as it has to reflect the structure of the requests presented
before the system in order to properly deal with the problem.
Expert systems are not “tutors” and their decisions are not binding, in the sense
of giving out directives how to solve a certain problem. For their successful
implementation, they are to be understood as a man’s good expert “consultant”,
his objective “business partner”, which considerably helps him to be more
successful in his business. The decisions of expert systems must be interpreted
as “good advice” which can, but doesn’t have to be accepted by a man as the
final decision maker. However, if it is a well-designed expert system, then its
29
Vol. 1 (2011), No. 1 (1-170)
advice mostly represents the right guidelines to more successful management,
which could lead to positive outcome in future business operations.
THE POSSIBILITIES AND LIMITATIONS OF EXPERT SYSTEMS IN
STRATEGIC DECISION MAKING
The need to constantly combine strategic skills and expert experience, along
with indispensable information and methods, techniques and concepts of their
adequate analysis contibuted to the fact that scientific research in the field of
strategic management was increasingly marked with the concept of expert
systems. The growing need for expert knowledge in problem solving within
strategic management can be most efficiently solved with the use of software
solutions in the form of expert rules, which would enable skills, experience,
intuition and heuristic knowledge to be used in real time and for an unlimited
number of problematic situations in the field.
The idea and awareness that the strength of intelligent programmes, for
overcoming specific and complex problems, doesn’t stem from formalism and
conclusion schemes, was the basis for the development of specific programmes,
with special purpose, which have expert role in the area of existing problems.
These programmes are called expert systems and are the dawn of a new era in
artificial intelligence and information technologies research, which is
exponentially increasing and developing. The application of expert systems in
strategic management involves prior completion of certain conditions, regarding
the possibilities of realising such a complex project.
Each of the potential projects should meet certain requirements and qualities
before implementation into business operations. The requirements and
characteristics are as following [1]:
1. Basic requirements:






30
The need to access knowledge-based systems;
The existence (availability) of experts;
The possibility of engaging experts;
Acceptable limited success;
Profitability;
Risk assessment in relation to profit;
Vol. 1 (2011), No. 1 (1-170)
2. The type of problems:








Symbolic reasoning;
The use of heuristics;
Incomplete and unreliable information;
The development of expert systems for solving actual organizational
problems;
Widespread knowledge and general understanding;
Task definition;
The availability of task inputs;
The adequacy of task outputs.
3. Expertise:



Experts are considerably better in task realization than “amateurs”;
The necessity of expertise;
The adequacy of an expert;
4. Task limitations:




The limitations of task difficulty (neither too easy, nor too complex);
The assessment of the lower level of task knowledge;
The assessment of the upper level of task knowledge;
The narrowness of the task.
5. The personnel of the domain area and policy:







Staff expectations in the field of expertise concerning the success of an
expert system;
Agreement and acceptance of cooperation between the leaders (managers,
planners, etc) in domain area;
The support from the highest management level within the organization;
The users want a system;
The implementation of a system into business operations with minimal
changes in the existing processes;
The cooperation of the user group;
The implementation (results) of expert systems in domain area won’t be
sensitive or controversial towards the organization’s policy;
31
Vol. 1 (2011), No. 1 (1-170)
6. Development, testing and application:












Incomplete coverage of the domain (task) can be tolerated and the system
can be applied in phases;
The possibility of decomposing the entire task to subtasks and the series of
development steps;
Learning ability;
Written material;
The availability of test cases;
User interface;
Long-term need for a system;
Non-existence of alternatives;
Stability;
Tolerance to incorrect results;
Measuring the contribution;
The experts’ consent to corrections.
The main aim of fulfilling the stated requirements is to choose the domain
which would be most suitable for the project of the expert system.
Changes occurring in business environment pertain to technologies and
products, but above all, to knowledge resources. The development of production
forces within a society is conditioned by the development of cognitive processes
about the nature and the society, and also by the development of general human
knowledge. This process can especially be complemented by expert systems. As
intelligent automatic devices for the representation and processing of general,
natural, exact and verified knowledge, linking the examined and confirmed, but
vague knowledge gathered from several years of expert experience, expert
systems provide insight into new expert fields and realization of adequate
complex processes. Since expert systems enable highly specialized knowledge,
i.e. expert knowledge, to be spread and actively represented within certain
expert fields of strategic management, then the management quality of the entire
company which is using the expert system is raised to a higher level. In that
way, expert systems become a success factor of modern companies in the
business world, and in the long run they will also be a prerequisite for the
development of the entire economy and human society in general, as a unity in
many different and specific intelligent teams.
32
Vol. 1 (2011), No. 1 (1-170)
Expert systems possess many significant qualities which distinguish them from
other characteristic information technologies, such as automatic data processing,
management information systems, decision support systems, etc. The
representation of significant features of expert systems can best be fulfilled by
highlighting some of their drawbacks and limitations in their use within
strategic management process. These drawbacks essentially represent
favourable characteristics which the existing expert systems don’t possess to a
desired extent and indicate possible directions of their development and
improvement in the future.
These drawbacks are expressed in the following [2]:












expert systems cannot recognize, nor solve the problems for which their
knowledge is inapplicable or insufficient;
expert systems don’t have independent resources to check the rationality of
their conclusions;
expert systems don’t have enough knowledge of their possibilities and
limitations (which is characteristic of a human expert);
explanations that the expert systems give about their conclusions and
reasoning are often too simplified;
the language used by expert systems for stating facts and relations is very
limited.
when it comes to future development areas for expert systems, we should
stress their improvement when dealing with certain types of problems,
which could be described as generally unfavourable for existing expert
systems, such as:
the problems which have only a few solution rules;
the problems which have too many solution rules;
well-structured numerical problems;
the problems which the humans solve much better with their senses of sight,
smell, touch, etc;
the problems which are too complex or new, so that there are no experts in
that particular field;
the problems in the fields where experts are in total disagreement over their
solutions [4].
In current development phases and practical realization of numerous projects,
the application of expert systems in strategic management has given outstanding
results. Many complex problems, regarding the choice of an alternative strategic
decision, have been successfully solved with the use of expert systems in
33
Vol. 1 (2011), No. 1 (1-170)
different segments of the complex strategic management process. For most of
these problems, the level of expert knowledge required for their solution and the
frequent need for their solution are so great that they practically stress the
necessity of using expert systems.
Although the human role in strategic management is still irreplaceable, the use
of expert systems as a complementary tool and a highly expert consultant is so
important that it is expected to become a necessary condition for further
development and growth of the company in the foreseeable future.
CONCLUSION
Reaching important strategic decisions and the choice between strategic
alternatives in existing complex business conditions require the use of expert
knowledge. Since the age we live in is often regarded as „information age“, the
survival, development and business success of modern companies inevitably
involves operations that are based on the use of cutting-edge IT achievements,
in the field of hardware as well as software solutions. In that respect, the use of
expert systems proved to be one of the finest cutting-edge software solutions,
which enabled access to expert knowledge to a large number of users at all
times.
At the time of globalized world economy, turbulent business environment and
business dynamism increase on a daily basis, which undoubtedly requires latest
cutting-edge methods of following all critical factors that could affect business
success of the company. Today, successful strategic management and decision
making is inconceivable without combining a great number of adequate
information with different methods of processing and presentation, which,
because of the relevance of obtained results, must be conducted in a very short
period of time. On the other hand, all these mathematic and other methods of
information processing are not always sufficient to reach appropriate decisions.
We often see that without intuition and expert experience efficient problem
solving fails to happen, despite adequate level of information.
In strategic management today, expert systems are offering the ability to
combine relevant information with required expert knowledge. It is formulated
in a suitable computer programme, in order to reach the best solution to the
problem. The perspectives of applying expert systems in strategic management
show a rising trend. In the foreseeable future they aim to reach the level of
necessity, in order to ensure success in contemporary business world. The
34
Vol. 1 (2011), No. 1 (1-170)
complex process of strategic management requires further changes in the
approach of strategic problem solving, while expert systems provide great
possibilities of modernization and automatization of this action.
REFERENCES:
1.
2.
3.
4.
Preraue, D. S.: Developing and Managing Expert Systems, Addison Wesley
Publishing Company, New York, 1990.
Stojmirović, Lj., Trajković, S., Stojmirović, S.: Menadžment informacioni
sistemi, FAM- Fakultet za menadţment, Beograd, 2006.
Tešanović B., Zogović.: Koncept totalnog upravljanja kvalitetom sa posebnim
osvrtom na Vojsku Srbije, Beograd, Vojno delo, 3/2000. str. 170. ISSN 00428426..
Trajković, S.: Ekspertni sistemi u strategijskom upravljanju, Kosovska
Mitrovica, Ekonomski fakultet, 2010.
35
Vol. 1 (2011), No. 1 (1-170)
FROM CRISIS TO CRISIS?
Dragana M. Djurić, FORKUP
“Improve the State of the World: Rethink, Redesign, and Rebuild”
Executive Summary, Davos, 2011
Abstract: This paper analyzes the effects of financial crisis, and points to the asymmetric of
effects, which manifest themselves in at least three levels, i.e. between developed countries and
countries with emerging markets, between industrial and financial sectors in the least developed
countries. Attention is focused on the measures taken in the financial sector, whose crisis was the
trigger of a global crisis and recession and whose new architecture should be the main backbone
of the future system.
Keywords: fiscal stress, quantitative easing, corporate euthanasia, recession
INTRODUCTION
By thinking, people evaluate that this world is faced with serious value problems.
Politicians are interested in power, and therefore pragmatic actions, and economists for
economic growth and profit. Not taking into account moral and political issues of
modern humankind burdened with inadequate answers, it is evident that the financial
crisis in 2008 opened Pandora's Box from which all the bad things of the contemporary
global economic system, especially global capitalism, came out. It pointed out to
weaknesses of the current thinking of the economic system at national and global level.
It shook the foundations of economic science and the quality of some existing laws. It
has shown weakness in the estimates, in effect, but also proposed solutions too.
Is the world at a turning point? Do we live in a period of significant changes in the
global economy? Whether the solutions offered so far give grounds for optimism? This
paper tries to answer these questions by focusing on the solutions being offered in the
financial sphere. Focusing on finances is the consequence of a general agreement that
the banking and financial system as a whole should have the key, stabilizing role in the
future
system.
Optimism is not appropriate when we consider the number of failed attempts so far at
the international level to begin to remove the key risks of the world. There are many,
and among them, we should mention the failure of the conference in Amsterdam on
global warming, little progress in multilateral trade negotiations in Doha, poor results in
the UN Millennium Goals, little progress in redefining the Security Council or
agreement on the proliferation of nuclear weapons.
36
Vol. 1 (2011), No. 1 (1-170)
SOME OPENED QUESTIONS AND OFFERED ANSWERS
The crisis has not passed within the period is anticipated. Although in 2010 growth rates
in developed countries were recorded, they are relatively modest. Projection of world
GDP growth for 2011 was 4.3%, while in developed countries will amount to 2.4%,
while in countries with emerging markets is going to be slightly lower than in the 2010,
but still with a high level of 6%.22
If we analyze recessions in 1975, 1982, 1991, and 2008, it can be seen that the effects of
each of them were different. The biggest negative consequences of this recession were
decrease in total exports and imports of 11.75% in 2009, decrease per capita investment
for the 8.74%, drop in industrial production of 6.23 %, the decline of capital as a
percentage of GDP from 6.18% and rising of unemployment in the developed countries
of 2.56%.23
Coordination of the international community through the G-20 immediately after the
disclosure of the crisis is conveniently operated in the direction of increasing confidence
and mitigation of the effects of infection.24
The consequences of the crisis are asymmetric, geographically and sectorial.
This asymmetry is manifested in at least three levels:
The revival in three speeds In developed countries crisis characterize deeper, negative
effects and to all projections will take longer, especially in EU countries, primarily due
to debt crisis and the euro area in whole. Asymmetry of the growth dynamics exist
among developed countries too. Countries with emerging markets are feeling the crisis
in the reduction of economic growth due to reducing of aggregate demand in the world,
but they failed to meet the high growth rates.
The second level is the relationship of industry and financial sector. Industrial
production recorded a big drop and found itself before the necessity of its own
restructuring. The necessity of restructuring can lead to dynamics of technological
innovations, to contribute to the modernization of management and methods of reducing
costs. There are attempts to find other solutions. For example, in Japan the approach of
“corporate euthanasia” is obvious.25 The oldest company in the world, Kongo Gumu,
which began operations in 578 when it built a Buddhist temple, will cease to exist as
other companies with century-old tradition. The reason is their lack of productivity and
reduced competitiveness. The aim of corporate euthanasia is to create conditions for
22
23
IMF, World Economic Outlook, 2010.
IMF, World Economic and Financial Outlook, 2009.
24
Nordic crisis served as a good basis for initial action into direction of minimum
retention
of
confidence
and
strong state intervention in order to avoid panic behavior
25
„Corporate euthanasia“, The Economist , November 20, 2010.
37
Vol. 1 (2011), No. 1 (1-170)
increasing productivity. These activities may create additional tension to an already
boiling
market
due
to
the
rise
of
unemployment.
Financial sector, when it is developed, is stable and important for the real economy
through increased investment and portfolio diversification. Through the distribution of
different social groups and industries enables economic growth and lower costs. The
financial sector was the immediate trigger of the crisis and it is also its biggest loser, if
you analyze performance.
Bearing in mind the fact that catastrophic risks multiply, there are ideas to transfer them
onto financial markets through the introduction of bonds related to the type of risk
called Alternative risk transfer (ART) which can emit individuals, corporations, and
governments to protect the predefined risk. Such bonds have been issued against the
pandemic, terrorism, and natural disasters. The second form is the index of time
representing the micro-insurance of farmers. These financial instruments shall be
deemed to create a basis for providing capital to hedge of catastrophic risk.
Securitized products market (ABS, MBS, etc.)26 has collapsed.
Different activities can be seen in the loan market. Loans have fallen in the countries of
Eastern Europe in 2009, and in 2010, and to a lesser extent in country L. America.
Due to the large inflow of portfolio investments in the countries of South Asia and some
countries in L. America has forced some to work to minimize the pressure on
appreciation of their own currency exchange rate approach to the introduction of capital
control measures (Brazil and China).
Foreign currency markets in turn recorded a resistance to the crisis. Daily turnover of
traditional products in the foreign exchange market in April 2009 was USD$ 3.9 trillion,
while on non-traditional instruments is estimated at USD$ 4.3 trillion. There are two
causes: the first is that foreign currencies are seen as “asset class” investments, which,
because of volatility in movements in exchange rates may provide higher yields
compared to other investments. The second reason is the crisis in euro zone. A
possibility that retailers, thanks to electronic trading appear on the market, whose share
in total trade is estimated at 5%, could not be found among the reasons to explain the
trading volume.
FDIs fell by 12% and according to forecasts, this important segment of capital flows
will not revive until 2013. This is important for countries where FDIs are important for
economic
growth,
but
also
to
restructure
their
economies.
In the UK, there are ongoing discussions on the introduction of taxes called Robin Hood
tax, which would imposed a tax on banks, and funds would be directed towards
reducing poverty in the UK and abroad.
26
38
Asset backed securities (ABS), mortgage backed securities (MBS)
Vol. 1 (2011), No. 1 (1-170)
In the direction of creating a stable financial system globally is generally agreed on the
need to strengthen supervision by the state formed bodies, the increasing ratio of capital
and liquidity issues, the retention of risk in securitization, as well as improving
transparency on the OTC derivatives market, as well as the abandonment of keeping
these sheet transactions off-balances.
New, complex measures and controls will force banks to increase the cost of capital or
to decide to choose locations where there are less regulatory costs. Potential asymmetry
in the regulations may result in unfair competition because it is recommended greater
cooperation at the international level.
A shift in relations between the state and market is dramatic. Generous financial
support at the beginning of the crisis continued in the form of “quantitative easing” i.e.
inserting liquid assets on the market buying government bonds and other assets, both in
the U.S., as well as buying in euro zone. Fed and ECB buy the bonds.27 Monetary policy
is expansionary and supports and other unconventional instruments of liquidity supply,
which in addition to quantitative easing in the form of the promise of keeping interest
rates low, or in direct support of dysfunctional markets. State provides other financial
guarantees and financial injections to institutions.
Fiscal policy has taken a very important role in supporting the revitalization and
stabilization, but due to imbalances and public debt issues, “fiscal stress” appears.
“Financial Repression” in 70's (McKinnon and E. Show)28 has been replaced by
“financial liberalization”, which proves to be ineffective and that assumes a new
approach to prudential control. Therefore, if to this is added to strengthening of the
regulatory and prudential measures of the state, then the conclusion that the state of
crisis strengthens its function and suppressed market. Still, countries are still weak,
which among other things, is manifested in the persistence of illegal economy that
involves the illegal trade (it is estimated that in 2009 was US$1.3 trillion and is
increasing), as well as the persistence of organized crime and corruption.
A growing number of experts point to the fact that liberalization in the world of finance
does not mean that in itself provides the depth of the market. Or that there is a necessity
to support the liberalization of the appropriate policy environment that creates trust. In
other words, “quality of political institutions and their credibility are necessary”.29
27
In the EU, the European Financial Stability Facility (EFSF) in the activities of the
ECB through the Securities Markets Program (SMP) is created, which provided link
between sovereign funds and banking markets. Therefore, until August 2010, ECB
under the SMP has bought €60.8 billion of government bonds.
28
McKinnon , Ronald I.,1973, Money and Capital in Economic Development
(Washington, Brooking Institution), Show Edward S., 1973, Financial Deepening in
Economic Development (New York, Oxford University Press)
Marc Quintyn and Genevieve Verdier, “Trusting the Government“, Finance
and Development, December 2010.
29
39
Vol. 1 (2011), No. 1 (1-170)
After the debt crisis in Greece, which shook the euro zone and the euro, weaknesses in
the EU became clear, mainly because appropriate measures in cases of non-compliance
with Mastricht criteria were not provided. Sluggish regarding reactions has deepened the
crisis and opened a number of speculative projections for the future relationship to the
future of euro and relationship of this currencies and dollar.
The insistence by some experts that the EMU was created by political will was aimed to
highlight the lack of economic conditions for constitution of optimal currency area in
the initial phase and therefore was premature. However, although slow, responses that
followed the political leadership of the EU shows that for now the question of the
survival of EMU and the euro cannot be questioned, although the U.S. dollar increased
its importance as a “refuge value.”
What is disturbing is the fact that despite the efforts and spending cuts and restrictions,
the ratio of debt to GDP in developed countries will be over 100% by 2014. The reasons
are in the bailout i.e. financial support to banks and financial sector as a whole (which is
a kind of protectionism) and fiscal stimulus. An additional reason is the unfavorable
comparison of pensioners and the working population and a lack of government funds
for the appropriate transfer payments. That it is impossible in a short period after the
outbreak of the crisis to consolidate public finances and research suggests the earlier
crisis and conclusion that return of public debt to 40% of GDP can be achieved in
average period of 6-8 years after the outbreak of the crisis.30 One of the imbalances is a
high public debt of all major developed countries and the absence of these problems in
countries on the emerging markets. Among the latter, there is a high public debt, and
some of them have accumulated substantial foreign exchange reserves that make it
appear as buyers of government securities in developed countries. In that way, they are
better positioned for future international economic relations.
The crisis has shown the real balance of power of the world economy, whose changes
suggest significant changes in the institutional solutions relevant to international
organizations (Increase of IMF quota and changes in voting rights), but also actively
participate in finding solutions within the G-20 and other international forums.
Long-standing conflict between the U.S. and China over the Renminbi rate intensified
with the threat of an outbreak of the currency war. The war didn’t broke out, but it is
expected that the 2011 will be marked by constant tension around the USD exchange
rate and China's currency.
Does the IMF and G-20 can take a key role and contribute to eliminating the imbalance?
Will it be successful in the coordination of exchange rate regimes in order to avoid a
currency war? Is it a better way to stimulate cooperation between creditors and debtors?
Or both?
Economic disparities generally represent greater risk of global economy and the
potential risk of various conflicts, including political and security. Insistence on the fact
that surplus developed countries focus on market reforms in goods and labor, a deficit
30
40
Vol. 1 (2011), No. 1 (1-170)
ones to fiscal consolidation, i.e. that surplus countries in emerging markets are engaged
to directing demand towards domestic sources, a deficit ones on measures to ensure
growth and employment, will be hardly achievable despite the logic.31
The third plane would represent countries that do not belong to any group of
developed countries and emerging markets, which are heterogeneous group. They
have common denominator, regardless of political systems that governs them, as
poverty and high unemployment. The imbalance in the economic development potential
is one of the greatest risks to global economic stability, and security in the world.
RESUME
Among the key players (G-20, Davos World Economic Forum) is the ability to detect
global risks, but innovative solutions are not yet discernible, they are usually repetitive
but known. The reasons are their complexity and the consensus of heterogeneity.
Washington consensus is no applied any more, but an alternative was not given to it,
which is also a sign of weakness or intellectual impotence.
It is certain that the globalization is changing its face. Even its biggest proponents and
the winners take measures that could be classified into economic nationalism and
populism.
O. Wyman32 predicts the possibility of a financial crisis by 2015 that will be manifested
in the creation of bubbles in raw material prices, which will hit banks that have invested
in major development projects, then the American insurance companies in the U.S., and
finally Western governments. The crisis of the banking system and the collapse of
commodity prices will force governments to take measures of reducing costs. The key
question is whether is possible to absorb a new round of deficit spending?
Threats to various risks and fear are leading paradigm for years on which the
contemporary world function, and maintain the political structure in power. Predictions
or warnings of this kind merit attention because their goal is that they are not realized or
minimize potential negative effects in real time.
Unfavorable external environment in form of continuing to reduce the duration of
aggregate demand, volatility of exchange rates, capital that is more expensive, the total
uncertainty regarding the end of the crisis and the threat of new crises is posing new
challenges to search for methods to increase productivity and competitiveness, and
finding a route to market, domestic and foreign. Their experience along with synergy
with the macroeconomic policies is probably the most efficient way to find long-term
31
J.Lipsky at the American Economic Association Annual Meeting, Denver,
January 8, 2011, www.info.org, January 20, 2011.
32
Oliver Wyman,» The Financial Crisis of 2015», TradeMark
FundMutualFund. February 06,2011.
41
Vol. 1 (2011), No. 1 (1-170)
and sustainable positioning on the market, which is loaded and will be burdened with
new surprises and crises.
REFERENCES
1. Oliver,Wyman, „The Economic Crisis of 2015“, TradeMark FundMutualFund,
February 05, 2015.
2. IMF, „The World Economic and Financial Outlook“, 2009
3. „Corporate euthanasia“, The Economist, November 20, 2010
4. I MF, „The World Economic Outlook“, 2010
5. McKinnon, Ronald I., 1973, „Money and Capital in Economic Development“ (
Washington, Brookins Institution)
6. Show, Edward S., 1973, „Financial Deepening in Economic Development“ ( New
York, Oxford University Press)
7. Ici Otker-Robe and Ceyla Pazarbasioglu, „Risky business“, Finance and
Development, Dec. 2010.
42
Vol. 1 (2011), No. 1 (1-170)
GOLD AS A FOREIGN EXCHANGE RESERVE OF
CENTRAL BANKS
Dragan Golijan, professor
Tijana Šoja, dipl ecc (Viši struĉni saradnik za upravljanje portfolijom)
Abstract: Gold, as a precious material, has always attracted attention and had one of the very
important roles in trade flows. Once, while there was no money in today's paper form, gold has
served as the primary means of payment. The role of gold is different today, though still
significant, especially in critical conditions that are characteristic of today's global economy. This
paper will make the parallels between the behavior of the BRIC33 countries, and their aspirations
for growth in share of gold reserves in the current circumstances, and the countries of Western
Europe, on the same basis, in the period after World War II, before the moment of the
introduction of convertibility of their currencies. In addition, it will indicate the transfer of gold
between countries, its “movement“ through the recent history and present state and position of
the gold reserves.
Keywords: gold, international monetary system, the price of gold, foreign exchange reserves,
central bank
INTRODUCTION
The price of one ounce of gold today achieves record levels. Until a year ago price of an
ounce of gold stood at USD 930, while ten years ago was only USD 270. Today is at the
much higher level and record level of about US$ 1,300.
From the earliest civilizations, gold is considered very valuable metal. It led to the
conquest, the creation of the colonies, encouraged the search in remote areas, and even
inspired the great works of world poetry. Gold is used to represent the main means of
payment. Today it is used as well, so to say the currency, since it is used for making
jewelry, awards, medals, etc. In addition, gold is a safe haven for capital in crisis and
uncertain times.
Demand for gold, which recently has a strong tendency to increase, led to a record gold
price, as noted above. Gold buyers today are not just wealthy investors. Even „ordinary“
people who do not have huge sums of money available for business investment, buying
small amounts of gold on the stock market - largely because of expectations that they
will make a profit on this investment. Most analysts predict further expansion of the
gold price. Forecasts ranging up to USD 1,500 - USD 1,600 per ounce of gold.
The fear of inflation also affects the growth of gold prices. In accordance with the
present conditions, some analysts predict short-term inflationary pressures in the U.S.
and other developed countries. On the other hand, some analysts estimate such a
scenario in which unsustainable debt of the United States and Europe affect the central
bank to carry out a devaluation of their currencies. Such moves could lead to
hyperinflation like those in Latin America during '70s and '80s, and in Germany
between two wars - which would be reflected in the drastic rise in the price of gold.
33
BRIC – Brasil, Russia, India, and China
43
Vol. 1 (2011), No. 1 (1-170)
Historically, the price of gold is rising when U.S. dollar is falling and vice versa.
However, in recent times that is a situation where the dollar and gold rise in parallel,
where it has nothing to do with the weakening dollar, but euros, analysts said. How long
will the gold price to record growth – no one knows that and that cannot be determined
with precision. This paper gives an overview of the movement of gold, as foreign
exchange reserves, starting in 1948, until today, in fact, ended in 2010.. Specifically
cover different periods that were crucial in the movement of gold - primarily the Bretton
Woods International Monetary System - to 1971, with emphasis on the crisis of the
international monetary system 1966 -1971. After that, it describes the movement of gold
between the 1971 – 1997, in what was seen as reducing the role of gold. Also, it is
extremely important moment of „migration“ of gold from Europe in the „southern“
countries, strengthening the of gold BRIC countries position, and the question of
signing the Golden agreement of central banks.
GOLD AS A FOREIGN EXCHANGE RESERVE OF CENTRAL BANKS
If we look balance sheets of central banks and other financial institutions, which have
this precious metal in their portfolios, the structure of their monetary aggregates M1, we
notice that the largest reserves of gold located at the Fed, the Bank of Italy, the Central
Bank of Suisse, Central Bank of France, and Bundes bank. Among central banks and
countries with less than gold in their portfolios are the Central Bank of Japan, the Bank
of England, and the Central Bank of China, which recently rapidly increase gold
reserves. Since gold has no longer a critical role in the monetary system, as was the case
in the system of Bretton Woods, similarities between this system and the BRIC
countries of postwar Western European nations is now being observed. In both cases,
countries are accumulating gold, which implied more rapid economic development and
contributed to strengthening the credibility of the currency.
Although the gold reserves held by central banks, the way of using them depends on the
policy of the country which has a key role in reaching „gold“ decisions. If the central
bank is independent, it can lead to tensions between monetary and the legitimate
government on the issue of which strategy to adopt when trading gold.
In the case of the Eurosystem, the revenue from the sale of gold is intended for the
central banks that made the sale. However, the main shareholder of the country is the
central bank and it is an indirect recipient of the sales revenue later. According to the
IMF report, in September 2010, total world gold reserves are recorded level of 30,535.6
tons.
The largest share of total reserves of gold had U.S., the IMF, and Germany.
44
Vol. 1 (2011), No. 1 (1-170)
This data is evident from Table No. 1
Ounces
of gold Gold/tons
in mil.
The share
The value
The value of Reserves of of gold in
of the
The share
gold (in % of
foreign
gold
reserves i
of gold in
central bank
exchange
GDP in %
(USD*
(in %M1) reserves in
balances)
billions)
%
USA
261,50
8.134,20
357,50
15,30
20,50
75,30
2,50
Germany
109,40
3.402,10
149,50
17,00
9,70
70,40
4,40
IMF
90,80
2.823,10
124,10
2,30
N/A
N/A
N/A
Italia
78,80
2.452,10
107,80
24,10
9,70
22,40
5,00
France
78,30
2.435,60
107,00
17,10
11,00
58,50
4,00
China
33,90
1.054,50
46,30
1,20
1,30
1,70
0,90
Switzerland
33,40
1.040,20
45,70
15,30
10,30
16,50
8,10
Japan
24,60
765,30
33,60
2,40
0,50
3,00
0,60
Russia
24,30
756,10
33,20
6,30
10,70
6,80
2,60
Netherlands
19,70
612,50
26,90
14,20
6,30
58,20
3,30
India
17,90
557,80
24,50
15,70
1,30
9,20
1,80
ECB
16,10
501,50
22,00
0,70
N/A
N/A
N/A
Great
Brittany
10,00
310,30
13,60
3,40
0,80
17,60
0,60
* Value of an ounce of gold is $ 1,367.00
Source: Natixis, Economic Research, 19/01/2011, pp.2.
GOLD RESERVES IN THE BRETTON WOODS SYSTEM
It is generally known that the Bretton Woods system was formally established after the
Second World War and stayed until 1971. The system has implied the introduction of
gold - exchange standard, where parity of national currencies is assessed and expressed
in gold or dollars. Countries have their currencies exchange rate pegged to the dollar,
given that the dollar was freely convertible into gold (at a fixed rate $ 35 per ounce of
gold), therefore, all countries, and the rate of their currency was pegged to the dollar,
had a fixed value in terms of gold. Exchange rates were not strictly (rigidly) fixed but
45
Vol. 1 (2011), No. 1 (1-170)
fluctuation (deviation) ranging from 1% up and down from parity were allowed.34 To
member states were allowed to carry out the initial exchange parities of their currencies
in the face of severe balance of payments difficulties (fundamental disequilibrium of
balance of payments).
At the end of World War II the U.S. held about 75% of total gold reserves (21,700 tons),
which is justified given that the dollar was the center of a new international monetary
system and other things, the full convertibility into gold. Dollar, as the only currency
that could be freely converted into gold has become an international reserve currency
(fixed „exchange rate“ of exchange was U.S. $ 35 per ounce of gold.). During this
period Great Britain was the second largest owner of gold reserves, where having only
5% of total gold reserves. Meanwhile, Switzerland has, for its neutrality during World
War II and the geographical position take third place in terms of gold reserves. Swiss
gold reserves amounted to 4% of total world gold reserves.35 From World War II
Europe came completely destroyed. Difficult period of economic growth in Western
Europe contributed to the fact that the slow accumulation and generating foreign
currency reserves in dollars. Since 1958, when European currency could again be
converted to dollar, foreign currency were piled up in the U.S. and they were massively
converted into gold at the Fed, which resulted in the reduction of gold in the U.S.
Following chart shows the movement of gold in 1948 – 1965:
Chart 1: Trends in gold in tons in period 1948-1965
Source: Natixis, Economic Research, 19/01/2011, pp.3.
As noted, the curve that follows the movement of gold at the Fed, USD, records a sharp
drop from 1958. This trend continued until 1971. On the other hand, the EEC had a
tendency to increase gold reserves. As for European countries, it shows that all countries
which have been captured in the analysis, recorded increase in gold reserves. The
biggest trend was recorded in Germany and France.
34
Acin,Đ.,”Međunarodni ekonomski odnosi”, Pigmalion, Novi Sad, 2003. godine, str.183.
Bordo, D.,M., Dittmar, R.,”Gold, Fiat Money and Price Stability”, National Bureau od
Economic Research, Cambridge, 2003. str.13.
35
46
Vol. 1 (2011), No. 1 (1-170)
THE CRISIS OF THE INTERNATIONAL MONETARY SYSTEM, THE
PERIOD 1966-1971
In general, the international monetary system has become unstable over time, a
significant part as a result of spending significant sums of money for financing the war
in Vietnam. International monetary system was attempting to „reconcile“ the two
opposing goals. On the one hand, in order to gold-exchange standard function correctly,
the U.S. must been able to protect USD/gold parity, which required a strict monetary
discipline on their part. On the other hand, from the moment when dollar became the
international currency and reserve, the U.S. had to offer dollars to the world in order to
maintain growth throughout the country and avoiding the risk of deflation. In line with
this, the U.S. had to accept a high current account deficit. As long as the relation
between the dollar and gold reserves in the United States was 1, there was no doubt that
the U.S. cannot guarantee for USD/gold the exchange rate.36
In order to save the international monetary system, the countries of Western Europe
have agreed that in 1966, suspended the ability to convert dollars into gold, while the
U.S. opposed the current rate of exchange, i.e. the existing fixed exchange rate - USD
35 per ounce of gold. U.S. President Nixon's decision to suspend convertibility of
dollars into gold in 1971, which marked the collapse of the Bretton Woods system.
After that, on the scene came fluctuating exchange rate and gold no longer had initially
significant role in the monetary system. At the end of 1971, United States possessed
9,000 tons of gold.37
Chart 2: Gold reserves in period 1966 – 1971 in tons
Source: Natixis, Economic Research, 19/01/201, p.3.
36
Since 1964, this ratio was below 1. However, in period 1970 – 1971, this ratio recorded level of
5. These movements in Bretton Woods’s system were named “Triffin Dilemma”.
37
Barro, Robert J. "Money and the Price Level Under the Gold Standard," Economic Journal, 89
(1979), 12.
47
Vol. 1 (2011), No. 1 (1-170)
PERIOD OF REDUCING THE ROLE OF GOLD - 1971 - 1997
As gold was losing a key role in the international monetary system, in its place is slowly
coming dollar. These movements were so radical that the IMF, under pressure from the
U.S., continued its solid sales of its gold reserves, since 1976, and during the 1978, and
has changed the articles of the IMF agreement in order to prevent other countries to bind
their currencies to gold.38 Central banks of Western countries recognized the
stabilization of its gold reserves and modified them slightly only in urgent cases.
„REMOVAL“ OF GOLD FROM EUROPE TO MARKETS IN
EXPANSION SINCE 1998
Diversification of foreign exchange reserves of southern countries, since '90s of the last
century showed expansion, and their willingness to increase the credibility of their
currencies, have influenced the increase in gold reserves in these countries. Gold,
bought by these countries, mostly comes from the „northern“ countries, primarily
European. Between 2002 and 2010, these countries have bought following amounts of
gold:39
- China bought 553.5 tons of gold;
- Russia increased its gold reserves for 127.3 tons (annual growth of 27.6% in 2010);
- India increased its gold reserves for 200 tons (annual growth of 56% in 2010).
Reserves of gold in the countries of Europe have recorded following movements:
Chart 3: European and BRIC reserves of gold in period 1998 – 2010
Source: Natixis, Economic Research, 19/01/2011, pp.4
Germany is, as you can see from the graphical view, a European country that has
38
39
Flash Economics, Economics Research, Natixis, 19, January, No 49. 2010.str.4.
Izvor: Economics Units, www.economics.com
48
Vol. 1 (2011), No. 1 (1-170)
maintained the highest level of gold reserves, while the UK recorded reduction. On the
other hand, Switzerland has recorded a significant decline in gold reserves. At the same
time, all BRIC countries recorded increase in foreign exchange reserves, excluding
Brazil. China leads the world in volume of increasing gold reserves in period 1994 2010. In addition, Russia has a growing trend in gold reserves.
„GOLDEN“AGREEMENT OF CENTRAL BANKS
The ECB and fourteen central banks in 1999 signed the General Agreement on gold.
The agreement was later revised several times. However, when it was signed the first
time, the agreement had three objectives:40
- To regulate the sale of gold at a time when Belgium, the Netherlands, Austria,
Switzerland, and the United Kingdom sold or planned to sell gold;
- To avoid any anxieties that may lead to uncoordinated sales of gold (the price of gold
in 1980 amounted to USD 850 while in 1999 this price was U.S. $ 255);
- To prevent the drop in prices and destabilization of those economies that depends on
the
gold,
such
as
South
Africa.
Central banks of countries that in 1999 signed this agreement were ECB, Portugal,
Spain, France, Belgium, Luxembourg, Germany, Italy, Switzerland, Austria, England,
Ireland, Sweden, and Finland. In 2004, the agreement was signed by Greece. In 2009,
the agreement was signed by Cyprus, Malta, Slovenia, and Slovakia.
RESUME
Great world crisis that is current for a long time resulted in strong growth in gold prices.
Today, gold recorded high prices. Whether this trend continues in the future, largely
depends on the crises in the world. In line with previous analysis, we can state the
following:
- Although the gold in today's monetary system has a particularly important role, as was
the case in the system of Bretton Woods, it reveals similar movement on the issue of
trading gold between BRIC countries today and the countries of Western Europe in the
period after World War II. In fact, after World War II Western European countries
actively working to increase its gold reserves, aimed at strengthening the credibility of
its currency and strengthening the balance sheet position - this policy now implemented
BRIC countries with the same goal. Among these countries, especially the strong
growth of gold reserves recorded China. In addition, the current position of this country,
the second strongest world economy, has a significant impact on global economic
trends;
- Central banks that accumulate the highest levels of gold reserves are the Fed, the
Central Bank of Italy, the Central Bank of Switzerland, the Central Bank of France, and
the Bundes bank. The smallest gold reserves have Central Bank of Japan, the Bank of
40
Huffman, Gregory W., and Mark A. Wynne. “The Role of Intratemporal Adjustment Costs in a
Multisector Economy” Journal of Monetary Economics 43 (1999), 317.
49
Vol. 1 (2011), No. 1 (1-170)
England, and the Central Bank of China, and India that recently rapidly increased its
gold reserves;
- It is important to note that, in addition that gold foreign currency reserves are recorded
at the central bank of each country, which are covered by this survey, the key decisions
on transactions in gold brings country. Therefore, it can be said that the managing gold
reserves of a country depends directly on the legitimate government and its policies. The
bigger is independence of the central bank, the greater is tensions between central banks
and government regarding the adoption of management gold policies;
- In the case of the Eurosystem, a revenue gain by the sale of gold shall be transferred to
that central bank which is involved in the transaction. The ECB is during the
formulation of the initial capital define that in overall structure of the initial capital gold
must have a minimum 15% share. It is not defined whether this share of gold will
change later.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
Acin,Đ.,“Međunarodni ekonomski odnosi“, Pigmalion, Novi Sad, 2003;
Bordo, D., M. ,Dittmar,R.,”Gold, Fiat Money and Price Stability”, National
Bureau of Economic Research, Cambridge, 2003. Huffman, Gregory W., and
Mark A. Wynne: “The Role of Intratemporal Adjustment Costs in a Multisector
Economy” Journal of Monetary Economics 43 (1999),
Barro, Robert J. "Money and the Price Level Under the Gold Standard,"
Economic Journal, 89 (1979),
Gavin, William T., and Finn E. Kydland. “Endogenous Money Supply and the
Business Cycle,” Review of Economic Dynamics Vol. 2, No. 2 (1999),
Goodfriend, Marvin. "Central Banking under the Gold Standard," Carnegie
Rochester Conference Series on Public Policy 29 (Spring 1988):
Flash Economics, Economics Research, Natixis, 19, January, No 49, 2011
Friedman, Milton and Anna Schwartz, “A Monetary History of the United
States: 1867- 1960”, Princeton University Press, Princeton, 1963.
Fujiki, Hiroshi. “A Model of the Federal Reserve Act under the International
Gold Standard System,” Journal of Monetary Economics 50 (2003), 1333-50.
Fuller, Wayne, “Introduction to Statistical Time Series,” John Wiley, New
York, 1976
Internet sources:
www.gold.org/government_affairs/reserve
asset_management/central_bank_gold_agreements/
www.reuters.com
www.economics.com
50
Vol. 1 (2011), No. 1 (1-170)
THE LEGAL FRAMEWORK OF SPORTS
MANAGEMENT IN THE REPUBLIC OF SERBIA
prof. dr Edita Kastratovic, Visoka škola za poslovnu ekonomiju i preduzetništvo iz
Beograda
Abstract: Research in the field of legal sports management in the Republic of Serbia has shown
that it takes a series of measures that would ensure the development of sports in our country. It
takes a series of measures that would ensure development of our sport. It is necessary for the
adoption of appropriate laws and regulations related to: business and sports activities, education
and the possibility of privatization, in line with the rules of international sports organizations in
order to prevent possible abuse.
Keywords: right, management in sport, sport, sports organizations, education, law
Sport in contemporary society got a much broader and more complex role and function
than it had in earlier times. Sport is not just a competition of physical and mental
capabilities of people, but it is an integral part of our daily lives, our culture, content and
ways of life, the process of education, a strong source of moral norms and positive
energy that gives strength and meaning to life of every individual.
Latin proverb says, “Mens sana in corpore sano” is the result of long-term experience of
previous generations, as the term of knowledge and awareness about sources and
foundations of human life and health, but also the permanent determinant of life and
development of all generations. No generation in human history, that is not in the
forefront, as their basic social and individual values, put life and health. In the
development, enrichment and protection of these values in all social systems, in all
social circumstances had a key role sport.
Republic of Serbia, as other countries in Europe, is in the process of transition and
makes great efforts to develop as soon as possible and equitably involved in
international trends. Notwithstanding the recognized achievements in the world, where
our team members are at the top, the sport is still on the sidelines of the general social,
economic, and political development. A weak organization of clubs, associations, and
sports centers is evident along with the lack of skilled staff - management. The problem
with the abuse of doping is widespread in modern sport. Athletes are poorly informed
about the sports and criminal legal sanctions related to doping, and on economic and
moral consequences are not interested. This points to a crisis in which the modern sport
and the need for continuous education about doping athletes, and management structure
of sports clubs and associations. Decline of physical abilities is present in children,
adolescents, and adults. Creating sports habits, culture, and needs must to be an
imperative of our society.
It is necessary to take a series of measures that would ensure development of our sport.
It is necessary to pass appropriate laws and regulations related to business and sports
activities, education and the possibility of privatization, to make them in line with the
51
Vol. 1 (2011), No. 1 (1-170)
rules of international sport organizations in order to prevent possible abuse. The
economic crisis resulted in the reduced state investment and business entities in the
sports of the Republic of Serbia, to education and sports officials in the construction and
maintenance of sports facilities. Standard of employed in sport organizations over time
is more decreased. Infrastructure, technical, and human resources decrease which serve
the maintenance and development of the system.
Conditions for recreational sports have become more expensive, and the existing
concept has become less available to the public. For this reason, and because of the
influence of other limiting factors, many people leave the practice of exercise and sports
in their free time. The consequence is noticeably increased the number of patients with
cardiovascular and respiratory diseases. In response to these and many other problems,
the Government of Serbia adopted the Strategy for Sport Development (2009), which
defined the strategic approach to reform of the sports system in accordance with the
experiences of countries in the field of sports. The opinion of most participants who
participated in drafting this important document - Strategy for Sport Development,
representatives of sports organizations, public opinion is, that the process of developing
strategies is accompanied by positive changes in the usual way of working on the
development of strategic documents, as well as overcoming the problems that such
changes cause.
In addition to passing a series of important documents, laws, regulations related to the
field of legal regulation and operation of sports and recreational activities (Law on
prevention of doping in sport; Regulation of doping controls, the
Regulation on Supervision of professional work in the field of sports, etc.) a question of
passing a new and more precise law on sport is open. Due to a series of political,
economic, legal, and organizational changes that have occurred in recent years,
solutions that provide that law have become outdated, inefficient, and imprecise. Based
on analysis of existing documentation, the priorities that need to be addressed in the
overall development efforts of management and sport in general are defined.
One of the initial is to match certain legal terms and categories used in the law in sports
terminology and norms of the Constitution of the Republic of Serbia (e.g. social capital).
It is necessary to clearly detail the rights and obligations of persons engaged in sport
activities with legal norms, as well as to define measures to encourage the development
of sport for children, youth and students. It is necessary to define the provisions that
would establish a more efficient mechanism for protection of existing facilities and to
define terms that will allow faster development and construction of new sports facilities.
Clearly defined sporting activities will make the difference between the correspondeconomic activities and sports activities, governed by the licensing system of legal and
natural persons who perform certain activities in the field of sports, or in connection
with the sport shall discharge current dilemmas that exist in the environment.
The necessity is reflected in the clear definition of rules in statutory legal issues related
to establishment and operation of sports organizations (the possibility of bringing to the
occurrence of numerous abuse of economic and tax law, which damages the reputation
of sport and threatens those sport subjects primarily engaged in sporting activities).
Existing tax incentives should be used transparently for the purpose for which they are
prescribed. Almost all of the tax laws include the laws by which persons and
52
Vol. 1 (2011), No. 1 (1-170)
organizations engaged in sports activities have a more favorable tax treatment than other
taxpayers. The aim was to create better material conditions for the development of sport
and not making room for possible abuse, tax evasion for those whose activities are
primarily sports, and whose work has focused on the development of sport.
Impossibility of presenting quantitative effects of tax exemptions and incentives leads to
significant non-transparency of the overall system of financing sport. It is therefore
necessary to define the precise criteria for the award sponsorships and donations to
athletes and sports organizations from the public enterprises established by the state or
local governments.
These are just some of the issues that stand in the way of recovery of sport and its
successful development. Mutual close cooperation of scholars, practitioners and those
involved in education in schools and universities is essential for further progress in the
relationship between theory and practice in sport. Theorists (professionals, researchers)
need to offer appropriate models and theories, which predict and explain how and why
events occur, to enable practitioners to achieve effective performance in the scope of its
duties and responsibilities.
UNESCO has on many occasions stressed in its documents the need for a merger of
sports and educational plans and activities that contribute to overall development of
personality: in relation he-she, physical development, and cultivated social habits. The
Helsinki report on sport has given an accurate reference potential of education in the
sport, noting that “science is defined as an acquired equity of basic and vocational skills
and social skills”, this is concerned with “relationship of skills as the ability of
cooperative and team work, creativity and requires for quality, which are the value
applied in the sport.” Helsinki report actually opened many issues that are undefined in
the sport. On this occasion, different program content were encompassed in order to
draw parallels in education and therefore recognize the value of the sport with teaching
point of view, as a formula for promoting activities of citizenship, tolerance, and
solidarity.
RESUME
In addition to passing a series of important documents, laws, regulations related to the
field of legal regulation and operation of sports and recreational activities in the
Republic of Serbia, it is necessary to pass a new and more accurate law on sport, which
is in parliamentary procedure. It is necessary to establish details of the rights and
obligations of persons engaged in sport activities using legal norms, as well as to define
measures to encourage the development of sport for children, youth, and students. It is
necessary to define the provisions that would establish a more efficient mechanism for
protection of existing facilities and to define terms that will allow faster development
and construction of new sports facilities.
Clearly defined rules of statutory legal matters concerning the establishment and
operation of sports organizations in order will prevent possible abuse of economic and
tax law. Adequate training of workers in the field of sport management and law on sport
will provide quality staff ready to face the problems and challenges in this extremely
important field.
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Vol. 1 (2011), No. 1 (1-170)
REFERENCES
1.
2.
3.
4.
5.
54
Jamieson, L., Ross, C., Swartz., J., (1994): "Research in recreational sports",
National intramutual - recreational sports association journal
Masteralexis, L., Barr, C., Hums, M., (1998): "Principles and practice of sport
management", Aspen publishers inc., Gaithersburg, Maryland
Kostadinović, S., (2004): "Pravo i sport", Fakultet za menadţment u sportu,
Beograd
Kastratović, E., (2004): "Osnove menadţmenta sa menadţmentom u sportu",
Institut MSP, Beograd
Zakon o sportu (2004)
Vol. 1 (2011), No. 1 (1-170)
BROWNIAN MOTION DEVELOPMENT FOR MONTE
CARLO METHOD APPLIED ON EUROPEAN STYLE
OPTION PRICE FORECASTING
Petar Koĉović, Fakultet za obrazovanje rukovodecih kadrova u privredi, Novi Sad
Abstract: In forecasting values of random series (values of options and stocks in the future)
Brownian Motion with Monte Carlo method is one of the technique for calculating results. This
paper presenting mathematical techniques what are using in financial mathematics for predicting
future values in discrete domain. Applied on forecasting values of European Style Option prices,
this was powerful tool in the ages behind us, when precise calculating of future values was very
important. Whole financial industry, known as Quant Finance was developed in the period from
1960 up to today.
Keywords: Brownian motion, Forecasting Option Price, Monte Carlo Method
INTRODUCTION
When on September 15, 2008 employees of Lehman Brothers started to flooding Times
Square in New York, everybody in financial world in the USA saw some signs of crisis.
But nobody expect that 10,000 employees will left building in 1585 Broadway, New York
with the boxes with their personal things. Lehman Brothers were just the first in the queue
of financial institutions who finished their business in USA financial market1.
Not just Lehman Brothers, but top USA banks and financial institutions for more than
four decades running business known as Hedge Funds. Behind that business was serious
mathematics and statistics. Scientist known as a quants were specialists in programming,
statistics, physics. The concept generally incorporates combinations of the following:
•
forecasting value of the shares in the future
•
buying and selling shares (options)
•
monuitoring competition
But, before we start let me introduce term European Style Options. In finance, the style or
family of an option is a general term denoting the class into which the option falls, usually
defined by the dates on which the option may be exercised. The vast majority of options
are either European or American (style) options.
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Vol. 1 (2011), No. 1 (1-170)
What is an Option?
The idea of options is certainly not new. Ancient Romans, Grecians, and Phoenicians
traded options against outgoing cargoes from their local seaports. When used in relation
to financial instruments, options are generally defined as a "contract between two parties
in which one party has the right but not the obligation to do something, usually to buy or
sell some underlying asset". Having rights without obligations has financial value, so
option holders must purchase these rights, making them assets. This asset derives their
value from some other asset, so they are called derivative assets. Call options are contracts
giving the option holder the right to buy something, while put options, conversely, entitle
the holder to sell something. Payment for call and put options, takes the form of a flat, upfront sum called a premium. Options can also be associated with bonds (i.e. convertible
bonds and callable bonds), where payment occurs in installments over the entire life of the
bond, but this paper is only concerned with traditional put and call options.
Origins of Option Pricing Techniques
Modern option pricing techniques, with roots in stochastic calculus, are often considered
among the most mathematically complex of all applied areas of finance. These modern
techniques derive their impetus from a formal history dating back to 1877, when Charles
Castelli wrote a book entitled The Theory of Options in Stocks and Shares. Castelli's book
introduced the public to the hedging and speculation aspects of options, but lacked any
monumental theoretical base. Twenty three years later, Louis Bachelier offered the
earliest known analytical valuation for options in his mathematics dissertation "Theorie de
la Speculation" at the Sorbonne. He was on the right track, but he used a process to
generate share price that allowed both negative security prices and option prices that
exceeded the price of the underlying asset. Bachelier's work interested a professor at MIT
named Paul Samuelson, who in 1955, wrote an unpublished paper entitled "Brownian
Motion in the Stock Market". During that same year, Richard Kruizenga, one of
Samuelson's students, cited Bachelier's work in his dissertation entitled "Put and Call
Options: A Theoretical and Market Analysis". In 1962, another dissertation, this time by
A. James Boness, focused on options. In his work, entitled "A Theory and Measurement
of Stock Option Value", Boness developed a pricing model that made a significant
theoretical jump from that of his predecessors. More significantly, his work served as a
precursor to that of Fischer Black and Myron Scholes, who in 1973 introduced their
landmark option pricing model.
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Vol. 1 (2011), No. 1 (1-170)
BROWNIAN MOTION
Brownian motion (named after Robert
Brown, who first observed the motion in
1827, when he examined pollen grains in
water [2]), or pedesis (from Greek:
πήδησις "leaping") is the assumably
random movement of particles suspended
in a fluid (i.e. a liquid such as water or a
gas such as air) or the mathematical model
used to describe such random movements,
often called a particle theory. Brownian
motion deals with the movement of solids
from an area of high concentration to low
concentration
over
a
selectively
permeable membrane.
The mathematical model of Brownian
motion has several real-world applications. An often quoted example is stock market
fluctuations. However, movements in share prices may arise due to unforeseen events
which do not repeat themselves.
Brownian motion is among the simplest of the continuous-time stochastic (or
probabilistic) processes, and it is a limit of both simpler and more complicated stochastic
processes (see random walk and Donsker's theorem). This universality is closely related to
the universality of the normal distribution. In both cases, it is often mathematical
convenience rather than the accuracy of the models that motivates their use. This is
because Brownian motion, whose time derivative is everywhere infinite, is an idealized
approximation to actual random physical processes, which always have a finite time scale.
After Brownian works
However, it was Albert Einstein (in one of his 1905 papers) and Marian Smoluchowski
(1906) who independently brought the solution of the problem to the attention of
physicists, and presented it as a way to indirectly confirm the existence of atoms and
molecules. Specifically, Einstein predicted that Brownian motion of a particle in a fluid at
a thermodynamic temperature T is characterized by a diffusion coefficient
57
Vol. 1 (2011), No. 1 (1-170)
(1)
Where:

is Boltzmann's constant

is the linear drag coefficient on the particle (in the Stokes/low-Reynolds regime
applicable for small particles).
B
As a consequence, the root mean square displacement in any direction after a time t is
(2)
At first the predictions of Einstein's formula were seemingly refuted by a series of
experiments by Svedberg in 1906 and 1907, which gave displacements of the particles as
4 to 6 times the predicted value, and by Henri in 1908 who found displacements 3 times
greater than Einstein's formula predicted. But Einstein's predictions were finally
confirmed in a series of experiments carried out by Chaidesaigues in 1908 and Perrin in
1909. The confirmation of Einstein's theory constituted empirical progress for the kinetic
theory of heat. In essence, Einstein showed that the motion can be predicted directly from
the kinetic model of thermal equilibrium. The importance of the theory lay in the fact that
it confirmed the kinetic theory's account of the second law of thermodynamics as being an
essentially statistical law.
GEOMETRIC BROWNIAN MOTION MODEL
Geometric Brownian Motion time series are the most simple and commonly used for
modeling in finance. Consider the formula:
(3)
It says that the variable's value changes in one unit of time by an amount that is Normally
distributed with mean and variance . The Normal distribution is a good first choice
for a lot of variables because we can think of the model as saying (from Central Limit
Theorem) that the variable x is being affected additively by many independent random
variables. We can iterate the equation to give us the relationship between xt and xt+2:
=
(4)
and generalise to any time interval T:
(5)
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Vol. 1 (2011), No. 1 (1-170)
This is a rather convenient equation because
a) we keep using Normal distributions, and
b) we can make a predictions between any time intervals we choose.
The above equation deals with discrete units of time but can be written in a continuous
time form, where we consider any small time interval :
The Stochastic Differential Equation (SDE) equivalent is:
(7)
where dz is called a generalised Wiener process called variously the 'perturbation',
innovation', or 'error', and e is a Normal(0,1) distribution. The notation might seem to be
a rather unnecessary complication, but when you get used to the SDEs they give us the
most succinct description of a stochastic time series. A more general version of the
above equations is [5]:
(8)
where g and f are two functions. It is really just shorthand for writing:
(9)
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Vol. 1 (2011), No. 1 (1-170)
The equation
allows the variable x to take any real value,
including negative values, so it would not be much good at modelling a stock price,
interest rate or exchange rate for example. However, it has the desirable property of being
memory less, i.e. to make a prediction of the value of x some time T from now we only
need to know the value of x now, not anything about the path it took to get to the present
value. We can model the return of a stock:
(10)
or
(11)
There is an identity known as Itô's lemma which says that for a function F of a
stochastic variable X:
Since dS/S = d(log[S]) we can rewrite, using F(S) = log[S]:
(13)
Integrating over time T we get the relationship between some initial value St and some
later value St+T:
(14)
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Vol. 1 (2011), No. 1 (1-170)
where rT is the return of the stock over the period T. The Exp[ ...] term in this equation
means that S is always >0 so we still retain the memoryless property which corresponds
to some financial thinking that a stock's value encompasses all information available
about a stock at the time so there should be no memory in the system.
The return r of a stock S is the log of the fractional change in the stock's value. For
stocks this is a more interesting value than the stock's actual price because it would be
more profitable to own 10 shares in a $1 stock that increased by 6% over a year than 1
share in a $10 stock that increased by 4%, for example.
This last equation is what we call the GBM model: 'the 'geometric' part comes because
we are effectively multiplying lots of distributions together (adding them in log space).
From the definition of a Lognormal random variable, if ln[S] is Normally distributed then
S is Lognormally distributed, so Equation for St+T is modelling it as a Lognormal random
variable. From the Lognormal E equations you can see that St+T has a mean given by:
=
hence
(15)
is also called the exponential growth rate, and a variance given by:
(16)
The spread of possible values in a GBM increases rapidly with time. For example, the
following plot shows 50 possible forecasts with S0 = 1, m = 0.001 and s = 0.02:
Figure 2. 50 possible forecasts with S0 = 1, m = 0.001 and s = 0.02
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Vol. 1 (2011), No. 1 (1-170)
CONCLUSION
In financial forecast we using following simple formula, what is derived from equation
16:
(17)
S0 - Initial value at t=0 of geometric Brownian
St -Value of geometric Brownian motion at time t
Drift term
Volatility
N0,1 - Random sample from a normal (Gaussian) distribution with mean 0 and standard
deviation 1
Using formula (17) we can calculate discrete values for Brownian motion. In addition
with Monte Carlo Method we easily can generate values for certain amount of days. This
formula is good tool for calculating options and shares in stock exchange, as well as
future values of random series.
REFERENCE
1. Scott Patterson: “The Quants”, Crown Business, New York, 2010, ISBN 978-0-30745337-2
2. Robert Brown: “A Brief Acount on Microscopical Observations on the Particles
Contained in the Pollen Plants and on the General Existence of Active Molecules in
Organic and Inorganic Bodies”, original paper, 1827
3. Roberto Rigobon: “Brownian Motion and Stochastic Calculus”, MIT, 2009
4. Mondher Bellalah: “Exotic Derivatives at Risk:Theory, Extensions and
Applications”, Word Scientific Publishing Co. Pte, Ltd, Singapore, 2009, ISBN 978981-279-747-6
5. Hagen Kleinert: “Path Integrals in Quantum Mechanics, Statistics, Polymer Physics,
and Financial Markets”, 4th edition, World Scientific, Singapore, 2004; ISBN 981238-107-4
62
Vol. 1 (2011), No. 1 (1-170)
DEVELOPMENT AND THE IMPORTANCE OF
ACCOUNTING AUDIT OF CORPORATION
Vukašin Lale, FORKUP
Abstract: Accounting audit of corporations, at all levels of budget users, financial institutions,
and other legal entities regardless of whether they are private or public, as an organization with a
significant degree of public accountability primarily emphasized the need for transparent and
reliable financial reporting. However, the propensity of management to adapt their business to
goals of success reputation, deviation of international and national accounting regulations and
lack of implementation of standardized management system leads to numerous problems in
business, economy subjects, and all levels of budget users. One indicator of this situation is the
high level of corruption according to Transparency International data, which covers 181
countries, in the economies of all countries that are in the process of transition, which can lead to
a loss of investor confidence and thus slowing economic development. For these reasons,
accounting audit becomes more and more important in contributing to ethical management and
all employees as individuals, as well as in the expression of the level of social responsibility of
juristic persons and institutions.
Keywords: accounting audit, control, auditing, audit in gap, the corporation, budget users,
juristic person.
DEVELOPMENT OF ACCOUNTING AUDIT
Accounting audit is an activity that is closely related to the business process as a process
of reproduction, which allows continuous operation. In order to ensure the permanence
and continuity, the operations must be monitored, so it is conducted in accordance with
professional and legal regulations of the market environment in which the corporation
operates.
The development of market economy and globalization of the economy, have led in
corporations, financial institutions (banks, pension funds, insurance funds) and in other
legal entities regardless of whether they are private or public (state), to development of
accounting audit activities and its divisions and classifications on internal and external.
As forms of accounting audit an internal control and audit and external control appear,
which schematically look as follows:
Since the difference between the control and audit is substantive rather than formal, for
clear identifying and practical application it is necessary to present them separately.
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Vol. 1 (2011), No. 1 (1-170)
INTERNAL CONTROL AND INTERNAL AUDIT
INTERNAL CONTROL as a form of accounting audit, is the system made up of all
policies and actions that corporation has established as a legal entity in order to properly
and effectively ran the business, to maintain the integrity of the property, preventing and
revealed errors, and fraud, ensure accuracy and completeness accounting records and
timely compiled reliable financial information. The aim of control is that accountant
(the person who handles some of the property) is constantly working properly according
to prescribed legal and/or internal regulations, not just at the time of control.
Internal control is surveillance carried out by persons employed in the corporation, and
is always subordinated to the management of corporation. Internal control is fully
compliant with the general notion of control that had previously existed.
Internal control performs an employee of the corporation - an internal controller or
only the controller, also known as liquidator. Depending on the scope and work of
organization, the corporation may have several internal controllers.
Business encyclopedia41 says that network of basic controls, which may be individual
activities, activities that are directed, in advance prevent, detect and correct irregularities
in business and enabling corporations to work on a planned manner, form a system of
procedures, called system of the internal control of the corporation.
INTERNAL AUDIT, as a form of accounting audit, is established internal assessment
activity of the corporation as a juristic person, which includes monitoring, testing, and
assessing whether the accounting system and internal controls are adequate and whether
they are effective.
Internal audit as a form of accounting audit and as a discipline is not sufficiently studied
nor fully scientifically formulated in our country, because of which sometimes is
identified with internal control, which is totally wrong. According to this, internal audit
is fundamentally different from internal control. Internal audit should be independent
and because of the retention of its independence should not be subordinated to
management. Internal audit is a control of a management structure that inform
ownership and management structure with its findings, helping both.
Internal audit perform an employee of the corporation as a juristic entity - an internal
auditor, a skilled independent auditor. The internal auditor evaluates whether the
system of internal control is adequate and whether it is effective or not. Depending on
the scope and work of organization, the corporation as a juristic entity may have more
internal auditors.
Internal audit, in slightly different way, interpret International professional association
of Internal Auditors - The Institute of Internal Auditors42, which creates the International
41
Encyclopedia of Business, 2nd edition, Thomson Gale, SAD, 2006.
The institute of Internal Auditors, SAD, koji ima brojne filijale šrom sveta, a najpoznatiji su u
Velikoj britaniji i Irskoj.
42
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Vol. 1 (2011), No. 1 (1-170)
Standards of Professional Practice of Internal Auditing43. The internal audit standard is
defined as an independent and objective assurance and consulting activity designed to
improve value and improve the organization's activities. It helps an organization to
accomplish its objectives by introducing a systematic and disciplined approach to
evaluation and improvement of effectiveness of managing risk, control, and
management processes. The purpose of standards is to explain the basic principles that
suggest what should be the practice of internal auditing, establishing a framework for
performing and promoting a wide range of internal audit activities that increases the
value, establish the basis for assessing the implementation of internal audit and
encourage process improvement and business organizations.
International standards of professional practice of internal auditing include standard
features dealing with the characteristics of organizations and persons performing
internal audit activities. Performance standards that describe the internal audit activity
and define quality criteria based on which to assess the quality of providing these
services. Implementation of standards relating to all internal audit services and are
defined for: (U) assurance activities, and (K) consulting activities.
Dictionary that contains and explains the specific terms used in Standards. Formulation
of standards explains formulating and publication of standards as a continuous process.
Standards Committee Internal Audit carried out extensive consultations and discussions
before the publication of the Standards. This includes collecting comments on the draft
of the standards.44
EXTERNAL CONTROL AND EXTERNAL AUDIT
EXTERNAL CONTROL is a form of accounting audit performed by persons who are
not employed in the corporation as a legal entity, and that is always strictly directed to
specific areas of business.
External control is the control of the authority of the country or state control, which
may be of different levels. Prosecution can perform the external control, tax
administration, or the Indirect Taxation Administration, Ministry of Government and
other government authorities. Subject of external control, except corporations, banks
and other financial institutions as legal entities, are state authorities, budget users municipalities, ministries of government, the prosecution, and the judiciary and others.
With its work, control contributes to strengthening the authority of the business
disciplines of legal persons and the society as a whole, ensuring control of inflow and
outflow of the budget as the main source of funding each state.
External and control of state authorities as a form of state control has inspection
authorities, which consists in taking the measures of repression for the irregularities
committed in the business.
43
International Standards for the Professional Practice of Internal Auditing, The Institute of
Internal Auditors, SAD, 2003.
44
Đurasović V. „Interna kontrola i interna revizija,“ Finrar, d.o.o. Banja Luka, 2007, str. 297327.
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EXTERNAL AUDIT, also called independent auditing, is a form of accounting control
made by audit firms that have an adequate number of persons certified as a certified
auditor and working license. External or independent audit includes financial statements
of the corporation as a legal entity.
The aim of the financial statements audit is to provide an independent auditor to express
its opinion whether financial statements, in all material respects, are prepared in
accordance with prescribed financial reporting framework. For expressing an opinion,
the auditor obtains relevant audit evidence allowing a reasonable basis for expressing
opinion. Expressing its opinion on these financial statements, an auditor provides a high,
but not the absolute level of assurance that the information does not include materially
significant error. Absolute assurance is not possible to achieve by audit, among other
things, because most of the evidence that the auditor has at its disposal by nature has a
compelling, but not definitive character.
The audit is conducted by the International Standards on Auditing - ISA. An audit is an
element of state control and regulated by law. It differs from inspection and it serves for
the needs of improving corporation business, not for punishing for wrong and improper
actions. The audit does not have inspection authorities.
External audit perform independent and external auditors who in its report express an
opinion whether the financial statements are prepared in accordance with international
standards. The fact that an annual audit of financial statements will be performed can
act as a means for preventing errors and frauds.
If the existence of fraud or misstatements is discovered, even if the auditor suspects that
there are criminal activities whose impact on the financial statements is immaterial, the
auditor shall immediately notify the management of the corporations, and if there is
suspicion on top management, the auditor should seek legal advice which will help to
determine further actions to be implemented. Upon completion of the audit consists of
the audit findings-report of independent auditors. The audit findings and independent
auditor's report includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. It also includes appraisal of accounting
principles and accounting estimates in accordance with accounting standards made by
management, as well as the overall financial statement presentation, which enables
reasonable assurance whether the financial statements contain or not wrong important
information.
Independent Auditor's Report at the end contains the conclusion (summary) whether the
financial statements in accordance with accounting standards and legislation represent
fairly the status of assets, equity, and liabilities, and results of operations, changes in
equity, and changes in cash flows on a particular day.
Independent auditor's report can be with positive, negative opinion and with
reservation. Positive opinion without reservations may contain certain effects on the
balance sheet, which are described in paragraphs (marked parts of the report),
observations, and recommendations as well as to pay attention to certain questions.
“GAP IN AUDIT” is called the difference between the expectations of users of financial
statements and the actual capabilities of audit. Specifically, the owners of capital have
always sought to preserve and increase their equity and as users of financial statements
audit is expected that the audit detect whether their capital is protected from fraud, and
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to provide security for its efficient use and fair representing. It is this difference between
what users of financial statements (the owners of capital-shareholders, investors,
customers, suppliers, government, chambers, stock exchanges, financial analysts,
lawyers, and others) expect and what objectively system of thrust driven audit can
provide is called the “gap in audit.” External or independent auditors their assurances
made based on audit evidence verifying financial transactions based on documents, and
based on assurances give their opinion on whether the financial statements in
accordance with international accounting standards and statutory accounting regulative,
fairly present the state of assets, capital and liabilities as of the exact date, as the results
of operations, changes in equity, and changes in cash flows for the period ended on the
same day. Constant dialogue between the independent audit and users of financial
statements provide, on the one side, reducing suspicions of the auditor's opinion and on
the other side independent audit is becoming more aware of the responsibilities for its
independent and professional work in providing opinion based on assurance system.
THE IMPORTANCE OF ACCOUNTING AUDIT
The importance of accounting audit in business is reflected in the reliability of financial
reporting of the achieved performance, according to applicable legal and professional
regulations of market environment where corporation operates. Endeavour owners and
management structure that the image of their property, financial and profitable position
appears different than it really is, depending on the goal that they want to achieve is
known for a long time. The reason for increased attention by the professional and
regulatory bodies to accounting audit at the beginning of this century lies in the
discovery of major financial scandals committed by individuals in top management
structures of large corporations.
The importance of the accounting audit is reflected primarily in the expression of the
level of social responsibility of corporations as legal persons and institution of a state.
The classic concept, according to which corporations should constantly increase wealth
of the owner, became the concept that corporations, as part of a society, need to realize
as the primary objective of increasing social wealth. Therefore, in accordance with this
affirmation of the role change and instead the primary responsibility of the owners
change, so there is a social responsibility of businesses subjects and even more the role
of state institutions and regulatory bodies in the development of the concept. The
importance of such developed concept of accounting audit would create the results of
the general responsibility for the development of economy and society as a whole.
FACTORS OF INADEQUATE ACCOUNTING AUDIT IN OUR
COUNTRY
Accounting audit depends in any economic environment and thus in our country of the
quality and development of the normative basis, the introduction of standardized
management systems and competency management and accounting personnel structure
in the application of professional and ethical standards. If in the business ambience of
the state predominates necessity of introducing the concept of standardized management
systems such as basic standardized system of management: quality management system,
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environmental protection management system, management system of occupational
health and safety, management system of social responsibility of corporations and other
management systems depending on the activity, in such an environment actions in
business processes are not standardized and logically difficult to monitor. In accordance
with that, the most visible factors of inadequate accounting audit in our country, as a
country in transition, occur at two levels: I) the macro level and ii) the micro level:
I) At the macro level indicating the occurrence of systemic corruption, stand out:
a) Lack of legal regulations on money flows in the payment system. If the banking sector
took over the payment system, it is logical that it supervises that services and, although
that is regulated by law. Otherwise, all financial transactions can be performed without
any obligation to pay taxes and contributions, very of often situation in our country. The
consequences of this situation are the problems in the financing of public pension funds
and social health insurance and all budget users.
b) Non-performing of financial statements of public (state) corporation revisions, which
is closely associated with the lack of the legislation on financing political parties, set by
top management of these corporations. In this way, the management is more convenient
to party and less to state, because party based elite protect the people it set.
II) At the micro level, stand out:
a) The emergence of creative accounting i.e. fraudulent financial statements calculated
to fraud to presented to users hidden desire and not a true picture of actual performance
depending on the business goals of the managerial structure, and thus are undesirable.45
Although the term “creative accounting” in the subject matter is not always used
interchangeably, more authors under this term includes all accounting practices that
intentionally deviate from international accounting standards to presented desire and not
a true picture of actual performance in order to maintain investor’s confidence, realize
rights on management bonuses that depend on income i.e. in creating conditions for the
use of options on shares, preparing for taking over, or defense against enemies takeover,
suspension of taxes on income to future accounting periods, payment of bonus for the
selection of a strategic partner to the detriment of small shareholders by paying lower
stock prices, are just some of the goals of management that cause the appearance of
creative accounting so these goals could be realized.
How to recognize that the management has used creative accounting instruments:46
Unexpected and unexplained changes in accounting policies, especially if they a bad
performance is recorded; profit growth as a result of an unplanned sale of assets;
unexpectedly high attribution or writing off the value of property; significant
transactions with related parties ; increase of participation in total sales, providing
45
O „kreativnom raĉunovodstvu“ videti: Stolowy H. i Lebas M., (Korporativno finansijsko
izveštavanje, str.657), i Mulford. C i Comiskey E., (2002)The Financial Numbers Game:
Detecting Creatrive Accounting Practices, Wiley, str.3)
46
Mohnram: (2003) How to menagr earnings management?, Accounting World, Institute of
Chartered Financial Analystsof Indija Nr.10
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customers with more favorable terms of payment, extension of deadlines, increase of the
difference between net income and net cash from operating activities compared to
previous years, growth gap between the differences of net income before tax and taxable
income; big profit adjustment in the last quarter of the year; change of the auditor or
audit firm that audits the financial statements.
b) The phenomena of non-compliance with ethical rules in business, that arise when the
accountants under the pressure of the management acts contrary to professional rules,
which is often in the conditions of general unemployment.
Continuously improving and strengthening the normative basis of staffing levels,
through a permanent dialogue at all levels of accounting audit with on the one side and
users of financial statements from the other side, provide reliable removal of a
unreliable factor to inadequate accounting audit.
RESUME
The risk of unforeseen damages that might arise from the loss of confidence of investors
and other users in the business environment or state ambience in which seeks to do
business, because of the underdevelopment of authority and personnel basis,
incomprehensive audit of all sectors of the economy and the low level of public
accountability of business entities as well as budget users of all levels, executive and
legislative authorities of the state, regulatory bodies, professional organizations and
audit firms, the normative basis, the development of accounting audit, respect for legal
and professional accounting regulations, must be given the highest degree of attention.
At the state level, the primary task is continuous improvement of law regulations and
strengthening the personnel structure of the accounting audit, at the level of economic
entities and other legal entities: the introduction of internal audit, strengthening internal
controls and compliance with professional and ethical standards by accountants and top
management.
REFERENCES
1.
2.
3.
4.
Stolowy H. i Lebas M.: Korporativno finansijsko izveštavanje i Mulford. C i
Comiskey E.:(2002) The Financial Numbers Game: Detecting Creatrive
Accounting Practices, Wiley,
Mohnram: (2003) How to manager earnings management?, Accounting World,
Institute of Chartered
Financial Analystsof Indija Nr.10,
International Standards for the Professional Practice of Internal Auditing, The
Institute of Internal Auditors, SAD, 2003.
Đurasović V., Interna kontrola i interna revizija, Finrar, d.o.o. Banja Luka,
2007.
69
Vol. 1 (2011), No. 1 (1-170)
NEW TRENDS IN HUMAN RESOURCES
MANAGEMENT
Doc. dr Aca Marković, FORKUP
mr Liljana Marković, FORKUP
Abstract: In a world where there are human resource managers, and with which they are closely
related is constantly changing, creating new trends and issues that require consideration. Before
managers is usually a large selection of ways among which they can consider new ideas and new
circumstances, but those ways are often problematic.
Keywords: competition, management, innovations, business, union, ethics, investment
RESPONSE TO THE GROWING COMPETITION
The most important novelty with which, in the modern environment, human resource
managers meet is concerned with appropriate relationships with the growing
competition in the market. The first reaction of most is simply to maintain the constant
price falling. This entails a small number of people, so the whole human resources
organizations facing the need to eliminate certain positions and to develop new ways of
intensifying the work itself. In addition, it may include maintenance of the wages level
at market value or below that level. Regarding the latter, finding and retaining the
workforce becomes more difficult, and even harder to maintain the motivation and
commitment. However, – in the longer term, depending on the nature of competition
with which the organization is facing - this may be the best way to preserve the
remaining jobs. If the reduction process does not go too far and to the detriment of the
organization, such an approach is acceptable.
Reduction of prices and costs, however, is not the only possible approach. Alternative
can be competitive on other grounds, but the cost for customers may be higher than the
price of some competitors, but to offer a greater value and quality products. The result is
the production of goods and services of „higher values“ that attracts with its high quality
and therefore a novelty in some shape or form. In such situations, there is still a need for
efficient work, but the constant pressure to reduce costs when it comes to employees is
smaller. There is also a need to find and, later, to motivate highly qualified employees.
Whatever way it is chosen, there is a clear need for development, greater flexibility, and
skills than before. Whether to accept the strategy of „lower prices“ or „higher value“,
there must be fundamental changes in the expectations of employees when it comes to
the roles they perform and what their organization can offer in return. Widespread
development is therefore based on the change of what is called „psychological contract“
between employers and people they employ. While a formal contract of employment
encompasses conditions of employment, agreements on compensation, and ground rules
in an employer - employee relation, psychological contract is more for generalized
expectations, i.e. what one party receives from the other. The changes in this area are
without doubt some of the most important changes in employment in recent years as
organizations are faced with increased competitive pressure. The most important of
these changes is the expectation of long-term cessation of employment or employment
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for life. The old psychological contracts may be, from the perspective of the employee,
presented as follows:
„I will work and faithfully relate to my employer. In return, I expect to keep me as a
worker, provided that I do not work against the interests of the organization. I also
expect that the opportunity to advance, if circumstances permit, to be given to me.“47
In contrast, the new psychological contract has the following form:
I will try in my work and be creative. In return, I expect a salary that matches my
contribution, as well as market value. While our relationship may be short term, I will
stay in the organization as long as I am able to indicate the improvements that I need to
advance my career.48
INTERNATIONAL AFFAIRS MANAGEMENT
As noted above, a major cause of increased competition in recent years is the growth of
global economy. Most organizations today have to compete, to some extent, with
competitors from other countries. If a company is not a major exporter, it mainly faces
competition from foreign organizations that export goods and services to the domestic
market. A particular challenge is placed on organizations located in formerly
industrialized countries by competitors with lower basic prices in recently industrialized
areas. An important consequence of globalization is the increase in the number and size
of multinational organizations. As a result, an increasing percentage of HR professionals
working in organizations that owned and controlled by someone from abroad, or in the
local organizations with a foreign power is obvious.
First, because of the large institutional differences between countries around the world,
one cannot always work the same way, because there are different tax rates, as well as
various training and qualification systems. Above all, the power of the different systems
of law on the employment of which the organization requires to operate is different in
different locations. In some countries, for example, collective agreements are legally
binding, while in others (including Britain) are „binding“ only by conscience. There are
also vast differences in the law on dismissal and discrimination. In the United States
doctrine of „employment at will“ refers to the fact that, by statute, there is a weak
protection of people who consider themselves unfairly dismissed. In the UK, there is
some sort of protection for some, but not all, while in the Netherlands, employers can
fire someone formally only with the permission of state officials.
In addition to institutional constraints, there is a need to consider cultural differences.
As demonstrated by some authors in this field, the way different people approach work
and relationships in the workplace may differ significantly from state to state. Therefore,
approaches that seem quite natural in one place often go bad when applied outside of
that place. A good example is the standard Anglo-Saxon approach to assess the results
of the annual reports in which managers and their subordinates openly talk about what
that individual achieved and how to improve the work. In terms of impact on the work
47
Toington D., Laura H. and Stephen T.“Human Resource Management“, Datastatus, Beograd,
2004
48
Ibid
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of individuals, the method of work assessment goes well in most organizations in the
UK - but not in other countries.
In many States, this method simply is at odds with the prevailing cultural norms,
managers, and employees who do not wish to speak to each other about such things.
Therefore, it is necessary to establish a balance of global and local HR managers. Often
on the area of human resources can be applied international strategy and with minor
changes to develop a global philosophy of human resources. In contrast, the
implementation at the local level must be quite different with respect to what
corresponds to a given country.
NEW WAVE OF TECHNOLOGICAL INNOVATIONS
Progress in the field of information technology, telecommunications, biotechnology, and
laser applications, often applied together – with organizations continue to open various
possibilities, but at the same time, leads to problems. From the perspective of human
resources, it is possible to define three different types of challenges that arise from the
said progress. First, there are direct consequences of the manner in which organizational
unit for human resources perform their work: the use of electronic mail and the Internet
(computer connections within an organization) for communication and information
field, the rise of the Internet as an important new way to recruit, develop online access
to training and learning, the use of computer databases to store information about
employees, and reports writing, application of computer technology on the usual tasks,
such as human resources planning and administration in connection with payroll.
Secondly, the technology leads to general changes in the organization, changes in
structure plan, business obligations, assigned tasks, and even the culture of the
organization. Technological changes, thus lead to changes in the organization,
demanding a reaction from the organizational unit for human resources. Recruitment
and selection process must reflect the need for bringing people of different skills and
qualities; manner and purpose of the training will often go in new directions, while at
the same time dismissal may be inevitable. In some situations, technology can lead to
radical changes in the short term, changing established ways of implementing the basic
role of the organization. A good example is the revolution in publishing newspaper in
the mid-eighties. Whatever the speed of development is of carrying out technology
development, human resource professionals need to plan it and then implement it.
The third way in which technology development affects the operation of human
resources management is the need to find new ways of managing employees who are
engaged in research and development and whose job is to take advantages of
technological development for the progress of the organization. They say that the nature
of this work is basically different from the nature of work performed by others in the
organization and that the common practice of managers is often inadequate. Following
quote illustrates a given theory:
Principles of high expertise, unity of control and guidance, a clear division of labor and
equality of responsibility and impact - related to problems of structuring business
systems and information flow in a clear and always the same way. They seek the
removal of common problems and facilitating productivity and control through a formal
hierarchy of influence or through standardization activities and organizations that
generate and manage to succeed in doing one and the same tasks day after day, as well
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as in production, are not particularly able to successfully do something again, as in jobs
in research and development area.49
Topic of research conducted within the governing body of the R&D department reduces
the need to move away from approaches that serve to increase the control of employers
and tend to come at the cost of development of teams. Instead, there is a need for
structures that support collaboration among individuals, and the sharing of ideas and
knowledge.
BUSINESS IN ACCORDANCE WITH THE LAW
In recent years, profession that is related to human resources has to deal with the
increasing number of laws related to employment. Prior to the 1970, with one or two
exceptions, in the UK, there were no legal regulations on labor relations. Individual
conditions of employment were given in employment contracts and collective
agreements. The law not much interfered with, except for the provision of basic health
and safety, the rights to modest fees and a general dismissal request sent to employers
and employees to comply with the requirements set forth in the employment contract.
Since 1970, the situation has completely changed. Individual employment contract
remains in force and can be made in court if necessary, but a number of legal
obligations that employers must meet is appended to it. The most important rights were
introduced in the field of health and safety at work, equal pay, gender, and racial
discrimination and groundless dismissal.50
The extent to which human resources professionals and managers in general, need to
recognize the increase in the number of regulations - remains, however, debatable. One
approach, characteristic especially for those who work in smaller firms, is a radical
challenge of the legislation. Accepting the motives behind it, the employees realize
long-term effects of increasing employment costs, while reducing the flexibility that
means a lot to managers in business management. This leads, first of all, the reluctance
to create new jobs, as well as to aspirations of international organizations related to their
jobs from other countries in which the control is smaller. For people who promote this
way of thinking, rules provide greater social justice, but at the cost of higher
unemployment ratio.
Another approach starts from the presumption that the pressure regulation on employers
in the UK is much smaller than in most industrialized countries and that it is not
widespread enough to have adverse consequences. Indeed, it is possible to determine
that the laws on employment in the UK do not prescribe anything more than
requirement that employers treat their employees fairly and correctly; so the good
employers therefore have no reason to complain. Under the third approach, the labor
law in the UK actually does not reach far, and would further, rather stronger legislation,
be desirable. This claim rests on the belief that the United Kingdom globally can no
longer compete with products and services at „small price - less added value“ because of
competition from countries that are in the process of industrialization of countries from
the former Eastern bloc. Instead, there is a need to develop workforce skills and that
high activity is focused on producing quality goods and providing quality services, new
49
Katz R., (ed) „The Human side of managing tehnological innovation: A colllection of redings“.
Oxford: Oxford University Press 1998.
50
Torington D., Laura H. and Stephen T., „Human Resource Management“, Datastatus, Beograd,
2004
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technologies and the development of knowledge economy. Requiring form employers to
provide relatively high wages and prevent the firing of workers without good reason, the
legislation emphasizes the direction towards the desired goal. The result is, at least it is
claimed, the situation with a high degree of legal protection of jobs, in full accordance
with the operation of a successful economy.51
DEALING WITH OR WITHOUT LABOR UNION
In many organizations, management can find a good reason for not recognizing the
union. Especially in small firms there is reasonable desire to manage informal
relationships among employees, rather individually than collectively. In other cases, the
reason is based on fears that the unions will limit the freedom of managers’ actions to
resist the necessary changes, while also preventing them, or there will be a confrontation
between employers and employees. There are, however, reasons why managers
welcome, even encourage, the existence of unions:
Unions take many important functions related to management, which explains the fact
that by a large number of foreign companies coming to the UK is readily accepted. One
such function is the function of the agency, especially important when a lot of
employees perform relatively similar duties: management avoids time consuming and
expensive individual relationships with employees, and such as changes - they may be a
huge problem. The second function of unions is an expression of dissatisfaction and
complaints of employees. Third, and by many the most important, function performed
by unions is to assist in reducing dissatisfaction with the legalization procedures and
priorities of management.
From the standpoint of management, it is important to establish healthy and productive
relationship with one or more unions to improve the success of the organization. Thanks
to such thinking, in recent years there is increased interest in various forms of
partnership agreements - which supports and encourages the government. A key factor
distinguishing between partnership and traditional forms of relations with the unions is
taking the position that works for both sides for the same ultimate goal. The role of trade
unions isn't always opposed, but the support and contribution to the constructive and
legitimate management initiatives. In turn, managers perceive union representatives as
partners in decision-making, and staff as key factors for the future of the organization.
Counseling is done before the publication of new programs, while other areas make
decisions jointly. The partnership agreement does not limit the freedom of unions to
criticize management, or to seek better conditions for employees, but imply that the
representatives respect the right of managers to manage and accept that the ultimate goal
of operating is a commercial success.52
ETHICAL ISSUES
Human resource management has always had an ethical dimension. Strangely, the
managers are so long tried to ignore this aspect, while theorists have expressed
dissatisfaction because HR managers fail to create conditions for the aforementioned
51
Ibid
Sission K. and Storey J. „The Realities of Human Resource Management: Managing the
Employment Relationship“, Buckingham: Open University Press, 2000
52
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aspects. Thirty years ago it was possible to write a chapter in a book about personal
entitled „The social role of personal“ and get reviews that are strongly oppose to the
implicit premise that there is actually a social role for personnel managers in the
business. Since then, there is increased interest in ethics, but it is not futile attempt of
„fine“ people from the personal to act as the conscience of the company, but much more
general interest in management.
In everyday practice, and when determining major policy issues and strategies, human
resource managers are faced with ethical dilemmas. Such situations are typical for cases
where there is any conflict between what is completely in the interest of the organization
and what the individuals on the basis of their ethical principles consider „correct“.
Interestingly, the lack of ethics often occurs because of the failure to work, but also
because of solid and safe decision to move a certain way of business. Here are some
examples:
The attitude of the organization on human resources issues can often be criticized on
ethical grounds. Some of the recent changes can be viewed as changes that lead to a
reduction in interest of one part of employers to do business ethically. Therefore, the
pressure on people to work longer than usual, reducing the level of job security due to
the increased pressure of competition and investment in new technology, which directly
leads to job losses, could arise. Some forms of cultural changes can also be viewed as
unethical, such as cultural change based on success in dealing with customers in a
culture that is oriented only to the sale.
Therefore, people from the sector of human resources should vigorously advocate a
combination of efficiency and fairness, bearing in mind that they cannot vigorously
pursue if they are present when decisions are made. They must reach that they fellow
coworkers respect them based on the total contributions, and to be prepared to accept
the fact they will often get lost in the debate. In practice, it is necessary to build a solid
business foundation for turning to the ethics whenever possible. The grounds will
usually be based on long-established ideas of the above directions in the field of human
relations; it will rest on the belief that business can maintain its competitive spirit only
when employees are dedicated to its success and with voluntary commitment. In order
to maintain good will and enthusiasm, the cooperation of employees, while attracting
qualified candidates from outside the organization - a fair business, openness, and
consistency to the people is necessary.53
BEST PRACTICES VERSUS BEST FIT
Supporters of the „best practices“ view claim that there are certain practices of human
resources and approaches to their application that continuously help the organization to
gain an advantage over competitors. Therefore, there is a clear link between the
activities of human resources and business efficiency, but the results will be maximal
only if appropriate programs related to human resources are implemented. Recently, the
use of different methodologies, many examples was published and they seem to support
the concept of best practices. Although the apparent differences in the understanding of
specific details, all the authors clearly state that the same basic package of human
53
Marković L., „Selekcija i izbor menadţera“, Magistarski rad, Megatrend, Beograd, 2009.
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resource practices, and general orientation of human resource management, aims to
improve business efficiency in all organizations, regardless of the market strategy
adopted. According to David Guestru, this occurs in several ways.
Human resource practices implement their positive impact through: (1) ensuring and
improving the competence of employees, (2) impacts on their motivation and
commitment, (3) planning the work so that employees are encouraged to give their
maximum at work. Borrowing elements of the theory of expectations, this model
suggests that there should be three elements in order to reach the best results. Positive
attitude of the employee should affect the level of the organization's performance, such
as low levels of absenteeism, turnover rates of failure and vacancies, and the high
quality and productivity.54
The main elements of „a best practices package“ by these and other authors mentioned,
are those who have long been taken as examples of good practice in the field of human
resources management. It include the use of advanced methods of selection, a serious
commitment to employee involvement, a significant investment in training and
development, the use of individual reward system and harmonization of working
conditions among different groups of employees.
The second view, the view of „best fit“ also mentions a connection between human
resource management practice and the advantages over competitors. Here, however,
there is no belief in the existence of comprehensive solutions. Instead, everything
depends on the specific circumstances of each organization. Policies and practices of
human resources that „fit“ are required that are therefore eligible for certain employers.
What is acceptable (or best) for one may not be acceptable to another. Basic variables
include the size of business organizations, the dominant strategy that is implemented in
the product market and the nature of the labor market in which the organization
competes.
Therefore, it is claimed that a small organization, which reaches an edge over
competitors, primarily with the introduction of innovations and that is competing in a
very tight labor market, should have ready significantly different policies in the field of
human resource policies of big companies that produce cheap goods and do not face
problems in finding workers. In order to maximize competitive advantage, first one need
informality with sophisticated human resource practices, while others need a system that
is more bureaucratic and combined with human resource practices such as „cheap without unnecessary details“.
RESUME
Large and rapid changes in today's world are reflected in all aspects of human life and
work. Thanks to them, we have witnessed great changes in the areas of business and
management. In the current managerial and business philosophy, words such as capital
and value are increasingly tied to the people, their knowledge, skills, and their abilities.
Personnel and their resources are becoming a major factor of competitiveness and
54
Guest D.E., Michi J., Sheehan, M. and Conway, N. „Employment relations, HRM and Business
Performance“. An Analysis of the 1998 Workplacer Employee relations survey, London CIPD
2000
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organizational performance. The struggle for experienced managers, quality
professionals, and young talents become the sharpest and most ruthless form of
competition, so strong and obvious, that even now can be regarded as one of the key
determinants of the 21st century.
REFERENCES
1.
2.
3.
4.
5.
Guest D.E., Michi J., Sheehan, M. and Conway, N, „Employment relations,
HRM and Business Performance: An Analysis of the 1998 Workplace
Employee relations survey“. London CIPD 2000.
Katz R., (ed) „The Human side of managing technological innovation: A
collection of readings“. Oxford: Oxford University Press 1998.
Sission K. and Storey J., „The Realities of Human Resource Management:
Managing the Employment Relationship“. Buckihgham: Open University
Press, 2000.
Torrington D., Laura H. And Stephen T., „Human Resource Management“,
Datastatus, Beogard, 2004.
Markovic L., „Selekcija i izbor menadžera“, Magistarski rad, Megatrend,
Beograd 2009
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REGULATORY POLICY OF THE EU MARKET
Aleksandar Miljković, FORKUP, Novi Sad
Ljubomir Miljković, FORKUP, Novi Sad
Abstract: The modern studies of public policy are three basic types of economic policy:
regulatory policies, spending policies and macroeconomic policy. There are three types of
policies in the EU: this document discuss the regulations mainly on the EU market, and analyzes
the macroeconomic issues related to economic and monetary union. European Union, with an
increasing delegation of powers to the European level of economic, social, environmental and
regulatory policies, is described as “regulatory state” or “regulatory entity”. This section
analyzes the regulation issued by the EU, the way this act is made, and why EU regulates some
areas more than others do.
Keywords: politics, markets, EU
THEORY OF THE REGULATION
Economic policies have two possible effects: redistribution and efficiency. The
difference between these effects is shown in Figure 1.
In this hypothetical society, there are two citizens, A and B, and current government
policy, X, produces benefits AX and BX for these citizens. The government is
considering two possible political changes: Y and Z. Trend towards policy Y would
have a "redistributive" effect, making bigger welfare for the citizen A (according to AYAX) or less for a citizen B (according to BY-BX). Indeed, any political change along
the line that passes through the X and Y mean to transfer benefits from one citizen to
another. In contrary, the movement towards politics Z would bring benefits to both
citizens (according to AZ-AX and BX-BZ). In fact, any change in policy from X to
darken area would make that citizen feel better, while other would still be good, without
worsening the situation.
This is known as "Pareto efficiency" (by Pareto Vilfredo Italian sociologist).55
55
HIks S. Politiĉki sistem EU, Sluţbeni glasnik, 2007.
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Fig.1 The difference between the redistributive and efficient policy
Image taken from the EU Political System book by Simon Hicks
Creating a result that is in the interests of all parties; - in the "public interest"- is the
traditional goal of regulatory policy (Mitnick, 1980; Sunstein, 1990). In neoclassical
economic theory, free markets are naturally Pareto efficient, but in the real world, there
are several “market disorders”.
Structure can be used to correct these disorders:
• Technical standards and standards to protect consumers enable consumers to acquire
information about product quality to which the public normally cannot access;
• Health and safety standards and standards in the field of environmental protection
reduce adverse effects (negative external effects) of market transactions to individuals
who do not participate in these transactions;
• Competition policies prevent the emergence of monopoly on the market, disruptions in
the market (through government subsidies) and anti-competitive behavior (such as a
price formation for a purpose);
• Industrial regulators, through instruments such as price controls, ensure that natural
monopolies operate in accordance with market regulations.
However, if economic policies create democratic, majoritarian institutions such as
Parliament or the government, they will tend to be redistributive rather than efficient.
Assembly and government control political parties, which will attempt to achieve
political outcomes using their supporters. Therefore, democratic government strives
toward policies that transferred funds of the minority that is in a losing position to
winning majority in the certain electoral contest. For example, in the case of consumer
policy, mostly leftist governments raise taxes for the wealthiest layers of society and
increase public spending on social contributions, while right-wing governments tend to
reduce taxes and fees.
If the Democratic majority is allowed to manage the regulatory policies, there will be
redistributive similar results: for example, the Left will use regulation that would
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improve workers' rights and protect the environment, raising the costs to the business
community, and the right wing will do the opposite.
Accordingly, a key argument in the literature dealing with regulatory policy is: if
regulatory policies need only to correct market distortions, with Pareto effect rather than
redistribution, they have to be consisted of "non-majoritarian", i.e. independent
institutions (Majone, 1996). During the 1980s in 19th century, the U.S. government has
established an independent agency to regulate the U.S. market (Skovvronek, 1982), and
European governments have begun to apply similar measures during 1980s in 20 th
century (Majone, 1994). At domestic level in Europe, independent agencies were
established to regulate industries that were previously public, and at the EU level,
commission’s task was to regulate the single market.
This traditional justification for regulating the "public interest" is essentially normative.
Modern political science is also analyzing the results of public policies using positive
theories, which try to explain the political outcomes in deductive way. The first positive
approach to regulation was Stigler’s (Stigler, 1971) „The theory of economic
regulation” in which structure is required by private interests and provides politicians.
On the other hand, applying the Olson theory of organization of interest groups (1965),
some interest groups are able to influence regulatory entities. For example, the cost of
price control is big for one monopoly company (selective), while the benefits to the
individual consumer or the taxpayer are small (loose). Accordingly, groups of producers
(the interests of the business community) are more able to influence the regulatory
entities rather than representatives of diffuse nature of interest, such as consumers,
taxpayers, fighters for environmental protection and employee.
This positive theory leads to opposite conclusions from the traditional normative
approach. It is unlikely that an independent regulatory entity is going to create Pareto
efficient policy, and they are prone to lobbying by the democratic majority of
institutions such as Parliament or elected governments. Nevertheless, the reality is
somewhere between these two extremes (Peltzman, 1989). In practice, manufacturer,
industry or profession is not able to fully include regulatory entity by lobbying and take
all the benefits of lobbying for them, and the proposed regulations generally provide at
least some benefits to consumers and other representatives of diffuse interests.
Hence, it is possible to conclude that, in parallel with increasing loss of consumers, their
incentive to reduce the influence of representatives of other interests in the regulatory
entities increase.
Normative theory of regulation also does not take into account the role of institutions in
shaping the way in which regulators act. Regulation is made in a complex institutional
environment, which includes legislators, courts, executors and regulators at various
levels of government. For example, in the multilayered political system as is the case in
the U.S. and EU legislation is created on multiple levels (Kelemen, 2000). When you
have the power of choice, producers would prefer to opt for market regulation to be
performed at the highest level of government. In the first place, because the organization
at a higher level is more expensive it will be harder for diffuse interest to mobilize and
confront the producers at that level. Second, at the higher level competition may arise
between different local regulatory regimes, which would allow free capital to choose the
least regulated region, and force the government to introduce deregulatory policies to
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attract
capital
(Scharpf,
1997).
Discretion authorization in the work of regulatory agencies can be limited using
institutional control. The legislator may use various institutional mechanisms to prevent
that a regulator design and implement public policies that are beneficial only to certain
categories of producers. For example, assembly may determine the criteria of public
interest in the contract with the regulatory entity, to elect a new director of the agency
every couple of years, and require that the regulator consults different interests and
reports to parliamentary committee and media (Moe, 1987; Horn, 1995). However, if
the regulatory agency is under the control of the parliamentary majority in focus, we
return to the beginning: the parliamentary majority use regulation as a means of
distribution rather for elected majority than the society as a whole.
In general, the creation of regulatory policy is a struggle. Normative analysis shows
the following: if regulatory policies are to be effective (in an effort to overcome the
irregularities of the market), they should be entrusted to non-majoritarian institutions
such as the European Commission. Positive theory, however, shows that once delegated
regulatory powers, subject to regulation (groups of producers) are likely to be able to
influence the regulators than the public interest. In addition, the business community
will have an interest in the institutional configuration that would make them to
“encompass” regulator, such as the regulatory agency at the highest political level.
Faced with this situation, politicians are able to introduce mechanisms that would limit
regulatory discretion.
UNITED MARKET
At the intergovernmental conference held in Luxembourg between February 26-27,
1986 the text of the Single European Act (SEA), which came into force in 1987, was
signed. It was the first significant revision of the Treaties of the European Communities
and the introduction of institutional changes, but without substantial transformation of
the Community and how it was conceived by Spinelli’s project, i.e. the proposal of the
EU Treaty of the European Parliament.56
SEA defined 31st December 1992 as a deadline to implement proposals from the
Commission, and introduced a new institutional mechanisms to achieve this goal:
qualified majority voting in the Council and the procedure for cooperation with the
European Parliament. These regulations cover three main areas: physical barriers,
technical barriers and fiscal obstacles.
In terms of physical barriers as the first area, the Commission has proposed cancelling
of controls the movement of goods and persons. Until late 1991, the Council agreed
with the removal of customs formalities, paperwork and control at the borders between
Member States (which numbered approximately 60 million documents per year). In
October 1992, the Commission has published the Common Customs Tariff
(nomenclature), and customs barriers were finally called off on 31 December 1992. By
the end of 1992, 81 measures were adopted on issues related to the movement of
agricultural products, and compensation for farmers at the borders in accordance with
56
Gasmi G., Pravo i osnovi prava EU, Singidunum 2010, pp. 132.
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the Common Agricultural Policy. However, in terms of barriers to the movement of
people has been made small progress. So, Great Britain, Ireland and Denmark have
agreed on abolition of passport control and the establishment of common visas. Other
members have signed the Schengen agreement; the EU has built a new institutional
mechanisms and legal instruments to regulate these areas in accordance with the "third
pillar" of cooperation in justice and home affairs, as well as subsequent reforms of this
pillar in the scope of Amsterdam Treaty.57
Secondly, the Commission took the title "technical obstacles" as a common category.
When it comes to product standards and in the Cassis de Dijon case from 1979, the
European Court of Justice ruled that all products that meet the standards in one member
state could legally be sold in another. Based on this principle of “mutual recognition”,
the Commission proposed “a new approach to technical harmonization” (Pelkmans,
1990).
In the area of public procurement while awarding public contracts, the governments are
not able to give priority to domestic companies. The free movement of people and
entities, the residence rights were extended to categories of the unemployed (such as
students and pensioners), non-citizens have gained access to state subsidies and social
rights, and certain rules are designed to compare the educational and professional
qualifications.
In the service sector, several directives on the liberalization of financial services, air,
land and river transport, as well as the opening of national markets of
telecommunications and television services were enacted. Regarding movement of
capital, the control of the free flow of capital between member states was abolished.
Third, in order to remove fiscal barriers, the Commission proposed the harmonization of
value added tax (VAT or sales tax) and excise tax on products such as alcohol and
tobacco. After lengthy negotiations, the Council adopted a framework for harmonization
of VAT in October 1992. This includes a standard minimum VAT rate of 15 percent in
each Member State, the abolition of luxury tax (and lower rates for specific products in
the interim period), as well as rules about when to pay VAT - in the case of cross-border
trade, for example, VAT is paid at the destination. That same month, the Council has set
a harmonized structure for excises with abolition of restrictions on cross-border
purchases of products like alcoholic beverages and tobacco (for personal use), and the
subsequent abolition of duty-free sales in aircraft and on ships (1999).
According to Professor Dr. Dusan Jaric and Dr. Victor Radun market in economics is
perceived as a mechanism to ensure regular and adequate exchange of goods and
services. The market is primarily perceived as a mechanism of exchange, i.e. medium
57
Op. Cit. Hiks S.
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for the exchange of manufactured goods and services between two parties: the
manufacturer and the purchaser or consumer.58
RESUME
The single market has changed the process of governance in Europe. Rules on the
production, distribution and exchange of goods, services and capital is now largely
determined at the European level, which led to a special regulatory regime, i.e.
connection of liberal deregulation and regulation of social market.
The single market program had a strong deregulatory effect. Mutual recognition and
harmonization and the new approach, combined with competition protection policy in
the EU, led to the abolition of customs barriers between member states and
liberalization in many sectors of European economies. National governments have no
freedom to use trade barriers, state aid and special permit for the business, to protect
their industries from competition from other EU member states. Therefore, some leftists
(especially Scandinavian countries and France) the single market program is the victory
of neo-liberal project.
However, in the single market mode there are some important regulatory elements.
First, harmonization of national standards for products aimed at achieving effective
results in the European public interest. Instead of reducing the rules that apply to goods
and services, EU has been particularly successful in establishing a new European
product standards (such as CO2 emission), and in many cases these new standards are at
a higher level than was the case in most Member States.
Second, harmonization of standards in the process of labor and production is aimed at
achieving the results of this redistribution policy. These regulations are not disbursed
social value directly by subtracting from one group (by taxation) and giving the second
group (through public spending). Indirect redistributive effect was achieved by
imposing costs for producers and protecting the values and interests of advocates of
environmental protection, consumers, employees and other representatives of diffuse
interests.
REFERENCES
l. Sajmon Hiks, Politički sistem EU, Sluţbeni Glasnik SRS, 2007.
2. Majone G., Regulating Europe, London, 1994.
3. Moe T, Interests, Institutions and Positive Theory: The Politics of the NLRB, Studies
in American Political Development, 2: 236-99, 1987.
4. Horn M., The Political Economy of Public Administration: Institutional choice in the
public sector Cambridge,Cambridge University Press, 1995.
5. Gasmi G., Pravo i osnovi prava EU, Singidunum 2010.
6. Jarić D. i Radun V., Uvod u ekonomiju, Autorsko izdanje, Novi Sad 2007.
58
Jarić D. I Radun V., Uvod u ekonomiju, Autorsko izdanje, Novi Sad 2007, pp.155.
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SOME ASPECTS OF THE LAW ENFORCEMENT
OFFICERS
LEGISLATIVE PROTECTION
Milošević Milan , Faculty for Education of Executives, Novi Sad59,
Vojin Marić, Faculty for Education of Executives, Novi Sad,60
Abstract: Law enforcement officers penal-law protection, as a part of legislation protective function,
has essential meaning. In all contemporary countries, police officers penal-law protection are carried
out by issuing, pronouncing and executing criminal and infraction sentences to persons who are
endangering life, physical and moral integrity of police officers, or obstructing them in the execution of
security service, or committing all other criminal and infraction offences against police officers.
Accordingly, there are some similar forms of police officers penal-law protection in several countries,
but as the result of concrete social and legal-legislative system and tradition, there are some differences
between them, too. Following those facts, author analyses forms of police members' criminal-law and
penal-law protection, in legislation of Serbia and legislations of several foreign countries.
Inadequate police officers legislative protection and permissiveness, rareness and inefficiency in
assailants' penalization are general conclusion of this analysis.
Key words: criminal law, law enforcement officer, murder, assault, infraction.
INTRODUCTION
It is known that, among other diverse and numerous aspects of law enforcement
(police) members' protection, legislative protection takes the most significant role.
As they are authorized to use some administrative ability that has constraint nature,
the efficiency of police work depends on police members' legal protection and
safety. In this context, there is a reasonable necessity to ensure both appr opriate legal
protection for uniformed police officers and other police members, as well as
concrete realization of those laws and regulations, due to duties and the legal power
of the police. Legislative insurance of constable protection and his strict
implementation is not important only for police officers themselves, but for the
police as law enforcement service as well.
Likewise, police officers penal-law protection has essential meaning in overall
legislative protection. In all contemporary countries, as a part of legislation protective
function, penal-law protection are carried out by issuing, pronouncing and executing
59
[email protected]
60
[email protected]
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criminal and infraction sentences to persons who are endangering life, physical and
moral integrity of police officers, or obstructing them in the execution of their duty.
Despite that fact, speaking about penal-law protection of constables in our country,
there is a notion that laws and regulations on that matter are not the real problem,
but policy and criminal prosecution. Finally, often and significant modifications of
criminal offences and violations in Serbian criminal legislation guide us to conclusions
about problems regarding penal and legal protection of police officers in past, and to a
risk of appearances of those problems in the future.
In this context, we want to point out that contemporary conditions demand a
necessary analysis of some aspects of penal-law protection of police members-both
theoretically (current and comparative) and practically. Namely, the fact is that only
insight into normative protection of police officers and into results of inquiries on
that matter in our country and foreign practice gives us probability to point out
adequate suggestions for law and regulation alterations, and for undertaking some
other measures in that area.
OFFICERS CRIMINAL-LAW PROTECTION
The most important form of penal-law, and therefore, of legislative and every other
protection of the police members are their criminal-law protection. All contemporary
criminal legislations, including legislation of Serbia, know a number of criminal acts
which, more or less (directly and indirectly), are providing this protection.
Consequently, those articles which incriminates behavior directed on physical
assaults, obstructions and restrain of police officers on duty, could be divided on:
criminal offences, which directly protect physical and moral integrity of the
constable, and their service as well, and on the criminal offences which objects of
assault were any officials-including police officers as officials of internal affairs.
The other group make the acts of disobedience to state apparatus decisions, by not
acting according to the decisions and the orders given by them, in what way, in
wider sense the officials in internal affairs as well as the service itself is endangered.
Furthermore, there are criminal offences by which the police members are
protected indirectly (for example, terrorism). In any case, the most important are
those offences by which are given immediate criminal-law protection to police
members on duty regarding to state and public protection, i.e. tasks regarding
detection and capturing persons who committed criminal offences, maintaining
public order, and custody under imprisonment persons, for example a murder of
police members, obstruction, and assault on police officer on duty and in liaison with
that.
Analysis of criminal-law protection of police officers-both in current and in the
former criminal legislations, shows, that at the first place, in this area are
immanent significant variety and non equalities. Consequently, it is very
difficult and uncommon to make standards, and determinate current solutions of
our lawmakers.
It is natural that every police in a given social environment acts and determinates
its actions itself. Furthermore, products of objective social determinants are not only
the organization of the police its job and duties, and the risks of its pro fession, but
legislative protection of police officers, as well. In that sense, physical and moral
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integrity of the police officers in several countries is protected by concrete
incriminations influenced by numerous and various factors (for example, divers
levels of economic development, degree of democracy and respect of human rights,
different history, tradition and culture, etc.).
That is why all attempts of simple mechanical transfer of concrete solutions of
criminal-law protection from one society to another are unsuccessful beforehand.
Likewise, this fact complicates furthermore the possibility of comparative
understanding of this matter.
THE MURDER OF LOWE ENFORCEMENT OFFICERS ON DUTY
Although mentioned circumstances prompt for extreme precaution in recapitulation
of analysis results, certain conclusions are imposing. Primarily, the fact that police
members physical integrity represents one of those values which are maximally
protected by material criminal law articles.
Murder, as capital form of assaults on police members on duty, exists in legislations of
all contemporary countries as one of the hardiest criminal offences for which are
issued maximal sentences, regardless whether that legislation incriminates such
murder as specific criminal offence of murdering (for example, Mongolian
legislation), or like one form of first degree murder (for example, in Serbian criminal
legislation). [1] Despite that fact, conducted discussions regarding too categories and
extent of that sentence are in many countries, when, for example, rescission of death
penalty is directly linked with increased number of murders of police officers doing
their duty.
Such example is Great Britain, where is significant demand of professional police
associations to reestablish death penalty. Most frequently they point out a fact, that
from the beginning of 20th century till the extinction of death penalty (1900-1965),
approximately one police officer has been killed in Great Britain per year (65
altogether), and in next 3 decades (1965-1996) that number was doubled (59
altogether). Similar situation is reported in France where is immanent public demand
to partial retention of death penalty, for murders of police officers at first place.
Namely, till Badinter Law about rescission of death penalty was carried out at 1981,
death penalty was most often pronounced for conceited murder of police officer.
From the same reasons, the members of French Parliament hesitated for a long time
to accept European Council Protocol that banned any reconstitution of death
penalty, which was signed by France in 1983. [2]
Accordingly, in almost all contemporary countries, including former socialist East
European countries and most developed countries of western democracy, most rigid
sentences are issued for murders of police officers on duty. That fact do not provoke
any contradictions from both, theorists and publicity. This is a case with both,
legislations which separately incriminate assault on life of police members (Belarus,
Mongolia, Slovenia, Croatia, Serbia, and many other), as well as in legislations were
the life of the police officers is protected in a larger sense of official (Russian
Federation, France, Monaco). In any case, for a person who has committed a
conceited murder of police officer on duty, or in liaison with that, most rigid
sentences is assigned.
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Thus, for example, murdering of constable in line of duty, or on liaison with that, in
all current US criminal laws (Federal and State, both civil and military) represent
criminal offence on which are pronounced most rigid issued sentences. In the United
States criminal legislative exists other rigid incriminations, which purpose are also to
ensure penal-law protection of police officers, but they are not controversial for both
scientific theory and publicity. Such as, for example, resisting to the police officer,
which is treated like violation, in order to obtain criminal prosecution optimal
efficiency? Finally, when the protection of police members from any kind of
violence or harassment in the United States is an issue, there is no doubt about the
regularity of prosecution penal policy on those offences. The only fact that requires
improvement on that issue is necessity to hasten execution of already adjudged
death penalties to persons who killed police officers all over the United States. [3]
PROTECTION FROM MILDER FORMS OF PHYSICAL OR VERBAL
ASSAULT
Protection of police officers from milder forms of physical and verbal assault (for
example, assault, threaten by assault, violation, insult, etc) per adequate
incriminations in foreign legislations, is not controversial in law doctrine and wide
publicity as well. More important influence on this fact have a concrete law -technical
solution of that question in particular legislation, i.e. it is irrelevant whether the police
officers are directly protected from such assaults in some countries, or such
protection is assured indirectly by providing conditions for realization of certain
official operations in protection of public order. [4]
Otherwise, in legislations of most foreign countries the protection is provided
indirectly, by endeavor to provide conditions for doing police tasks, or lawful acts of
officials generally, and at the same time police officers who are directly executing
those tasks, by concrete incriminations. This approach of lawmakers is not
controversial in foreign law literature, too.
Namely, by simply setting up the adequate conditions for performing the police
members professional tasks (for example, by incrimination of obstruction), the
adequate protection for officials-police officers is provided, because those two
matters are closely connected. At the other words, there is no insistence on those
incriminations by which are physical and morale integrity of police officers are
protected more then the authority of service they are doing.
Despite those differences, criminal-law protection of officials obviously could be
effectuated (relatively) successfully in framework of currently valid incriminations in
Serbian legislation, eventually extended with severed sanctions. Accordingly, the
problem is in obvious dissonance between normative condition of criminal legislative
(in criminal-law protection of police officers area) and his practical usage. Namely,
analysis of juridical practice show dissonance between issued and pronounced sanctions for those criminal offences, because there is noticeable mellow penal policy
which results in inefficiency. Likewise, results of the empiric inquiries show that
inadequate penal policy in criminal-law protection of police members is not only the
result of attitude of criminal court regarding this problem, but the result of relation of
public and state prosecutors -jurisdiction authorities, as a whole.
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Detected inadequacy of the penal-law protection is more significant for milder forms
of endangering police members, i.e. for basic forms of obstruction and restrain, then
for hardiest offences against officials: murder, attempt of murder and qualified
forms of obstruction and restrain officials to do their duty. This condition is
encouraging, especially if we consider social values which are protected by this
incriminations (life, physical integrity and official service which are officiate).[5]
Finally, it is evident that only small number of persons indicted for offences against
physical and moral integrity of police officers were convicted. Analyzing cases
convicted for such offences, we can see that in majority of cases probation has been
pronounced, then numerous judicial admonitions/and that pronounced
imprisonment sentences have been between distinct minimum. At the same time,
in most cases public prosecutors does not appeal on that decisions. According to those
facts, we must conclude that problem of criminal-law protection of police officers
really is not only in regulations, but primarily in prosecuting policy. Re garding the
fact that the speed of actions taken by the judicial authorities determinates the
success of struggle against criminality, it is obvious that their inefficiency directly
results in increasing of criminality.
CONCLUSION
As the most general conclusion about criminal-law protection of police officers in
current Serbian legislation and juridical practice, is imposing impression that police
officers have a substantial protection in legislative sense, which could be improved
by adequate legal-technical solutions. [6] Unlike, protection and safety of police
members are not provided through policy of prosecution of persons who are resisting,
insulting, assaulting or in any other way violating them in doing official tasks, except
partly in case of inflicting injuries and other harder consequences. Accordingly, yet
there is a need for proceedings that are more efficient and for leading appropriate penal
policy against persons who have committed criminal acts against police officers.
Basically, penal-law protection is primarily and from the aspect of the society, the
least controversial form of constable protection in the execution of his duty, therefore
in many countries it has been followed by adequate prosecution policy (Austria,
France, China, Greece...). Shortly, almost in all contemporary legislatives exist
rigorous sanctions for various forms of resistance to the police acts, especially for
physical assaults and murders of police officers in execution of their duty.
On the other hand, in Yugoslav official reports insufficient penal-law protection in
order to initiate provisions and additions to the current laws and regulations that
should lead to better protection of police officers, is often emphasized. Those
premises are implicitly sustained in Serbian legislative theory.
Consideration of penal-law protection of police officers, especially comparative
analysis of issued sanctions, show that in this case we can't accept premise of some
theorists that, according to issued sanctions, our criminal legislation belong among
most rigorous. Unlike, opinion that we have relatively mild penal policy is entirely
acceptable. In that way, doubly wrong picture about us has been created: that we
are over retributive abroad, and that we are unnecessary mild inside.[7]
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REFERENCES
1. About this see more in: Milošević M. et al. (1998), "Krivičnopravna,
prkršajno-pravna i druga zastitapolicajaca (studija)",Beograd : Viša škola
unutrašnjih poslova.
2. For conditions in Great Britain and France, see: Spicer M. (1996), "Convictions
for Police Murder in Britain (1900-1965)", The Police Journal, No.3, pp.242248; Coester E. (1985), "Terorizam i smrtna kazna", Izbor, No.4, pp.3 35-340;
Erlich C.(1962), "Zum Schussnjaffengebrauch, Kriminalistik", No.l, pp.11-13.
3. Chapman S.G.(1986) "Reduciranje napada na policiju", Izbor, No.4, pp.373390.
4. Some results of inquiries of judicial practice regarding this matter, see:
Milošević M. et al., op. cit., pp. 182-219; Jovašević D. (1999), "Krivično delo
ometanja ovlašćenog službenog lica u obavljanju poslova bezbednostiteorijski i praktični aspekt", Bezbednost, No.l, pp.42-55.
5. Compare: Jovašević D.; Hašimbegović T. (2002), Krivično pravna zaštita
pripadnika policije, Beograd : Institut za kriminološka i socioĉoška
istraţivanja;Srejić D. (2006), "Ugroţavanje sigurnosti policijskih sluţbenika",
Bezbednost, No.5, pp. 805 – 826;Pantelić N. (2007), Krivično delo ubistvo
policajca, Beograd : N. Pantelić
6. Lazarević LJ. (1994), "Raskršća jugoslovenskog krivičnog zakonodavstva", in:
u
Kriviĉno zakonodavstvo i pravna drţava", Beograd, pp.2 5-41.
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MANAGERIAL ROLE IN FINANCE AND RISK
MANAGEMENT
mr Sead Mušinbegović *, dr Vladimir Stojanović **, Sabina Mušinbegović ***
* "Vispak" dd Visoko, Visoko, Bosna i Hercegovina
** ALFA Univerzitet Beograd, Beograd, Srbija
*** Visoko, Bosna i Hercegovina
Abstracts: Managerial role in finance and risk management in the conditions of market economy
is dominant in the monitoring and implementation of other company functions. Financial flows
are followed by all other activities, whose success or failure, directly influence the finance, but
financials and risk management has excellent and often decisive role in achieving the mission and
vision of the enterprise as a key strategic development objective.
Keywords: finance, financial risk management, diversification of investments, control, derivative
securities
INTRODUCTION
A managerial role in finance in any enterprise is an indispensable link in the realization
of its mission and vision. The mission is the expression of business orientation and
markets towards this orientation, a method of targeting businesses, and the way of
communicating with customers, with an emphasis on skills that will be important for
achieving competitive advantage. Vision, as used interchangeably synonymous with the
mission, the practice is different from the mission because the mission of what the
company does, and vision is what the company could be successful if it achieves its
mission.61
This time we will only emphasize that mission and vision of the determinants are of
exceptional importance for strategic management, which in its activities in this direction
largely relies on a management role in finance, without which quality of functioning is
impossible to conceive functioning of a business entity, especially the manufacturing
enterprise. Therefore, the strategic role of finance and risk management is highly
important for the company, and the ability to use available, especially discovering of
new sources of financing and investment and asset management wisely, is actually a
basic condition and the pledge of vitality, success, and company growth.
61
Dţevad Šehić „Strateški menadžment“, Sarajevo 2002.
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FINANCIAL MANAGEMENT
Financial Management is a term used to indicate the integrated managerial approach of
managing cash activities i.e. companies financial assets. It involves the collection of its
own and other’s sources of funds, debt collection policy, control of cash flows, profit
sharing criteria, the selection of investment opportunities, and others.
Financial management involves planning the future of business enterprise in order to
ensure a positive cash flow. It includes administration and maintenance funds. In
addition, financial management includes the process of identifying and managing risks.
The primary concern of financial management is an estimate not a financial
quantification technique. The financial manager use available data to assess the
performance of an enterprise.
Financial management is an interdisciplinary approach that takes in managerial
accounting and corporate finances.
Some experts refer to the financial management as a science of managing money.
However, financial management is important at all levels of human activity.
From the organizational point of view, the process of financial management is related to
financial planning and financial control. Financial planning seeks to quantify the
diversity of available financial resources and to plan the size and time of expenditures.
Financial control refers to monitoring cash flow. The inflow is the amount of money
that comes in a particular company, while an outflow relates to expenses incurred by the
company. Managing this movement of funds in relation to the budget is essential for the
job. Financial management in all its elements involves decision-making. Financial
decisions precede each fiscal activities carried out by the company, brought by financial
managers based on numerous external and internal information.
Financial managers are designed to improve the level of resources available to them. In
addition, they control the use of money invested by foreign investors.
Manager at a certain position in the company receive orders from superiors, but the
same orders as necessary transfers to lower levels, so that is both superior and
subordinate. The mere ability to recognize the appropriate role that should be played and
willingness to change roles is one of the signs of a successful manager.
Activity of financial management of the company should be directed towards
harmonization of the financial affairs of enterprises (needs, principles, and
requirements) and financial and capital markets. At the firm level basic decisions about
the transaction of real assets or investments are made, and liquidity or income, and
allocation of cash, while at the level of capital markets the biggest problem is the
evaluation and commercialization of activities. However, if a company as a joint stock
company is aimed at maximizing shareholders' funds, then the firm must maximize its
market value. Market value depends on the current yields and the current value of the
expected yields in the future, which, in turn, depend on, among other things, the
following factors: interest rates and risk of future returns.
Financial theory explains that by correlation between the financial structure of stock
companies and the market value, which means there is a financial structure in which the
value of the company is highest.
In the present business conditions, financial management is very important because it
constantly and simultaneously provides the answer to important questions:
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- What means the company has,
- How company forms them and how reaches them,
- What is the level of company’s funds, what their structure is, and what is the way of
financing these funds
The task of the financial management is reflected in the coordination of company’s
financial operations, liquidity, and investment, then the allocation of cash, transaction of
real assets and capital market (valuation of companies and commercialization of stocks).
If the company as a limited company aims to maximize shareholders' funds, then the
company has to maximize its market value. It is very important to connect profits, risks
and time in the implementation of financial management, particularly in:
- Financing companies in various stages of operation;
- Achieving optimal capital structure of firms;
- Valuation of companies;
- Dividends and share prices and yields;
- Cash flow and liquidity
- Financial planning
Financial management must know the full range of financial instruments to finance the
new private, public, and mixed enterprises, such as capital investment (permanent
grants), grants, loans, development funds, risk capital, leasing, joint ventures, and
actions, which would be increase its assets based on risk and profit.
Financial management must be familiar with the internal (accounting, investment) and
external financial conditions.
Decisions of financial management are associated with large uncertainties (risk),
because of which is extremely important in financial management to relate yields
(profit), time (long, medium, and short term) and uncertainty (risk).
Financial management is a broad area, so we only point to some areas that might be of
interest especially for companies in the process of restructuring and testing of new
strategic business decisions.
Important areas of financial management are:
- Financing company in stages of establishment, development and disappearing (the
problems of financing enterprises in different phases of life, new sources of finance,
new financial innovations, etc.);
- Optimal capital structure of the company (investment/financial alternatives ratio,
optimization of assets, shareholders, the impact of investment opportunities in
borrowing, etc.);
- Valuation of the company (general principles of evaluation, different evaluation
methods, for example, accounting value, estimated value of the combined method of
high value, etc.)
- Dividend policy (the impact of dividend policy on share price and yield, capital
markets and the impact on the value of shares, dividend policy, and investment;
- Short-term policy of cash flows and liquidity (demand for money, short-term planning
of the finance in the company, etc.);
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Financial managers need to have a general knowledge of the organization, operation of
companies, business communication and the like.
Financial management is, therefore, the main lever of financial management of
companies and refers to managing financial policy, financial planning, financial
organization, financial records, financial analysis, financial control, and financial
information of the company. These elements of financial management must work
uniquely; otherwise, there is a disorder of financial trends and problems in achieving
financial management.
FINANCIAL RISK MANAGEMENT IN ENTERPRISES
When it comes to managing financial risks, we will pay special attention to risk
management that forecasting and planning brings. In fact, this is starting function of
managing small and medium, and large enterprises. It is based on identifying of the
preconditions for the realization of these goals, and the choice of methods and
techniques for their achievement. In the scope of forecasting and planning, financial
manager must work with managers of other business areas, since it must view and set
future plans that will affect future operations and position of the company within the
industry and the economy as a whole. With the current policy, management performs
(earlier) planned development policy.
In addition, it exploits the existing factors of success of enterprises and creates results
for current usages (dividends for owners and funding for enterprise development). With
developmental and basic policies, management plans new combinations of the success
factors of enterprises ("success formula") for the next period. This means that, starting
from the achievements of the current policy, management plans policy (goals)
development and strategies for their achievement and selects the new programs
(analyzing the gap between the potential and limits of enterprise development), and
planned development of the company (assets, plans to introduce new programs). Since
the current policy is the basis for development policy and development policy is the
framework for the current policy, between them there should be an organic connection,
because it runs from today’s to tomorrow's successfulness of company.62
When planning in the essence of this task are investments, or investment proposals,
which inevitably follow the dilemma of whether to measure the risk in order to accept or
reject the investment proposal.
Bringing investment and financial decisions based on long-term plans, financial
management must provide the capital needed to support the growth of the company.
Successful companies typically achieve high growth rates of sales that require
investment in machinery and equipment. The financial manager must participate in
determining the optimal rate of sales growth in the ranking of alternative projects that
are at company's disposal. In addition, the financial manager has to help in deciding on
investments to be undertaken, and the alternative sources and forms of funding for these
investments. Therefore, the role of financial management is of great importance when
investing, because “investors rarely invest its entire fortune in a single property or
investment... When it comes to several investment projects, we can carry out their
62
M. Tavĉar, Strateški menadžment, Univerza v Mariboru, Maribor-Koper, 2002 godina, str. 339
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combined risk... Please note that the combination of projects is the way to reduce risk
and it is known as diversification.
Diversification of investment should enable company to combine an efficient portfolio
of assets - capital that is expected to produce a “high rate of return given the level of
risk, that risk is reduced to a minimum with a given rate of return.”63 Therefore, the
company is protected from potential crisis with the diversification of its activities,
programs, and products. In this way, it performs risk dispersion - becoming less likely
that risks will hit all the activities simultaneously. In addition, the company is protected
from potential crises and risk control, which seeks to master (in) secure position of
enterprises in the economy and society and provide enterprise level security (which is
less deviation from the set goals) necessary for survival and development. Risk
management64 use techniques of pure risk insurance - on which the company cannot
influence, and entrepreneurial strategies for entrepreneurial (business) risks over time,
and does not guarantee that they will hit the company, although it counts as the
possibility of their occurrence.
One of the necessary financial management activities of control is performed through
the comparison of planned and achieved results in the business process. Pointing to the
positive and negative deviations from the planned control, in fact, both control and
achievement levels of risk and serves to perform timely certain preventive rethinking.
Control is inevitable companion of productive managerial action, because the financial
indicators are “relentless” in describing the situation. Management that regularly checks
the policies, with appropriate control, will hardly miss signs (signals) that indicate the
occurrence of major crisis of a particular program, individual functions, or the company
as a whole. Integrity of basic, development, and current policy does not include only
connection current with the next period of business, but link its activities. Occasional
company restructuring, that represents the reaction of management on declining
performance and a measure to prevent a possible crisis, is more successful if it includes
all important aspects of enterprise operation, than if it is confined to the financial (or any
other) aspect.
Therefore, in order to reduce risks to the smallest possible measure, financial managers
must work with managers in other areas of activity of the company, because all business
decisions have financial implications - which all managers must take into account. In
this sense, financial management must control the financial effects of the set goals, and
perform corrections of its financial activities.
Each company has a certain effect on the financial markets, but financial markets affect
it too. This occurs through the borrowing of funds, securities trading company, trading
in securities of third companies or, for example, interest payments to those who have
invested in securities of company.
Interactions of the company with money market are far more frequent, especially with
commercial banks. All these markets are closely linked, so financial managers must
understand the functioning of money markets and capital.
63
Slobodan Milovanović i Marko Carić, “Finansijski menadžment”, Drugo dopunjeno izdanje
Novi Sad 2007, str. 256
64
M. Tavĉar, Strateški menadžment, Univerza v Mariboru, Maribor-Koper, 2002, strana 364.
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In developed financial and business management systems, a set of different financial
instruments that are being implemented through various techniques and methods of risk
management is available.
Risks to which a particular company is exposed depends on many factors, such as type
of business which the company does, the manner of conducting business, micro and
macro environment, and the like. An important factor of responsibility for risks and
opportunities to take action to manage risk and firm size, which, in situations where
companies are financially stable and more, provides a broad range of possible courses of
action.
Wider understanding of financial risk includes, for example, the risk of drawing money
from the company, the risk of adverse intercompany loans, refinancing risk, the risk of
the price change (market risk) and the like. Financial risks in the narrow sense are
liquidity risk, currency risk, and interest rate risk. Risk management is now an essential
part of business processes and forms a part of the administration.
The process of risk management in the enterprise is in the function of increasing
company value. It consists of clearly defined steps which, when applied in the correct
order, provide better support to decision-making, contributing to better understanding of
the risks, and their potential consequences. Risk management deals with identifying the
opportunities and possibilities of the company, avoiding the threats that come from
company environment and that may adversely affect the financial position of the
company. The volume and number of economic and other threats and hazards that
threaten the operation and development of enterprises depends on the activities of
companies, technologies and techniques that it uses, characteristics of the market where
it operates, the political situation at home and abroad, business locations, knowledge
and skills of employees, management attitude (and owner of the company) to risk and so
on.
Development of financial systems and the emergence of various risks in business have
led to the gradual emergence of various forms of derivative securities, such as futures,
forward contracts, swaps, options, warrants, and more. The development of derivative
securities had an important role factors such as volatility of prices of goods and services,
interest rates and exchange of resources, inflation, restrictions on interest rates,
technological advances, etc. Markets for derivative securities allow investors to, at a
certain price (the premium), to avoid risk in a way that transferred it to the entity that it
is willing to bear.
Banks, insurance companies and other financial institutions are risk-professional and
have great significance in the financial market. In accordance with changes in
economics and finance, have developed various forms of derivative securities by which
the risks are transferred to the other side. This allows the investor, who is vulnerable to
risk, to minimize its exposure and transfer risk to another party who is willing to
undertake it, and all the consequences that accompany such decision.
Today it is impossible to imagine developed economy without securities, cash, foreign
exchange, and even more important and significant financial derivatives. As every
business entity wants to reduce the uncertainty of their business and make possible a
higher gain, the use of derivatives in the practice is growing; new derivative financial
instruments and new ways of using old derivatives are developing.
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RESUME
Managerial role in finance is a strong support of operation and development of each
company. Without financial functions it is not possible to even discuss be neither on
implementation of all other functions in the company that are achieved to meet the
specific needs of people and social needs.
According to the authors of this paper, the central issue, but also a persistent problem
mastered in continuity, is risk management in finance. As in the previous presentations
can be seen, these risks “are lurking on every corner,” so the financial management is
the first to prevent and cope with risks maximally. This is not an easy job and task, it
assumes a maximum accuracy of accounting - information function, and knowledge of
investment, and external financial conditions are based on continuous control and
checking of all processes and flows in which plans of companies are realized.
Since in this study we indicated that the risks are dependent on a number of specific
factors, they could never be eliminated. As the risk is present, a challenge to move in a
particular activity and the activity is also present, so the relationship to risk assessment
is manifested based on the appraisal what you can lose and how much you can gain. In
this financial management through the management of financial flows and processes
have at its disposal a number of mechanisms to reduce financial and other risks i.e. risk
management, but they never can be eliminated.
According to the authors of this paper, this fact has its development function.
REFERENCES
1.
2.
3.
4.
96
Dario Tuĉić, Goran Janković, Miloš Šipragić, „Praktični savjeti za preduzetnike Strategijski i operativni menadžment,“ Banja Luka 2007.
Dţevad Šehić „Strateški menadžment“, Sarajevo 2002.
Slobodan Milovanović i Marko Carić, “Finansijski menadžment”, Drugo dopunjeno
izdanje Novi Sad 2007.
Tavĉar M., Strateški menadžment, Univerza v Mariboru, Maribor-Koper, 2002.
Vol. 1 (2011), No. 1 (1-170)
PREVENTION OF MONEY LAUNDERING - THE
PROBLEM OF CONTEMPORARY BANKING
Prof. Dr. Kostadin Pušara
Doc. Dr. Aleksandra Pušara, FORKUP
Abstract: The author presents a system of money laundering prevention and terrorism financing.
Basic notions are defined and principles and fundamentals of international regulations are
analyzed.
Infiltration of dirty money is a serious problem for the national economy. Buying stocks, real
estate, establishing of “dirty investment funds” and usage of the banking system for depositing
such funds endangers credibility of the entire country, especially for the safety of the financial and
banking system. Money launderers constantly find new ways, using new, non-financial channels
and expand their activities to real estate, art, and insurance. It is therefore necessary to keep up
European solutions and recommendations, to strive for further improvement and modernization of
laws and enact new regulations harmonized with international standards, particularly with the
2005/60 EC Directive.
Keywords: money laundering, terrorism financing, prevention, harmonization with international
standards, the implementation of in-depth analysis, information on the suspicious transactions
INTRODUCTION
The concept of money laundering
Money laundering is a process that aims to cover traces of the real source of illegally
acquired money, taking advantage of financially, but more often, and non-financial
sector and the profession. In accordance to 2005/60 EZ Directive, this process includes
covering up of real source of the money, converting, and transfer of assets in terms of its
unlawful origin i.e. acquisition, possession, or use of property derived from criminal
acts or complicity, connection, helping, encouraging, and enabling of performing any
such act. Dirty money is the money acquired through criminal acts and all property
derived from that money. This means that money laundering do not exist without such
criminal activities.
Money laundering is the process of disguising the illegal source of income generated
through criminal activity, to include such income in the flow of legitimate financial
business. The issue of money laundering is integrally linked with corruption, organized
crime, financial fraud, smuggling, and other criminal acts aimed at making profit. This
problem causes serious consequences if not resolved properly. The ability of criminals
to collect and legitimize the gains can lead to the undermining of democratic institutions
and the abuse of economic systems. Illegally earned income allows criminals to develop
its political and economic power at the expense of honest citizens and legitimate
business. Countries that are not adequately addressed the issue of money laundering
have established that officials are also susceptible to corruption, and that therefore there
comes to a complete interruption of legitimate international investments. Thus,
programs to combat money laundering are more than a simple means of implementing
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the law, which is used in case of incomes derived from criminal activities. They are
essential in the process of protection of democratic institutions and economic freedom
of each country. Money laundering is also becoming international activity on a global
scale. For this reason, many international organizations have established standards,
procedures, and recommendations to solve this phenomenon. Today, money laundering,
in most countries is consider as serious crime, and that the authorities are at risk of
coming into a situation where they undermine organized crime and corruption is the
generally accepted opinion, if you do not have adequate laws and procedures aimed at
resolving issues related to prevention, detect, investigate and take legal measures in
cases of money laundering. It is also believed that financial trading is a matter of
international character, so the implementation of these laws should be consistent.
Council of Europe, the European Union, and the Financial Action Task Force (FATF)
established by the member countries of G-7, and the United Nations, defined guidelines
for the implementation of effective programs to combat against money laundering for its
Member States.
What is money?
Money is the idea. The idea that value of an object can be determined and that can be
used in trading is very old, but universal. Money is a very old tool, but the notion that it
is believed that is reliable artifact, something that one can accept without question and
without checking, but something that appeared in history of money only occasionally; in
fact, such a viewpoint was created during the last century.
Everyone sees the money in a different way and it is not at all surprising that these
opinions differ, especially in a world of diverse cultures.
Clear understanding of money laundering as such requires an understanding of the
nature and role of the money. The money is usually seen as cash. How really one
convertible mark, dollar, or euro worth? Perhaps a better definition would be that the
money is “all that is widely accepted as a way to settle the costs.”
Money appeared thousands of years before the paper and coins, but it is impossible to
know who came up with the idea that an object determines the value and assigning it
such an important place in the business.
Money is, therefore, the idea that a particular item has a value that is accepted in all
kinds of exchanges. As a concept, the money can have any shape. At different times in
different places, the money can be almost anything you can imagine.
Why is all this so important for the prevention of money laundering? We must be aware
that although most of the money laundering process involves some form of money,
everything can be used in the process of money laundering: diamonds, gold, credit
cards, stock, warranty, rare coins, insurance, and many other different forms of money.
These kinds of transfer of money in various forms are limited only by the imagination of
people, not the form in which money appears.
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The process of money laundering
U.S. Office for the prevention of money laundering (FinCEN) has described the process
of money laundering through three stages: placement, refinement, and integration.
Investment Stage
Phase of investment in which money or cash came directly from criminal activities
inserted into the financial mainstream. This money enters the financial system in the
way that is designed to avoid detection of origin by the bank or the legislature. Money
launderers usually invest large amounts of money in a number of smaller banks or
companies. In the phase of the investment, funds from criminal activities are invested in
the financial system or in real estate and movables. The main goal is to put money in
financial flows and transfer it abroad. Doing that, money launderers expose their
earnings, so this is the most important phase, due to possibility of detection of dirty
money. No matter whether money that comes from criminal activities appears in the
form of cash or not, investment is the most dangerous phase for the criminals. At that
time, a direct link between money and criminal still exist. From that moment, the money
is not cash but is converted into numbers on paper or on the display screen.
Concealment phase
Concealment phase is known as the refining, but is also called swamping or mixing.
During the refining stage, money launderers start to cover traces of the real source of
with numerous money transactions. Using legal transactions they transfer money to
accounts in the country and abroad, and changing its shape, to increase inability to do
any monitoring of its route. At this stage, all existing offshore banking centers may be
used as suitable means. The ultimate goal of transferring money is the dispersal of
money and obtains as many paper traces in order to disrupt the supervision of an
ongoing or future investigation, and eventually collected a false origin or source of
money. This is precisely the reason why the laws, regulations, and changes of the
authorized persons and officials who work directly with clients, should be based on
taking thorough analysis of the diligence and data-acquisition of the purpose and
intended nature of the business, as well as constant monitoring business relations and
transactions. Furthermore, it is important to establish the identity of the beneficial
owner, and take all necessary measures based on risk and the type of customers,
business relationships, products, or transactions. The very nature of the invention allows
finding of certain characteristics that indicate possible money laundering. These are
financial transactions having no logical justification, created exclusively for the
transaction itself and for the frequent buying and selling goods, especially with the fees
and commissions to advisers. That may be accounts created from many smaller
accounts, the accounts of which there is no connection, and a lack of interest in
investment losses, costs, bank charges, or counsel fee. Money launderers are interested
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only in profit as a secondary objective - the concealment of the real source of money is
the only motive.
Integration phase
Integration phase, money launderers integrate its resources into the economy and
financial system and can interfere with its full resources, which make it difficult to
detect the real source of money. The final phase of the money laundering process is
actually the integration of illegal funds that have become legitimate and which were
successfully embedded in the financial system. This phase is called phase drying or
centrifuging. Money laundering is a developing complex system, implementing new
techniques, and money launderers are improving constantly. Criminals are hiding
behind complex transactions involving international transfers, cut transaction into
smaller amounts, or transformed into the accounts of a number of people, changing the
shape of money, using the advices of top banking executives, brokers, investment
bankers, accountants, consulting firms, civil servants, and lawyers. The money
laundering process never stops no matter in what phase dirty money went and how
many forms of illegal means changed, such funds will never be clean in the eyes of the
law.
DEFINITION OF MONEY LAUNDERING
It is by accident that just in the U.S. in 1986, “legislative premiere occur”. In
Washington State the law on money laundering, which strictly punish any failure to
report cash transactions above $10,000 was adopted. Otherwise, the literature mentions
that the term “money laundering” promoted “The Guardian” from London thirty years
ago in connection with the famous Nixon's Watergate scandal, and it was the amount of
$200,000 meant to fund the Republican election campaign. In the early 1980, the term
was included in the documents the Council of Europe (Giunio, 1998:40).
Considering the fact that money laundering usually happens in three phases and often
extends across international borders, which involved small or large groups of people
established an ad hoc or permanent effect, and that different of criminal acts precede it,
it is clear that the process of money laundering is very complex.
Precisely for this reason in the literature different definitions of money laundering
appear, some of which we quote:
1. Money laundering is any technique aimed at converting unfairly and illegally
acquired income, so it seems a fair and lawful wage (Heršak, 1992:741).
2. Money laundering is an activity aimed at collecting unfairly or illegally acquired
income through legal businesses (Vukelic, 1994:29).
3. Money laundering can be defined as the transformation of illegally obtained income
into illusory legitimate (Novoselec, 1996:41).
4. Money laundering include new actions aimed at concealing the proceeds obtained by
crime work, inclusion, disposal, and other disposition of this products (money,
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securities, jewels, etc.) creating the illusion of legal acquirement of these products,
1998:40).
5. Money laundering is a financial transaction made to hide illegal activities or to
conceal profits from illegal activities (DeGabrielle, 2001:192).
6. The term money laundering applies to change of the shape of illegally obtained
money so that it is legal. In addition, it is covering up illegal sources of income or its use
(Claessens, 2000:22).
7. Traditionally, money laundering is (among other things) the cleaning of dirty money
derived from illegal activities that are probably related to drug trafficking in the
collective consciousness is (Lilley, 2000:1).
Return effects of money laundering
Money laundering has a wide range of feedback effects on economic, political, and
social structures of each country. The most significant consequences of money
laundering are decline of business legal private sector, the impact on exchange rates and
interest rates, economic disturbances and instability, reducing state revenues and loss of
control of economic policy, jeopardizing the reform program and privatization,
declining
reputation
of
the
country.
PREVENTION OF MONEY LAUNDERING PROCESS
The most important is to prevent that financial system is used for washing dirty money
by appropriate measures. The central bank needs to establish regulations and supervise
the banks to prevent and detect money laundering. This regulation is necessary to
prescribe measures for banks and financial institutions that include the obligation of
reporting supervisory body if there is doubt about the origin of money, prepares
appropriate sanctions, strict rules for issuing licenses to banks and financial institutions.
Together with the association of banks, central banks should set the rules of banking
practices against money laundering, measures to assess, monitor and control clients,
determine limits on the amount of transactions in foreign currency by individuals;
bank's obligation to determine those responsible for supervision in relation to money
laundering and provide staff training on the techniques of money laundering. For the
banking sector is important that risk management system and corporate governance
structure are well organized and adapted to enable the prevention and fight against the
entry of dirty money into the financial system. In addition to local cooperation between
central banks and the banking sector, it is important to develop international cooperation
in the fight against money laundering.
The roles of the main factors in determining cases of illegal transactions have the
financial institutions because of their unique role in the payment system in the collection
and transfer of funds. It is very difficult (perhaps impossible) to make comprehensive
recommendations to banks for a fully successful against money laundering.
William C. Gilmore (1995), professor of public international law from the University of
Edinburgh, Scotland, lists several recommendations:
- Know your party: banks should try to learn the identity of their parties and to have a
proper investigation of the origin of their funds.
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- Operate in accordance with regulations: bank management should ensure that business
is conducted in accordance with high moral standards, to respect the laws and
regulations not to realize service if there are good reasons to doubt about case of money
laundering.
- Cooperate with relevant authorities to prevent illegal actions: bank in all suspected
cases of money laundering should cooperate fully with the relevant authorities and take
appropriate measures required by law.

Pay attention to training and informing employees:
- All bank employees should be well informed about the adopted policies of the
bank,
- Consistently implement decisions on the mandatory establishment of legal identity
of the parties, and
- Keep proper records of accounts, at least five years, to successfully determine the
sequence of individual transactions.
Grown problems present in the world do not recognize national borders and require
global solutions. Although money laundering is a global problem, there are significant
differences between countries. This is especially evident in countries in transition. The
countries that are more involved in world economic developments and which are quite
advanced in transition (Hungary, Poland, and Slovenia) have considerably smaller
problems in adjusting its monetary market and banking institutions than countries that
are late in transition (Albania, Romania, and Russia) where these problems are more
pronounced. Prevention of money laundering process is not only a fight against crime,
but also an attempt to preserve the integrity of financial institutions and financial system
as a whole. International money laundering is based on the differences between
financial and banking provisions in the legislation of individual countries.65 It is
therefore necessary to minimize these differences, if they cannot be completely
eliminated. Also important is the finding of new laws to combat money laundering, the
creation, and development of new specialized services. The successful prevention of
money laundering is probably the most important development of international cooperation with the use of modern and successful methods. Otherwise, all the individual
efforts will bring poor results and cause high costs.66
65
United Nations 1992: „Money Laudering and Associated Issues: The Need for International
Cooperation“, Doc. E/CN. 15/1992/4.
66
Support to the Special Department for Organised Crime, Economic Crime and Corruption,
www.registrarbih.gov
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RESUME
Corruption, organized crime, financial fraud, smuggling, and bribery are alternative
ways of acquiring illegal income that after legalization and laundering of so
accumulated capital directly enable criminalized people to achieve economic power and
strong influence on politics at the expense of society and the legitimate operation of
most businesses. Money laundering means activities aimed at the legalization of money
earned from criminal activities. Participants in the money laundering use many different
types of financial transactions to disguise the true origin of money, and so transform it
into legal means of transport in the money market, which enables them to use it
normally in business relations in which they place their capital.67
The phenomenon of money laundering is a threatening phenomenon of criminal
activities and is present in developed countries, countries in transition, and developing
countries. It is manifested in different forms and performed in a variety of ways.
Participants in the process of money laundering continuously improves and invent new
methods and ways, so that the forms of money laundering improve along with progress
in technique and technology with the development of financial and economic relations
at the international level. One of the most widespread forms of money laundering is
done as part of organized crime, where strong relationships between state institutions
and state bodies and the criminal organization are established. State institutions - their
employees deliberately abuse their position, function, power, and prestige with high
reimbursement in order to legalize illegally acquired cash. Simultaneously, criminal
organizations seeking to, through rapid maneuver transactions, legalize dirty money.
Under the term money laundering, we assume all settlement activities, converting or
cleaning criminal money, and its transformation into a regular cash flow or assets.
Eliminating and preventing money laundering is not only a fight against organs of direct
crime but efforts to preserve the integrity of the financial system, financial institutions in
general, and the legality of business undertakings.
67
Dr M. Kulić 2001. „Pranje novca, Privredni kapital i korupcija“, Institut za kriminološka i
sociološka istraţivanja, Beograd
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Dautbašić, Ismet 2001., Finansije i finansijsko pravo, Sarajevo, Univerzitet u
Sarajevu
Gilmore, C. W. 1995: Dirty money, The evolution of money laundering counter
– measures, Council of Europe Press, Council of Europe, Strasbourg.
Giunio, M., 1998. “Mjere za sprečavanje pranja novca”. Slobodno
preduzetništvo
Kulić. M., 2001, Pranje novca, Privredni kapital i korupcija, Beograd, Institut
za kriminološka i sociološka istraţivanja
Milojević, Aleksa i Milivoje Trkulja, 2000, Javne finansije, Srpsko Sarajevo,
Ekonomski fakultet
Novoselec, P., 1996. Kriminalno-političko značenje i pravno uređenje pranja
novca
Raković, Milena, 2007, Finansije i finansijsko pravo, Banja Luka
World Bank 2009. Diagnostic Study of Institutional Integrity and Goverance in
Colombia
Vol. 1 (2011), No. 1 (1-170)
CORPORATE MANAGEMENT AND SOCIAL
RESPONSIBILITY IN SERBIA
Doc. dr Dragana Radosavljević, FORKUP
Abstract: At the time of severe economic crisis, the Government of the Republic of Serbia in July
2010 adopted a strategy of corporate social responsibility, primarily, to promote this business
concept and later its full implementation in business organizations of all kinds. In our country,
few people dealing with this subject, which is a major barrier to implementation of such concepts.
However, large and powerful companies, particularly those present in our country, should be
„the leaders“ who will run the application through their own strategies and practice and be an
example to others, especially the public sector in which the degree of knowledge about this
concept is very low. Development and implementation of the concept of social responsibility in
our area is hampered by the poor, economic, social, and political conditions, and along with that
there are inherited bad practices, the mentality, and culture of business people.
The aim is to emphasize the importance of social responsibility concept because its
implementation provides a balance between the economic interests of organizations, socioeconomic prosperity of the state and numerous aspects of the wider community, such as foreign
market, protection, and preservation of the environment, conserving natural resources, etc. In this
way, society i.e. people are going to meet their immediate needs and in doing so will take into
account the needs of future generations in the right way.
Keywords: management, corporate social responsibility, business ethics
INTRODUCTION
Today, in the business world, and in the world in general, nothing is constant, such as
constant changes. Pace of change is very great because everyone aspires to success. In
order to reach business success it is necessary to perform the job properly. Manager,
leader, boss,... is the one who is paid by the employer - the company's owner, to ensure
that others do their job i.e. he/her is directing his/hers subordinates through a process of
discreet surveillance, to get the job done in the right way. As P. Drucker said, „it is
science and art of managing people. “
Since '90s of the twentieth century, there were many talking and writing of management
in Serbia, some of that was partly applied in practice, while social responsibility and
business ethics bypassed practices. There are many reasons for this, and one of the most
important is the failure of the economy and the lack of large and powerful organizations
that could perform a crucial impact on preventing the application of social
responsibility. For business ethical judgments and social responsibility it is necessary to
meet the minimum, i.e. to provide a strong economic base and respecting law that
regulate certain business activities of companies, prescribed by the state. Corporate
social responsibility is a kind of business through which organizations achieve their
economic objectives (profit), and the social, i.e. objectives imposed by the environment
or wider community in which they exist. Therefore, it is an investment made by the
organization in order to enhance its long-term value and competitive position in the
market. To achieve that, organizations need to gain the trust of the environment, i.e. to
obtain organization - environment feedback. The basis of social responsibility is the
relationship of the organization to employees, owners, primarily to consumers, the state,
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environment, etc. and all other actors with which the organization achieves direct or
indirect contact.
Analyses show that on the issue of implementation of social responsibility in Serbia
there are only sporadic cases, there are no wider researches from which to draw
conclusions, which should tell us at what level development and the applicability of the
concept of corporate social responsibility is. In terms of management and related
phenomena, Croatia has made great empirical research.68 The survey showed that of the
first five undesirable characteristics of managers in Croatia, dishonesty takes first place
at all hierarchical levels of management, followed by: the tendency to gossip, unethicity,
bias, etc. At the same time, respondents considered honesty as the most important moral
trait.
Bearing in mind the similarity in the business and cultural - sociological being of
business people in Serbia and Croatia, and that both countries have lived for decades in
the same political - legal environment, that both countries are in the transition process,
the conclusion of honesty is more or less acceptable in Serbia too. This is not just about
common problems in business and life, such as bribery, corruption, fraud,
irresponsibility, etc. it is about disturbed system of social values in which unethicity,
irresponsibility, and similar things has become an integral part of life and work of most
of the population.
CORPORATE MANAGEMENT AND SOCIAL RESPONSIBILITY IN
SERBIA THROUGH HISTORICAL ASPECT
The need for responsibility and ethics Serbia has realized some 127 years ago. In that
time, the Serbian government paid its attention to the state, artisan, trade, banking
organizations that had governed the rules of functioning and their code of conduct. The
most striking example is Serbian Railways. In 1884, in Serbia time rail transport was
introduced – it was an event of historical significance. The introduction of this service,
which was at the level of other European railways, was accompanied by the appropriate
ethical framework, as well as social responsibility for its conduct. Normative acts were
adopted, namely: 1) The railway-police law of 1884 that prescribes elements of social
responsibility in terms of railway operation and safety; 2) Regulations for railways
which prescribes duties and rights of staff and, 3) The first code named „The behavior of
the transport staff towards passengers“ in 1931.69
During the '70s, in former Yugoslavia, whose members was Serbia, the concept of
workers' self-management was introduced formed whose basis was social ownership
and self-organizing. This meant that those who produced (employees) are the carriers in
the distribution of produced effects, not the subject based on ownership.
68
The research was conducted and processed under the supervision of two eminent experts in the
field
of
human
resources,
Pero Sikavica and Fikreta Bahtijarević in the study entitled “Menadžment, teorija menadžmenta i
veliko empirijsko
istraživanje u Hrvatskoj,” Masmedia, Zagreb, 2004., pp. 270 - 274th
„Ponašanje železničkog osoblja prema putnicima“, Generalna direkcija drţavnih
ţeleznica, Beograd, 1931., str.1
69
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Responsibility for the fate of the organization took over the workers through their selfmanaging bodies i.e. works councils. The Law on Associated Labor stated that the main
purpose of the organization is not profit but realization of a self-management, social
socio-economic relations.70
In this way, full security of staff was provided, there was no possibility of easy
dismissal, and there were mutual funds, solidarity funds, and then funds for financing
and investment in general social needs. In the period of self- management, a significant
progress in the socialization of the organization has been recorded. The famous scholar
of business ethics R. T. Di George said, „Workers' self-management was an experiment
that was performed with some success in the former Yugoslavia. Its other forms
successfully apply in Sweden. Several experiments such as informing of employees
about overall operations of the company and using teams rather than individuals to
working on the assembly line in manufacturing, also proved to be somewhat successful
and deserve careful study as a future model for future development.“71 Therefore, in this
period a social responsibility was on the workers who were deciding on their fate. There
was a high level of ethicity, immoral actions appeared to a lesser extent, which will later
get the diversity. No matter this project is not survived, it showed its quality in the
treatment of employees, relation to the wider community, solidarity, etc.
BUSINESS ETHICS AND SOCIAL RESPONSIBILITY IN SERBIA
TODAY
According to public opinion in Serbia on corporate social responsibility, public had no
awareness of how and in which way can and should be responsible for the good of
society, and also does not see the connection between business and ethics.72
Awareness of the Serbian population on the importance of corporate social
responsibility towards the environment and the organization of society, in general, is
very low so it makes the process of introducing and encouraging social responsibility
very hard. The lack of ethical and socially responsible business components in Serbian
enterprises, institutions, and individuals can be illustrated with examples in practice.
8. February 2011 in Belgrade, the Serbian Police have arrested two doctors,
neurosurgeons for the crime of accepting bribes. They are suspected of having, on
several occasions, demanded money from patients to perform surgical procedures.73
Both have denied they took bribes, saying they do not know why they were arrested.
Meanwhile, the leadership of Clinical Center of Serbia where suspected doctors were
employees reacted and suspended them.
Zakon o udruţenom radu, Sluţbeni list SFRJ, 1976, ĉlan 1.
R.T.Di Dţordţ, Poslovna etika, Filip Višnjić, Beograd, 2003, str. 626.
72
www.smartkolektiv.org
73
Zvaniĉna prezentacija Vlade Republike Srbije, www.srbija.gov.rs
70
71
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In January 2002, Serbian police said they arrested a former director of
Elektrodistribucija Beograd (EDB) was arrested on suspicion of having committed
criminal acts of misconduct and neglect of business in the economy. The legality of its
operations, financial operations, and the use of EDB funds was suspicious. In addition,
criminal charges were brought against leaders of the Elektrodistribucija Beograd and
owners of private companies that have cooperated with them. It was found that the
former director gain the enormous material benefits, bought 30 houses, flats, and
business premises in Belgrade.74
Thus, socially irresponsible and unethical business is the result of inherited social
relations and values. In 1990's of the twentieth century wars in the environment, lack of
subsistence products, runaway inflation, illegal acts, etc. led to a complete crisis of
society and its morals.
THE NECESSITY OF ESTABLISHING CORPORATE MANAGEMENT
AND SOCIALLY RESPONSABLE BUSINESS IN SERBIA
According to the above mentioned, it is obvious that Serbia has a need to introduce
socially responsible value system and the introduction of corporate management that
works in developed countries. Serbia, as well as any other state, is characterized by
specific cultural - social, self, and historical heritage, customary features and business the legal system. Many outdated values are retained, and new ones were not accepted or
is it done under pressure from international organizations and legal regulations.
Serbia, like other countries in transition, has a greater need to apply the experiences of
developed countries in terms of ethics and moral responsibility, because in most
segments of the economy and society is at stake. Firstly, it should accept European
values, because this is the path to integration into the European Union and the road to
accession to markets of developed countries, i.e. to the global market. Accepting of
corporate management and making ethical business decisions of individual
organizations will be committed in relation to the other, arising from the concept did not
accept, and build the image of responsible organizations. Such organizations staff
themselves come, are more motivated to work longer to keep. Acting in accordance with
environmental protection to create savings, create new markets, achieve a better contact
with the environment, etc. In doing so everybody wins, and the organization and
environment strengthen their symbiosis.
PROFESSIONALIZATION OF MANAGEMENT
„Many executives from the former Yugoslavia for their failure were blaming negotiated
economy. After elimination it, the reasons are sought in the environment and lack of
understanding of the world. U.S. economic sanctions were blamed for ineffective
functioning of many organizations. After suspension of sanctions, many managers
stressed that they must get used to life without sanctions and that it takes a certain
period of time for that. By all accounts new reasons and formulas for failure will be
Ĉasopis
„Vreme“,
br.
579,
http://www.vreme.com/cms/view.php?id=307308
74
108
7.
februar
2002.,
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searched for. It can be argued that the reasons for any problems amateur directors will
not find in your own being and disabilities.“75 The above mentioned is one of the
reasons for failure of the Serbian economy and the cause of immorality, and corporate
social irresponsibility. Full integration of professional management would lead to
changes in the style of management and bureaucracy would switched to the softer style
of management, which treat human resources as the most important resource to which is
treated with respect and confidence in relation to work.
In Serbia, in the last decade high business schools and universities produced many
professionals with title of managers, managers-specialists in certain fields, such as trade,
banking, tourism, communications, etc. Therefore, professionalism solves corporate
performance that is the basis for social responsibility. Potential of managers constantly
must be refreshed, through trainings, professional trainings, specialized scientific and
professional meetings, etc.
Professional management through personal example (attitudes and practices) is an
indicator of employees’ behavior, as a tool in the management of social responsibility.
Employees behave in the same way managers behave. Codes of ethics or standards have
been formulated in most organizations, but these are not respected because of sanctions
are minor. Ethical codes are variable category, must be updated as operations of an
organization innovate.
BUSINESS TRANSPARENCY
As long as there are situations in which the profits of companies and public interest are
in compliance, while company and owners of capital getting profit, i.e. shareholders of
the positive effects of corporate social responsibility is not questioned. Nevertheless, as
the company exploitation of natural resources is limited, society and the environment
will pressure of responsibility and transparency in the work and reporting. It is in fact a
communication of a company with the public. „What is the communication (transfer of
information, transfer and understanding of meaning and knowledge, ideas exchange,
attitudes, values, opinions and facts, etc.) is more functional, they are more likely to
achieve organizational goals.76
The public can be informed requesting information directly from companies or using the
resources available to the public, for example, data on the Web site. The main
requirement for this type of communication is the existence of the willingness of
corporate management and transparency in reporting it. In Serbia, transparency is still
not fully observed, because the number of reports, ranging from financial, investment
and others, adjust and kept as the biggest secret. In addition, at state level has not built
the responsibility for the operation of public authorities.
Radosavljević Ţivota, Tomić Radovan, Menadžment u modernom biznisu, BBO,
Beograd, 2006., str. 142.
75
Miljević Milan, Poslovna etika i komuniciranje, Univerzitet Singidunum, Beograd,
2010., str. 285.
76
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However, in addition to Serbian government and individual companies, there are
independent organizations (e.g. SMart Kolektiv) involved in promoting and establishing
a corporate social responsibility, development of social communication and linking of
different stakeholders. The goal of these organizations is to create a database to identify
best practices in respect of corporate social responsibility and to stimulate it. Good
examples of corporate socially responsible business:
- Japan Tobacco International is a major donor of the first specialized living for adults
with disabilities in Belgrade;
- Coca-Cola Hellenic is listed on the Dow Jones Sustainability Index because it applies
the high standards in business, environmental and community development in 28
countries worldwide;
- Delta Maxi Group, through numerous actions show their commitment to socially
responsible business, for example: bank of food, Health comes through the mouth,
Promotion of healthy eating habits of children, Support for young artists, and many
more;
- Telenor company is one of the first in terms of respecting social responsibility in
Serbia with a number of actions. One of them was the construction of Telenor Internet
Parks in order to develop information literacy of citizens of Serbia and the availability
of the Internet to as many people, and many other actions.
RESUME
Management has now become more important than it ever was before. Its task is to
organize human resources in turbulent times, an organization that makes it unique and
different from each other, which represent a competitive advantage. Management is
managing people, people only. In Serbia that is underestimated, because the current
situation regarding to corporate social responsibility is adverse. There is no successful
environment, if corporate management has not carried out its primary role that is the
success of corporations, their survival, growth, and development.
However, in Serbia there is awareness and the need to establish corporate responsibility
of the same management. Serbia must use the experience of Europe on the principle of
„best fit“, i.e. taking into account the specifics of the Serbian national, socio - cultural,
religious, customary, and other creatures, then our experiences from the workers' selfmanagement. It must be done to promote their own social values in order to better
understand our world and our economy could work better.
Turbulence, uncertainty, increasing demands and expectations in all spheres of life and
work, by interest groups, each day is increasing. In order for the corporation to be
successful in such conditions, i.e. to attain the expected results, increasing its value and
competitive advantages, must gain the confidence of the wider community and must not
cause damages for generations to come.
Finally, corporate management in Serbia can and must play an important role in
promoting positive business practices and social responsibility. Companies need to
show its performance through economic prosperity, environmental quality, and wealth
of the community.
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REFERENCES
„Ponašanje železničkog osoblja prema putnicima“, Generalna direkcija drţavnih
ţeleznica, Beograd, 1931.
2. Bahtijarević-Šiber, F., Sikavica, P., Menadžment, teorija menadžmenta i veliko
empirijsko istraživanje u Hrvatskoj, Masmedia, Zagreb, 2004.
3. Dţordţ, R.T.Di., Poslovna etika, Filip Višnjić, Beograd, 2003.
4. Ekonom:east magazin specijalno izdanje „Csr:east“,broj 2, NIP Ekonom:east
Media Group, Beograd, 30.12.2010.
5. Miljević, M., Poslovna etika i komuniciranje, Univerzitet Singidunum, Beograd,
2010.
6. Radosavljević, Ţ., Tomić, R., Menadžment u modernom biznisu, BBO, Beograd,
2006.
7. www.smartkolektiv.org
8. www.srbija.gov.rs
9. www.vreme.com
10. Zakon o udruženom radu, Sluţbeni list SFRJ, 1976.
1.
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UNSUSTAINABILITY OF CLASSIC STATE AND
ECONOMICS IN MODERN CONDITIONS
Ţ. Radosavljević, M. AnĊelković, M. Radosavljević, FORKUP- Novi Sad
Abstract. Modern society and economy operate in complex and uncertain business conditions. It
can be seen simply by observing phenomena in the natural and social order. Turbulence exhibit
negative impacts on the environment i.e. create instability, which often turns into a crisis with
devastating effects. On the other hand, time as space is an increasingly scarce resource and as
such has become a limiting factor for commissions or omissions. Today, time is not measured in
seconds, as it was in the past, even tens and hundredths, but nanoseconds. It should be added that
mistrust over the past few years has reached unprecedented proportions. According to research in
the United States, approximately half of managers do not trust their leaders. The results of
Golin/Harris survey conducted in the United States in 2002 were just as dismal: 69% of
respondents agreed with the statement “I simply do not know who to believe.” That same year,
the University of Chicago surveyed 800 Americans and found that more than four-fifths have “a
little” or “almost no” confidence in the people who run large corporations. However, confidence
in the abstract corporate leaders is different from the beliefs of its director, and some companies
and directors are generally considered reliable, but the general trend is worrying.
To the above condition largely contributed ineffective or non-functional state that has not
changed radically in recent decades. This conclusion applies both for highly developed and
developing countries and for countries in transition. In a situation where everything is changing
and when it is capable of continuing the changes, the classical state becomes a limiting factor for
growth and business development and improving quality of life.
Related to the above is still a great dominance of classical economics, classical management, and
organization in modern business. It turns out that the connection between classical states and
classical economics determines the quality of policy decisions made at the state level. For the
success of each state and science, such as economics, it is dangerous to apply outdated concepts,
or trying to solve contemporary economic and other problems using outdated approaches and
concepts.
The work aims to emphasize the need for abandoning classical and outdated concepts, techniques,
and technologies in the management of state and economy and the necessity of introducing new,
or the approaches and techniques that match the spirit of the times. The paper will point out the
necessities in Serbia, as a country in transition.
Keywords: new concepts, classic country, classical economics
1. THE END OF CLASSIC STATE
Classical state is a result of the traditional concept of the use of traditional or obsolete
development, management, and organizational concepts. It turns out that the traditional
concepts of the past gave satisfactory results and contribution in achieving the macro
objectives, but that has not been able to respond to increasingly complex and uncertain
economic conditions.
Basic or one of the fundamental problems of classical country and its institutions is the
pace of the changes, or slow response to problems that occur in different spheres. Like
the church, military, and other traditional institutions, it slowly changes the ways of
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functioning and philosophy of work. In such circumstances, it is not able to respond to
new challenges that arise in the contemporary world, and especially to do it quickly and
efficiently. This statement applies particularly to the economic sphere. This brings us to
the paradox that the natural and social order constantly and dramatically is changing,
and that the institution i.e. the state that should respond to that turbulence is not affected.
It turns out that the change of the law of life and one that is in place, usually trailing, as
is evident when it comes to state institutions.
The state as an organized institution exists in every society, or national community
organization regardless of the type, size, development land, etc. The way the state
operates to the great satisfaction of the citizens, can be taken as one of the most
important criteria for evaluating the level of organization of a community. It is the most
important to realize that the state is similar to other business organizations. Like other
organizations it has its inputs, transformation processes and outputs, which are called
“public services”, which means that economic and social dimensions are final in every
organization, even when it comes to the state. In other words, each country must seek to
realize greater effect with the smallest number of economic victims realize, or a public
service that will be of higher quality and with a lower cost. Costly public services (high
taxes and other fees) are a sign of poorly organized and expensive state. On the other
hand, substandard living standards, high unemployment, high budget deficits, high
indebtedness and so on, are the parameters that indicate that the state does not work its
job very good and that trust must be withheld to government agencies, primarily the
Government.
Accordingly, state is successful if manages to work in a transparent way to ensure a
favorable business environment for development of business's and other activities and
people who manage to provide a satisfactory standard of living.77 Such understanding of
the state implies that it has its customers, or customers, as well as any other organization
and must ensure that they are satisfied that, even in the case of monopoly services, or
services that can provide only the state and its bodies, organizations, etc.
It turns out that the process of governing state is complex, not only because of the large
property it has, but also primarily because of the complex relationships that exist
between different social, economic and other sectors. The state is in certain areas, or in
education, health, cultural, artistic, and other institutions, is the largest employer. In the
public sector the largest number of people is employed, for which the state should
provide sufficient financial resources and other benefits for the timely settlement of their
obligations. Because of that, the economy of a state largely depends on effective state
and its institutions.
State institutions are dispersed by the depth and breadth of the state; decisions are made
in many places, creating a risk of conflict between the general policies of the state and
policies of the local government. Stated warns us that governance requires the
application of modern management concepts of organizational, technology and
philosophy of business to integrate and mobilize existing natural, and artificial resources
for successful achievement of defined goals, with economic victims, as possible smaller.
77
J. Backingem and T. Ward: „What’s next: The experts guide“, Harper Collins books, 2008. pp.
36.
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Researches and analysis of the structure and functioning of the philosophy of some
countries show that management in the public sector is far behind the management of
business, i.e. for-profit organizations. This applies to countries that are declared as a
highly developed, particularly for countries in transition or development. In them there
developed a legal-political, economic and other institutions, and often represent the
limiting factor in increasing business, but also a social and political, cultural and other
performance. There are at least two problems, namely: (1) that the management of highincome countries is still dominated by classical management concept, which are
business organizations in the modern economy have left because they could not reject a
particular success. On the other hand, in countries in transition there is amateur
management, which has been so far behind the management of developed countries. In
other words, if one takes into account modern management, and management that
operates on the principles of the three E's i.e. economics, ethics and ecology, we can say
that today there is no competent public management at the global level.
This becomes worrisome, because this situation is negatively affecting other subjects of
the state or the citizens, businesses and other institutions that are outside of state
jurisdiction. It also changed the place and role of government in modern business.
Instead of the traditional approach in which the state gave an example and a message
regarding the proposed citizenship behavior and organization, it now needs to work on
the principles of business and trying to “copy” their experiences in achieving their goals.
This is a natural conclusion, because it shows that the business i.e. the management of
transnational companies is now more successful than public management, because it
lives with the changes and on the principle that “everything is changing, and that only
changes are permanent.”
1.1 SOME OF THE CHARACTERISTICS OF THE TRANSITION
COUNTRIES
Even people in the distant past have concluded that the more experienced and skilled
people are more successful in hunting groups, then young and inexperienced hunters.
Strumlin, Russian scientist has found that the work of highly qualified workers is worth
about three times more than of unskilled workers. Thus, between competence and
business success correlation at high level exist, and because of that, every organization
is trying to provide more competent and experienced people to perform certain tasks.
Previous statement applies to the management of public administration, which has
scarce limited resources, with which must to achieve better results. Citizens, even in
countries with fragile democracy, often look for statements regarding the way of using
public money. In that context, special institutions were established, such as public
auditor, the agency to proceed with privatization, energy conservation, etc.
States i.e. governments often send their members or ministers to education or the
acquisition of managerial knowledge and organizational skills, so they could effectively
manage their ministries or departments. Training and education are often the
responsibility of each employee during the year, while starting from the assumption that
the acquisition of competencies and knowledge are not a private affair of individuals but
of their duties. In this way, business performance increases both of the state and
business organizations.
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States of developing countries works on ever “harder” the canons of the past. Rather, it
is an instrument in the hands of the ruling class, which tends to hold citizenship in
subordination as long as is possible, than it is in their function. Examples of some
African and Middle Eastern developing countries confirm it, as the regimes in these
countries stay for more decades. It is clear that long reign, often blunt the edge of
reforms and destroys the sense of the people, especially when it comes to customer
satisfaction as measured by economic freedom.
Countries in transition also struggle to realize their missions with the state property, as
the dominant form. This also applies to those countries that have most of the privatized
state property. Practice shows that countries in transition, much greater attention paid to
privatization, but management, thinking that privatization by itself will change the
current situation and turn the negative trends in the progress and development.
However, any form of ownership can be successful, if it is in the hands of competent
management. This confirms the worldwide practice, because every day a large number
of private enterprises disappear. At the same time, many companies in the state, or
mixed ownership shows a high level of performance. One can therefore conclude that no
form of ownership contains the postulates of success, but a competent and professional
management is responsible for the success. Therefore, it was wiser to first ensure the
professionalization of management, and then privatize the company and give them the
responsibility of competent management. Wrong sequence of steps, led to privatization
of companies, competent management does not control them, and a large number is
closed and out of order.
To make the above happen, it is necessary to achieve consensus in countries in
transition, between the relevant political and other structures of the place and
importance of management science and profession in enhancing corporate performance.
This step is the hardest, since the introduction of professionalism in the management of
political structures in transition countries would have lost that level of power that now
have, first of all interference with the conduct of the business of politics, especially
when it comes to public companies or large business systems. Eliminating of so-called
“party management” or “party officials” i.e. state commissioner, would create
conditions for the introduction of modern management, or professionals who would be
able to successfully manage resources on a national and global level and provide
satisfying level of competition.
1.2. THE NEED FOR EDUCATION OF PROFESIONAL PUBLIC
MANAGEMENT OF TRANSITION COUNTRIES
It has already been stated that between the competence and success there is a high level
of correlation. These data point to the conclusion that it is inevitable that countries in
transition countries have competent management who can manage different sectors,
institutions, and public sector organizations. This is the fastest, and the safest way to
raise success of the economies in transition.
Competence in the management of the public sector has traditionally been acquired at
higher education institutions involved in the organization, management, and business in
general and to the programs that relate to the public sector. However, it should be noted
that the current education management in the U.S. is based on classical or approaches
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that are based on the past. This is demonstrated by J.M. Podolny statement, “As long as
American business schools do not make a complete change, society will be convinced
that the work of MBA serves their similar interest.”78
However, professionalization of management can be improved by training and
education of individuals from different parts of the public sector, who have the
technical, commercial, financial, or other professional knowledge and experience in
leadership positions. This training would particularly benefit young people who have
worked in certain functional areas, or levels, and who prefer the managerial jobs.
The fact is that in countries in transition there is no a sufficient number of business
schools, where future managers are educated. It is estimated that these countries in the
next period will have the most need for top managers and managers of finance,
personnel, and foreign trade and development i.e. innovation. Here, special emphasis
should be given to the opening of high schools in which so-called operational managers,
and technicians, supervisors, supervisors, managers, etc. could be educated.
Nevertheless, the introduction of these elements in a conceptual sense would remove
more than half of the problems that exist in corporate governance of countries in
transition. Professionalism, i.e. the selection of highly professionalized managers to the
top position in business systems, creates conditions that other executives and all
employees are competent and capable of successfully performing the tasks. On the other
hand, professionals will need to work under the rules of the profession and it would not
allow political amateurs to interfere in the daily management of the organization. This
need is even more relevant if one bears in mind the tendency of professional managers
are increasingly assuming the role of management boards in terms of setting, and
achieving corporate goals.
Further improvement of the management should concentrate on raising competencies
through continuing education, as it does in developed countries. This education can be
organized within the organization, or using external co-operation with educational
centers, educational institutions, etc. For this purpose, it is necessary to plan budget and
financial resources in the organization. This constant learning and knowledge updating
at all levels of management becomes an obligation, not a personal matter of individuals.
Who does not fulfill this obligation, must be sanctioned, and must be eliminated from
the organization.
Establishment of business infrastructure, professional or specialized agencies and
companies, consulting and engineering organizations would also contribute to the
professionalism, bringing it to the level of super-professionalization. These
organizations could contribute to management performance in their own way, while it is
necessary to point to fact that “other people's knowledge is cheaper” and that
management does not have to know everything, but just to know what he knows and
where it can find the proper knowledge. The practice of developed countries strategic
management consultants have proved very useful, which are used in making policy
decisions.
For professionalism and super-professionalization management of the transition
countries, it would be useful to establish a code of ethics managerial profession. This
code exists in other professions such as lawyers, doctors, etc. but that code would have
78
J.M. Podolny: The Buck Stops at Business School, HBR, June 2009. P.61
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the same effect on all segments of the economy and society. Ethical code would prevent
immorality that goes on in the profession of managers in countries in transition, which
produces much larger problems than other professions. In other words, professionalism
strengthened with ethical and socially responsible behavior of managers, creating
conditions
for
securing
the
satisfactory
corporate
performance.
With the development and improvement of management in the transition economies
would come up to intensify the process of entrepreneurship development, which
contributes to more rapid concentration and employment of staff in the newly
established economic and other institutions. Entrepreneurial economy is the basis for its
massive and intensive development of innovation in all areas of economy and society.
The impact of entrepreneurship can best be seen in developed countries, where they
introduce new techniques and technologies through which it provides lower operating
costs, and thus higher profitability, as a primary goal of both, business and other
organizations.
From the above it can be concluded that raising the competence of management in
countries in transition, one of the most effective way to increase national and corporate
performance. Competent management seeks to have competent employees, but the
business environment too, such as suppliers, partners (subcontractors), as well as other
stakeholders.
1.3. FUTURE OF CLASSICAL STATE
Although it is difficult to predict the future by many political, economic and other
issues, however, with high probability it can be predicted what will happen to the
classical state, or with the state as a political-legal institution, but also with its traditional
infrastructure, such as parties and policy party leaders, governments, division of the
work, etc. The forecasts are heading towards the fact that deep structured states
disappear and will instead develop entrepreneurial organizations and the state.”79
It is quite certain that classic countries will disappear and that on its “ruins” are going to
be created a new, redesigned institution with a different philosophy, concepts, and
technologies of work. This applies to the developed countries in transition and
developing countries. The difference will be only in life span of classical states in
certain countries. Of course, in developing countries and countries in transition, the
classical states will have longer life cycle. Leadership in transforming the classic into a
modern state will have a highly developed country, while the underdeveloped countries
in transition will be the followers of what they leaders do.
This new government seems to go from nation state, to large networks. To this change
world famous theorist John Naisbitt has warned by the statement “today’s power is in
large networks, rather than big countries.” Large networks are a set of many individuals,
who are networked with each other and thus, a new design that is completely different
from the classical operation. The biggest change is that the networks no central office
and central administration. To have the network to be effective, everyone must feel like
it was in the center. Then the network as a group of related people powerful and much
stronger than the association in the nation state, where there is a high level of
hierarchical division and eventually force, as the main instrument by which the state
serves the individual organization.
79
E. Collins and M. Devanna, The new portable MBA, John Wiley and sons, Canada, pp. 355-361.
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On the other side, political life and so-called intermediate democracies in the newly
created technological, organizational, and other changes losing its ground and create
conditions for direct democracy. It must be borne in mind that a representative
democracy in the U.S. occurred 220 years ago and that it was a big step forward in
promoting people's right to choose their own leaders to represent them in certain bodies,
organizations, etc. It was a time in which there was no telephone, computers and other
devices widely used. It was natural that in such situation, some political groups are
sending their representatives to present and promote their programs and then return to
their headquarters to report on the event.
This type or representative democracy is no longer necessary, because according to J.
Naisbitt, “We are already on-line and in real time, and we now know as much as
everyone else.” In this context, governments as well as of traditional institutions lose
their traditional base and the position they had for centuries.
Political leaders in modern concepts will disappear, causing “new leaders” to appear
with different profiles and needs, in relation to the intermediary democracy leaders. The
new political leader will be like the leader in the field of business. Instead of the
traditional political leader, who was the model for the creation of leaders in other fields,
will now be the new leader that will have to look up on leaders in the field of business.
This is the real hope and a future that has already started in many developed countries,
where the leaders of individual ministries act as presidents of companies, or some of its
parts. It turns out that businesses today have a great impact on all sectors of our, or the
life of the organization.
From the above we can conclude that the end of classic country is inevitable and its
place will take a new country with a completely different infrastructure, i.e. that the
intermediary democracy will disappear and that the real world of information
technology to establish direct, or indirect democracy, which by usually better to carry
greater potential to achieve overall social performance. This will at the same time be a
modern and future needs.
2. THE NECESSITY OF
CLASSICAL ECONOMICS
ABANDONING
THE
CONCEPT
OF
Closely related to competencies of management is the issue of economic science and its
applications. It turns out that classical and industrial economy is largely based on the
established view and the detailed mechanisms of measuring and evaluating the national
economy, and corporate performance. These principles operate in the industrial
economy for decades, which is a special value for its continuity. However, it turns out
that what ensures the survival and long life to the economic and any other disciplines,
and organizations, is living with a permanent change. If we look at the history of any
science for the past few decades, we will see that their portfolio constantly changing, so
they survived. This applies to economics, organization, management, finance, human
resources, marketing, etc. However, these sciences are now something completely
different, since a few decades. They were constantly being changed, in accordance with
the changes that have taken place in the market. If they were changing they would
suffered the fate of dinosaurs. Therefore, change is inevitable in order to maintain
continuity and improve performance. If continuity is measured then the change, as a
natural law, is a precondition of its survival. In other words, if a person, organization, or
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sciences do not change, they die. Because of that, the competition in the future means
maintaining continuity through constantly creating new sources of profit.”80
However, practice shows that changes in social, political, and economic sphere were not
accompanied by adequate changes in these sciences, which led to a gap of science and
the theory and practice. The following shall be indicated several major prejudices,
myths and misconceptions, which should shed light on scientific and verifiable, in order
not to create room for subjective interpretation and manipulation of scientific
information. The above concepts and misconceptions have become current in Serbia, a
country in transition, because there are differences in approach by politicians and
economists, managers, etc.
Regardless of the diversity of approaches, the special attention will be paid to following
five myths that are present in classical economics and that is difficult to lower or
eliminate, though the practice greatly denied.
These are:
• The myth of the market, as the “invisible hand”
• The myth of rational behavior of consumers-customers,
• The myth of the information, as the most important resource,
• The myth of the places and roles of foreign reserves in the macroeconomics of a
country,
• The myth that increased personal consumption can stabilize the economy,
• The myth of the IMF capacities in dealing with macroeconomic problems,
• The myth of the optimal level of indebtedness
Listed errors at first glance are separate and independent. A deeper analysis shows that
all myths, more or less are the result of classic economy and standard of management
that accept them, even though they were largely denied by the practice numerous times,
with enormous economic, social and other consequences, which requires something
beyond explanation, i.e. rationale.
2.1. THE MYTH OF THE MARKET AS “THE INVISIBLE HAND”
It is estimated that after the economic crisis in 2009, nothing will be as it was before.
Certainly, there is room to re-examine many long-standing beliefs and concepts. This
primarily refers to the market, which was believed to represent the so-called “invisible
hand” and mechanism for automatically setting up economic activities and flows. In
September 2008, the global economic downturn has led the world in a very difficult
situation. Allen Greenspan, former chairman of the U.S. Federal Reserve, was named
the best banker that has ever existed, has admitted to Congress that he was shocked that
the market does not operate in accordance with their life expectancies.81 The fact is that
we are paying a heavy price because of the unrealistic and unreasonable belief in the
power of the “invisible hand”. The economic crisis in 2009 has shown different effects
on markets of developed and developing countries. “Emerging markets, after the end of
the crisis, will have a greater share of the world product, compared to the previous
period”, finds Antoine van Agmael, which operated by the Investment Company
80
CK Prahalad: „Strategies for Growth“, Rethinking Competition, Boston, 2006.
Dan Ariely, “The end of rational economic”, Harvard business Review, July- August 2009. pp.
78
81
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Emerging Markets Management. According to this expert, this market will end after the
crisis would be more attractive for investment, compared to the previous period.
Market, as the "invisible hand" can automatically regulate the economic mainstream. It
is an artificial construct and has no elements of self-organization. The market has
neither wisdom nor instinct, which is characteristic of self-organized creatures,
especially humans and animals, i.e. plants. Even mentioned self-organized living beings,
must be running, which means that their success will depend on the capacity of
governing. So the market cannot be automatically handle economic and social life, but
must be guided by the same must be managed.
If the market does not have the expected power, the question is what the alternative is. It
is certain that the alternative is not a greater influence of the state and state
interventionism. Analyses show that the greater involvement of governments in
corporate business is one of the reasons for the economic crisis of 2009. It turns out that
the policy makers introduced stimulation packages, trying to raise the collapsed
company, thinking that this is the way to provide reforms. They made the decisions as
managers in the past did. Previous crises have led to a change of government, as is the
case today. In this regard, the government would have to work on two tracks; they are
the first to prepare the new modes of legal regulation and to recognize the importance of
the importance of the public sector. Growing deficits have led to economic collapse in
many countries. Government will be under great pressure as they were forced to reduce
the cost of providing social services. Therefore, in the future the partnership between
public and private sector will be an important challenge.82
In the above, it should be noted that the crisis itself, or disruption of the market a natural
phenomenon, i.e. an element of self-regulation. It leads to the imbalance that leads to an
imbalance of supply and demand, but at the same time imbalance leads to a new
equilibrium. This means that there is no progress without crisis, nor there is crisis
without progress and that this is the eternal natural law. The analysis shows that after
each crisis, transformation came and better rules were established, in both social and
economic relations. At the same time, every crisis has the danger, admittedly, but
chances too, which is less known and what is completely ignored.
2.2. THE MYTH OF ABSOLUTE CONSUMER/CUSTOMER RATIO
Surveys conducted in the recent past by the competent American and Swiss institutions
and researchers, shows that today’s are present so-called behavioral economics i.e.
economies in which people become irrational and motivated by unconscious cognitive
biases. Therefore, we conclude that he had come, or will soon reach the end of the
rational and classical economics. Therefore, it seems that customers in many cases act
irrational. The biggest number of companies declares that customers and employees are
most valuable part of the assets. However, when analyzing business practices, the
conclusion is that between declarative and real there is a huge gap both in terms of
employees, and in terms of when it comes to clients or customers. “Rare is a company
that consistently strives to make customer satisfaction, although many companies know
the cost of customer dissatisfaction i.e. clients. More experiments have shown that
82
Eric Beinhocker, Ian Davis, Lenny Mendonca: „10 Trends you have to watch, HBR, June 2009.
pp. 56.
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customers are emotional, depression, shortsighted and easily confused and unable to
make the right decision.83
With the disappearance of classical economics, corporate organization and corporate
management that is educated on rational assumptions and on assumptions of performing
tasks according to the "step by step “will inevitably fade”. The irrationality today
becomes the “invisible hand” to keep in mind when management makes strategic
decisions. That is what Freud once said in a statement that the nature of man that the
most important environmental decisions are made in an irrational manner, i.e.
emotionally, from the heart. For example, marriage is probably the most important thing
in a person's lifetime. This decision is made from the heart, not from reason and the
rational reasons, etc. It is therefore important to protect yourself from erroneous and
false assumptions and stereotypes. It is shown that a large number of managers, and
over 90% of people working on a way to work environment, not in accordance with the
needs of action. They prefer to do what they think they should work, than should do,
which often exceed the unrealistic assumptions.
That the end of classical economics classical management is certain, confirmed the
Great Depression of 2009. It is in some elements contributed to the emergence and
development of the crisis. For example, the introduction of speculative activities in the
stock market and stock exchange business is the introduction of irregularities in the
securities market. Speculative transactions punished all over the world only through
futures and other optional arrangements it is allowed to create wealth without work and
thus to justify and promote, although the result is called speculative transactions that can
be punished by nature, or taxed. According to the American press, before the crisis over
five million people in the U.S. the first thing to do after getting up is to look at astrology
and stock reports, to determine whether the day will be successful and how stock prices
have risen. It is clear that the natural laws everything arises out of something and that
nothing can arise out of nothing. Accordingly, in cases of harvesting huge profits from
share price growth, or so-called speculative (stock) business it is not about creating new
values, but a redistribution of existing ones, which naturally leads to market distortions
and crises.
2.3. THE MYTH OF THE INFORMATION AS THE MOST
IMPORTANT RESOURCES – INCREASINGLY DISSAPEARING
The necessity of abandoning classical economics is logical, because the business
environment has changed dramatically. In fact, all recent scientific studies show and
prove that the information is, in addition to matter and energy, the third required
component of any organization. For the first two components, ancient Greek
philosophers knew, while the third revealed the creator of cybernetics N. Viner
discovered a mandatory component. Therefore, non organized entity, not even the whole
that is made on the basis of self-organization, cannot exist without information, which is
considered the most important resource, especially if they are found in the right place at
83
Researching of this kind dealt Aualet Gneezy of San Diego University, a group of Swiss
researchers led by Ernest Fehr, who discovered the phenomenon of revenge. Details of the
experiments that challenge the conventional views of marketing and consumer behavior can be
seen in Dan Ariely, “The End of Rational economics”, HBR July-August, 2009. pp. 78-8
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the right time.84 It is particularly important in the knowledge economy. Therefore, the
information is considered important because it directly affects the quality of
management decision making. Given that information is an important resource in the
classic sense of the opinion that it must be expensive, which is inclined to a number of
countries, their existence is based on the discovery and sale of information or
knowledge and that on that basis realize large profits. In other words, developed sales
information and knowledge, on that basis are becoming richer and the poor sales raw
materials, and are becoming poorer.
However, in modern economy and management, there is a danger that the information
could experience “clinical death”, especially in terms of its importance and price. Of
course, it will remain important, but in the world of high turbulence, the importance of
becoming more and more assessment and management capacity to assess future trends
and situations and that based on the assessment, prepare company to be ready to face the
upcoming uncertainties and problems. This is due to fact that with the information from
the past, in conditions of high turbulence can successfully extrapolate the future. Hence
the need of managing elite to feel a presentiment of future events and to react properly.
On the other hand, it is traditionally believed that the price of information, because of its
importance, must be high, and that information has to be expensive. The famous futurist
Stewart Brand from Silicon Valley 26 years ago said that, “Information wants to be
expensive.” This statement was given at the First Hackers Conference, Brandon helped
organize, and it is the result of the importance of information as a resource.
However, in modern conditions it is shown that information tends to be free. Thanks to
modern information technology, Stewart Brand pointed out recently, “The information
requires being free.” Every day we come to Brands’ conclusion in practice. “How much
we paid for the video of the killed women in Teheran. It is clear that no one has paid.
This is not only the release of payment for the information, but does not praise the
person who recorded the event.85
Therefore, it makes sense to, understands the importance of information in relation to
the understanding of a few decades in a different, or a milder way. There is a place to
treat the price of information in a different light. If the information tends to be free, the
question is whether those facts make the information less valuable, and will increase the
effectiveness of gratuity information of national economies. Gratuity information will
change and design of many companies that are now oriented to the sale of information
or knowledge as a proven and verified information. It is believed that the free
information, developed as a result of information technology to bring into question the
survival of many companies that were engaged in discovery, distribution, and sale of
information. Therefore they now have to think about matters to be addressed when the
gratuity of information and knowledge gain its full implementation in the business
world.
84
85
Ž. Radosavljevid et al.,: “Samoorganizacija”, FORKUP, Novi Sad, 2011.
„No Free Lunch“, Fortuna, 20. July 2009. pp. 121.
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2.4. THE MYTH OF THE PLACE AND ROLE OF FOREIGN
EXCHANGE RESERVES IN ACHIEVING MACROECONOMICS
STABILITY
Following stereotype of classical economics refers to the place and role of foreign
currency and required reserves in the economy of certain countries. The stereotype is
that foreign exchange reserves are for monetary stability and that they are untouchable,
even when it comes to the survival, functioning as the primary goal of each human.
Everyday practice shows that every person has the reserves, which in its extremes can
be classified as overweight as a result of overfeed and thinness that comes from
malnutrition. Certainly, each household has its own “gold reserve”, which is kept in
special cases, i.e. to serve the future. The same situation is with each country, where
attempts to save, in order to use in case of unforeseen events, or when you should make
some technological, or other movement. In extreme cases, material and financial
reserves exist for the purposes of war (war reserves), extraordinary natural events, and
disasters, in case of floods, earthquakes, fires, etc. These and other reserves, people,
companies, and countries use to solve some problems of normal and peaceful, for
example when disrupted supply and demand of agricultural and food products.
Accordingly, when it comes to foreign exchange reserves, it is necessary to change the
traditional understanding in this matter and the use it, not only to maintain
macroeconomic monetary stability, but also for developmental purposes. In this context,
the truth will appear humble attitudes and concepts that are new and contradictory so
far, as can be seen from the attitude of the President of Serbian businessmen’s club, B.
Grujic, “I do not understand why someone has the right to have such a high foreign
exchange reserve when the whole world is drowning in problems and tries not to allow
the economy to stop. Such a policy (the concept) is inadequate to the state of world and
national economy.”86
There is base for such thinking, especially since in economies the transition are using
loans, and funds from international financial institutions to maintain a certain level of
foreign reserves. Therefore, it is necessary to review the current understanding of the
place and role of foreign exchange reserves and use them in developing projects.
Healthy developing projects in the best way can react to macroeconomic stability by
creating conditions for increased employment, increase in retail funds, which increase
demand and therefore production. Accordingly, the key issue here is not whether to
spend foreign exchange reserves, or not, but to find projects in which they can be
protected, or to be returned with increased effect. The problem may be, if the foreign
reserves would be engaged in misleading or failed investments. Even then, the common
sense logic is not endangered that it is necessary to use foreign exchange reserves as a
function of national development, which is natural, because the nuclear energy can be
used in order to kill people, so no one think of to stop such products as the important
source of energy.
The question is why states do not use foreign reserves for purposes of development. One
reason is that the state is unable to find the priority projects that will be a “momentum”
in launching the social and economic trends. It is clear that there is no problem of lack
of funds, but rather is a lack of ideas, where to invest foreign exchange reserves, which
86
Intervju B. Grujid: “Guverner vodi lošu politiku”, Ekonomist”, Beograd, mart, 2010.str. 13.
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is like a man who has money, holding it in the bank and collecting interest, as the least
profitable business, and it is not ready to invest in developmental sphere.
Elimination or breaking down the traditional economy, infrastructure will surely
collapse, upon which foundations of industrial economy rely. A new concept must give
emphasis to the knowledge economy that in the subtle form represents a higher level of
behavioral economy.
2.5. THE MYTH THAT INCREASE IN PERSONAL CONSUMPTION
CAN RUN THE “MOMENTUM” OF ECONOMIC GROWTH
Accurate analysis shows that the primary source of economic crisis of 2009 in the U.S.
was excessive consumption, which was not accompanied by real economic growth,
which led to excessive borrowing of the banking system, and states themselves. This
means that the collapse of the financial and banking system was not the cause of
economic crisis, but a result or consequence of bad policy, or the concept that more or
less existed since the collapse of the gold standard, so it “exploded” in 2008, i.e. in 2009
and lead to global shocks in all spheres of life and work. Accordingly, the current crisis
was not only economic but also social, moral, and above all the idea of crisis.87 It turns
out that the crisis of idea is the most dangerous because it is the most common cause of
all other crises, but also the inability to quickly exit from the crisis.
Excessive consumption is the result of two opposing tendencies. On one side are the
stakes that arise in budget funds, and on the other side of the variability of business
conditions that lead to any serious settlement obligations to the government funds, even
when it comes to pensioners, health insurance, etc.
Liabilities to pension benefits are most burdened, especially in countries where the
relationship between wages and average pensions is great. It turns out that the countries,
in which the relative amount of pension approaching salaries, increase the budget deficit
and impairs national, but in the wider area. At the global level, there is a disproportion
between the average pension as an acquired right and salaries, which are relatively well
can be shown in the following chart:88
200
Chart 1: Relation between the average
pension and salary
Serbia
0
1st Qtr
Ireland
Canada
87
Korea
Serbia
U.K.
France
U.S.
Norway
Australia
Swiss
Denmark
Germany
Nail Ferguson: Managing in the new world, HBR, July –August, 2009, pp 43-53
Source: World Bank - The chart is made for persons who have a full work history and who
retired at age of 65
88
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The diagram shows that relating to question of the relationship between average
pensions and wages allocated tentatively three groups of countries, namely:
• Ireland, Korea, Britain, and America belong to the group of countries that have a low
ratio between average pensions and salaries for approximately 40%,
• France, Norway, Switzerland, and Germany are among the group of countries with
about 60% of pensions in relation to the average pension,
• Portugal, Spain, Italy, Austria and Greece are countries that pay from 80-100% of
average pensions relative to wages. All of that country are at high risk level of stability.
Of these countries, Greece has 100% of pensions relative to wages, and one of the
reasons there is a crisis in this country should be sought in higher pensions, which are
the result of growth of gross domestic product.
Serbia belongs to another group of countries or a group of countries that pay 60% of
average pensions relative to wages, which includes Denmark, Canada, etc.
If we add to this the prolonged life expectancy of pensioners and the tendency of further
extension, then we can say that well-regulated pension system is a condition of social
and economic stability of every country.
Previous findings are significant, because it shows that many have not learned its lesson
from previous crises. Specifically, the latest measures to revive the economy and
increase the expansion of the Serbian Government is reduced to just forcing individual
consumption as a „momentum“ in the initiation of economic activities, or the concept
which is primarily promoted by America and that this most prestigious country in the
world has led to economic collapse. This concept has its own logic in the eighties,
primarily in investment spending and their place is found in the economics of the time.
However, they never, and especially consumer credit, have, nor can now have a
foothold in modern economics and management. This is because common sense and
domestic economies shows that every, especially the loan which is raised for personal
consumption is „bad“ because it burdens the future that is uncertain in the present
conditions and with high turbulence. On the other hand, investment credits are more or
less always friendly and cost of capital does not play a decisive role in taking the loan,
but its purpose and area of placement. If the loan is raised to improve infrastructure and
strengthen the material basis of the work, it is always acceptable, because anyone who
takes the credit needs to ensure the return of principal and interest through the
appropriate investments.
So, exit of the crisis by increasing spending is a bad idea that cannot be repaired by any
concept, because the crisis caused by consumption without „cover“ or excessive
indebtedness. This is confirmed by studies of British „Guardian“ from February 2009. in
which the main culprits are required for the development of the Great Depression. The
survey showed that as the biggest culprit for the crisis Grispen Allen was marked, a
longtime director of foreign exchange reserves of U.S. United States, for whom voted
32% of participants, which is almost twice that of runner-up George Bush. Respondents
were negatively determined in relation to this banker, because he was „forcing“
Americans to borrow too much, and banks to lend credits under favorable conditions.
George W. Bush, according to the aforementioned research is indicated as the second
culprit, because „it has not stopped the expansion of risky loans of those who did not
have a valid guarantee, that they will be able to pay back those loans.“ The survey found
that 11% of respondents believe that all Americans are to blame for the occurrence of
crises, because they are over-debit, as it „could not resist the cheap credit, although it
was expected that they will not be able to return them neatly.“
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It is clear that the previous policy we did not learned anything, because the
aforementioned scenario is repeated almost in its entirety in Serbia, from which it can be
concluded that both economic science and economic policy for the issue above has not
changed its position. Therefore, it is impossible to solve the economic crisis using the
concepts that are causing it, they must be able to apply new concepts, and establish an
economy that will focus on investment, not consumers’ spending.
2.6. THE MYTH OF THE IMF CAPACITIES TO BE ABLE TO SOLVE
ECONOMIC PROBLEMS IN TRANSITION COUNTRIES
U.S. and EU „suffering“ of excessive government administration. After reforms of the
U.S. health care system, the U.S. government spending will be even greater. In the EU
were founded many regulatory bodies and agencies whose appetite increases in
spending. In these countries, there is no need to use services, recommendations, or
advice the IMF, because it is precisely regulated fiscal responsibility and accountability
of government for the sound management of public finances. It turns out that any
interference with the IMF in some way limit the free conduct of fiscal policy and
making any budget they want and that primarily has the component of development.
In countries with bad management, there are many problems with excessive government
spending, abuses in the spending of budget funds for political purposes (purchase of the
electorate), and lack of accountability, and culture in relation to the host range of budget
funds. Bearing this in mind, a space for action of IMF staff is created, but not even is
intellectually capable to solve many problems of macroeconomic stability. That makes
the problem more complex, bearing in mind that even if the IMF had the potential, the
same measures in different countries according to the logic cannot provide satisfactory
solutions. It turns out that solutions in one country has provided significant benefits, in
other can provide a very modest results, even in losses and damage to particular
decisions.
The above warns an American economist and Harvard professor James Kenneth
Gralbraith89 who kindly advised the Government of the Republic of Croatia “Do not pay
for assistance an institution that has very limited intellectual capacities and abilities and
that has one and the same recipe for all countries and economies in the world. The IMF
has never been as significant and important as it presents itself. It has imposed certain
regions as a necessary and indispensable factor and institutions, although the economy
does not enjoy the reputation of intellectuals. Measures recommended by the IMF are
given more or less as only possible in a specific situation, which typically reduce social
justice.” Therefore, any reference to the recommendations of the IMF is conceptually
unacceptable and more serves daily political needs, or to justify certain commission or
omission.
89
Son of the famous John Kenneth Galbraith and brother of Peter Galbraith, the first U.S.
ambassador in Croatia
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2.7. THE MYTH OF THE INDEBTEDNESS AND PERMITTED
BUDGET DEFICIT
It turns out that the world is frightened with over-indebtedness and the budget deficit.
This problem does not occur in countries with stable financial system, such as
Switzerland and Germany, which does not allow deficit financing, as well as in EU
countries that can borrow deficit up to 3% of the level of GDP per annum. In many
developed countries, there is provision for a balanced budget for regional and local
governments, as well as reasonable regulations on the conduct of fiscal policy at the
state level, as is the case with G. Britain, New Zealand. In many developing countries,
there are similar fiscal rules, often made under the influence of the IMF.90 This problem
does not occur in countries where the budget deficit can be covered by the private
sector.
However, the problem arises when there is a disproportion between the possibilities of
the economy and the needs and consumption. From the standpoint of economic policy
and fiscal responsibility, the maximum permitted height of the budget deficit in one year
set out through the appropriate formula.
The problem of budget deficit is mainly addressed through borrowing from international
financial institutions, especially the IMF, i.e. taking loans and other types of borrowing.
The largest number of scarce countries is focused on the monetary concept, or concepts
that largely promote international financial institutions, primarily IMF. However, these
concepts and institutions are the least problematic from the point of success. This is
confirmed by the recent opinion of U.S. economists, the American Institute, and the UN
expert committee. In fact, late last year the head of the Expert Committee of UN
General Assembly for the financial and monetary reform, a Nobel Prize winner Joseph
Stiglitz, during a visit to Serbia, stated: “States like Serbia that have entered into standby arrangements with the IMF did not have some great benefits from it, and the state of
the economy in those countries shows it, before and after the arrangement with the IMF.
He further said, “That the IMF requires of these countries that their central bank's focus
on reducing and maintaining as low inflation, while financial stability, growth and
development, and maintaining employment are neglected.”
Thanks to the wrong concept, transition countries, i.e. developing countries and Serbia,
as stated, have reached the level of indebtedness. According to the rules adopted in
Serbia, “the general level of state debt, excluding obligations of restitution, will be
greater than 45% of GDP.” The current public debt of the Republic of Serbia is 36.3%
of GDP. The real explosion was obvious in recent years, as can be seen from the
following table:91
31.12. 2008
31.12. 2009
31.08. 2010
25.6%
31.3%
36.3%
90
Fiscal Rules- Anchoring Expectants for Sustainable Public Finances, IMF, December, 2009
Izvor: FOKUS-Kvartalni izveštaj o institucionalnim reformama, CLDS, Beograd, oktobar 2010.
Str. 11
91
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Namely, the concept of borrowing to cover budget deficits and maintenance of
unrealistic exchange rate is bad, unsustainable, and contrary to the basic principles of
economics and host behavior. This statement is true when it comes to taking loans from
the IMF. Bearing in mind the dynamics of borrowing it is reasonable to expect that
Serbia will soon get to the top of the proclaimed boundaries of the national debt.
In the classical sense, the problem of debt is partially observed with emphasis given to
the borrowing limit, and not the essential question of where they obtained the funds
invested. It is also unacceptable that the exercise of comparing the levels of
indebtedness to other countries and drawing the conclusion that the state is beneath, or
within the limits of indebtedness to other countries in the immediate and wider
environment. For these claims a large economic or administrative skills are not
necessary. Of course, it is important how much is spent, but more importantly on what is
being spent. The country may be responsible for completing the budget deficit, which
means the spending settlement, and due to procurement of investment equipment,
building infrastructure (roads, bridges, oil pipelines, etc.) to be able to produce a new
value for the return of taken credits. Accordingly, any comparison of indebtedness, or
indebtedness, such as the Republic of Serbia and Croatia, is unacceptable, because
Croatia was part of the loan used for road infrastructure that needs to be rescaled in the
future, and Serbia is mainly for consumption, which is unproductive and, as such
irreversible. Therefore, two identical concepts of borrowing from the same financial
institution, the two countries with similar social, economic, political, and cultural
characteristics will provide a different perspective (in) effectiveness, and their
borrowing will be evaluated differently. Wrong intentional or unintentional use of
certain concepts, technologies, and approaches in economics and management leads to
many implications of a negative outcome. The question of taking the loan, or borrowing,
exceeds the economic side of this issue. This is the question of (im) morality of the
highest level, or primarily a moral question that can be viewed from several angles.
First, whether current consumer elite has the right to consume at the expense of future
generations. Second, the decision on the degree of indebtedness must to be given by
future generations, rather than those leaving. Each generation has a moral obligation to
the generations to come to provide some prosperity. However, in modern terms, this
idea is so compromised, that the present generation in transition countries most
concerned with past and present, and less or not at all with future.92
3. RESUME
The above analysis shows clearly that the classical state, as a traditional instrument of
each company IS on its deathbed and must be transformed into a modern organization,
which will change its philosophy, concepts, and technology of work. It will be closer to
managerial and organizational concepts that multi-national companies implement. The
state must be understood as any other organization with clear goals and strategies to
achieve them, with the guidance of users of public services. In this context, the
92
Relatively good analysis of the economic and debt crisis gave Mladen Kovacevic, “The new
Serbian debt is immoral”, Ekonomski pregled, 6.04 2010, Belgrade, pp. 5. He points out that
over-indebted countries lose their sovereignty and that it is better to apply impose the concept
of the IMF, since Serbia is in the vicious circle.
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government gets all the features of top management in corporate systems, and individual
ministries as well as functional managers. For all of them is essential to seek to have the
least possible cost, achieve the highest possible effect, analogous to business systems.
It is also pointed to the end of classical economics, that is going on, with the increased
dynamics in the future. It turns out that many myths that have long formed the basis of
rational business and that in the past were applicable and essential to solving the
problem today is not acceptable, which is natural, because the changed business
environment, and business environment, the relationship between the individual
constituents in business at the national level, or globally. In Serbia, the problem of the
state and its institutions and public sector appears in severe forms, especially when it
comes to the professionalization of the management of government organizations and
institutions, and de-politicization and de-ideologization of public sector management,
and other government organizations and institutions. In this question, it is necessary to
leave the classical and to accept modern, or concepts that are current in modern
conditions and that suit today's business environment. If the above does not become a
reality, solving many economic problems will be accompanied by many difficulties,
such as treatment of disease using the wrong medication. Finally, we should remember
Troy Bertrams’ saying, “The economy is dealing with two primary issues include: how
to make money and how to survive without money”, and R. Reagan’s, “The greatest
minds are not in government institutions. If they did, the industry would have bought
them already.” These two sayings are reflecting the essence of this text in the best
possible way.
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Beinhocker,E., Davis,I., Mendonca,L.,10 Trends you have to watch, HBR, jun
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Ferguson, N.,Managing in the new world, HBR, juli –avgust, 2009.
FOKUS, Kvartalni izveštaj o institucionalnim reformama, CLDS, Beograd,
oktobar 2010.
Grujić,B., (Intervju), Guverner vodi lošu politiku, Ekonomist”, Beograd, mart,
2010.
IMF, Fiscal Rules- Anchoring Expectons for Sustainable Public Finances,
IMF, Decembar, 2009.
Kovaĉević,M., Novo zaduživanje Srbije nemoralno, Privredni pregled, 6. 04
2010. Beograd
No Free Lunch, Fortune, 20. juli 2009.
Podolny,J.M.,TheBuck Stops at Business School, HBR, juni 2009.
Prahalad,CK,Strategies For Growth, u knjizi: Rathinking Competition Boston,
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MANAGING RELATIONSHIPS WITH CONSUMERS IN
SPORT
Dr Dragan Rajević, Fakultet za mediteranske poslovne studije – Tivat
Abstract: The world of sport, ever since the beginning, was not so good communicatively linked
as today is, nor is it today connected good, as it will be in the future. Digital media abolished the
longstanding obstacle - the spatial and temporal distance. Today is no longer important in which
part of the planet sport events are taking place relevant and important to enjoy the "the most
beautiful secondary thing in the world" - the sport, since global media landscape of the sports
world, is available at each local level. Such global image, attract, invite and consist of a large
number of lovers of this art called sport, consumers, who make up most of the world population
.They are unavoidable army of lovers and fans, and the management of relations with them is in
the focus of any marketing research. These marketing researches allow identifying basic
questions to be answered in order to adequately meet the needs and desires of consumers.
Satisfaction, and achievement of desires and needs, provides long-term profitability of each firm.
In the conditions of market economy, knowledge, efficient and effective use of information is the
comparative competitive advantage of market-oriented companies. The focus of activities, market
leading companies, knowledge of customers and manage relationships with them, is one of the key
determinants for achieving success in relation to competition, successful business, and gaining a
leader in the global market. Consumers’ satisfaction is largely conditioned by the values of
products and services. The link between customer loyalty and satisfaction is not linear, nor is it
independent of competitive conditions in the environment so only those consumers who consider
themselves more than satisfied become loyal and faithful.
Keywords: sports consumer, consumer behavior, customer relations, customer satisfaction
INTRODUCTION
American Marketing Alliance (AMA) defines consumer behavior as “the dynamic
interaction of affects and thinking, behavior and environment, by which human beings
manage aspects of exchange in their lives.”93 In this definition, there are three
significant points that each in its own way reflects the temperament and the nature of
consumer behavior. First, consumer behavior is dynamic, in both time and space, so
there is no universal marketing strategy of companies that would apply at any time, for
all products and services, markets, and so on. Another important point, reflecting that
behavior of consumers is caused by the interaction of affect and thinking, behavior,
and environment factors, therefore it is important what people think, what they are
feeling, how and what to do, and the events surrounding the most influence in shaping
their behavior. Finally, the third point is conditioned by the process of exchange, very
important for the survival and development of humanity. This indicates and confirms
consistency of the definition of consumer behavior with valid and current marketing
definitions, which also focus on the process of exchange, for a continuous flow of
business activities and growth of living standards of the population. The place and role
of consumer behavior in marketing research are defined by the importance of that
93
J.Paul Peter – Jerry C. Olson, Consumer Behavior and Marketing Strategy,7 Edition Irwin
Boston 2005 str. 5-9
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analysis and forecasting of demand and sales they have in market researches of
companies. We are not talking about the knowledge of economic, but also other
vocational secondary aspects of consumer behavior, necessary for the planning of
marketing activities. Marketing approach, in the study of consumer behavior,
incorporates i.e. integrates all the test results, which specialized disciplines such as
sociology, anthropology, psychology, history, etc. provide, which from its point of
view contribute to a better recognizing and understanding of human needs, to their
satisfaction, and to achieve better business success.
According to the level, consumer behavior is among the primary micromarketing
researches, whose purpose is to identify specific needs, wants, and desires of consumers,
it is important for business companies. Psychological and sociological researches give
specificity to micro-approach, given the concepts and methods of their implementation.
However, consumer behavior has focused on macro market research, given the
demographic, geographic, economic, and cultural - social aspect, in the broader macro
environment of the company. It is wrong to think that consumer behavior is often
identified with the marketing research. These terms are used as synonyms, however it is
the use of formalized concepts, procedures, and methods for the better and faster
“systematic collection, recording, and analyzing of all relevant data and information
about consumers, relating to the marketing of goods and services.”94 “From the
standpoint of marketing, consumer behavior related to human responses in the
commercial world: how and why people buy and use products, how they are reacting to
prices, economic propaganda, and other means of promotion and what are those
invisible machinery functions in stimulating and interfering consumption.”95
"Consumers do not want just the right product or service at a reasonable price; they
want more than just personalization, personal relationship with the dealer, service, not to
be forgotten after purchase. We must observer the consumer behavior as a specialized
discipline within the framework of broader marketing research activities where
consumers are the centerpiece of the overall business activities, and a source of
competitive advantage. Therefore, managing customer relationships (customer
relationship management - CRM) represent a broader business strategy designed to
reduce the costs that business risks and increase profitability by increasing loyalty and
attention to customers.
CONDUCTING AND MANAGEMENT OF RELATIONSHIPS WITH
CONSUMERS IN SPORT
In the field researching the behaviors of sport consumers, marketing researchers have
tried to incorporate the theories and models from the broader field of psychology and
consumer behavior. Concepts, based on self-efficacy (confidence and expanded
powers), self-esteem (psychological assessment of the relationship between different
sets of attitudes towards oneself), self-schemata (repeat social behavior), and matching
94
Schiffman L., Kanuk L., Ponašanje potrošača, Mate Zagreb 2004 str. 5
95
Robert East, Consumer Behavior: Advances and Applications in Marketing,Prentice Hall,
London 1997 str. 3
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self-image (their own conception of itself), taken out from a wider field of psychology,
covered the full attention of sports marketing researchers.96
Emotional approach, as a starting point of the sports consumer behavior, is also the
subject of research in the field of sports marketing. Emotions are invaluable in providing
answers to consumer behavior. Experiencing feelings may be manifested in various
forms, from mild to strong mood emotional outbursts. Consumption is a very critical
situation for the sentiments, although communication with the sensations, prior to
consumption, may influence the type of individual sensitivity, which is experienced in
providing the interpretive framework for consumption. Marketing researchers must
know how to provoke feelings and how to provide the right level of stimulation of the
same feelings. “Experience” and its sale is gaining popularity in marketing researches.
Hedonic consumption is associated with the joy, excitement, fantasies, feelings and fun,
and highlights the important role of individuals in their own experience.
Emotions are, depending on the type and the very act of the event, spontaneous or
powerful, unlimited imagination is controlled by the participants, and creates
opportunities for hedonism to identify with its own dream.97 Through the pursuit of
hedonism or pleasure, people create a fascination with the world or endow the world
with magic and happiness. The key determinants of the impact of consumer behavior
can be divided into two main groups:
- Determinants having the impact on consumers as a member of the group, and
- Determinants having the impact on consumers as individuals
Group determinants are the cultural and social influences, and individual determinants
are the personal and demographic characteristics of the individual, i.e. psychological
characteristics.98 Understanding of all these determinants results in the assessment
process, in the minds of consumers (“black box”) and contributes to the knowledge of
producers, to sell the event.
Figure 1: Functions of consumers’ behavior
Source: Hawkins, I. D., Best, J.R., Coney, A. K., Consumer Behavior – Implication for
Marketing Strategy, IRWIN 1995
96
Ljubojević Ĉ., Menadţment i marketing u sportu, Beograd 200, str. 59
Ljubojević Ĉ. Ibidem str. 59
98
Ĉiĉić M., Husić M., Kukić S., Ponašanje potrošaĉa, Ekonomski fakultet Sveuĉilišta u Mostaru,
2009 str. 23
97
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Each participant in sport, from producers to sporting event consumers, is a form of
hedonic consumption. Sporting event is a ritual for every lover, take place in special
places, at certain times and space and has a character of art (whether it is a visitor or
participant), whether it's done professionally, at leisure or for entertainment.99
Sports and sporting events deserve full attention and understanding, as an area of public
policy and marketing. Athletes are the best and most positive “ambassadors” of their
countries and identified as such in every society, so army fans follow them at all events,
celebrate, or mourn with them, and every part of their free time devote to sport. The
growth in popularity of sports and athletes creates big gains for all participants, i.e.
promoters of the sport events, for the places where events are taking place as well as
producers and social standard of the state, organizers of big sporting events (e.g.
Olympic Games, world, and European competitions).
This fact has led marketing researchers to study factors in terms of satisfaction,
depending on the variety of behavior of fans. The concept of their satisfaction, it is
primarily based on the concept of the value of games and participants. We already
stressed that the party in value (the side of expected benefits) is most affected by the
quality and approach to the event, so we can conclude that the concepts of satisfaction
and consumer value are the builds on the concept of quality. “Consumers’ satisfaction is
a free estimate oriented to a certain transaction, or more consecutive transactions;
quality of service, on the other hand, is global assessment, which need not be based on
actual use.”100 Different elements affect pleasure, as well as any other processes,
creating and shaping it.101
By studying the definition of satisfaction, it can be concluded that the elements that
affect satisfaction are related to:
1. Product (perceived through quality and usage value, as the cost of the
monetary expression of value, time spent in searching, quality and usefulness
of the same company for consumers), and
2. Emotional state (experiences of using it, expectations that consumer wants to
experience the products that can be positive or negative).
In applying the marketing mix, sports marketers often use pleasure and satisfaction of
consumers so they can attract more visitors. All of the analyses show that identity
salience (identity of the popular personality) is the biggest lure, so that the media
creates an image that runs the fans to be present in large numbers at the event.
According to many theorists, motivation, sports fans, and visitors are qualified through
the prism of common elements, as follows: eustress, self-esteem, display, entertainment,
economics, aesthetics, group, and family connections.
99
Radosavljević M., ”Upravljanje sportsko rekreativnim događajima”, (magistarski rad) Fakultet
za trgovinu i bankarstvo, Beograd, 2004.
100
Parasuraman, A.V., Consumer Perceptions of Price, Journal of Marketing, vol. 52,1998 str. 22
101
Kotler Ph., Marketing Managment , Northwestern University, 2003, str. 56
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RANKING OF CONSUMERS IN SPORT
Sports fans are consumers, who are enthusiasts that dedicate themselves to particular
sports subject. Sports consumer’s subjects is diverse and is represented by figures such
as players, coaches, managers, or individuals who have a strong stake in connection
with sports, sports teams or any local, national or representative. Given the fact that not
all see sport product, the basic motivation, and consumer behavior in sport can vary
from individual to individual, and based on that different types of sports fans are
defined. Hunt and al.,102 revealed a high degree of heterogeneity in the fan club and
come up with their classification:
• Casual fans - support isn’t central to self-perception of fans and is limited by time and
place,
• Local fans - support is directed to local teams and local individuals,
• Devoted fans - faithful and loyal support for team, league, or individual
• Fanatical fans - support which is adjacent to those occupied with their team or person
that becomes important for more things, and
• Non-functional fans - those who support exceeding of the normal limits of behavior
Due to its specific diversity in behavior, determined based on motivation and perception
of events from its point of view, they serve as an important basis for segmentation and
positioning in relation to the target market, and thus determine specific strategies and
tactics in the implementation of the marketing mix, by the marketers. To develop the
growing popularity, and therefore the greater army of consumers, we need to build longterm and stable relationship and engagement in society, from working in schools,
community groups, and organizations. Nurturing relationships with the media, using the
support of celebrities (Mayor, the famous film or TV stars, popular politicians) as well
as building a good relationship with sponsors, in promoting the team or individual sport
in general is very important.
RESUME
Survival, growth, prospects and stability of the company solely depends on the
consumers, regardless of current market position. In terms of globalization and
expressive market competition with offers that excess demand, it is very difficult to
position and to approach to consumer, and gain their loyalty and attention. Market
success is not reflected only in the leading position in the competition, but in creating
new products, developing new unexplored markets, in order to create new needs to
satisfy consumers.
Consumer is no longer viewed from the perspective of short-term and one-way
transaction, but it builds up with long-term and fair relations, in order to achieve mutual
benefits. Through stimulation and developing of long-term relationships with customers,
delivering high-values, and therefore greater customer satisfaction, a base of loyal and
102
Ljubojević. Ĉ., Ibidem str. 66
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devoted customers is creating, which is a competitive advantage of market-oriented
organizations.
Exploring the levels of customers’ satisfaction, current and future needs, and desires of
consumers becomes clear how to create and apply marketing activities to promote and
develop customer satisfaction. As such, popular and accepted as an important part of the
entertainment industry, with the trend of continued and accelerated growth, sports, is a
major link in the creation of sports consumers’ satisfaction. Covering sports by
electronic media and press grown and together with the existing competition between
the various products of entertainment, transformed sports market into high-profit
industry. The biggest credits for this successful and continuous development of sports
industry, belongs to the high level of professionalism in all segments. Proper and timely
management of relationships with customers in the sport requires leaders who can
improve the success of this industry, as well as to sustain it competitive and profitable in
comparison with other industries. Bearing that in mind, connecting, and building fair
and correct relations with all participants in sport market, especially with the fans consumers, as key stakeholders of any sporting collectives, must be more intensive and
comprehensive in the future.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
J. Paul Peter – Jerry C. Olson – Consumer Behavior and Marketing Strategy,
seven edition IRWIN Boston, 2005
Schiffman L. Kanuk L., - Ponašanje potrošača, Mate Zagreb 2004
Robert E. – Consumer Behavior : Advances and Applications in Marketing,
Prentice Hall, London 1997
Ljubojević Ĉ. – Menadžment i marketing u sportu, Beograd, 2001
Bartoluci M. I saradnici – Menadžment u sportu i turizmu - Zagreb, 2004
Mariĉi B. - Ponašanje potrošača, Ekonomski fakultet – Beograd, 2010
Ĉiĉiĉ M. Husić M. Kukić S. - Ponašanje potrošača - Mostar, 2009
Parasuranman, A.V. - Consumer Perceptions of Price, Journal of Marketing,
1998
Kotler Ph. - Marketing Menagment – Northwestern University, 2003
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THE LISBON TREATY – INSTITUTIONAL CHANGES
AND UNIQUE VALUES
Vladimir Stanković*, dr Zoran Jerotijević**
Fakultet za obrazovanje dipl. Pravnika i dipl. ekonomista za rukovodeće kadrove, Novi
Sad, Srbija
**
Fakultet za obrazovanje dipl.pravnika i dipl. ekonomista za rukovodeće kadrove, Novi
Sad, Srbija
*
Abstract: Historically, the process of reform and integration of member states within the
European Union, deepening of relations in both political and economic sense, and the component
expansion is taking place more than half a century. A careful analysis of the way of functioning
and by comparison with the EU national parliaments, as it is today, contains elements of the
federation, confederation, and international organizations. Essential definitions are the objectives
of the Member States, their strategic orientation, and determination of the minimum interest that
is common to all, and the ways and mechanisms of achieving them. This is corroborated by the
formation of mutual bodies acting, both within the Union, and in areas of common foreign and
security policy. The Lisbon Treaty provided mechanisms to achieve integration and unique values
through the reform of institutions.
Keywords: Lisbon Treaty, the European Union, the objectives of the European Union, European
Union institutions, the legal nature of the European Union
INTRODUCTION
The Lisbon Treaty was signed on 13 December 2007 between twenty-seven EU member
states. In order the contract came into force, it must be signed by all member states, and
states had the opportunity to determine the manner in which the ratification will take
place, in accordance with their national law, whether citizens will come out for a
referendum or the national parliaments. Ireland is the only country that has chosen as a
way of ratification, immediately declaring of citizens in a referendum, while the
remaining twenty-six states have chosen to declare the ratification by national
parliaments. In a referendum held in Ireland in June 2008, more than half rejected the
Lisbon Treaty, which created a new neighborhood in the section of the process of
uniting Europe. Certain concessions to the Republic of Ireland regarding to military
neutrality and abortion, the number of commissioners and tax rates; to Poland regarding
the exemption of members of the Charter of the restitution of property, and to the Czech
Republic, the Treaty has entered into effect in 2009.
FEATURES AND INSTITUTIONAL CHANGES
The Lisbon Treaty is essentially based on the solutions of proposed agreement on the
Constitution of the European Union, which failed due to fact that France and
Netherlands didn’t ratify it in 2005. The essential difference is that the Constitution
should replace everything up to now, existing treats, and the Lisbon Treaty only
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complements them. Based on this, the Union will get a legal framework and necessary
mechanisms to be able to effectively confront the challenges ahead, both at the domestic
and international level to respond to the needs of their citizens.103
Some legal writers say that careful analysis of the Lisbon Treaty, one can establish that
its content is essentially the same as the contents of the Constitutional Treaty. When this
was done so that it can be difficult to spot. Although the constitution carefully avoided
the renewed agreement with the EU Treaty on European Union mode is nothing more
than the introduction of a new constitutional order of the European Union.104
According to the preamble of the Treaty, the Union is based on cultural, religious, and
humanist inheritance of Europe. Article 1 of the Treaty underlines that the EU Member
States have transferred competence to realizing their common goals and therefore
highlights the primacy of contracting national law. Since 2004, the European Union is
no longer a community of citizens and the state, but the High contracting parties, which
have established the Union. Unique legal personality of the European Union, as in other
former European communities is expressed in two parallel tracks: within the national
legal system and the level of international legal order.105 In this respect, the Lisbon
Treaty is explicit and it defines to Union formal characteristics as legal entity with all
rights and obligations that derive from that status. So, in the territory the Union enjoy
the broadest legal and business capacity, which is recognized by their national law legal
entities, and it can enter into contracts with individuals and corporate entities, to acquire
movable and immovable property and to be a party to proceedings in the courts of the
European Union.106 In terms of international legal personality it is not specifically
regulated, namely the Lisbon Treaty contains no explicit provision and subjectivity in
international law, but there are provisions that indicate that European Union may
conclude international agreements when it is foreseen by the founding treaties, or where
necessary to implement the policy and implementation objectives of the Union.
The aim of the Lisbon Treaty in terms of institutional mechanisms is to ensure
continuity of current policies and improving the value, efficiency, and compliance to
safeguard the interests of member states and their citizens. Now, with seven major
organs, the European Parliament, European Council, Council, Commission, Court of
Justice of the European Central Bank, and the Accounting Court and changes in body
composition and functioning of the EU is able to respond to internal and external
challenges and to function efficiently enough.
103
J. Ćeranić, „Ugovor iz Lisabona: Ka efikasnijoj Evropskoj uniji“, Pravni ţivot br.13, Beograd,
2008, str. 808
104
T. Opperman, J.Ćeranić, „Evropska Unija iz Lisabona“, Pravni ţivot br.13, Beograd,2008,
str.799
105
Z. Radivojević, V. Kneţević - Predić, „Struktura Evropska unija posle lisabonskog
sporazuma“, Pravni ţivot br.12, Beograd, 2010, str. 457
106
Ĉlanovi 47. Ugovora o Evropskoj uniji i 355. Ugovora o funkcionisanju Evropske unije.
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When it comes to the area of security and justice freedom, i.e. the three pillars of
cooperation, the same rules as when it comes to other communitarized policy. Some
exceptions to this rule are predicted, related to the initiative, which has so far had only
the Commission, now belongs to, under certain conditions, to member states too. In the
area of judicial cooperation in civil topics, when it comes to family and inheritance law,
decisions are still made by unanimous vote. An exception is in the area of freedom,
safety, and justice, Republic of Ireland and the United Kingdom and they may be
involved in cooperation, when it comes to measures that suit them.
Summarizing the Lisbon Treaty in the communitarisation process of policies, which are
very sensitive to impinge on the area of national sovereignty, have gone up as far as is
possible.
In the area of foreign policy and security, important innovations are those concerning
the introduction of clauses for collective defense and the solidarity clause. In fact,
Member States and the Union, in the case of clause of solidarity, by all available means
help a country that is a victim of natural or human disaster or terrorist act. When it
comes to defense, European Defense Agency is determined by contract, as well as the
possibility of broader cooperation between the countries that want and are able to put
the EU at the disposal of units ready for immediate intervention. The Lisbon Treaty
defines more clearly the role of the EU in the field of common foreign and security
policy. In order to preserve peace and security, conflict prevention and strengthening
international security in accordance of the UN Charter, it may undertake missions
outside its own territory. It also expands the EU's role in disarmament operations,
military advice, and assistance to restore stability after conflicts.
Lisbon Treaty brings great innovations, when it comes to protecting basic human rights
within the European Union. It is envisaged that the Charter of Human Rights has the
same effect as the contract itself. By equating the legal force of the Charter with
contracts, a long process of improving human rights is completed. Charter of
fundamental rights was not a formal source of law, to which the communitarian judge is
calling to, but only a source of inspiration.107 In this way, the Charter has found its place
in the system of the European Union. It is mentioned for the first time in the draft
Constitutional Treaty of the European Union, and this is a similar solution consisted in
the Lisbon Treaty. It is important to note one thing, that contrary to Constitutional
Treaty, based on the Lisbon Treaty, the Charter isn't an integral part of the contract, but
its legal force it is recognized based on Treaty. Otherwise, the Lisbon Treaty calls for a
revised version of the Charter whose revision serves the very purpose of revising the
Treaty and which was signed on December 2007.
Lisbon Treaty provides changes in respect of legal documents and only in its formal
part. In fact, the names of acts and classic names of regulations and directives have been
changed and replaced by terms of the law and the framework law. Those are only
changes of terminology, and not substantial changes in terms of legal power that these
107
J. Ćeranić, Ugovor iz Lisabona: Ka efikasnijoj Evropskoj uniji, Pravni ţivot br.13, Beograd,
2008, str. 810
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documents produce. In terms of decision-making procedures, regular decision-making
procedures have become a regular procedure, which applies in most cases, with
exceptions, i.e. the use of special procedures. The Lisbon Treaty facilitates the
procedure of decision making within the institutions. The Council of Minister, instead of
unanimous decisions establishes a mechanism of qualified majority voting, which will
result in faster and more efficient decision-making. Beginning in 2014, for voting of
qualified majority and decision making in the Council of Ministers the support of 55%
of member states representing at least 65% of population will be needed. This procedure
gives double legitimacy to decisions. In this way of making decision, the areas relating
to taxation and security policies of the European Union were excluded. The contract
also reached a certain target in terms of modernization and democratization of the EU
institutions. New features of the High Representative for Foreign and Security Policy
and President of the Commission was established to promote activities of the EU on the
international stage and to better defend interests and values of the Union abroad.
In areas of enhanced cooperation, Lisbon Treaty takes the provisions of the Treaty
establishing a Constitution of the European Union Draft.108 This institution was first
mentioned in the Amsterdam Treaty, but never enforced. Member states can deepen
(strengthen) cooperation and integration within the framework of the Treaties, leaving
the door open to those who would later join them (as is the case with the single currency
or the Schengen-Acquis law, in which from the beginning never participated all member
states, but they were join later). This approach of cooperating is a great visionary
approach, for simplifying the provisions on cooperation, takes into account the
heterogeneity of interest within the Union of 27 members, while preserving space for
joint activities in perspective.
Analyzing the Lisbon Treaty in the sphere of the legal nature of the European Union, we
can cautiously say that it has elements of the federation in monetary relations,
agriculture, trade and environmental protection; elements of a confederation in the
social and economic policy, consumer protection and domestic politics and elements of
the international organization when it comes to foreign policy and the security.
The Lisbon Treaty clearly defines and complements the objectives of the European
Union and introduces the tools necessary to achieve and protect those goals, as already
mentioned above. Primarily to the area of freedom, in the broadest sense, security and
justice without internal borders; continuous sustainable development policies of the
Union based on social growth and price stability; highly concurrent social market
economy aiming the highest possible level of employment and social progress, a high
degree of environmental environment, coping with selectivity and all forms of
discrimination, promotion of economic, social and territorial cohesion and solidarity
among Member States, the preservation and enhancement of economic and monetary
union with the euro as its currency, highlighting and promoting the values of the
European Union in the world and contribute to world peace, security and sustainable
development of planet Earth, solidarity and respect between nations, free and fair trade
108
J.Ćeranić,“Ugovor iz Lisabona: Ka efikasnijoj Evropskoj uniji“, Pravni ţivot br.13, Beograd,
2008, str. 811
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and poverty eradication, preservation and promotion of human rights, particularly
children and the strict implementation and development of international law, including
respect for the principles of the Charter of the United Nations. The Lisbon Treaty itself
allows and establishes ways of achieving these goals through greater integration
institutions.
RESUME
Taking all the above exposed from the historical development, starting from the
European Union development, through its institutions and legal acts taken by the
European Union, the Lisbon Treaty has brought significant changes in the structure of
the European Union. The most important innovation is to simplify the structure of the
European Union, which replaced the three pillars of the European Union where it is
built. Unambiguous recognition of legal personality of the Union the unique values that
have become essential elements of the functioning of the Union were established.
Lisbon Treaty have reinforced the existing elements expressed through a unique
institutional mechanism and established new mechanisms to create greater unity.
It is premature to talk about the European Union as a state, but there are plenty of
arguments that show that in the last several years is rapidly moving in that direction. In
its origins, and the process of development can perhaps best to consider the crucial
influence of the economy in real life, who led the efforts to achieve individual economic
objectives that would lead to the formation of an international organization that has
more political character and that takes many features of state organization.109
Due to the unification of rules, which is made from the very inception of the Union, we
can say that the foundations of the Union lay on solid foundations and that is evenly
developed, and as such has the potential to take on the attributes of statehood. The
Lisbon Treaty confirmed and strengthened this feature. This is corroborated by the fact
that the formation of joint bodies within their jurisdiction is made and acts that are
binding for all member states, regardless of whether the State has voted for the decision.
With the Lisbon Treaty this decision-making mechanism has been simplified for certain
issues, so that in the period after the 2014 will be required majority of 55% of Member
States representing 65% of the population. It has already been mentioned that the
European Union largely takes a common foreign policy, which is defined and adjusted
at the highest levels of EU governance and a way of defining and conducting foreign
policy, certainly has elements of statehood and amplified the supranational
characteristics.
At the end, Lisbon Treaty is a developed mechanism in addition to the existing member
states, states that have not access to it, including Serbia.
109
M.Starĉević, „Međunarodno privredno pravo“, Beograd 2007, str.43.
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REFERENCES
M. Starĉević, „Međunarodno privredno pravo“, Beograd, 2007
Z. Radivojević,V. Kneţević - Predić, „Struktura Evropske unije posle
Lisabonskog ugovora“, Pravni ţivot br. 12, Tom IV, str. 455, YU ISSN 03500500
3. Zbornik radova, „Ugovor iz Lisabona sigurna luka ili početak novog
putovanja?“, Sl. Glasnik 2010, ISBN 978-86-519-06558-02
4. M.Srdić, „Evropska unija i Pravo Evropske unije“, Privredna Akademija, Novi
Sad, 2006
5. Vodiĉ kroz Lisabonski ugovor, Evropska Komisija, Luksemburg: Ured za
publikacije EU, 2009, ISBN:978-92-79-14592-6
6. J.Ćeranić, „Ugovor iz Lisabona ka efikasnijoj Evropskoj Uniji“, Pravni ţivot
br.13, tom V, 2008, ISBN:0350-0500
7. T. Oppermann, „Evropska unija iz Lisabona“, Pravni ţivot br.13, tom V, 2008,
ISBN:0350-0500
8. Kancelarija za evropske integracije RS, www.seio.sr.gov.yu
9. Portal Evropske unije, http://europa.eu/
10. J. Ćeranić, „Ugovor iz Lisabona“, Paragfraf epress, br. 275/20008
1.
2.
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NEW LEGAL CHALLENGES IN COMBATING
SMOKING IN SERBIA AND REPUBLIKA SRPSKA
Dr. Stanka Stjepanović
Abstract: The number of produced and sold tobacco products has been reduced in the USA in the
past five years. Cigarette manufacturers are relocating their factories to countries in transition,
which have “milder“ norms concerning smoking and the advertisement of tobacco products. With
the implementation of legal norms, the state can influence the citizens’ behaviour, which can also
be altered by introducing new acts, other than laws. By imposing tax on tobacco products, the
state certainly obtains a considerable amount of money. On the other hand, the state allocates a
large amount of money to health funds which are spent on treating patients from the effects of
tobacco use. Thus a vicious circle is created, which the government cannot escape without a
serious approach to the implementation of legal norms regarding smoking prohibition. There is
an urgent need to introduce global legal standards on tobacco smoke. Forests are the lungs of the
planet, and in some countries, such as Pakistan and Brazil, they are cut down in order to dry
tobacco to such an extent that it poses a threat to entire humanity. The Law on protection of
population from exposure to tobaco smoke has been passed recently, but it hasn’t yielded desired
results yet. In this paper, which is based on research, the author indicates that smokers don’t
regard the warnings printed on tobacco products as serious threats, but rather as part of
cigarette pack design. Can the goal be reached, to protect people’s health, by enacting legal
norms to ban smoking in certain premises? According to the author, the answer to this question
is negative. Only the enactment of a fully binding norm by all UN member states could solve the
issue of consistent protection of people from the exposure to harmful and life-threatening effects
of tobacco smoke on a global level.
Key words: smoker, protection, health, threat, addiction
Introduction
On a press conference held on the 19th of June 2010, research team leader Jonathan
Smith from John Hopkins University in Maryland published the results of a research
conducted by twenty nine experts from fifteen countries on harmful effects of tobacco
smoke on non-smokers. According to this report, the results indicate that the
consequences to non-smokers are far more severe than the earlier research implied.
Tobacco is grown in 120 countries in the world. Its annual global production has
reached 6 million tons. The world leader is China with over 1 million tons. According to
the World Health Organization report, tobacco factories put around 4 trillion cigarettes
on the market every year. Their sale revenue amounts to 100 billion dollars.
Five years ago, it was concluded in the US that society’s loss greatly exceeded the
revenue generated from taxing tobacco products. For this reason, strict legal measures
were imposed and the courts began to award millions in damages to smokers who
became ill from their habit. Tobacco factories were sued and forced to pay damages.
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Therefore the factories began to move further east, to countries in transition, such as
Serbia.
The relocation of tobacco factories to other places does not permanently solve the
problem of smokers’ and non-smokers’ poisoning with tobacco smoke.
If society wants to sanction its members’ behaviour, claiming that it poses a threat not
only to themselves but also to their surroundings, then it can do so by enacting laws
whose sanctioning of the perpetrators would benefit both the individuals and the society.
If the legislator truly intends to solve the problem, then it can do so by monitoring the
implementation of the norm. However, the results of such implementation in practice
depend on several factors. Is it sufficient to threaten with sanctions, if smoking is
permitted in public places, or should other measures also be introduced? It is a complex
issue which requires research among groups of tobacco consumers in order to receive a
concrete answer. Since the Law on prohibition of smoking in public places was enforced
in Republika Srpska, and the Law on protection of population from exposure to tobacco
smoke has recently been adopted in Serbia, this paper will attempt to analyze all
difficulties in their implementation.110 What are the legislator’s aims of enacting the
norms to ban smoking and the advertisement of tobacco products? 111 Can this goal – to
protect people’s health – be reached by adopting legal norms on smoking ban in
particular places?
This paper came as a result of research conducted among a group of smokers from 1320 and 25-50 age groups. Both sexes were equally represented and they were from
different educational levels – from primary school students to university graduates. The
initial question was: when did they start smoking? The second question was: how were
they affected by the alarming text printed on each cigarette pack they smoked? The third
question was: what did they think about the norm which prohibits smoking in public
places? Was it possible to buy tobacco freely in a supermarket, alongside bread and
milk? Then why couldn’t I consume it everywhere? Is the smoking ban considered an
infringement of human rights and liberties or not? Who will benefit from frightening
notes on cigarette packs? Legislators, smokers or tobacco industry? Isn’t it, in inverted
value system, the greatest commercial for tobacco products? In this paper we will try to
prove that the answer to the last question is positive. In this case there is a clash between
two human rights – the right to life and the right to health as opposed to the right to
110
The Law on prohibition of smoking tobacco products in public places – Official
Gazette of Republika Srpska no. 46 /2004
111
The Law on prohibition of advertizing tobacco products – Official Gazette of
Republika Srpska no.46/04
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consume the products which the state is selling and that can be legally purchased in
every store, even in those where we regularly buy bread and milk.
The protection of people from exposure to tobacco smoke in Republika
Srpska and in Serbia
The legislation of Republika Srpska does not include many norms concerning nonsmokers’ protection. The law on prohibition of smoking tobacco products in public
places states in its first act the aim to impose smoking ban in public places. The goal is
to protect non-smokers and other risk groups from passive smoking. The law identifies
minors, pregnant women and elderly people as risk groups. Non-smokers are thus
legally protected from smokers, because smokers, by using their right to smoke, cause
harm to non-smokers, poisoning them with the contents of their cigarettes. It can be
argued that this legal act stems from the principle of sanctioning the violation of rights
which was introduced to our legal system by Valtazar Bogišić in 1888, as part of the
General Property Code in the principality of Montenegro.112 But to what extent can a
minor be protected from smokers, if the law protects him only in school and school
yard?
The law defined public places as institutions which provide public services and where
people are gathered. It gave examples of educational institutions, such as: nurseries,
kindergartens, primary and secondary schools, faculties, universities and other
educational institutions. What is regarded as an educational institution is left to further
interpretation in each particular case. The institutions that provide accommodation and
residence for pupils and students are deemed as public places where non-smokers
should be protected. If a non-smoker finds himself within the premises of a healthcare
centre or state, administrative, judicial and cultural institutions, he will be protected
according to the law on smoking prohibition. The same rule applies to food institutions,
public transport and workplaces. The law does not specify the term workplace, which
means every workplace which non-smokers occupy. Finally, the Law states other public
places and mentions banks, post offices and stores. With loose interpretation of Act 2 of
the Law, it could be concluded that practically everything can be regarded as a public
place, besides the house or apartment in which the minor lives with his parents, guardian
or adopter.
The law has not managed to achieve such high goals of non-smokers’ protection in its
five-year application. We can still find stuffy rooms within universities, staff rooms and
offices visited by students in order to register for an exam, pick up student cards, attend
consultation meetings, examinations or seminar sessions. How educational can it be for
a primary school student to see his teacher entering a special room to smoke a cigarette
at each break? Isn’t this a message to the student that it is prohibited to smoke only at
certain places, but that everything that is banned can be practised elsewhere? How could
someone, who cannot cope with his own smoking addiction, be a role model and protect
children and young people? How can he teach them about the harmful effects of tobacco
smoke to both smokers and non-smokers?
112
Act 1000 of the General Property Code of the principality of Montenegro: „You
cannot use your right if it is detrimental to others or out of sheer boredom“.
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We can conclude that the control of the implementation of the law failed completely.
Monitoring of the application of the law should be conducted by health, education,
sanitary, labour and safety inspectors. Communal and regular police are also obliged to
control the application of this law.
Although it is employer’s legal obligation to allocate a room for smoking, in such
institutions the smokers are often allowed to walk freely with lit up cigarettes, thus
leaving non-smokers to choke in their colleagues’ or superiors’ smoke, with the risk of
being fired if they complain about it to their colleagues, on the grounds of disrupting the
smokers’ harmony.
Therefore the legal act on the protection of non-smokers from tobacco smoke didn’t
prove entirely effective in practice in Republika Srpska, as the protection of nonsmokers wasn’t maintained. Neither did they manage to send a strong signal to the
smoking population that their behaviour would no longer be tolerated by the state; but
rather that they were given a small space for poisoning their own bodies and that it aims
to protect non-smokers in this way. It can be described as an attempt to protect the
others from smokers and that the state intended to confine them in particular space,
similar to any other infective disease. Without real intention to put it into effect, we can
conclude that non-smokers are even more threatened now, especially children and
youth.
When a legal norm is adopted in order to protect the consumers of a particular product
from the product itself, then there is a logical question: why does the legislator, fully
aware of the harmful effects of the product, make it available and closer to consumers?
Now we will show how the Law on prohibition of advertizing tobacco products protects
the smokers from themselves.113 The legislator’s intention is stated in Act 1. In order to
reduce the use of tobacco products and protect public health, it is prohibited to advertise
tobacco products. Public health pertains to the entire population, smokers and nonsmokers alike. All tobacco manufacturers are obliged to put a note that indicates the
prohibition of advertizing on each cigarette pack. Such protection proved insufficient for
smokers and it actually has a stimulative effect.
In conducted research, all surveyed smokers agreed that smoking was detrimental, but
only 5% of them were fully informed about the extent of this threat. However, none of
them were aware of the comparative study of smoking risks to health and life in relation
to, for instance, traffic accidents.
Smoking can lead to death in case of lung cancer (the so-called smoker’s cancer),
chronic bronchitis and blood vessel diseases. Statistics from European countries reveal
that in 90% of cases smoker’s cancer leads to death, 75% in case of chronic bronchitis
and 25% in case of heart and bloodstream diseases. Those who died as smokers
shortened their lives for 15 years on average.114 Most surveyed smokers tried to
minimize the effects of tobacco use and its deadly outcome. One educated woman, a
pedagogue, gave the example of her grandfather who turned 80, and whom she
remembers holding a cigarette even in her earliest childhood. She said that she learned
to smoke from him, because she admired him and started to imitate him from the 7th
grade of primary school. The majority of smokers actually maintain that the risk to
113
The Law on the prohibition of advertising tobacco products – Official Gazette of
Republika Srpska 46/04
114
The risk factors of smokers www.rvh.khv.ru/people/smoke/index4.htm 28.12.2010
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health and death is relative. They argue that death could befall us at any time in the
street, if someone crashes into us with their car, that we could fall down in the bathroom
and hit the tiles with our head. Compared to continental states, England has fewer traffic
accidents, but nevertheless death rate from smoking is far greater. Smokers are prone to
frequent infections of respiratory organs followed by strong morning cough. They
spread tobacco stench through cigarette butts that remained in the ashtray overnight.
With each smoked cigarette, blood pressure increases as well as the number of
heartbeats per minute, while peripheral arteries start to narrow. Blood clots occur
frequently. All this leads to hypertension and heart and blood vessel diseases.
If all media regularly published the contents of tobacco smoke, stressing how poisonous
it is and if teachers and professors, doctors and other people working in public
institutions spoke of harmful effects of tobacco and acted accordingly, then we could
say that a real fight against tobacco smoke was initiated, and for the health protection of
the entire population.
On the one hand, we are developing ecological awareness of our planet’s pollution,
while on the other hand, one hectare of forest is burned somewhere in the world every
minute in order to dry tobacco. Hundreds of thousands of finest paper material aren’t
used for pupils’ notebooks, but end up on cigarette packs instead. Moreover, tobacco is
destroying a non-renewable resource – arable land.
By imposing tax on tobacco, the state would secure a great amount of money for its
budget, but at the same time an even greater sum goes to health funds for the treatment
of those who became ill through the consumption of tobacco products. Forests are the
lungs of our planet and they are ruthlessly destroyed in order to dry tobacco which will
eventually poison smokers’ lungs and non-smokers’ respiratory organs.
Each year there is an increasing number of minors and even children who smoke. Girls,
future mothers, start to become addicted to nicotine at the age of 13.
What message is sent to a child when he sees big supermarket racks and a huge,
colourful cigarette tower above the cash register? How is he supposed to distinguish
them from milk and sweets, if they are all equally placed?
Insincere intentions to protect people’s health are evident from gigantic boxes with
cigarette packs above shop assistants’ heads. Since everyone has to pass through the
cash register, they can’t be missed. In this manner, smoking ban has turned into a great
challenge to buy cigarettes and consume them.
In contrast to Republika Srpska, whose laws intend to protect non-smokers from
smokers, the Law on protection of population from exposure to tobacco smoke115
pertains to everyone. It doesn’t make a distinction between smokers and non-smokers,
but aims to protect the entire population from exposure to tobacco smoke. Legislator’s
intention was to maintain this protection by imposing restrictions on the use of tobacco
products and by controlling the smoking ban implementation.
115
The Law on protection of population from exposure to tobacco smoke - Official
Gazette of Serbia no. 30/10
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The law makes a selection and for certain professions prohibits smoking even in
specially designated rooms. It pertains to state administration, local government, health
care, education, social responsibility towards children, social protection, culture, sport
and recreation, production, control and distribution of medicines, production, storage
and distribution of groceries, nutrition, but also media and space for public shooting and
broadcast. Furthermore, smoking is banned at meetings and public gatherings.
The law seemingly intended to protect both the smokers from themselves and nonsmokers from smokers, but detailed analysis of its acts showed that the protection was
perfunctory and cosmetic, rather than genuine.
Although the smokers among teaching staff have been forced to leave school premises,
they can still satisfy their nicotine addiction in the street, next to the school fence.
Again, the same signal is sent to the students – you are allowed to smoke, just not on the
school property. Many smokers are trying to convince themselves that tobacco is not an
addiction, but merely a habit. How hard is it for a young human being to distinguish the
prohibition to leave a classroom for a five-minute break with the smoking ban in a
particular place, when he can see his teachers and administrative school workers
inhaling cigarette smoke during each break. There couldn’t be a better advertisement for
tobacco products, so that a non-smoking onlooker considers lighting a cigarette after
seeing groups of smokers in the streets and wonders whether such law was suggested by
the tobacco industry, because it will benefit most from it.
We couldn’t help noticing that with this norm, smokers moved from stuffy rooms to the
streets; they are visible and can continue to pollute the environment on a regular basis.
Although the Law stated that smokers have the right to use health insurance in their
attempt to quit smoking, thus comparing their addiction to alcoholism and drug
addiction, it still failed to define smoking as drug addiction.
But nicotine addiction can only be called drug addiction. Nicotine is discharged very
rapidly from the body, thus creating the urge to “feed” the organism with the new dose.
Then the smoker quickly lights up another cigarette, poisoning himself and the
environment.
When the law permits smoking in the premises with: beneficiaries of social care
institutions for the accommodation of bed-ridden and nearly immobile persons, disabled
people, mentally ill patients, people with developmental disorders; patients from
specialized hospitals for treating psychiatric illnesses, patients from psychiatric wards
and beneficiaries from the institutions and wards for palliative care, we can easily state
that with this act the legislator gave a signal that in such cases smoking was regarded as
a cure. Thus we come to the conclusion that certain legal acts, such as the quoted Act 9
of the Law, are discrepant with their names and do not protect the citizens from
exposure to tobacco smoke. Bed-ridden patients who are unable to take care of
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themselves, as well as the patients from psychiatric wards, reside in premises where
smoking is allowed. Through such acts it can be concluded that there is no real intention
to call the smoking of tobacco and other tobacco products by its true name – addiction,
and to take all the necessary steps to cure tobacco addicts. Putting different stickers on
cigarette packs, warning that smoking causes cancer and kills, is merely a decoration
that smokers are getting used to. Only 10% of all surveyed smokers said that it bothered
them when they saw the note on the cigarette pack for the first time, but later they
accepted it as any other design. Remaining 90% didn’t pay attention when they read the
note for the first time. It poses a real challenge for young people: after reading how
harmful it is, they are encouraged to try it. The European Commission launched a big
anti-smoking campaign with incentives to each member state to decide whether to
include images on cigarette packs as warnings of their harmful effect. David Byrne,
European Commissioner for Health and Consumer Protection, said: “The true face of
smoking is disease, death and horror, not the glamour and sophistication the pushers in
the tobacco industry are trying to portray.”116
A Proposition For The Protection From Tobacco Smoke On A Global Level
As part of global fight against tobacco use, which violates the essential human right to
life and the right to planet’s survival, we propose that until the UN Declaration on
complete ban of production and consumption of tobacco products is introduced,
according to which all member states would be obliged to enact their laws, something
should be done on a national level, by changing the existing legal acts.
We suggest that tobacco smoke be banned on a national level in all institutions,
companies, vehicles, and not only reduced to public transport, streets, roads, sports and
other cultural events. It should be banned in all restaurants, without allocating any
smokers’ room or special place.
We would also like:
To prevent public broadcast of TV shows and films in which actors are smoking.
To allocate an hour every day on each TV channel and radio station for the
broadcast of materials which confirm the harmful effects of smoking.
To identify smoking as an addiction and to use all means to fight against it, as with
other drug addictions.
To invite, through the media, all people who suffer from serious diseases due to
smoking and to encourage them to take tobacco companies to court and force them
to pay damages. Moreover, tobacco companies should be obliged to make annual
116
www.bbc.co.uk/serbian/specials 2.02.2011.
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donations to insurance funds to pay damages to all those who became victims of
tobacco use.
To considerably increase tax rates on tobacco products and limit their sale to
specialized shops, at a ten times higher price than today.
Only if this comprehensive fight against nicotine addiction was implemented, it
could be claimed that the legislator truly intended to protect the life and health of its
citizens.
Conclusion
In Republika Srpska 37% of population are smokers and according to the national
coordinator for the control of tobacco in Republika Srpska, the existing legislation on
smoking prohibition is insufficiently applied in practice. Moreover, the representative of
the Institute for health protection stressed an alarming trend that the number of smokers
had been increasing among children below 10 years of age since 2008.117
The consumption of tobacco smoke tied smokers, non-smokers, states, continents and
the entire planet into the Gordian knot. The state allows the production of tobacco as a
plant. The manufacturers sow it on the fields with the abundant use of various toxic
pesticides. Then they reap it, dry the leaves in curing sheds spending great amount of
wood in the process, as is the case in Brazil and Pakistan, or they spend great deal of gas
and electrical energy instead. Afterwards they sell it to the factories for tobacco
processing. And then the product enters the new circle, leading to death and disease.
According to Dr. Petar Borović from the Healthcare Institute „Milan Jovanović Batut“
in Belgrade, in the last few years tobacco industry has resorted to putting ammonium
chloride into cigarettes, which increases the level of addiction among smokers and
hampers their attempts to quit smoking118.
Putting different stickers on cigarette packs, with the warning that smoking causes
cancer and kills, is just a decoration that the smokers are becoming used to. Only 10%
of the surveyed smokers said that they were bothered when they first saw the note on the
pack, but that they later accepted it as any other design. Remaining 90% did not pay
attention when they first read the accompanying notes.
For youth it is a real challenge to try something that is considered to be so harmful.
Therefore such warnings are a complete failure of the state and its attempt to protect
people from exposure to tobacco smoke. As long as leading film stars smoke on the
screen, students can see their teachers smoke outside school yards, and a variety of
cigarette packs can be found above cash registers in supermarkets where bread and milk
are regularly purchased, we cannot speak of a true fight for people’s health. Only by
increasing tax rates, licensing special stores for tobacco sale and imposing general
smoking ban in all places can we reach a significant level of protection of smokers and
non-smokers alike.
117
www.rsplaneta.com
118
www.blic.rs/vesti 31.1.20011
2.02.2011
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The protection of people from exposure to tobacco smoke cannot be achieved with
partial solutions, but with global measures and a global change in attitude towards
tobacco products.119
In order to be regarded as a genuine fight for people’s health, a sincere and
comprehensive battle should be started against nicotine addition of the citizens from
each segment of society, and in this manner protect their greatest right to life and health.
REFERENCES
1.
2.
3.
4.
119
150
Alan Car: Lak način da ostavite pušenje Beograd, 2010
Izveštaj Komisije EU www.bbc.co.uk/serbian/specials Povodom 31.1. dana
borbe protiv pušenja www.rsplaneta.com
Štetnost pušenja www.blic.rs/vesti
Borba protiv pušenja www.rvh.khv.ru/people/smoke/index4.htm
Vol. 1 (2011), No. 1 (1-170)
PUBLIC PROCUREMENT OF ARMED FORCES IN
SOME COUNTRIES OF THE EUROPEAN UNION AND
USA
Branko Tešanović*, Rajko Petrović**, Miloš Dašić***
*Vojna Akademija, Beograd
**Ministarstvo odbrane
***Vojna Akademija, Beograd
Abstract: Defense system as a specific organization, its procurement activity carries out on
different types of market. To make the task of procurement carried out in an efficient and
economical way, purchasing authority must be fully aware of the laws of the market, as well as
the goals and strategies adopted by (potential) suppliers-bidders, in order to successfully oppose
the strategy of answering bidder's performance - potential suppliers and develop its own strategy
on the market (procurement marketing). How the public procurement system would evolve in the
right direction, it is necessary to coordinate with the experience of different systems, which
implies the application of the positive experiences of developed market economy countries.
Keywords: procurement, market, defense system, public sector
INTRODUCTION
Public procurements is the area with growing importance in the economies not only in
developed countries, which account for 10-15% of the gross domestic product (GDP),
but even more in developing countries where the share of public procurement to GDP
ranges up to 25-30%. Public procurements are carry out in a socially sensitive areas
such as infrastructure (roads, airports), health (hospitals, medicines), education
(schools), the military, police and so on. Effective and regular public procurements
result not only in money, but better roads, more functional and better-equipped health
and educational facilities, and therefore are all the more significant in countries in
transition and developed countries and in countries of the European Union. The share of
public procurements in the gross domestic product of the European Union has increased
in recent years and reached 16%. At the same time, as a result of improving regulation
and its efficient application, are generated savings of about 30%. When it comes to the
experiences of countries in transition that joined the European Union at May 2004, it
was shown that the effective implementation of regulations in public procurement is far
more difficult and important task than the formal adoption of the European Union
directives. [1]
INSTITUTIONAL EXISTENCE OF PUBLIC PROCUREMENTS IN THE
EU COUNTRIES
Obtaining funds represent increase of all means on the use by budget organizations and
institutions. The highest institutions for public procurement in the EU countries are the
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ministries responsible for public procurement (depending on country to country, it may
be the Ministry of Finance, Ministry of Economy, Ministry of Justice, etc.) and specific,
specialized agencies, such as government or public procurement agencies, which are
formed at the highest (central) level. The tasks of the highest institutions for public
procurement in the 27 European Union member states can be divided into two groups:
1) the basic functions and 2) additional functions. [2]
National laws arising from the obligations imposed by EU membership define basic
functions. All other functions, though important for the functioning of public
procurement are put in additional functions, since they are not defined as a legal
obligation in the Member States.
The basic functions are:




Defining the public procurement policy and drafting the Law on Public
Procurement,
Preparation of secondary regulations and implementing documents,
International coordinative function (harmonization and improvement of
national system according to European regulations)
The function of monitoring and control
Additional features include:




The function of advising and supporting clients and suppliers,
The function of publishing and informing,
The function of professionalization and capacity building. The role of the top
institutions for public procurement is primarily to initialize and coordinate
national training programs in the public sector. In addition to training and
research, the function of professionalization and capacity building includes
activities directed to public procurement to find their place in the “political
map” as a key strategic factor for ensuring the quality of public services at the
best conditions, engagement of the positioning of procurement as a key
element in managing budget, and public expenditure.
Developing and coordinating functions (support and coordination in the
implementation of framework agreements, the development of systems and
methodology for electronic procurement, introduction of performance
measurement of public procurement).
EU member states can be conditionally divided into three groups, based on the structure
of the public procurement system: the first group consists of 13 countries with a
centralized structure that is characterized by a high degree of concentration of functions
in a small number of the highest bodies, the second group includes 11 countries with
semi-centralized structure in which the functions are divided into a number of
institutions and the third group of three countries with a decentralized structure in which
the functions are arranged on a number of institutions.
In countries such as Cyprus, Estonia, Latvia, and Malta there is a so-called, “ex ante”
control by the public procurement body, which means to give a preliminary ruling in
less competitive procedures, while in two-thirds of EU countries, this practice does not
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exist. The practice is that in a small number of EU countries there are, so-called "black
lists" of bidders that are determined to have violated regulations in public procurement,
failed to meet contractual obligations or gave incorrect information.
MAIN CHARACTERISTICS OF PROCUREMENT SYSTEM IN SOME
EU MEMBER STATES
Of all 27 EU member states we will retain on the principles of public procurement in the
Republic of Germany as a country that is a member, and also the founder of the Union
and Hungary as one of the countries which joined the EU in the last few years, namely
2004.
The basic characteristics of the procurement system in the Republic of
Germany
In the Republic of Germany, the Procurement law governs the public procurement
system for the needs of budget users. Contracts that provide the necessary equipment for
the defense system allocate to industrial, commercial, and industrial authorized civilian
sources in accordance with the directives and regulations of the federal government.
Since the Bundeswehr requires efficient and modern equipment, the time of purchase
must be short to meet the operational requirements of the defense system. The public
procurement system is implementing through several stages that must be present starting
from the receipt of papers.
Analysis phase is the phase in which integrated working groups discuss and analyze the
available and necessary capabilities for the entire Bundeswehr. Based on this analysis,
the gaps identify and solve problems and in five planning categories: personnel,
operations, infrastructure, organization, and weaponry.
Introduction phase, which analyzes the state of products available on the market in
accordance with applicable regulations and products that are available on the market, at
this stage they can be obtained without special procedures, as identified for the requests.
Risk reduction phase in which the acquisition is realized only after a comprehensive
review of risks and alternatives, where priority is given to developing new products,
reducing risk and providing demonstrations of product features (simulations,
demonstrations, prototypes, etc.).
Contracts may be awarded in any of the stages of the procedure. Bundeswehr differs
more than 1.8 million items for purchase. Depending on the subject of procurement,
there are:


centralized supply, which means that all requirements are unified and
commonly prepared, to reduce the individual purchase price in the market, and
Decentralized supply, which means that several suppliers agency can cover the
requirements of the regional sector of Bundeswehr for the goods and other
types of supplies or services
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Types of contract allocation are open, restricted, and negotiated procedures. In
awarding the contract, the Bundeswehr as a public purchaser must comply with the
regulations for awarding the contract and depending on the type and volume of required
performance, implements national and international regulatory procedures. In the
international procedures of allocating contracts to international bidders and suppliers
must be present enforceable requirements for the implementation of regulations for the
award, equal treatment, and transparency in allocation.
WEAG International procedure (Western European Armaments Group - Group for
Western Europe armament) is an association (group) of 19 European countries under the
European auspices applied in the field of “heavy weaponry”.
NATO's International Infrastructure procedure offers companies the opportunity to
express their interest in granting the contract, which includes the list of bidders, and thus
receive a formal request for participation.
The use of digital business communication in public contracting is also present and it
does not mean a deviation from regulations for allocating contracts. Allocating contracts
by electronic means includes a notice of intent to contract, the invitation for providers contractors, submission of tender documents, bidding and bid evaluation, allocating, and
contract processing.
The supplies for the needs of the Bundeswehr are mostly centralized, made by the
applicable national and international regulations, implemented by special federal body
of federal defense system administration, are strictly programmed to maximize the short
deadlines for implementation of procedures, which are usually carried out after the risk
reduction phase conducted, where in some way to filter needs, focusing requirements
and priorities, identify risks and alternatives, the conditions of supply (costs) and access
to realization of procurement.
THE BASIC CHARACTERISTICS OF THE PROCUREMENT SYSTEM
IN THE REPUBLIC OF HUNGARY
All procurement for the needs of defense system performs agencies for supply and
safety of investments, which numbers 130 persons, and is subordinated to the
administrative state secretary. Otherwise, the entire economic policy in the defense
system is the responsibility of the administrative state secretary. Administrative deputy
of Secretary of State for Defense Economics is in charge for professional activities (has
a secretariat of 10 persons, main department of Economics of Defense (30 persons) and
the main Department for the development of military equipment is subordinate to him.
Immediately planning starts the Deputy Administrative Secretary, it provides a
framework in a vertical line to the level of battalion command. Land Command and Air
Force have a division, brigade sections and battalions documentations for acquisition,
who are professionally related to the administrative state secretary. Upon completion of
planning, the final word gives the administrative state secretary and then agency for the
supply and investment security plan and executes the procurement. All procurements are
carried out strictly according to the law on public procurements. Proposals for
contracting give commands independent battalions and brigades.
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Procurements under the law on public procurement are not made for five of the
intelligence services (these are special funds) and the Law on Services regulates those
supplies. Starting from 2004, since Hungary became a member of the European Union,
all purchases are made through public contracting, and contracts are concluded at the
end of previous year. Delivery is done on the dynamics required by the recipient.
MAIN CHARACTERISTICS OF PROCUREMENT SYSTME OF U.S.
When we talk about supply in the logistics of the U.S. armed forces, then it refers to
funds and military equipment from the moment of manufacturing to the final retirement
from the military inventory. The first part of this cycle, from development of
specifications, design, and production is a function of manufacturing logistics.
Acceptance of equipment and its introduction into service, distribution, and storage of
the same, repairs, maintenance, and withdrawal from operational use are consumer
logistical tasks.
The supplies required for defense purposes in the United States relating to all funds and
military equipment and other devices used to equip, support, and maintenance of
military forces of the United States. Two basic methods of carrying out procurement for
the armed forces of the United States are by public auction and through direct
negotiations, which is regulated by the suppliers of public supplies, which was adopted
in the 1975, and which became the basis for performing and ensuring all procurements
required for defense.
For the execution of procurement by public bidding, the intention is to reduce the effect
of subjective factors in making decisions and choosing suppliers and thus avoid the
suspicion of budget spending is obvious. This is also often quoted statement by
Congressman Herbert C. Bonerra, back in the 1964, before the Procurement
Subcommittee, where he says: “Government contracts must not only be good, but they
must also leave a good impression, and it is almost impossible that some agreement
concluded through direct negotiations will leave a good impression.” For Congress and
supplier authorities carried out efforts to improve usage of the bidding method.
However, as weapons become more complex and an increasing share of budget
allocated for defense is allocated for research and development, it is difficult to carry
out this method of procurement.
In practice, there are three basic modes of procurements such as bidding, direct
contracting with the competition, and direct contracting without competition.
Eligibility requirements for public bidding are very specific and any deviation almost
automatically requires that one of two methods of direct negotiations replace it, and
preconditions are as follows:



The existence of complete and explicit specifications of procurement items;
Specifications must be available to all prospective bidders, in which should not
be limitations on confidentiality;
There must be more than one supplier who is able to successfully participate in
the competition;
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It is necessary to provide sufficient time to make time for bidding, delivery
specifications, and proposals, and
Selection of the best suppliers can be made only based on price, if the bidder is
qualified as qualified and solid.
In order to facilitate rigid procedural principles in the procurement with competition in
the field of technical supply, the Ministry of Defense has approved a combined
procedure called “two-stage tendering”, which is implemented in two phases: the first
is based on the offers that are related to the required specification of properties funds,
which want to obtain, selects those bids which meet the technical performance, without
considering the price offered (something that is called a restrictive procedure, the first
phase). The second phase is implemented as the process of bidding for those bidders
who passed the first stage, where bidders shall provide the required specification in
detail, with delivery time and price (second phase of the restrictive procedure). In this
way minimum of the required standard assets that are acquired is provided and
simultaneously competition among suppliers is provided.
A characteristic example is the purchase of meals, where, in addition to the U.S.
Department of Defense, The Wornick Company has developed a business with diets
containing different customers, including foreign governments, governmental agencies
and various other institutions. The Wornick Company is world renowned as a leader in
the manufacture of ready-made meals for the Ministry of Defense. Since the
establishment in 1979, more than 300 million meals were produced (Meal, Ready-toEat). [3]
Unlike the competition, carrying out procurements through direct negotiations
includes informal discussions and negotiations with the aim to reach agreement on price
and other terms of procurement. The goal of direct negotiations is as for competition, to
ensure the most efficient way to achieve more efficient and cost-effective procurement,
not to prevent competition. Great importance has the a material status of the
procurement staff who is motivated through salary incentives to protect the interests of
the Ministry of Defense, which led to a number of contracting professionals, engineers,
financial experts, and experts in quality control remain loyal to the Ministry of
protecting its interests in spite of pressures and recruitment by suppliers and industry.
[4]
The use of direct negotiations is not considered easier through the provision, as it
requires and imposes a much greater responsibility and a lot more technical and
business expertise from the whole supplier’s staff. [2] The Law on conducting
procurement for the armed forces as well as under section 10 of the Code 2304a of the
United States gave 17 exceptions where procurement and contracts can be transferred
through direct negotiations.
Cases of exceptions when you can go to the direct negotiations are in a time of national
readiness, the public needs (natural disasters), in the case of small purchases that do not
exceeds $2,500, in the case of using the services of educational institutions, supplying
food, in the event of experimental, developmental or research tasks, and so on.
In making decision regarding the type of contract, acquisitions staff must consider
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following factors: the type and complexity of the procurement subject, emergency of
procurement, the degree of competition presence, information about costs and strong
market prices, past experience with the supplier, technical and financial solvency of the
contractors, the adequacy of the system calculations and administrative costs for both
sides. By type of contracts that are concluded for the procurement may include contracts
with mandatory fixed price, fixed price contracts and currency of the sliding prices,
contracts with mandatory fixed price with a clause on the reconsideration of rates,
contracts with the stimulation, the contracts based on spent time and materials and
contracts based on working hours. Different types of contracts must be modified to
purchase items, but it must provide the best price and cost-effective execution of the
contract.
The supply of the defense system the United States, a commitment to strategic suppliers
is present, which greatly facilitate and simplify procurement processes.
RESUME
With analysis of the defense system procurement procedures of presented countries it is
obvious to emphasize the presence of centralization, i.e. procurement system will be
implemented through specialized institutions, which over agency or committee for
procurement in the defense system, deal with procurement, with the possibility of
delegating some duties to lower organizational levels. In addition, the fact is that
procurement procedures, except for the part of arms and military equipment, apply the
provisions of the procurement law of the country, somewhere international conventions
too (e.g. Germany). If the procurements are performing centrally, the above-mentioned
segment of the budget funds, which is the subject of civilian control, can be controlled
easily, which in addition to easier and more efficient control, provides achieving of
significant savings, compared to the decentralized procurement system.
In the world, there is increasingly applied principle of the focused logistics “on time and
according to needs.” For strategic acquisition of which everyday life and work of units
and institutions of the defense system (food, fuel, energy, etc.) depends on, different
ways to purchase, maybe something similar to the ways in the United States, must be
find through the determination of strategic partners - suppliers. That possible choice of
“strategic” suppliers should have full support in the economic-state frameworks, which
would define all other elements (selection of suppliers, financing, etc.).
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REFERENCES
1.
2.
3.
4.
5.
158
Tešanović B., Kecman M.: Sistem nabavke prehrambenih proizvoda, Beograd,
Vojno delo, 2008. str. 176.
ISSN 0042-8426.
Tešanović B., Petrović R.: Javne nabavke za potrebe odbrane, Beograd, Vojno
delo, 2010. str. 186. i 198.
UDK: 658.7:336.13
Tešanović B., Mitrović S.: Ishrana u vanrednim okolnostima, Beograd, Krug,
2005. str. 123. ISBN 86-907467-0-6.
Tešanović B.: Ekonomski aspekti razvoja ishrane stanovništva i Vojske
Jugoslavije, doktorski rad, Beograd, Zemun, Poljoprivredni fakultet, 2002. str.
125.
Radosavljević Ţ.: Vojna ekonomika, kako efikasno i efektivno upravljati
vojnom organizacijom, Kum,
Beograd, 2001. str 279.
Vol. 1 (2011), No. 1 (1-170)
INTERNATIONAL BUSINESS PROSPECTS OF SMALL
AND MEDIUM ENTERPRISES IN SERBIA
Bojan Zdravković, Fakultet za poslovne studije i pravo,
ALFA Univerzitet, Beograd,
Abstract: The subject of this document is an analysis of factors affecting the export business of
small and medium enterprises (SMEs) of the Republic of Serbia. Through reference indicators,
the author tries to prove hypothesis that the extent and pace of internationalization of SMEs in
Serbia is directly related to the generally poor state of economy in Serbia. The author also points
out the similarities and differences in the process of internationalization of small and large
enterprises in transition countries of Central and Eastern Europe (CEE) with special emphasis on
the relationship between large and small companies in Serbia and the impact of that relationship
to their external business.
Keywords: SMEs, internationalization
SERBIA - ECONOMIC INDICATORS
Economic environment of the Republic of Serbia cannot be positively evaluated!
According to the statistics of the World Economic Forum (1) Serbia is far behind the
least developed countries of the European Union. In recent years, the position of Serbia
on the list of Global Competitiveness Index gradually falls. In fact, according to 2010
data, the ranking order with 139 positions (states), Serbia is in the 96th place, three
points ranked lower than in 2009, and even 11 points compared to 2008. Of the
countries in the region, the worse position record Bosnia and Herzegovina, in 102 nd
place. In front are, Macedonia (79), Croatia (77), Albania (88), while the best placed is
Montenegro (49).
According to market efficiency, Serbia is the last among the 139 countries that are
subject to assessment. The cause of this poor workflow is the number of dominant
players in the market. By the strength of competition, Serbia is in the 131st place, while
only two countries have more ineffective anti-trust policy than Serbia has.
Serbia is characterized by low levels of innovation activities in comparison with the EU
and new Member States. According to the report of the World Economic Forum in
2007, Serbia was on the 79th place among 104 countries. In the meantime, the situation
is slightly improved.
According to the Labour Force Survey (LFS) (2) of the Statistical Office conducted in
April 2010, sample of about 7,000 households, and in Belgrade, central Serbia and
Vojvodina,
the
results
are
as
follows:
The unemployment rate in Serbia in April 2010 was 19.2 percent, and it has been
expressed by gender: 18.6 percent for the male population and 20.1 percent for women.
Observed by regions, the unemployment rate in central Serbia was 20.6 percent, 20.9
percent in Vojvodina, and in the city of Belgrade was 14 percent.
In order to complete the generally bad image of the Serbian economy, it is important to
note that Serbia's public debt (3) at the end of September 2010 rose to 38.5 percent of
gross domestic product (GDP), amounting to 11.62 billion euros. At the end of last year,
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debt was 9.85 billion euros, which means that in the first nine months of this year debt
increased by some 1.77 billion euros.
These parameters were not encouraging, especially if one takes into account the high
level of external deficit in the global economic crisis.
THE STATE OF SME SECTOR IN SERBIA
Survey conducted by the Regional Development Agency in 2009, on a sample of 3,000
SMEs, showed that the biggest problems for SMEs were: (4) lack of funding and
legislation, then the lack of suitably qualified workers, non-compliance of operations
with the requirements of quality and lack of information on markets and technologies.
The greatest dissatisfaction was expressed regarding tax regulations, procedures, and
lengthy and expensive procedures for issuing building permits. After that, following the
work of inspection bodies, problems with registration of real estate, complicated
procedures for registration and deregistration of workers, slow collection of receivables.
In the strategy of competitive and innovative SMEs in the period 2008 - 2013, which is
an official act of the Government of the Republic of Serbia enacted to promote the SME
sector, is provided the fact that one of the biggest problem of Serbia is slow and
expensive administration. For establishing a company in Serbia in 2008, 11 different
procedures, 23 days and 8.9% of gross domestic product per capita (10.2% in 2006)
were necessary. The procedure is more complicated to obtain various types of permits
(for construction, electricity connection, telephone, inspections or approvals from other
agencies, to start a business, etc.). According to Strategy data, in circulation were about
20 procedures that meet the required time of 204 days and the obligation to pay 27 times
higher values than the gross domestic product per capita.
The problems of abundance and conflicts of regulations and corresponding rules will be
resolved during the implementation of the strategy of regulatory reform. First steps in
that direction were made. While registration with the Agency for Business Registers
(APR) people simultaneously obtain a VAT number so the time for starting the activity
is shorter. From this year the annual accounts trainers are only in one place – at the
APR, not in three places as before. Enforcement of the Law on Spatial Planning will put
real estate in order.
The share of public sector in financing SMEs is significantly increased, especially in the
field of microcredits for new businesses. More favorable credit terms than the market
ones are provided, such as the cost of credit, terms of use, and the necessary guarantees.
The tax system in Serbia is very complex. It terms of time, for calculation and payment
of taxes and other mandatory benefits companies spend even 279 hours while the
number of annual payments is 66! If we take into account that the Swedes are taxed only
twice a year, you can sees the gap between Serbia and the more developed part of
Europe. Lowering of tax rates is encouraging, so that the annual rate of income tax and
VAT rates among the lowest in the region.
Rapid growth of the SME sector follows poor state of human resources, i.e. slow
qualifying of entrepreneurs for new challenges. The positive aspect is the educational
programs at the regional agencies, the Centers for SME development support, the
National Employment Service, Chambers of commerce and specialized non-formal
educational institutions. In many high schools, with the support of donors, the projects
of Student Entrepreneurship are implementing. What stands out as a problem that needs
to be eliminated is the inequality of implemented educational programs.
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Attention of analysts and the entire system to support the development of these
enterprises primarily is focused on the creation of these companies and their operations
within the borders of the state while the less attention is paid to firms with cross-border
ambitions. However, the key point in the dynamics of economic development is the
small and medium enterprises working on getting on the foreign markets and
internationalization of their production.
INTERNATIONALISATION OF SMALL AND MEDIUM
ENTERPRISES
A successful operation in modern conditions is unthinkable without the involvement of
the international trade processes. End of the last and the beginning of this century was
marked by a significant increase in participation of SMEs in the European market and
then began talk about their Europeanization. It is about the rise of exports and the
dynamics of strategic partnerships with these companies in other countries. The four
forms of internationalization of SMEs through the development of its international
activities should receive were identified: (Okulić, M: page 122) (5)
1) Export,
2) Cooperation with foreign partners,
3) Licensing by foreign partners,
4) Investing abroad and selling technology to the world.
1. Dogma that small and medium-sized enterprises that export risks to achieve
lower profits than those that produce for the domestic market is abandoned.
However, research (Major, I: pp.1371-1396) (6) have shown that the majority
of SMEs in transition countries of Central and Eastern Europe are not
sufficiently flexible to adapt volatile market conditions faced by the countries
to which exported. The most common problems are bureaucracy, weak
institutional systems, and particularly uncertain property rights.
2. The second form of internationalization involves entering into strategic
partnerships. Small and medium enterprises realize the integration of the
function of the internationalization of business based on different forms of
alliances based on common interest, such as an agreement on joint investment,
association for achieving innovation, joint appearance on the market, crosslicensing, merger based on franchising, etc. The creation of export groups of
small and medium-sized companies can be the first step towards creating a kind
of cluster companies in which there is a critical concentration of certain
competencies to compete successfully in a certain business, not only at national
but also at global level.
Clusters are an extremely important way of organized appearing of small enterprises in
Serbia. Ministry of Economy and Regional Development of Serbia supported the
development of these cooperatives through the "Cluster development program in Serbia.
This refers to changing legal environment and the provision of non-financial and
identified as a priority.
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Currently twenty-five clusters grouped according to stages of development is from zero
to three is active. Clusters of zero phase are those who have just emerged or are in the
initial years of operation, while the clusters of the third phase are in the advanced stages
of development. The most successful clusters in Serbia are software cluster with 15,
Automotive with 27 members, and cluster of the manufacturers of small agricultural
machinery, which comprises 15 companies and 5 additional institutions. It is interesting
that the rise of cluster producers of flowers in Šumadija is rising. (7).
However, according to the experts of the European Union and the Ministry of Economy,
existing clusters are still poorly organized and management poorly trained. Their
survival depends largely on public assistance. Compared with those in the European
Union, our clusters are quite weak and would not be able to compete with European
ones. According to the Ministry of Economy and Regional Development, the countries
in the region have more clusters than Serbia. In Croatia, 44 is registered, 48 in Hungary,
and in Bulgaria 50 clusters. Interestingly, however, in Slovenia there are only 10
regional clusters, while in Italy 213.
Despite the current unsatisfactory situation, attitude of the ruling elite is that the state
should be able to create a favorable environment for the association of the companies
and not to create clusters.
Franchising (Radosavljević, Ţ: pp. 128-129) (8) is a special form of business
cooperation between independent business subjects connected based on the agreement
in which the franchisor gives users the right to use its trademark, image, and systems of
work, and in turn charges a fee as a franchise. In Serbia, the most common form of
product distribution is franchise. The highest percentage of small and medium
enterprises is engaged in this field, where more than half of employees in Serbia work.
On the other side, other transitional countries have had better luck in developing the
concept of cooperation. Franchising is best developed in Hungary, which has 400
franchise chains, of which 50% were domestic. Followed by Poland and Slovenia with
120 franchises, of which 55.7% were domestic. In Croatia, operates 120 franchises
donors, of which 30% were domestic. Czech has 55 franchises.
Experts point to the need for content-designed concept of franchising development in
Serbia. As the main pre-conditions state: (Ćuzović, S: page 228) (9)
• Socio-economic assumptions (stability of the political and economic environment,
corporate culture),
• Development of entrepreneurial spirit among Serbian businesspersons,
• The necessity of strengthening of fair competition, transparency, lawful business, and
the release of political influences,
• Raising the quality of products offered by Serbian businessmen,
• Long-term creation of brand names and not creating brands from season to season (e.g.
duvan ĉvarci (a type of pork crackling), slivovitz) etc.
It is particularly important to reduce risk in business because franchising has
traditionally had a lower failure rate to just stated jobs. When purchasing any of the
franchise business concepts, many difficulties have been overcome and resolved. This
helps ensure stability and growth of small and medium enterprises, which are extremely
important for economic development, fight against unemployment, and ensure country's
exports.
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Serbian government has recognized the efforts of experts and through the Ministry of
Economy and Regional Development is taking steps in the realization of this concept.
For example, taking over Zastava Kragujevac by the "Fiat" may result in a greater
number of business cooperation based on the model of franchising.
3. There is little data on the licensing of foreign partners or obtaining licenses
from them. A survey taken a few years ago on the territory of the European
Union showed that among 240 industrial SMEs only 6% provided licenses
abroad!
4. Direct investments of small and medium-sized companies challenge the
opinion that the direct investment abroad is the privilege only of large
enterprises. Compared to the investments of big companies, direct investment
of small and medium enterprises are much more harmonious with the
development objectives of host countries. In addition, these enterprises in the
form of foreign direct investments often cooperate with the local environment.
Surveys conducted in the SME sector shows that foreign direct investments
value the training of local staff as an important factor for its strategic success
three times more. Then, it is more important to them to promote production and
services and finally up to 50% is the training of local managers and increasing
revenues in foreign markets important to them. (5)
Each national economy should create a strategy of inclusion in global trade flows.
Toward defining the strategy, an important place should be allocated to the SME sector.
SME vs. MNCs - ADVANTAGES AND DIFFERENCES IN THE
PROCESS OF INTERNATIONALISATION
SME sector has proven to be very "powerful industry" and its popularity continues to
grow. SMEs contribute to employment growth much more than large firms and may in
the long term to provide a very important share of all employees. In addition, SMEs can
help in restructuring by absorbing redundant workers and increase competition on the
market. However, the establishment of SMEs does not necessarily lead to the creation of
profitable enterprise because the company primarily involves the willingness to take
risks, and it is necessary to have both experience and keen sense for business.
A study (Svetliĉić, M Jakliĉ, A Burger, A: pp. 36-65) (10), conducted in five Central
European countries in the sample of 180 companies (26 in the Czech Republic, 69 in
Estonia, 22 in Hungary, 24 in Poland and 39 in Slovenia) indicates that the
internationalization of the SME sector and large companies have many more similarities
than differences. The subject of the study was the motives for going to foreign markets,
possible barriers, and competitive advantages of the compared categories. Given the fact
we are talking about members of European Union, the assumption is that because of
time distance in relation to the period of investigation (2007) and the general backlog of
our country in transition for these countries, the results may be identified with the
current internationalization phase of Serbian small and large businesses!
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Both groups of firms identified the same obstacles, but it turned out that SMEs face
greater financial problems and problems of production capacity. Their colleagues enjoy
greater superiority in the field of marketing and production capacity but lack of agility
for a fast and efficient entry into the market too. As SMEs are often the target of
specialized niches, the main competitive advantages of SMEs are technological knowhow, organizational flexibility, and closer relationships with their customers. Larger
players are relying on marketing and the benefits arising from economies of scale.
Large companies dominate the production; small and medium-sized enterprises
dominate in services of various kinds, such as hospitality, real estate, renting, and
business activities, trade and construction. These branches are limited locally and cannot
easily cross the borders. A similar study (Major, I. 2008) (6) showed that the number of
SMEs in CEE in retail trade, personal services, and craft activities was two or three
times bigger than the number of small enterprises in agriculture and food industry,
particularly in relation on production, heavy chemical industry or mining.
Analysts have identified three motives for investing abroad: (10)
1) Search for new markets,
2) Hiring cheaper labor and reduction of other costs,
3) Search for strategic resources.
Investment motives of large companies are more diverse than those available to small
and medium enterprises! Finding new markets is the most important motive for
internationalization. Market motives are the market size, expected growth, purchasing
power, and other aspects that may bolster sales abroad. Advantages associated with
these motives are less expensive inputs, lower transportation costs, customs duties,
taxes, and other benefits of the importing country and directly decrease the costs of the
firm.
Both groups of companies estimate the market growth and purchasing power in deciding
whether and where to invest. Lower labor costs and production costs are more important
motive for investing abroad for larger companies. This is a significant difference
between small and medium enterprises. Large firms are more sensitive to labor costs
and have the ability to choose a location for foreign direct investments more carefully
than the small and medium enterprises.
Global companies often manipulate the total profit achieved by using transfer pricing.
Along with this goes the importance of price competitiveness. SMEs have an
opportunity to exercise a competitive market position through transfer pricing. SMEs
rely more on specialization, adaptation, and close relationships. Because of its
specialization, small and medium enterprises are targeted to meet the needs of their
clients and not just to sell products. This is especially true for highly specialized service
companies, such as consultancy or intermediary in the sale between companies. Because
SMEs usually focuses on specific niches, it is directed at meeting the needs of known
customers and is often less flexible in terms of price.
Strategic resources include intangible assets such as patents, trademarks, and copyrights
and other intellectual property rights, technology, know-how, access to technology
networks and alliances. Large companies are more careful than small and medium when
deciding where to invest and trying to acquire strategic assets. Frequent changes and
problems with the application of the law that is a characteristic of transition economies
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make business expensive. The main problems are unstable and non-transparent legal
environment and turbulent administrative procedures in the countries of investments.
However, SMEs are strongly encouraged to internationalize operations, when the legal
systems in the target countries are not transparent and when the protection of property
rights as is the case in many transition economies that are lagging behind in
privatization and market reforms. (10)
SMEs have fewer employees and involve fewer problems in management. Lack of small
business is that its management is still closer to actual practice and may lose a broader
perspective. Another problem is the large share of family businesses among them.
Family businesses often do not have the ambition and determination to expand their
business abroad. Smaller organizations are directed to the supply of larger organizations
with services and products, using its size and power to stifle the cash flow of smaller
organizations. Successful small organizations inevitably become a large organization.
RELATION OF SMALL AND LARGE COMPANIES IN SERBIA
The current ratio of large and small companies in Serbia is characterized by
discriminatory behavior of large companies. Mentioned discrimination refers to failure
to settle the obligations of large to small and unequal position of small tenders for public
procurement. In addition, it should be noted underdevelopment of distributive chains in
Serbia.
Experts (11) points out that small and medium enterprise in Serbia are at the bottom of
the priorities in the collection of their receivables from large ones. According to the
applicable customs regulations, in that month in which the company meet its obligations
to the Customs and VAT recovery can be performed i.e. offset VAT. Large companies
should be allowed offset VAT only when settle their obligations to small and medium
enterprises, and only to the extent to which they fulfill their obligation towards smaller
firms. If in this regard the government has taken the same attitude as towards the
settlement of customs duties, the budget would be smoother and more efficiently filled,
and most small and medium enterprises would not have a liquidity problem.
Large companies usually have a competitive advantage in terms of meeting the
requirements and regulations of the tender procurement system, but many governments
have taken measures to ensure equal status of the SME sector through better information
and simpler tender procedures. Law on Public Procurement must stimulate the
participation of SMEs in public procurement, and eliminate all restrictions that prevent
small to get this jobs too referring to the amount of funds to participate in the tender, the
size of the company, the amount of capital, and assets in the account, the number of
employees and the like. The opinion was also that creation of a consortium of small and
medium enterprises to participate in public procurement must be allowed. What kind of
potential we are talking about is illustrated by the fact that Serbia spends around three
billion euros in public procurement each year!
Developing of supply chains is an important prerequisite to acquire credibility, increase
market competitiveness, and promoting technological development of small and
medium enterprises in Serbia. In this way, Serbian companies have the ability to supply
directly major regional and international companies. In this area, particular importance
has introduction of customer relationship management (CRM system). In order SMEs to
fight for the place in supplying a large company, quality certificate that shows that
companies doing business in specific, recognizable standards are very important. The
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more important is to meet the standards, but the occasional checks performed by
auditors. (12)
Development of supply chains should be aligned with other economic measures,
especially with good relations and cooperation between regional SME agencies and
other organizations that provide support services to the SME sector, in order to integrate
their activities at the local and regional level. Regional SMEs agencies should specialize
in a new area of providing support to development of SMEs supply chains and to
integrate it into their service of delivering support to SMEs operations. (Grozdanić, R,
Savic, B: page 81) (13) The Serbian economy require institutions or agency that will
connect domestic with foreign companies that will be able to provide information about
where and what to buy and with whom they can work together to foreign companies,
and that investors know where such information can be obtained. In addition, it is
necessary to identify all companies that have the ability to collaborate with others. This
is a very slow process because it takes time to make such database.
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RESUME
An international business prospect of SMEs of Serbia is directly caused by the
economic situation in our country. Serbian companies, often, face problems such as lack
of funds to finance export activities, lack of trained and highly skilled labor, lack of
knowledge of foreign markets, and the lack of information. Because of the backlog of
privatization, the problem is lack of reliable local partners interested in external
appearance.
In order to respond most effectively to these demands, companies need their strength to
recognize the interconnection thus obtaining a strategic position in future operations as a
group of companies. Connecting small and medium enterprises for export should be
based on a thorough analysis of problems and opportunities that arise in the
international market. Therefore, encouraging these companies to create a kind of export
groups to address the aforementioned problems can be very important for success in
implementing the strategy of entering foreign markets.
In terms of relationships with large companies, Serbia has no appropriate legislation that
would force the big companies in a different relationship to small companies. In
developed economies in Europe and elsewhere, there is a legal requirement of large
companies that immediately after the payment of obligations to the government (paying
taxes) settle their obligations to small and medium enterprises. The task is relevant to
the creation of an adequate legal environment protecting small and medium enterprises.
It is also necessary to create the incentive policy to promote the external appearance of
small and medium enterprises. Incentives would include simplification of administrative
procedures for the export business and increase awareness of business conditions
abroad. Lack of access to SME finance can be compensated by strengthening the
existing support programs for small and medium enterprises. In this regard, it should
work on further simplification of the accounting system and creating of financial and
fiscal framework that will alleviate the difficulties faced by SMEs. Finally, it should
encourage further innovative activities and providing assistance, training and
consultancy services for managers and owners of small businesses in order to improve
the method of entering foreign markets.
All these measures for stimulation of the internationalization of Serbian SMEs will take
effect only if the synergistic approach of the economy and state representatives is
achieved!
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2.
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4.
5.
6.
7.
8.
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