Full Text - Facultatea de Stiinte Economice si Administratie Publica

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ISSN 2285 – 3332
ISSN-L 2285 – 3332
www.seap.usv.ro/annals
Revistă ştiinţifică
indexată în baze
de date
internaţionale
The USV Annals
of Economics and
Public Administration
VOLUME 12, ISSUE 2(16), 2012
Editura Universităţii Ştefan cel Mare din Suceava
1
The USV Annals of Economics and Public Administration
Volume 12, Issue 2(16), 2012
EDITORIAL BOARD:
Editor‐in‐chief: Carmen NĂSTASE General editorial secretary: Adrian Liviu SCUTARIU Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Mariana LUPAN, Ovidiu Florin HURJUI, Simona BUTA SCIENTIFIC COMMITTEE:
Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania Paolo ANDREI, University of Studies in Parma, Italy Stefano AZZALI, University of Studies in Parma, Italiy George P. BABU, University of Southern Mississippi, USA Christian BAUMGARTNER, International Friends of Nature, Austria Grigore BELOSTECINIC, ASEM, Chi şinău, Republic of Moldova Ionel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, Romania Aurel BURCIU, „Ştefan cel Mare” University of Suceava, Romania Gheorghe CÂRSTEA, Academy of Economic Studies, Bucharest , Romania Slobodan CEROVIC, Singidunum University, Belgrade, Serbia Simion CERTAN, State University of Chişinău, Republic of Moldova Carmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, Romania Liliana ELMAZI, Tirana University, Albania Cristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, Romania Elena HLACIUC, „Ştefan cel Mare” University of Suceava, Romania Elena IFTIME, „Ştefan cel Mare” University of Suceava, Romania Marian JALENCU, State University of Chişinău, Republic of Moldova Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland Alunica MORARIU, „Ştefan cel Mare” University of Suceava, Romania Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania Carmen NĂSTASE, „Ştefan cel Mare” University of Suceava, Roman ia Alexandru NEDELEA, „Ştefan cel Mare” University of Suceava, Romania Ion PÂRȚACHI, ASEM, Chişinău, Republic of Moldova Rusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, Romania Abraham PIZAM, University of Central Florida, Orlando, Florida Ion POHOAȚĂ, „Alexandru Ioan Cuza” University of Iaşi, Romania Gabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, Romania Gheorghe SANDU, „Ştefan cel Mare” University of Suceava, Romania Petru SANDU, Elizabethtown College, Pennsylvania, USA Doru TILIUȚE, „Ştefan cel Mare” University of Suceava, Romania Viorel ȚURCANU, ASEM, Chişinău, Republic of Moldova Diego VARELA PEDREIRA, University of A Coruna, Spain Răzvan VIORESCU, „Ştefan cel Mare” University of Suceava, Romania Cover design & graphic layout: Adrian Liviu SCUTARIU
Contact:
Faculty of Economics and Public Administration
„Ştefan cel Mare” University of Suceava
Str. Universităţii nr. 13, Corp H, Camera H105
720229 SUCEAVA, ROMANIA
E-mail: [email protected]
Journal web site: www.seap.usv.ro/annals
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University web site: www.usv.ro
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CONTENTS
SECTION 1. ECONOMY, TRADE, SERVICES ...................................................................................6 THE INTERACTIONS BETWEEN ENTREPRENEURIAL EDUCATION AND BUSINESS ENVIRONMENT ...............................................................................................................................................................7 Carmen NASTASE THE PRIVATIZATION OF STATE OWNED ENTERPRISES IN THE EARLY TRANSITION: NECESSITY, METHODS AND MECHANISMS ....................................................................................................13 Alina BADULESCU, Anca PACALA FACTOR ANALYSIS OF ACTIVITY OF HIGHER EDUCATIONAL ESTABLISHMENTS OF VOLYN AREA OF UKRAINE......................................................................................................................................................22 Olesia TOTSKA GREAT DEPRESSION vs. THE CURRENT FINANCIAL AND ECONOMIC CRISIS ................................27 Mariana LUPAN THE DEVELOPMENT OF HUMAN RESOURCES IN ORGANIZATIONS ...................................................36 Mihai POPESCU, Amalia Florina POPESCU CORRELATION BETWEEN FOOD QUALITY AND PRESERVATION METHODS.................................43 Adrian STANCU OLYGOPOLISTIC MARKET FOR CARS IN ROMANIA.....................................................................................50 Cristina Florentina BÂLDAN THE PRIMACY OF EDUCATION IN INCREASING THE QUALITY OF LIFE............................................60 Gabriela‐Liliana CIOBAN STRATEGIC ORIENTATION OF THE SOLID WASTE MANAGEMENT (CASE STUDY KORCA REGION/ALBANIA).....................................................................................................................................................69 Eva DHIMITRI, Aida GABETA, Majlinda BELLO THE NECESSITY OF ENVIRONMENTAL GOODS TRADE LIBERALIZATION.......................................77 Margareta TÎMBUR A WORD‐OF‐MOUSE APPROACH FOR WORD‐OF‐MOUTH MEASUREMENT....................................87 Andreia Gabriela ANDREI CLOUD COMPUTING BASED INFORMATION SYSTEMS ‐ PRESENT AND FUTURE ........................94 Maximilian ROBU ECONOMIC ASPECTS FROM THE ACTIVITY OF THE BUCOVINA’S UKRAINIAN MINORITIES, WITHIN THE INTER‐WAR PERIOD .................................................................................................................. 101 Ionuț BRAN 3
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ECOMARKETING FOR THE COMPANY? WHY? ............................................................................................ 106 Daniel MAFTEI SECTION 2. MANAGEMENT AND BUSINESS ADMINISTRATION...................... 113 NECESSITY TO IMPLEMENT A BUSINESS INTELLIGENCE SOLUTION FOR THE MANAGEMENT OPTIMIZATION OF A COMPANY........................................................................................................................ 114 Luminița ŞERBĂNESCU LEVELS OF CULTURE AND BARRIERS IN ORGANIZATIONAL COMMUNICATION...................... 123 Angelica‐Nicoleta ONEA (NECULĂESEI) A METHODOLOGY FOR MEASURING RESPONSIBLE CORPORATE GOVERNANCE IN COUNTRIES OF EMERGING EUROPE............................................................................................................... 129 Mariana Cristina GANESCU, Andreea Daniela GANGONE MULTINATIONAL CORPORATIONS IN THE ARCHITECTURE OF GLOBAL ECONOMY .............. 140 Rozalia KICSI, Simona BUTA THE NON‐QUALITY OF COUNTERFEIT PRODUCTS AND THEIR EFFECT ON CONSUMERS AND THE INTELLECTUAL PROPERTY RIGHT........................................................................................................ 148 Emilia PASCU, Petronela‐Sonia NEDEA, Oana‐Maria MILEA SECTION 3. ACCOUNTING - FINANCES .................................................................................. 155 HOW DOES GLOBALIZATION INFLUENCE CORPORATE GOVERNANCE AND RESPONSIBILITY? AN OVERVIEW OF ROMANIAN COMPANIES................................................................................................ 156 Florin BOGHEAN, Carmen BOGHEAN THE CORPORATIVE GOVERNANCE AND INTERNAL AUDIT. CASE STUDY: ROMANIAN CREDIT INSTITUTIONS ........................................................................................................................................................... 164 Mariana VLAD CONSIDERATION REGARDING THE LEGAL CAPACITY OF THE ASSIGNEES OF THE BANK CREDIT AGREEMENT ............................................................................................................................................. 170 Anca POPESCU‐CRUCERU COSTS MANAGEMENT AND THE ADDED VALUE METHOD IN THE CONSUMER PERCEPTION
.......................................................................................................................................................................................... 176 Marius BOIȚĂ , Dorina ARDELEAN, Cristian HAIDUC, Emilia CONSTANTIN, MANAGEMENT ACCOUNTING, AN IMPORTANT SOURCE OF INFORMATION FOR THE DECISIONAL PROCESS IN THE COAL MINING INDUSTRY ..................................................................... 184 Ionela‐Claudia DINA A NEW PERSPECTIVE ON INDIVIDUAL TAX COMPLIANCE: THE ROLE OF THE INCOME SOURCE, AUDIT PROBABILITY AND THE CHANCE OF BEING DETECTED..................................... 192 Gabriela ŞTEFURA WAYS OF HANDLING THE NATIONAL CURRENCY IN THE CRISIS ECONOMY ............................. 202 Mihai REBIGA 4
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THE OPPORTUNITY OF FINANCING THE LOCAL COLLECTIVITIES THROUGH PUBLIC‐
PRIVATE PARTNERSHIP ....................................................................................................................................... 212 Marina ZAHARIOAIE SECTION 4. STATISTICS, ECONOMIC INFORMATICS AND MATHEMATICS
.......................................................................................................................................................................................... 220 ISSUES REGARDING SECURITY PRINCIPLES IN CLOUD COMPUTING.............................................. 221 Mircea GEORGESCU, Natalia SUICIMEZOV MERGER REVIEWS AND POST‐MERGER EVALUATION WITH DEA .................................................. 227 Constantin BELU THE USE OF ARIMA MODELS FOR FORECASTING THE SUPPLY AND DEMAND INDICATORS FROM TOURISM SECTOR ...................................................................................................................................... 234 Iulian CONDRATOV, Pavel STANCIU COMBINING FORECASTS BASED ON ECONOMETRIC MODELS FOR SHORT RUN MACROECONOMIC PREDICTIONS WITH HIGH DEGREE OF ACCURACY......................................... 245 Mihaela BRATU (SIMIONESCU) SECTION 5. LAW AND PUBLIC ADMINISTRATION ........................................................ 256 THE IMPORTANCE OF USING INDICATORS TO MEASURE THE PERFORMANCE OF THE PUBLIC WATER AND SEWERAGE SERVICE.................................................................................................. 257 Irina BILOUSEAC SOVEREIGN STATE – THE CLASSIC BASIC SUBJECT OF PUBLIC INTERNATIONAL LAW........ 262 Dumitrița FLOREA, Narcisa GALEŞ DIRECT IMPLICATION OF EUROPEAN CITIZENS IN NORMATIVE PROCESS WITHIN THE EUROPEAN UNION................................................................................................................................................... 274 Andrei MICU INSTRUCŢIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES …….…. 282
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SECTION 1
ECONOMY, TRADE, SERVICES
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The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE INTERACTIONS BETWEEN ENTREPRENEURIAL
EDUCATION AND BUSINESS ENVIRONMENT
Professor Ph.D. Carmen NASTASE
"Ştefan cel Mare" University of Suceava, Romania
[email protected]
Abstract:
Entrepreneurial education is creating substantial changes for organizations throughout the world special after
the economic crises. Creating an innovative environment, stimulating start-ups through access to finance and providing
advice, information and expertise, represent fertile local grounds for business ideas and better performance of regional
economies. The primary purpose of entrepreneurship education is to develop entrepreneurial capacities and mindsets.
A key objective of Europe 2020 is the objective of investing in research and development 3% of GDP, especially by
providing more favorable conditions for private investment and establishing a new indicator for innovation. The article
is structured in four parts: the concept of entrepreneurial education, universities and business environment; the
methodological approach - case study, entrepreneurship education, solutions that can be developed and the conclusion.
Our specific focus is to demonstrate that teaching of entrepreneurship has yet to be sufficiently integrated into
university curricula - indeed it is necessary to make entrepreneurship education accessible to all students as innovative
business ideas may arise from technical, scientific or creative studies.
Key words: business environment, entrepreneurial education, cooperation activities, networks
JEL clasification: M15, R10
INTRODUCTION
The European Union gives an important role to the entrepreneurial education, research,
development and innovation domain (RDI) for consolidation of the competitiveness and for the
economical growth. Changes occurred in technology and society demands introduce changes in
traditional higher education, quality being seen as a knowledge generation in academia nowadays.
In this period of economical crisis the entrepreneurs are the most affected of its effects and
that is the reason why the entrepreneurs must be sustained to proof flexibility to be able to resist or
even advance with their businesses. The firms need employees with entrepreneurial spirit in the key
positions, to be able to help the firms to cross the difficult period from the economical point of
view, to apply innovation especially in the organizational domain (Etykowitz, 2002).
The entrepreneurs carry out vital functions in the economical development. They are
recognized as being necessary agents for the capital mobilization, additional value creation
concerning natural resources, goods and services necessary production, working place creation,
business implementation.
Universities promote the entrepreneurship education, a diverse range of possible options
that students can take, extra-curricular activities, business plan competitions and other activities
that have the added advantage of bringing the local business community into the educational
environment.
European Commission is devoting special attention to entrepreneurship training, special to
university, with a view to encouraging Europe's young people to become the entrepreneurs of the
future. The benefits of entrepreneurship education are not limited to more start-ups. (COM, 2006)
THE CONCEPT OF ENTREPRENEURIAL EDUCATION, UNIVERSITIES AND
BUSINESS ENVIRONMENT
Entrepreneurship refers to an individual’s ability to turn ideas into action. It includes
creativity, innovation and risk taking, as well as the ability to plan and manage projects in order to
achieve objectives. This supports everyone in day-to-day life at home and in society, makes
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employees more aware of the context of their work and better able to seize opportunities, and
provides a foundation for entrepreneurs establishing a social or commercial activity (European
Commision, 2006). The entrepreneur is the person that assumes the risk of beginning his own
business, and for the yang entrepreneurs the risk problem is indeed an important one.
Entrepreneurship education should not be confused with general business and economic
studies; its goal is to promote creativity, innovation and self-employment, and may include the
following elements:
• developing personal attributes and skills that form the basis of an entrepreneurial mindset
and behaviour (creativity, sense of initiative, risk-taking, autonomy, self-confidence,
leadership, team spirit, etc.);
• raising the awareness of students about self-employment and entrepreneurship as possible
career options;
• working on concrete enterprise projects and activities;
• providing specific business skills and knowledge of how to start a company and run it
successfully.
The new generation of specialists, prepared in the European spirit has the fate to identify the
ways of the economical and social sustainable development and to contribute effective through the
abilities acquired at the promotion of new business. In each graduate is a possible entrepreneur and
the educational practice proves that the viable business ideas are not missing.
Higher education institutions should offer a range of courses, rather than settling on a
particular model of delivery. Especially in the early stages of promoting entrepreneurship
education, it is better to have a diverse range of provision: options that students can take, extracurricular activities, business plan competitions and other activities that have the added advantage
of bringing the local business community into the educational environment.
For example, the University of Cambridge (UK), there has been a focus on three aspects of
entrepreneurship education:
• entrepreneurial motivation: the question of what motivates individuals; the social and
economic importance of commercializing science and technology; the fun aspects of it;
through role models, examples and class discussions.
• opportunity recognition: this is a very important aspect of entrepreneurship education as so
much is predicated on whether or not people are able to “see” an opportunity that motivates
them to pursue it. This is taught through “action learning” methods.
• commercialization: through a variety of situations and a number of ways to different levels
of depth. Lectures from practitioners; business plan competitions; short pieces of course
work; small group supervisions etc.
In Romania the most important objective of the Universities is the education of the young
generation and its through specialization in various fields of activity. The goals of the university in
this direction are: boost the cross-border economic development process by increasing the amount
of entrepreneurs who are establishing start ups cross-border; to upgrade human resources by
enhancing the number of start-up entrepreneurs cross-border with viable business plans and by
training local trainers.
Higher education institutions should have a strategy or action plan for teaching and research
in entrepreneurship, and for new venture creation and spin-offs. This calls for the development of
an “Entrepreneurial University”, a major change in the culture of higher education institutions,
which will be evident in:
• the study programmes (multi-disciplinary programmes);
• working and learning methods (team work, initiative with the student);
• research strategies;
• personnel policy (recruitment practices, incentives & rewards, training);
• industry co-operation.
These requirements mean that rectors and senior managers must ensure that the appropriate
institutional infrastructure is in place. Entrepreneurship education makes particular demands on
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quality assurance, human resource management, student support, knowledge transfer, management
information, and governance systems.
An entrepreneurial university is one where entrepreneurship is a systematic approach, and
where people feel committed to this goal. There is a need for opinion leaders who would push the
change from the inside the institution. As a first step a member of the governing body could be
identified as the person in charge, as only a decision maker can decide on the outcomes.
METHODOLOGICAL APPROACH - CASE STUDY
The University Stefan cel Mare is one of the most important institutions in the higher
educational field in the North – East of Romania. The university is offering a modern educationalcurriculum, following the example of modern universities of Europe, but, in the same time, keeping
her own traditions.
The University Stefan cel Mare is a public institution educating in total around 10000
students in nine faculties, with a number of 330 staff, teachers and researchers (2012). The main
contributions of University in local context are to be located in: research activities; educating
skilled labor force for local industries, namely forest industry, food industry, machineries and
equipment; improving education and continuous education for practitioners, managers, namely in
tourism-related issues, forest investment construction; partnership with different institutions and
firms.
University Stefan cel Mare of Suceava has led or participated in over 80 projects that means
a major role in delivering European Structural Funds Programmes. The application of lifelong
learning concept brings benefits to the society, the companies, the institutions and the persons, as a
result of their competitiveness growth; for making the public to be aware of the benefits of the
lifelong learning and for enforcing the cooperation between the education structures and the
businessmen community. As a result of Communication “Let’s make the lifelong learning being
real in the European space”, the lifelong learning has become the leading principle for the
development of education and professional formation politics” (COM 2010)
The access to lifelong learning for all EU citizens is regarded as the fundamental principle
of the national education and professional formations systems. All of the EU member states
recognize the fact that the modifications occurred in conditions, frame and nature of the work
necessarily impose the application of the lifelong learning concept, respectively learning and
information from the individuals, companies, institutions, society and the all economy sides. After
Lisbon, Stockholm and Feira European Council, in the present they overtake to the Memorandum
on Lifelong Learning, having certain strategic objectives: the construction of public-private
partnerships (between companies, universities, schools, NGO-s, research centers etc.); the resources
augmentation for education; the access facilitation to education for all, inclusively by consolidation
of some local centers/universities that offering learning.
The InnoNatour programme was designed for undergraduate and postgraduate students in
the field of business, tourism, and environmental sciences and related disciplines. The courses was
held at “Stefan cel Mare” University of Suceava, Romania (2010 – 2012).
The main aim of this IP was to improve the multilateral cooperation between higher
education institution, to increase the volume of student and teaching staff mobility and on the other
hand to transfer the knowledge on innovation, innovation management and entrepreneurship
straight from research into the education by means of organizing a practical educational course, and
by working with real world cases. The transfer targeted tourism enterprises sector and constituted a
positive input to the improvement of regional innovation processes in European areas. The Erasmus
IP followed to increase the degree of transparency and compatibility between higher education and
advanced vocational education qualifications gained in Europe: in Finland, Italy, Austria, Slovakia,
Bulgaria and Romania. The articles used a research methodology attentive to analyze the difference
between successful entrepreneurs in these countries.
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The secondary aim of the IP was to develop and test new curriculum and teaching materials
in the topic of Innovations and entrepreneurship in nature based tourism services in Europe,
addressing therefore the need of improving educational supply on the topic. Entrepreneurial
programmes and modules offer students the tools to think creatively, be an effective problem
solver, analyse a business idea objectively, and communicate, network, lead, and evaluate any given
project.
In this project was adapted for studying the relationship between different actors, small
innovative enterprises, professional associations and their key stakeholder groups. This kind of
qualitative approach is well justified choice in order to understand any phenomena about which
little is yet known. The aim is a rather inductive analysis between these actors and universities. As
the approach to the innovation process has been chosen case study - approach. A case study is
considered to be an appropriate research strategy to investigate contemporary phenomena within
their real-life context especially when the boundaries between the phenomena and the context are
not clearly evident (Yin 2003), like typical when investigating an innovation process. Furthermore,
case studies can be descriptive, explanatory or exploratory in their nature. The empirical data
consist of 10 case studies representing different innovative companies from Suceava area.
ENTREPRENEURSHIP EDUCATION, SOLUTIONS THAT CAN BE DEVELOPED
The process of starting up and developing a business is a real challenge. In order to help
entrepreneurs with this, it is essential to create a favorable business environment. There are a lot of
instruments for this: ensuring easier access to funding, making legislation, supporting and
developing an entrepreneurial culture and support networks for business. Creating a favorable
business environment means to improve the abilities of entrepreneur, to create a network between
them. Through the project developed by Suceava University, brought together students from six
European countries: Finland, Italy, Austria, Slovakia, Bulgaria and Romania. The countries were
selected according to their competitiveness and innovation level, so within this project was pursued
the knowledge transfer and the experience exchange between countries with different levels
regarding innovation. In this context, the project allowed members of the teaching staff to exchange
views on teaching content and new curricula approaches. The partner institutions involved in this
project were: Savonia University of Applied Sciences from Finland, University of Natural
Resources and Applied Life Sciences from Austria, University of Forestry from Bulgaria, Technical
University in Zvolen from Slovakia and University of Padova from Italy.
During the three years there were involved 10 enterprises from Romania, in the field of
tourism services, which collaborated in providing information and support, being selected as
innovative enterprises for the real world studies, and which were analyzed by students during the
IP. The sampling of the interviewees was made by a purposive sampling in order to ensure
manageable and informative data. The case data have been collected by the participating students
and teachers from programme by using joint semi-structured thematic interview guideline, which
allowed flexible conversations to take place still ensuring that all the main issues were discussed.
The themes were chosen to cover the critical aspects relating entrepreneurial education, business
environment and co-operation networks.The interviews were conducted during 2010-2012. In all
cases the organizations has been visited by the case students. The data collection methods
comprised personal face-to-face, telephone and e-mail interviews with core actors of the innovation
project. In addition written sources such as internal or official project documentations, press
releases, newspaper articles, information on websites, brochures etc were used.
The knowledge of entrepreneurship practices is not only in companies’ interests that are
dealing with more and more complex situations that generate more changes, but in the interest of
the society. An important way is to innovate. Firms innovate in a variety of ways. They may engage
in intensive in-house research activities aiming at the creation of new products or processes, or they
may rely more heavily on external knowledge and imitative research projects. Firms can acquire
external knowledge through formal collaborations with other firms or university research labs,
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informal knowledge transfer, or embodied technology transfer through the acquisition of machinery
and equipment. Each of these activities may still require some R&D investments. However, in this
case the aim is not to create new knowledge but to enable firms to absorb external knowledge and
technologies. These aspects have been explored in this Erasmus IP Project.
Each enterprise had to nominate one member, which stayed in contact with students during
the IP, participated at three meetings with students and offered information regarding the enterprise.
The main activities of the project were divided in three stages: Stage I: Students had to
prepare an innovative case study from their own country; Stage II: 11 days of intensive course in
Suceava, Romania: intensive course on special domains, work groups activities, field trips,
excursions; Stage III: Each student finalized his case study report. The final research was presented
to the company that represented his/her case study.
The use of experience-based teaching methods is crucial to develop entrepreneurial skills
and abilities. Therefore in order to integrate entrepreneurship across the curriculum, the use of
action-oriented pedagogies should be favored in all disciplines.
For example in the Stefan cel Mare University there are a non-profit organization
”Entrepreneurial Students Club”. In this club there are a group of students from different disciplines
within an institution seeking to: raise awareness, about entrepreneurship among other students in all
fields of study; inform them about support, services available to start a company; run enterprise
projects; create business networks. Institutions should encourage the spontaneous initiative of
students; encourage and support the foundation of student mini-companies or junior enterprises;
award academic credits for activities carried out within student associations and for practical work
on enterprise projects.
CONCLUSIONS
The strength that gives universities education an innovative capacity, and hence
entrepreneurial potential, is their autonomy. Given the right framework conditions, entrepreneurial
initiatives can be highly desirable for an institution, as successful initiatives lend the prestige to the
institution. They can also help bridge the funding gap that is chronically facing most higher
education institutions throughout Europe.
While diversity is richness, higher education institutions and educators will benefit from
exchanges and mutual learning, open sources of information, and examples of good practice from
across Europe. Coordination should be applied at a policy level to ensure that all higher education
institutions are given the necessary incentives and opportunities to take on this challenge.
Entrepreneurial teaching should be highly valued in an institution, within the curricula of the
different faculties, with reward mechanisms in place, qualified educators and a wealth of interactions with the outside world, in particular with businesses and entrepreneurs. In this respect, the
development and delivery of entrepreneurship is significantly affected by the internal organisational
structure of the institution.
European Commision formulated some recommendations based on best practice observed in
Europe:
• A coherent framework: national and regional authorities should establish cooperation
between different departments in order to develop a strategy with clear objectives and
covering all stages of education. School curricula should also be revised to explicitly include
entrepreneurship as an objective of education.
• Support for universities : practical support and incentives to incorporate entrepreneurship in
their curricula, through a range of different instruments (distribution of teaching materials,
funding of pilot projects, dissemination of best practice, promotion of partnerships with
businesses, support for dedicated organisations conducting entrepreneurship programmes
with schools, etc.).
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•
Fostering entrepreneurship in higher education: entrepreneurship should be incorporated in
various subjects, particularly within scientific and technical studies, in order to provide
students with specific training on how to start and run a business.
• Support for teachers: it is essential that teachers be given initial and in-service training as
well as practical experience. Awareness should also be raised among heads of schools to
ensure that teachers are allowed the time and resources to plan, run and evaluate activities.
• Participation by external actors and businesses: educational establishments and the local
community, especially businesses, should cooperate on the subject of entrepreneurship
training, and firms should regard this as a long-term investment and as an aspect of their
corporate social responsibility.
• Practical experience: one of the most effective ways to promote entrepreneurial mindsets
and skills is through learning by doing (students setting up and running mini-companies).
The knowledge of entrepreneurship practices is not only in companies’ interests that are
dealing with more and more complex situations that generate more changes, but in the interest of
the society. Entrepreneurship problem is promoted generously as sours of economic increase in a
sustainable development situation, being charged by a series of behaviour, technological,
economical, demographical and institutional factors. In general terms universities structures can
accommodate entrepreneurship education activities.
ACKONOWLEDGEMENT:
”This work was supported by the project "Post-Doctoral Studies in Economics: training program for
elite researchers - SPODE" co-funded from the European Social Fund through the Development of
Human Resources Operational Programme 2007-2013, contract no. POSDRU/89/1.5/S/61755)”
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Commission Communication “Fostering entrepreneurial mindsets through education and learning”.
COM(2006) 33 final.
COM (2010) 2020 - EUROPE 2020 A strategy for smart, sustainable and inclusive growth.
12
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE PRIVATIZATION OF STATE OWNED ENTERPRISES IN THE
EARLY TRANSITION: NECESSITY, METHODS AND
MECHANISMS
Professor Ph.D. Alina BADULESCU
University of Oradea, Romania
[email protected]
Lecturer Ph.D.s. Anca PACALA
University of Oradea, Romania
[email protected]
Abstract:
Privatization assumes major objectives, such as to improve economic efficiency, competitiveness and
strengthening private sector across the economy, considering that the return on capital invested in the public sector is
about one third compared to that invested in the private sector. Efforts to support and modernize the private sector will
increase the overall efficiency, will free up resources by reducing the financial burden of state aids directed to
companies with losses, will allocate these funds for essential social objectives such as health and education.
Privatization has the important task of eliminating political control on enterprises. In this paper we show that
understanding the process of privatization of state owned enterprises requires in the beginning to clarify three key
elements: the institutions involved, the preparation for privatization of state owned enterprises and restitution.
Key words: arguments for privatization, methods of privatization, institutions, post-privatization,
shareholders, Central and Eastern Europe
JEL classification: P26, P31
THE NECESSITY OF STATE OWNED ENTERPRISES’ PRIVATIZATION, OR
BETWEEN MARKET FAILURE AND GOVERNMENT FAILURE
The major objective of privatization is to improve economic efficiency, competitiveness and
sustainability of the private sector from the entire economy. According to researchers, enterprises
return on capital invested in the public sector is about one third, compared with the private sector
(Piesse, 2001).
Thus, raising capital to support and modernize the private sector will increase overall
economic efficiency, will free up resources by reducing the financial burden initially directed
towards companies with financial deficit in the public sector, redirecting these funds to socially
beneficial projects such as health and education. Privatization will make a further important task, of
removing enterprises from political control
What arguments support privatization as a necessity?
The interaction between governments and markets should not consider that the two forces can be
interchangeable, and if competition in the market proves to be the most efficient way to organize
production and distribution of goods and services, the state must provide an appropriate institutional
framework and should intervene if the markets prove inadequate or limited. It is important to
examine the causes and consequences of market failure. The best way to understand the market
failure is to start by understanding market success. Adam Smith argued that each individual pursues
his own interests, and in a market economy, these would also serve the common well-being.
Therefore, according to neoliberal theory, if markets are complete so that no transactions are lost,
and if there are enough buyers and sellers so that none can influence prices, the result of market
functioning will be efficient. Therefore resources will be fully used, properly allocated to efficient
companies and an optimal combination of goods and services produced will be achieved, in other
words a combination that will maximize consumer welfare, will remunerate adequately holders of
capital and resources through the optimal achievement of revenues In addition, efficient markets
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Volume 12, Issue 2(16), 2012
also depend on the assumption that information is perfect, that the provision of information itself is
subject to the market. Control (monopoly) on information leads to market failure, as much as a
monopoly on resources. Therefore it becomes clear that the development of perfectly competitive
markets is difficult, and the understanding of the nature and extent of imperfections is very
important. Government intervention can be justified only if resources are not fully engaged or if the
distribution of the market outcome is unacceptable.
a. Market failure
Markets may fail because of two main reasons. The first refers to a situation where there are
structures that undermine the perfectly competitive market, as there are too few market participants.
The second reason concerns the situation when markets do not exist, may be incomplete or
fragmented. This allows transactions generate no multiplication effects or negative externalities
occur, i.e. where production or consumption activities of an economic group reduce the activity of
another group, and the effect is not resolved by the price system. Moreover, this type of market
failure tends to worsen at lower levels of development. In addition, although the existence of
monopoly and negative externalities are separate concepts, they tend to interact and cause market
failure and thus an erroneous allocation of resources.
b. Government failure
Market failure is a necessary but not sufficient condition for government intervention,
"because it is assumed that existing imperfect institutional arrangements can be compared with an
ideal norm"(Piesse, 2001).
In other words it is possible that government failure can lead to a result that is less desirable
than market failure. The results of government intervention include lack of incentives, corruption,
discrimination and seeking rents. In addition, there is no reason why the state would act better than
the private sector unless the cause of market failure is poor information and the government has
access to quality information.
c. Acceptance of government intervention
Government intervention can be supported when the aim is to maximize social welfare and
eliminate the negative effects of market failure. In developing countries setting the cases of lack of
functioning is obviously necessary, because in these economies market failure remains pervasive If
markets are incomplete or non-existent, the public sector's role is supposed to be higher than in
economies with well-developed markets, applying the general principle - the smaller the level of
market development, the greater the frequency of market failure, and thus greater the need for state
intervention.
d. Reactions and arguments against state intervention in economy
On the other hand, it is argued that the government should refrain from interfering with
economy, according to the following principles (Piesse, 2001):
- ideological principles: free market capitalism is a guarantor of individual freedoms and
government intervention, in any form, threatens this structure. Similarly, it is considered
wrong to control resources entrusted to government officials, regardless of the extent of
social objectives pursued;
- logical, positive principles: these assume that personal incentives are always the best
motivation and proving market efficiency leads to anti-statist. The same principle of
seeking one’s self-interest will always explain why government’s waste gains resulting
from the division of labour and personal initiative, because the funds will be directed not
for economic efficiency, but where their interests are best served (power, continuity,
etc.).Thus, rent-seeking behaviour is usually the rule and the state is an agent extremely
difficult to monitor and control and there is no effective means of determining the state
to achieve any particular goal.
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Volume 12, Issue 2(16), 2012
Among other arguments against government intervention one might mention the constant
increase of personnel in public institutions without any positive effect on the economic, social, and
organizational plan, determining burdensome budgets that reduce the affected part of projects, the
lack of real incentives. In many countries, public sector is disproportionately large, and government
policies, instead of contributing to the development of market institutions, seem rather antagonistic
and private activity is seen, in most cases, as a source of income, taxes, a pretext for intervention in
economy, etc. (Piesse, 2001).
Structural adjustment loans and conditioned support programs provided by global
institutions (e.g. World Bank) led to improved public-private relationship in the economy and
imposed more efficient government behavior, but in most cases they are rather the result of
coercion measures than of voluntary change of ideologies or of abusive practices.
PRIVATIZATION METHODS AND MECHANISMS
The privatization and restructuring of enterprises in Central and Eastern European countries,
the stimulation of private initiative, through liberalization and ceasing bans, led to a rapid,
spontaneous development of numerous activities, first in the field of commerce and services and
then in industry, where fix capital investment was reduced and the implication and enthusiasm of
the human capital was essential. Gradually, the small business sector defined a certain parallel
economy, with characteristics borrowed both from the free market and from the informal
commercial mentalities of the previous period (Communism). Later, authorities, aware of the
opportunities associated with this sector, started to support the entrepreneurship through the socalled small privatization laws particularly through renting, leasing or sale of assets or units of
production to small firms, somewhat limiting the access of large companies or foreign capital to this
type of privatization. In contrast, the vast privatization of large state enterprises began and
developed slowly in most countries: the establishment of legal and organizational framework, of
responsible institutions, making lists of enterprises to be privatized and not, finding investors,
monitoring each step, etc. Even if each of these steps was measured in months, even years, it is
considered that this was not the biggest problem in the process of privatization of state firms.The
real problems were associated with the ways in which these companies were sold or the further
commitments adopted by the state or imposed on new owners, the huge debts accumulated by these
companies, inadequate or obsolete facilities, unprepared management and so on, which shows that
transition from state ownership to private property was not similar to privatization. Property rights
issues, implementation of corporate governance, or failed restructuring prevented the creation of a
"standard", functional market economy. Privatization methods have taken a multitude of forms, but
most authors consider that there are three main forms of privatization: the sale to the national
capital, sale to foreign investors and mass privatization schemes, plus restitution of the property
abusively confiscated during the communist period (Lavigne, 1999). Each approach has specific
components and application versions, and often they were combined over more than a decade. The
privatization of state enterprises requires clarification, in advance, of some three key elements: the
institutions involved, the preparation for privatization of state enterprises and the issue of restitution
(Lavigne, 1999):
- Institutions. All countries involved in the privatization process appointed the
government (by ministries) or some agency to handle this process. From extremely
powerful institutions (Treuhandstalt in Germany), the complexity, extension of the
process and political interventions often led to the appearance of new, "specialized"
agencies, which in most cases did not make privatization more efficient. Regardless of
the degree of involvement, the supervision of processes was carried out by governments,
and in some cases the political balance determined the greater involvement in
supervision of legislative institutions, as it was the case in Romania.
- Preparation for privatization. In most cases, state enterprises were initially transformed
into joint stock companies, a process called marketization, commercialization,
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Volume 12, Issue 2(16), 2012
corporatization or incorporation and the state, as single shareholder, entrusted its
agencies the task of reducing, through various methods, the proportion held in these
entities. Sometimes these agencies had the task of ex ante restructuring the sale process
or, in the case of failed privatizations, resumed the process in other forms, up to its
completion.
- Restitution of property. Its inclusion in the category of pre-privatization problems is
caused by several reasons:
a. Some researchers prefer not to consider it a privatization method but rather a
political and ethical decision, because most of Central and Eastern European
countries aimed not only at economic reform, but also at the correction (if possible)
of the previous political regime abuse.
b. Although it seemed that restitution should take place before the actual privatization
(as was the case of Czechoslovakia and the Czech Republic and Slovakia in different
forms, Germany), there were states that started this process much later (Romania,
Russia) generating more confusion;
c. Regardless of reasons, way of achievement (in kind or different forms of
compensation) or timing, restitution, strictly regarded from the economic and
organizational perspective generated huge problems, making it extremely difficult to
implement.
Thus, among the most pressing problems we mention identification of former owners (their
great majority being dead or having immigrated), of heirs, the identification of claimed assets (most
of them having disappeared during successive modernization processes), the extension of the right
of restitution of assets or economic entities towards other goods with social destination, etc. If
restitution was not possible, compensation raised other problems such as that of correctly evaluating
current assets, of comparing the possession or the land possessed at the moment of nationalization
or confiscation, complications related to limiting the access of foreign citizens to ownership over
land.
In many cases, restitution did not expect solutions from the privatization process, but chose the path
of justice,
In all cases, irrespective of the solution chosen, restitution proved to be an extremely
politicized issue, has alienated large groups of people – especially in rural areas, and hindered the
process of the great and the small privatization. Even in its “market” form – of compensation by
certificates, up to the creation of a functional capital market, they have not done much material
rewards to owners, and in the case of restitution, the resumption of the productive activity and the
turning of the respective business into an efficient one by former owners or their heirs was unlikely.
The easiest way was that of selling the assets obtained by the owners of financial and human
capital.
Table 1 summarizes the main elements of privatization, institutions, methods, techniques,
indicating, where possible, the country.
Table no. 1. Institutions and methods of privatization in Central and Eastern European
countries
Institutions of privatization, objectives and responsibilities
Government
State agencies
Ministries of privatization (în CZ,
State Property Agency (H), National
SK, PL, Baltic States, H) or
Privatization Agency (Rom), State
ministries of economic reform
Committee for the Management of
(Rom)
State Property (Ru)
Application of general policies of
privatization under government
Supporting ministries of
privatization, protecting and
16
Specialized agencies, funds, etc.
Company for the Management of
State Assets (H - fusion with the
Agency for State Property), State
(National) Property Fund (Rom, BG,
CZ, SK, Ucr., Ru), State Treasury –
PL
State-owned asset management,
before or after privatization (in case
Volume 12, Issue 2(16), 2012
of failure or non-inclusion in the
representing state interests during
control, the selection of enterprises
privatization process), restructuring
the process of privatization or of
for privatization, examining
some minority portfolios, promoting state-owned enterprises
privatization projects submitted by
privatization programs, assistance to
enterprises, participation in setting
foreign investors, evaluating
the rules and methods of
proposals .
privatization
The small privatization (small business, workshops, services units, commerce, constructions, housing, land
funds, etc.)
Sources of financing the acquisition:
Return to initial owners:
Alienation of state-held assets:
In kind or equivalent assets Closure,
liquidation
of - Local capital
- Foreign capital (often under
(CZ, SK, BG), or land (Rom, Est.)
enterprises
Compensations in cash, when Sale on parts and relocation of certain formal restrictions)
other options were not possible (CZ, physical assets (PL)
SK, B, Lit., Let)
Sale at auction (in most
Privatization certificates (BG, H countries)
SLO)
Leasing
MEBO (H, PL, Rom, Ru)
sometimes supported by programs of
mass privatization - certificates
Free distribution (for land and
housing –Rom, BG)
The large privatization (privatization of large enterprises in industry, services, banks, etc.)
Methods not generating revenues
Methods based on stimulating the
Methods based on the flux of foreign
from the state:
implication of local capital
capital:
Free distribution towards the ”Spontaneous” privatization
Direct sale, with the transfer of
population (mass privatization)
Sale by case, directly or on the the majority share capital. Required
Predominant in (CZ, SK, Lit., Rom,
capital market, started in H. And in all conuntries, widely applied in
SLO, Ru)and being completed by
continued in most countries
H.
other methods in BG, Let, PL
Abbrevations: BG – Bulgaria, CZ – Czech Republic, E – Estonia, H – Hungary, Let – Letonia, Lit – Latvia, PL –
Poland, Rom – Romania, SK – Slovakia, SLO – Slovenia, Ru – Russia, Ucr – Ukraine
Source: Lavigne, Marie (1999) The Economics of Transition. From Socialist Economy to Market Economy, Second
edition, Palgrave
Returning to actual methods, we shall briefly review them below:
1. Selling state enterprises to foreign capital
Most authorities had high expectations for the entry of foreign capital in these countries,
both for the success of privatization, establishment of new firms, but also to increase overall
competitiveness, the introduction of corporate practices and more. Most of these economies had
experienced, during the relaxation of the 60s-70s, foreign capital inflows (foreign trade, financial
institutions and production units) but the facilities granted after 1990 were more significant and
sometimes put in the shadow of the facilities granted to domestic capital and to the population
(Lavigne, 1999). The relationship with foreign capital was ambiguous, facilities were often
accompanied by restrictions (e.g. – the situation of land) and economic reasons had to make certain
concessions to nationalist trends or concerns that the benefits of obtaining cash from privatization
might be overshadowed by selective behaviour, the so-called „cherry picking”, namely that that
foreign capital would be in the possession of the best assets and state firms with problems would be
left for local investors or would not be purchased by anyone, remaining a responsibility of the state.
To all these the real fears of authorities added, namely that the entry of large multinational
companies, in some cases with turnover comparable to the GDP of the respective countries, will put
governments in a position of inferiority. Although the results of privatization of large enterprises
with foreign investment have been positive in many cases, more than a decade after this type of
privatization, initial findings showed that entry of foreign capital is certainly not the preferred,
unique solution of the privatization process. Most states have failed to privatize large parts of
economic sectors and in many cases the foreign capital share was more than 60-70% (much higher
than the proportion of foreign capital in the countries of origin). However, there are still undeniable
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advantages: accelerated privatization, the contribution of new technologies and markets,
considerable financial flows, especially during critical periods experienced by host countries, etc.
2. Privatization through sales to domestic capital
In the vast majority of cases, methods and steps are similar to those of selling to foreign investors,
regardless of the particular field or investment size.
One of the first difficulties was the shortage of domestic capital and its reluctance to participate
to the privatization of large state enterprises, often restructured companies with huge debts and
political control, so little availability was consumed in small privatization. A second difficulty was
the long period of achievement. While the authorities have tried a variety of methods, prior
restructuring, lists of companies, pilot privatization, etc., each transaction was a long process and
experiences were inconclusive so as to replicate them during following privatization processes.
Even Poland and Hungary, countries most advanced institutionally and with significant
opportunities to attract capital, managed to sell only part of the proposed portfolio. Gradually, this
type of privatization has given way to arguments about the method of (free) distribution of property
certificates. However, privatization of state enterprises by using internal resources identified several
problems that marked degree and efficiency of domestic capital involvement in the economy,
whether we speak of small capitalists, interested to develop exogenously, through the acquisition of
available assets, or about the large mass of citizens, encouraged to participate in the purchase of
shares in listed companies:
- the reduced percentage (and continuously decreasing during the 90s in all Central
and Eastern European states) of savings and of the investment rate in GDP;
- inexistent or less functional mechanisms to mobilize these availabilities, namely
private investment funds, flexible financial instruments, not-privatized bank system
and with little interest in co-financing the projects of local investors to buy state
assets;
- a low power, volatile capital market, dominated by public offer procedures, reduced
investment experience, focusing more on speculation than on long-term investment.
Finally the (free) transfer of state enterprises shares to citizens involved two versions:
- Distribution of certificates, vouchers or coupons to be converted into shares in
companies prepared for this type of privatization;
- Distribution of shares to investment funds or holding owning shares in privatized
companies
Not infrequently there were combinations of these variants, by which citizens could require funds to
manage the received coupons
As a conclusion to privatization by internal forces, we can say that, irrespective of the preferred
method, all countries have tried mass privatization, combined with other forms of removal of state
ownership of enterprises, for several reasons:
- the rapid pace of the method (reported in percentages obtained and the number of
"shareholders" resulted);
- being politically attractive, it ensured for a good while a number of voters and answered,
at least apparently, a series of social demands;
- it could claim itself, formally or actually, as a way that opened the irreversible road to
capitalism and avoided the attributes of centralism, specific to the Communist period.
3. „Spontaneous” privatization (or privatization through insiders)
For many researchers ”Spontaneous privatization is not a specific privatization method, but
rather a means whereby insiders (important persons in the respective company) managed to acquire
the former state property” (Lavigne, 1999)
Who are / were these insiders? First the category of state companies managers, which is quite
heterogeneous, as they came from the technical, administrative or even political structures of the
old regime, to whom other persons within the firm were added, such as members of the former
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Volume 12, Issue 2(16), 2012
structures of collective leadership established by the Communist authorities, trade union
representatives, the latter having the advantage that, in addition to access to information, they could
manipulate the numbers of workers in their own interest.
The process began immediately after the first political and economic liberalization measures;
managers made use of new legal provisions to split the and transform its effective parts (actives, the
skilled workers) in limited liability companies, in which they held, directly or indirectly, the
majority of social parts. After a period in which the spontaneous privatization began to spread, there
have been attempts, more or less timid or effective, to stop it (Poland, Czechoslovakia, etc.). In
these conditions, the process did not cease, but assumed new forms: In some countries (Poland) it
adopted the way of legal liquidation, that is of restructuration and turning viable some parts of the
less efficient companies and sales to employees and managers, in fact a masked spontaneous
privatization, or at least a decisive step in that direction:
- although this type of “spontaneous” privatization should not be confused with
privatization initiated by the enterprises themselves and proposing the approval of
authorities responsible for privatization, it is hard to believe that these proposals
were not based on important information held by insiders;
- finally, certain forms of mass privatization (ex. Russia) had in view even important
percentages allocated to employees and the management (cumulated over 51%),
namely a legal form by which privatization in favor of insiders could continue
In retrospect, most researchers, practitioners and decision makers of that period agree that it
was difficult to create a unitary image on that form of privatization, or to either condemn or support
it unconditionally. However, several conclusions can be drawn:
- after a period in which this form of privatization took place more or less openly, the
great majority of Western specialists, of international institutions involved in the
financing and restructuring of post-socialist economies, but also Eastern European
governments did not accept it;
Certain Eastern-European researchers found that mass privatization was “socialized”
spontaneous privatization (of course, without the efficiency and the benefits of
insiders, placing the sign of equality between the two forms, as a result of combining
the interests of politicians and managers (Mihalyi, P.,1992-1993);
- for a good while, managers of state companies, with all their weaknesses and little
preparation for a market economy, were the only internal resource available to
administrate and make profitable the existing enterprises. Indeed, they acted for the
maximization of their own interests – but does capitalism say anything else? – and
sometimes they identified these interests with ownership over the company they
were employed for and sometimes managed to make it profitable, and other times
failed. According to Lavigne, the alternative to these managers within the firm would
have been that of political appointees (state was still the owner), certainly less
experienced (from the technical and the commercial point of view) and without any
guarantee that they wouldn’t have acted in their self-interest (Lavigne, 1999);
- certain researchers (Aghion, Carlin, Blanchard) show that these managers and this
method created little incentive to achieve a profound restructuration of the firm and
that they were less efficient in comparison with managers brought by the
shareholders who purchased the privatized state firms”, that the outsiders-type
property would be the necessary solution for the profound restructuring required by
privatized firms (Blanchard, O., 1997; Aghion and Blanchard, 1993 and Carlin,
Wendy, Van Reenen and Wolfe, 1997).
- however, the number of external managers, even the ones brought from Western
countries, willing to take on recently privatized state firms, was reduced, and the
effective transfer of management from the new owners (until recently managers of
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Volume 12, Issue 2(16), 2012
those companies) towards the new, “external” managers, was, conceptually,
extremely difficult.
Table no. 2. Methods of privatization and the main beneficiaries (shareholders)
Way of transferring
existing assets
Sale
Existing managers
and employees
MEBO (ManagementEmployee Buy-Out)
Population (in
general)
Rating on the
stock exchange
Untendered
Sale
Private foreign or local
companies
Mixed companies (joint
venture), direct foreign
investment
-
Privatization
Restitution
through
certificates
Source: Piesse, Jenifer (2001) Privatisation and the Role of Public and Private Institutions in Restructuring
Programmes, available at: http://www.sed.manchester.ac.uk/research/iarc/ediais/pdf/Privatisation.pdf, accessed on
15.01.2012
Distribution
Spontaneous
privatization
Initial owners
CONCLUSION
As for the necessity of privatization and its benefices in improving economic efficiency, in
terms of methods, experts indicate that, basically, there are three methods: selling to foreign capital,
privatization through sales to domestic capital, and spontaneous privatization (or to insiders).
Nevertheless, there are the elements that give a more complex process (campaigns of mass
privatization, restitution, small privatization and large privatization etc., which are often combined).
We have analyzed, therefore, impact and the extent of each method, given the difficulties and stages
of the process, and identify which method had the best results in given context and situation.
Privatization as a process had ended, but we cannot be indifferent to the outcome of this process, if
its long term effects are those expected or is just a huge social and economic experiment that failed.
It is important to know, for a future research, whether privatization was followed by a real corporate
governance, if this governance proved to be an enhancer or a constraint factor for business
efficiency. The reduction state property and decreasing of their influence in the behaviour and
performance of Romanian economy could be considered a positive result of the privatization
process?
The privatization of industrial enterprises was, in the first instance, driven by "popular"
motives, and less by economic reasons and, finally, privatization process has focused on selling to
important investors (foreign or domestic), aiming to increase budget revenues (best possible price)
and thus to achieve efficiency targets. As a result, a dispersed ownership structure was a rare
phenomenon in the strategic industries, by keeping away the minority shareholders investments.
This fact generated reduced capital market liquidity; thus, these strategic companies become
dependent on mother companies allocations, on state funds, and rarely on the capital market.
Privatization has generated a complex ownership structure, and the domination of large global
players in heavy industry (in terms of capital and number of large units) and a huge number of
SMEs in the rest of the industry, economically too weak to have a say in the industry or
performance orientation. These quantitative dimensions must quickly shift into qualitative
advantages – in terms of performance, modernization or continuity perspective. Concerning the role
of the government after privatization, the state quickly withdrew from the position of owner and
administrator, and gradually became more a discreet but efficient partner for large industrial groups,
rather than an active minority shareholder or a defender of economic and social interests.
REFERENCES
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Adler-Lomnitz, Larissa and Sheinbaum, Diana (2011) ‘From Reciprocal Social Networks to
Action Groups for Market Exchange: Spontaneous Privatization’ in Post-Communist Hungary,
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2.
Aghion, Ph. and Blanchard, O. (1993) On the Speed of Transition in Central Europe. London,
EBRD, Working Paper nr. 6.
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Blanchard, O. (1997) The Economics of Post-Communist Transition. Oxford: Clarendon Press
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Carlin, Wendy, Van Reenen J., Wolfe, T. (1997) Enterprise restructuring in the transition:
an analytical survey of the case study evidence from Central and Eastern Europe, European Bank
for Reconstruction and Development Working Paper 14, London
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Johnson, S. (1991) Spontaneous Privatization in the Soviet Union. How, Why And For
Whom?, World Institute for Development Economics Research of the United Nations University
(UNU/WIDER) Helsinki, Finland, and Harvard Academy for International and Area Studies,
Cambridge, SUA.
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Lavigne, Marie (1999) The Economics of Transition. From Socialist Economy to Market
Economy, Second edition, Palgrave: 162-202.
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Mihalyi, P. (1992-1993) ‘Property Rights and Privatization, the Three – Agent Model (A Case
Study on Hungary)’, Eastern European Economics, Volume 31, (2): 5-64.
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Piesse, Jenifer (2001) Privatisation and the Role of Public and Private Institutions in
Restructuring
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http://www.sed.manchester.ac.uk/research/iarc/ediais/pdf/Privatisation.pdf, accessed on 15.01.2012.
9.
Voszka, Eva (1999) ‘Privatization in Hungary: Results and Open Issues’, Economic Reform
Today (Number Two).
21
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
FACTOR ANALYSIS OF ACTIVITY OF HIGHER EDUCATIONAL
ESTABLISHMENTS OF VOLYN AREA OF UKRAINE
Associate Professor Ph.D. Olesia TOTSKA
Lesya Ukrainka East European National University, Lutsk, Ukraine
[email protected]
Abstract:
In this article the author conducted a factor analysis of statistical indicators of activity of higher educational
establishments of Volyn area of Ukraine. Two main factors of influence on these objects are certain. For automation of
calculations a programmatic package StatSoft Statistica is used.
Key words: factor analysis, statistical indexes, higher educational establishments, Volyn area.
JEL classification: C81, I23
INTRODUCTION
In obedience to Law of Ukraine «About higher education» realization of public policy in
industry of higher education comes true by providing of the balanced structure and volumes of
preparation of specialists with higher education, that comes true in higher educational
establishments (HEE) of state and communal patterns of ownership, for money of corresponding
budgets, physical and legal persons, taking into account the necessities of person, and also interests
of the state and territorial communities [1]. Therefore research of statistical indicators of activity of
higher educational establishments in the separate regions of country, in particular in Volyn area,
will be interesting.
For research a factor analysis will use, namely its partial case – a method of main
components. Popularity of this method consists in, that after its help it is possible to educe the
hidden hypothetical sizes (factors) on the basis of plenty of experimental data. A factor analysis is
used by such sciences, as psychology, biology, sociology, meteorology, medicine, geography, and
also economy. In the field of education after his help determined rating of regions after the regional
index of market of educational services development, conducted segmentation of consumers of
educational services [2–3].
The aim of writing of this article is realization of factor analysis of statistical indicators of
activity of HEE of Volyn area of Ukraine. For it realization it is needed to untie such tasks:
1) to build a table with primary data;
2) to define the optimal amount of the hidden factors, that influence on them;
3) to give interpretation to the got factors.
EXPOSITION OF BASIC MATERIAL
The factor analysis of activity of HEE of Volyn area of Ukraine will conduct on the basis of
such 10 indexes:
index 1 – amount of HEE I–II levels of accreditation, units;
index 2 – amount of HEE III–IV levels of accreditation, units;
index 3 – amount of students in HEE I–II levels of accreditation, thousand persons;
index 4 – amount of students in HEE III–IV levels of accreditation, thousand persons;
index 5 – amount of the accepted students to HEE I–II levels of accreditation for a year,
thousand persons;
index 6 – amount of the accepted students to HEE III–IV levels of accreditation for a year,
thousand persons;
22
Volume 12, Issue 2(16), 2012
index 7 – amount of the produced specialists of HEE I–II levels of accreditation for a year,
thousand persons;
index 8 – amount of the produced specialists of HEE III–IV levels of accreditation for a
year, thousand persons;
index 9 – amount of graduate students on the end of year, persons;
index 10 – amount of doctoral students on the end of year, persons.
Primary data for all indexes represented in a table 1.
Table nr. 1. Activity of higher educational establishments of Volyn area of Ukraine
School
year
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
Index 1
Index 2
Index 3
Index 4
Index 5
Index 6
Index 7
15
15
13
13
14
15
15
15
14
15
14
13
13
12
11
11
11
2
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
10,4
10,1
10,0
9,9
10,0
10,7
11,6
12,3
12,1
11,9
11,0
9,5
9,4
8,6
7,7
7,9
8,1
11,5
13,2
14,8
16,8
17,3
18,1
18,9
19,1
21,0
20,5
23,8
26,0
27,6
27,4
27,0
25,7
23,6
3,0
3,0
3,0
3,1
3,3
3,9
4,3
4,4
4,1
4,0
3,6
3,1
3,1
2,7
2,2
2,5
2,5
2,6
3,6
4,0
4,4
3,9
4,0
4,2
4,2
4,9
5,1
6,6
6,5
5,8
4,7
4,7
5,1
4,2
3,5
3,3
3,1
3,1
3,1
3,2
3,1
3,3
3,4
3,5
3,2
3,0
3,1
2,4
2,0
2,2
2,2
Index 8
Index 9
Index 10
2,0
248
2
1,9
298
7
2,1
365
14
2,2
335
16
2,9
313
14
3,9
311
16
4,8
301
12
5,6
298
8
6,8
244
5
3,5
247
5
3,8
251
9
3,9
262
10
3,9
297
15
4,6
363
19
5,7
408
22
6,5
450
23
6,3
462
23
It is celled by an author on basis [4]
Analysis of table 1 shows that for last 17 years in Volyn area of Ukraine amount of HEE I–
II and III–IV levels of accreditation (indexes 1, 2) almost did not change. At the same time the
amount of students in HEE I–II levels of accreditation (index 3), accepted students to HEE I–II
levels of accreditation (index 5), produced specialists of HEE I–II levels of accreditation (index 7)
are diminished. After all other indexes (4, 6, 8, 9, 10) were set tendencies to the increase.
Later it is needed to build a correlation matrix on the basis of primary standardized data and
find it own values. In a table 2 own values of correlation matrix (their sum equals the sum of units
on the diagonal of matrix, id est 10), and also percents of their general dispersion, got by means of
programmatic package of StatSoft Statistica, are brought.
Table nr. 2. Own values of correlation matrix
№
Own values
% of general dispersion
Combined own values
1
2
3
4
5
6
7
8
9
10
6,065154
2,365062
0,936197
0,295323
0,145574
0,090895
0,045516
0,032885
0,020090
0,003306
60,65154
23,65062
9,36197
2,95323
1,45574
0,90895
0,45516
0,32885
0,20090
0,03306
6,06515
8,43022
9,36641
9,66174
9,80731
9,89820
9,94372
9,97660
9,99669
10,00000
Combined % of general
dispersion
60,6515
84,3022
93,6641
96,6174
98,0731
98,9820
99,4372
99,7660
99,9669
100,0000
For determining the optimal amount of the hidden factors that influence on select by us
indexes, will apply three methods. In obedience to the first – to the criterion of Kaiser – abandon
factors the own values of that exceed unit. Analysing the table 2, see that only two factors greater
23
Volume 12, Issue 2(16), 2012
unit, id est by the criterion of Kaiser it is needed to leave two factors, as only two own values that
explain about 84,30 of combined general dispersion exceed unit.
In obedience to the second method abandon so much factors, how many explain the
beforehand fixed part of the combined general dispersion (for example, 80 %). In our case it also
two factors.
In obedience to the third method – criterion of scree (offered by Kattal), that is base on
analysis of the special chart, on that dependence of size of own value of factor from his number is
represented, – the optimal amount of factors can be defined after the point of the second bend. Id est
on this chart it is needed to find such place on a chart, where reduction of own values from left to
right is maximally slowed. On fig. 1 brought scree plot, on that a point of the second bend is
opposite the third own value. Thus, by this method it is needed to leave three factors.
As two from three methods specify on two factors, will take this amount for optimal. The
value of the factor loading at these factors is driven to the table 3. In it a grey color is distinguish
the factor loading the value of that after the module exceeds 0,65.
7,0
6,5
6,0
5,5
5,0
4,5
Value
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
1
2
3
4
5
6
7
8
9
10
Number of Eigenvalues
Figure nr. 1. Scree plot
Table nr. 3. The factor loading at factors
№
Index
a1j
a2j
-0,883139
0,399090
0,232480
0,924794
amount of students in HEE I–II levels of accreditation, thousand
persons
-0,947011
0,102852
4
amount of students in HEE III–IV levels of accreditation, thousand
persons
0,362238
0,896052
5
amount of the accepted students to HEE I–II levels of accreditation
for a year, thousand persons
-0,882515
0,047791
6
amount of the accepted students to HEE III–IV levels of
accreditation for a year, thousand persons
-0,112104
0,883415
7
amount of the produced specialists of HEE I–II levels of
-0,912223
-
1
amount of HEE I–II levels of accreditation, units
2
amount of HEE III–IV levels of accreditation, units
3
24
Volume 12, Issue 2(16), 2012
0,336838
8
amount of the produced specialists of HEE III–IV levels of
0,238203
0,676907
9
amount of graduate students on the end of year, persons
0,930169
0,045392
10
amount of doctoral students on the end of year, persons
0,882238
0,244754
General dispersion
5,185878
3,244338
Part of general dispersion
0,518588
0,324434
The mathematical models of dependences of indicators of activity of HEE of Volyn area of
Ukraine from two hidden factors (got after an ortogonal rotation after the method of varimax) will
represent as such linear combinations:
z1 = -0,883139F1 - 0,399090 F2 ;
amount of HEE I–II levels of accreditation:
amount of HEE III–IV levels of accreditation:
z 2 = 0,232480 F1 + 0,924794 F2 ;
z 3 = -0,947011F1 - 0,102852 F2 ;
amount of students in HEE I–II levels of accreditation:
amount of students in HEE III–IV levels of accreditation:
z 4 = 0,362238 F1 + 0,896052 F2 ;
amount of the accepted students to HEE I–II levels of accreditation:
z 5 = -0,882515F1 + 0,047791F2 ;
amount of the accepted students to HEE III–IV levels of accreditation:
z 6 = -0,112104F1 + 0,883415 F2 ;
amount of the produced specialists of HEE I–II levels of accreditation:
z 7 = -0,912223F1 - 0,336838 F2 ;
amount of the produced specialists of HEE III–IV levels of accreditation:
z 8 = 0,238203F1 + 0,676907 F2 ;
amount of graduate students:
z 9 = 0,930169 F1 + 0,045392 F2 ;
amount of doctoral students:
z10 = 0,882238 F1 + 0,244754 F2 .
A factor structure in two-dimensional space is represented on fig. 2. From it evidently, that
the first factor with authority influences on six indexes of activity of HEE of Volyn area (1th, 3th,
5th, 7th, 9th, 10th), thus four from them (1th, 3th, 5th, 7th) are arctic to two other (9th and 10th),
that their mutual reverse dynamics certifies. The second factor with authority influences on four
indexes (2th, 4th, 6th, 8th) that all one arctic inter se.
1,0
Index 2
Index 4
Index 6
0,8
Index 8
0,6
Factor 2
0,4
Index 10
0,2
Index 5
Index 9
0,0
Index 3
-0,2
-0,4
-0,6
-1,2
Index 7
Index 1
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
Factor 1
Figure nr. 2. Indexes of activity of HEE of Volyn in a space of the hidden factors
25
Volume 12, Issue 2(16), 2012
Will explain the got factors thus:
factor 1 – factor of more subzero accreditation and science, as it with authority influences on
six indexes (amount of HEE I–II levels of accreditation, amount of students in HEE I–II levels of
accreditation, amount of the accepted students to HEE I–II levels of accreditation for a year, amount
of the produced specialists of HEE I–II levels of accreditation for a year, amount of graduate
students on the end of year, amount of doctoral students on the end of year) factor loading a1 j of
that more after the module values 0,65;
factor 2 – factor of higher accreditation, as he with authority influences on four indexes
(amount of HEE III–IV levels of accreditation, amount of students in HEE III–IV levels of
accreditation, amount of the accepted students to HEE III–IV levels of accreditation for a year,
amount of the produced specialists of HEE III–IV levels of accreditation for a year) factor loading
a 2 j of that more after the module values 0,65.
CONCLUSIONS
As a result of the conducted analysis it is possible to do such conclusions:
1) for research of indicators of activity of HEE of Volyn area of Ukraine it is expedient to
apply a factor analysis, that gives an opportunity to explain plenty of experimental data a few of the
hidden factors;
2) as a result of its realization it was got, that on indicators activity of HEE of Volyn area
two factors influence: more subzero accreditation and science, higher accreditation;
3) for automation of calculations at this method of research it is expedient to apply the
programmatic package StatSoft Statistica, that allows to save time calculations and build pictures
with the evident images of results of calculations.
BIBLIOGRAPHY
1. Law of Ukraine, (2002), About higher education, from 17.01.2002 № 2984-III [Electronic
resource]. – Access mode : http://zakon2.rada.gov.ua/laws/show/2984-14
2. Antohov A. A., (2010), The methodical going near the estimation of accordance of market of
educational services and labour-market in a region / A. A. Antohov // Announcer of the Chernivtsi
trade and economic institute. Series : Economic science. – 2010. – №. ІV (40).
3. Grytsenko S. I., (2012), Segmentation of consumers of educational services / S. I. Grytsenko //
Announcer of Donetsk national university. Series : Economy and right. – 2012. – № 1. – P. 24–25.
4. Official web-site of Government service of statistics of Ukraine [Electronic resource]. – Access
mode : http ://www.ukrstat.gov.ua
26
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
GREAT DEPRESSION vs. THE CURRENT FINANCIAL AND
ECONOMIC CRISIS
Ph.D. Mariana LUPAN
„Stefan cel Mare” University of Suceava, Romania
[email protected]
Abstract:
The scientific approach of this research requires, necessarily, evaluating the past by discussing the influence
on the future, but also the cyclical developments which in turn can confirm trends or can cause sudden inflections essential to the global economy. The adverse incidence of the financial market crisis and the analysis of the overall
impact of these adverse events represented and still represent a subject of interest for researchers in economics,
sociology, history, and the sciences. Analyzing crisis, particularly financial crisis, the factors generating and applying
patterns to return to normal is a consistent and timely concern of researchers in economics. After emergence in mid2007, which I will call the Great Recession, due to the effects felt by the world economy, as was the case with the Great
Depression of 1930-1933, an interesting approach is to "confront" these two negative episodes. Thus, this paper
proposes a comparative approach on how the Romanian economy faced during the Great Depression of 1930-1933 but
also after the onset of the Great Depression in 2008.
Key words: great depression, financial and economic crisis, recession, economic growth, financial
globalisation
JEL classification: E20, G01
INTRODUCTION
The effects of the financial crisis triggered in 2007, which had its epicenter in the United
States had and still has adverse effects on the economy of our country. I will address the solutions
that Romania has implemented and will continue to implement in order to exit the recession
through a comparative study between the Great Depression of the 1930s and the Great Recession of
2007 we still face. This approach was taken by Reinhart and Rogoff and (2009), and the authors
consider that there are similarities between the two crises, first in that it had as trigger point the
same location (USA), and by the fact that in both cases we are dealing with the rising of the public
debt of the affected countries and also with a high volatility of asset prices. Certainly, the current
crisis differs from the Great Depression by the fact that due to financial globalization, the
developments in technology and evolution of information technology, the spillovers are much faster
and recovery measures are more diversified. Financial innovation and poor regulation and
supervision of financial institutions are distinct elements that differentiate the current crisis.
ROMANIA DURING THE GREAT DEPRESSION
In an article published in late 1939, N. Cornăţeanu made the following statement "crises can
not be avoided completely and [...] must seek through systemic organization to minimize the
effect." Therefore, analyzing the effects of the Great Depression on Romania made the great
economists of the time to bring into question the cyclical nature of the crisis and the fact that must
be identified the measures leading to reduction of the devastating effects of these crises.
Referring to the factors that led to the crisis in our country, Gh. Şusnea considered that "the
gap between the growth of the rational organization technique of enterprise and the lack of
organization and direction of social factors has generated the crisis of overproduction, which has
generated in turn the unemployment ". Therefore, as in the current crisis, unemployment has been a
highly debated issue during the recession of 1930-1933 period. Thus, the height of the crisis in
Romanian industry was reached in the years 1931 and 1932, when the number of unemployed
increased significantly (Mureşan, 2003)
27
Volume 12, Issue 2(16), 2012
50000
40000
30000
20000
10000
0
1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
Number of unemployed
Figure no. 1 – Evolution of the number of unemployed in Romania during 1928-1938
Source: Personal processing according to V. Axenciuc, Evoluţia economică a României. Cercetări statistico-istorice
1859-1947, vol. I, Ed. Academiei Române, Bucureşti, 1992, p. 532
Analyzing the evolution of unemployment in the period 1928-1938, Mureşan M. (2003)
believes that the large number of unemployed after the year 1932 is a direct consequence of
"industrial upgrading" that has led to increased labour and machinery productivity within the
enterprises that have survived the crisis, without being created new jobs by establishing new
businesses.
In economic literature it is estimated that the peak year of crisis in our country was 1932,
especially in terms of industrial production. Thus, industrial production declined sharply, averaging
67.3% for the period 1929-1933, and the peaks were recorded in 1931, with a decrease of 53.2%,
and in 1932, with a decrease of 54.5% (Mureşan, 2003).
Referring to the evolution of the national currency, D. Rottman (1937) said that "until 1929
Romania has lived under the sign of monetary and credit inflation, then, 1929-1936 into monetary
deflation". The author believes that "through the sudden deflation that followed the stabilization of
the Romanian leu, the Romanian economy has suffered considerable losses, reaching abnormal
situation when Romania, which was the breadbasket of Europe, to pay export subsidies without
which it could not keep the markets". Also, analyzing the monetary circulation, V. Madgearu
believes that the Great Depression "surprised our country in a time of convalescence" as a result of
monetary stabilization in 1929, "and shattered its potentially positive effects".
To counter the adverse effects of the crisis in 1930-1933, the government that runs the
country at that time has taken a number of steps, and one of the most important was to reduce
taxation. Thus, in 1932 a law was adopted to reduce agriculture tax by 50%, reducing building tax
from 12% to 10%, and was also removed the turnover tax for small tradesmen who had up to six
employees, under the condition that the income made not to be more than 6000 lei. Also, a law was
passed which established only seven categories of taxes, thereby protecting salary income,
agriculture and intellectual activity incomes (Mureşan, 2003).
As for reducing budget expenditure, the government imposed "three curves of sacrifice" on
wages, and the first of these was to reduce 10% of all public employees’ wages since January 1931.
Following the implementation of wage cuts, the financial situation for many categories of
employees has been deteriorated, leading to triggering social revolt that registered the largest
increase at the beginning of 1933.
Although some of the measures taken at that time had a negative impact on living standards,
the Government has always been concerned with improving the economic situation of the country,
being aware that the economic growth will lead to the welfare of the entire nation.
EFFECTS OF THE GREAT RECESSION ON RUMANIAN ECONOMY
The implications of financial crises on our country have been felt in mid-2008, when the
financial stability of Romania was suffering due to speculative attacks of the three American banks
28
Volume 12, Issue 2(16), 2012
(Barclay’s, Goldman Sachs and Morgan Stanley) on currency market, but also as a result of
decreased country ratings evaluated by Standard & Poor’s and Fitch’s agencies. Another major
factor that triggers the crises in our country was the liquidity shortages that generated blocking
lending as a result of a 50% raise of interbank interest, and implicitly the raise of interests loans
granted by commercial banks.
In an article published in 1936, D. Rottman asserted that “is symptomatic that the worst
period of chaos almost always had coincided with an intensive foreign trade”. Indeed, the situation
has not changed even when the crisis burst in 2007 when Romania's trade showed an upward trend
and main partners were the EU member states.
70000
60000
50000
40000
Import
30000
Export
20000
10000
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure no. 2 – Romanian’s trade during 2003-2011 (million Euros)
Source: Personal processing of BNR databases
Graphical representation above shows that in the period before the financial crisis,
Romania's trade showed an upward trend, and the first inflection point designating that this trend is
changing in mid-2008 when the economy felt the first effects of the crisis. Beginning with the
second half of 2009 trade development of our country is again increasing. Unfortunately, the low
level of exports versus imports shows lower competitiveness of domestic economic agents
compared with external trading partners.
Joining the European Union on 1 January 2007 accounted for Romania the increased
volume of FDI flow. It is known that the level of foreign direct investment flows in a country or a
region is influenced by local conditions, the economic situation and social and international politics.
Therefore, as shown in the figure no. 3, the financial crisis affected decisively the flow of FDI
attracted by our country. Major decline in FDI flows recorded in 2009, of 59.6% compared to 2008,
is due to currency depreciation as a result of speculative attacks and country risk relegation due to
increased foreign debt.
10000
8000
6000
4000
2000
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
FDI flow
Figure no. 3 – Evolution of FDI’s flows during 2003-2011
Source: Personal processing of BNR reports
With regard to the evolution of foreign direct investment for the same period of analysis, the
situation is completely different, in that it records a continuous upward trend.
29
Volume 12, Issue 2(16), 2012
60000
50000
40000
30000
20000
10000
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
FDI balance
Figure no. 4 – Evolution of FDI’s balance during 2003-2011
(amounts registered at the end of each year)
Referring to the importance that the state should give to investments in the national
economy Şusnea G. (1937) stated that "under the protection of laws that encourage and protect
domestic industries from 1887 to 1912 and tariffs from 1886, 1893 and 1906, were created by 1915,
847 industries with a capital of lei 636,566,000, of which about 80% foreign capital. Because we do
not have kept a proportion between national and foreign capital and especially of staff during the
war we felt the consequences of this state of affairs”. State of affairs referred to the author is the
devastating effect of the Great Depression the Romanian economy. Therefore government as
Keynes appreciated, should allocate significant funds to support investment, particularly for sectors
that do not show interest to private and foreign investors (infrastructure, education, health, culture,
agriculture). It is known that the sustainable development of these sectors is major incentives in
terms of attracting foreign strategic investment.
Other elements that need to be analyzed in the current crisis are those relating to inflation,
volatility of exchange rate and currency depreciation. In their analysis, Reinhart and Rogoff (2009),
considers that the inflation threshold of 40% in a year is an important indicator of a crisis with high
inflation. In our country, this type of crisis manifested during 1991-2000, when the inflation rate
ranged from 256.1%, the highest rate recorded in 1993, and 45.7% rate recorded in 2000. Should be
noted that for 1995 and 1996 inflation rate dropped to 32.3% and respectively to 38.8%. Beginning
with 2003, the inflation rate registered a downward trend, but is far above the European average
recorded for this indicator.
10
8
6
4
2
0
2006
2007
2008
European Union
2009
2010
2011
Romania
Figure no. 5 – Evolution of inflation rate in Romania comparative with EU during 2006-2011
Source: Personal processing of Eurostat databases
Inflation is considered as the main source of financial instability therefore its retention in
2011 was one of the main objectives of macroeconomic policy. National Bank of Romania
therefore always pursued the evolution of this indicator, and at this time the level of inflation rate
evolves according with target set limits.
30
Volume 12, Issue 2(16), 2012
For Romania a major effect of the financial crisis from 2007 is demand deficit faced since
2009. Also, the demand retained at a low level as a result of austerity measures the government has
taken in mid-2010 (cutting wages, pensions and social benefits by 25%) and VAT increase to 24%.
Analysis of evolution of exchange rate both on the pre-crisis period from 2007 as well as
afterwards, especially after the financial crisis in our country, in mid-2008 when there is an increase
of about 15.14 percent, enables us to believe that throughout the period the national currency had an
steady evolution, as shown in the following figure.
5
4
3.7551
4.051
3.6209
3
3.5258
3.6826
3.3353
4.2399
4.2122
4.2391 4.4291
2
1
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
Rate of exchange euro/leu
Figure no. 6 – Evolution of rate of exchange Euro/Leu during 2003-2012
*estimated value
Organisation for Economic Co-operation and Development (OECD), argues that the current
public debt crisis in the euro area is not over, although financial markets have registered some
stability during this year (2012), but the region's banking system is still unstable. Also in the
European Union sovereign debt levels are rising and fiscal targets are far from being achieved.
Economic analysts believe that Romania has a position more stable compared to other countries
from the Euro zone periphery, but is considered as a risky country, as the entire region of southeastern Europe and the financing costs increased over the level of 2010.
80000
60000
40000
20000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
External debt on medium and long term
External debt on short term
External debt service
Figure no. 7 – Evolution of the external debt and external debt service during 2003-2011
In its report of October 2012, referring to the sovereign debt crisis, the Romanian central
bank estimated that extension of domestic political tensions could lead to additional net capital
outflows generating also the enhancement of national currency exchange rate volatility. Fortunately,
subsequent events have removed this assumption and the short-term evolution of the exchange rate
recorded a downward trend.
With regard to monetary policy, the central bank decided to reduce its level in an attempt to
boost lending. Unfortunately this measure hadn't the desired effect, although it is estimated that the
level of monetary policy interest rate is appropriate for our country's current economic situation.
31
Volume 12, Issue 2(16), 2012
I left for the end of this paper the unemployment analysis because this indicator registered
the most significant rate of growth as a result of crisis in our country. It is recognized that
maintaining unemployment at a high enough level will cause in time the reduction of wages.
10
8
6
4
2
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
Unemployment rate
Figure no. 8 – Evolution of unemployment rate during 2003-2011
Source: Personal processing of World Economic Outlook, 2001 and www.insse.ro
Although the unemployment rate has increased significantly in 2009 (an increase of 57.86%
compared to 2008), and in 2010 the upward trend maintains (up to 21.51% compared to 2009), the
value of this indicator remains below the European average. In terms of progress for the last month
of 2011 as well as for the months January to November 2012, the trend is downward, while the
European average registers successive increases.
According to the official data our country recorded a lower burden of unemployment than
the European average, but that does not mean that Romanians live a better life. The raising of living
standards for Romanians will be felt when the average wage will exceed the average of wages from
the Euro area.
14
12
10
8
6
4
2
0
2011M12
2012M01
2012M02
2012M03
2012M04
2012M05
Average unemployment rate in EU
2012M06
2012M07
2012M08
2012M09
Unemployment rate in Romania
Figure no. 9 – Evolution of unemployment rate during December 2011 - September 2012
We left for the end the analysis of the gross domestic product, as it is one of the fundamental
indicators of macroeconomic analysis. According to the National Institute of Statistics, GDP for
2009 was 491.27 billion lei current prices, having a decrease of 7.1% compared to 2008, which
highlights the devastating effect of the financial crisis in 2008 and the sharp downturn faced by our
country in the near future of this time. This decrease was driven primarily by reducing the volume
of gross value added in all sectors, and the most affected segments of the economy were trade,
hotels and restaurants, transport and telecommunications, but also construction, whose contribution
to GDP was 31.1% (INS press release, 2010).
32
Volume 12, Issue 2(16), 2012
10
8
6
4
2
0
-2
-4
-6
-8
2003
2004
2005
2006
2007
Growth rate of GDP in the 27 EU member countries
2008
2009
2010
2011
GDP growth rate in Romania
Figure no. 10 – The evolution of the growth rate of GDP during 2003-2011
As shown in the graphic representation, the year 2011 represent the return to growth of the
GDP for Romania, although for the EU this trend was recorded in 2010. The official statistics
announced a GDP volume of 578,551.9 million in 2011, a value by 2.6% higher in nominal terms
and by 2.5% in real terms compared to that in 2010. The value of the deflator used to convert the
economic growth from nominal domain to the real domain was of 9.9%, the value being situated
above the rising prices of the industrial production, situated at 8.93%, above the annual average
increase of the prices for the population (5.79%) and above inflation at the end of the year (3.14%).
Quantitative analysis undertaken reveals that, Romania, like all other countries, has been
and it is still affected by the financial crisis of 2008. Regarding measures escalating recession that
our country faces, we find that these can be considered as consistent with the measures taken by
other European countries.
It is widely accepted that drastic cost reduction programs and increase taxes, but also higher
interest rates lead to reduced economic activity, also causing reduced budget revenues. Thus, the
austerity measures the government has taken in May 2010, to reduce wages, social security and
pensions, can be considered similar to those taken by the Executive during the economic recession
in 1930-1933.
On the other hand, we can identify the measures that Romanian government envisaged as
being the type of "limited interventionism", such measures are consistent with measures taken at
EU level, namely: (i) the ratification of Fiscal Stability Treaty that provides common budgetary
rules, entitling European Commission with control over national budgets. The Treaty establishes for
the limit of structural budget deficit the threshold of 0.5% of GDP, which implies maintaining
public debt below 60% of GDP. The "Golden Rule" of the treaty refers to the fact that the budget
deficit together with the structural deficit will be within the limit of 3% of GDP. Failure to comply
with these terms will automatically trigger a correction mechanism that must be provided for in
national legislation. Therefore, the aim of this treaty is to strengthen fiscal discipline. This treaty
will enter into force on January 1, 2013; (ii) establishment of the Financial Supervision Authority
(FSA) which merges CNVM/ NSC, CSA/ISC and CSSPP and is responsible for the prudential
supervision of the capital market, the insurance sector and private pension funds system.
Adverse effects of the crisis have emphasized on the one hand, the fact that globalization
involves a high degree of difficulty for macroeconomic governance, and, on the other hand, the
relationship between financial system and the effects of unpredictable external events constitute a
major impediment for implementing internal policies.
CONCLUSIONS
Since the beginning of the current crisis, the theorists, economists, but also the great actors
and governments have sought to identify similarities with the Great Depression in the years 19291930, and with the crisis that followed the Second World War. There are also many questions about
33
Volume 12, Issue 2(16), 2012
the ability of quantitative models and analysis to indicate the possibility to trigger such a deep
crisis.
Regarding the similarities between the two major crises that have major effects on the entire
world economy, both resulted in decreased volume of production due to the lower demand,
increasing unemployment, and the increase in sovereign debt as a result of banking crises.
Analyzing the measures our Government has taken to mitigate the effects of the crisis, we
can identify both similarities and differences to the measures taken by the executive for the Great
Depression. The most relevant difference is related to fiscal policy, so that the executive in 19301933 periods considered appropriate to reduce taxation, while in 2009-2010 the government
increased the tax by increasing VAT to 25%. In which regards budget expenditure, both
governments have resorted to "sacrifice curves", reducing public employees' wages, leading to
lower living standards and thus lower demand.
It is widely accepted that the Great Recession that began in 2007, which had the epicenter in
the U.S.A, was caused by the speculative bubbles on the real estate market, due to unprecedented
growth and no correlation with reality of the house prices. But this was not the only trigger factor,
but we can talk about a number of factors, namely: record trade balance deficit and current account
deficit which attracted cheap foreign capital inflows and permissive regulatory policy. Profound
effects manifested on financial markets but also at the level of global economy emphasize that we
are dealing with "the most serious global financial crisis since the Great Depression" (Reinhart and
Rogoff, 2009).
ACKNOWLEDGEMENTS
This work was supported by the project "Post-Doctoral Studies in Economics: training
program for elite researchers - SPODE" co-funded from the European Social Fund through the
Development of Human Resources Operaţional Programme 2007-2013, contract no.
POSDRU/89/1.5/S/61755.)
BIBLIOGRAPHY
1.
Cornăţeanu N., (1936), Criza agricolă şi criza agrară, presentations at “Asociatia
Generala a Economistilor din Romania”
2.
Dinu, M., (2010) Economia de dicţionar. Exerciţii de îndemânare epistemică, Editura
Economica
3.
Isărescu, M., (2012), Politica monetară postcrită: Reconfigurarea obiectivelor şi a
instrumentelor, Constanta
4.
Krugman, P., (2009)The Return of Depression on Economics and The Crisis of 2008, Ed.
Publica, Bucureşti,
5.
Krugman, P., (2012), End This Depression Now!, Ed. Publica, Bucuresti
6.
Minski, H.P., (2011), Stabilizing an Unstable Economy, Ed. Publica, Bucuresti
7.
Mureşan, M., Mureşan, D., (2003), Istoria economiei, Editia a doua, Ed. Economica,
Bucuresti
8.
Nagy, A., (2012), Criza globală şi problema guvernanţei economice. Provocări la nivelul
politicilor macroeconomice, Constanta
9.
Prelipcean, G., (2006), Metode cantitative avansate în managementul crizelor economicofinanciare, Ed. Didactica şi Pedagogica, Bucuresti
10.
Reinhart, C., Rogoff, K., (2009), This Time is Different: Eight Centuries of Financial
Folly, Ed. Publica, Bucuresti
11.
Rottman, D., (1937), Aspecte generale ale crizei româneşti în cadrul crizei mondiale”,
în vol. Aspectele crizei româneşti în cadrul crizei mondiale, Tip. Bucovina, I.E. Torouţi, Bucureşti
34
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12.
Roubini, N., Mihm, St., (2010), Crisis Economics: A Crach in the Future of Finance,
Editura Publica, Bucuresti
13.
Stiglitz, J., (2010), Freefall: America, Free Markets, and the Sinking of the World
Economy, Editura Publica, Bucureşti
14.
Şusnea, G., (1937), Planul industrial şi raţionalizarea, presentations at “Asociatia
Generala a Economistilor din Romania
Web-sites:
www.bnr.ro
http://epp.eurostat.ec.europa.eu
http://imf.org
www.inss.ro
www.worldbank.org
www.unctad.org
35
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE DEVELOPMENT OF HUMAN RESOURCES IN
ORGANIZATIONS
Ph.D. Lecturer Mihai POPESCU
”Ştefan cel Mare" University of Suceava, Romania
[email protected]
Ph.D. Amalia Florina POPESCU
“Samuil Isopescu” Technical College of Suceava, Romania
[email protected]
Abstract:
Development of human resources can be one of the main functions of the human resources department. Pat
McLagan, using a study, tried to identify the HRD roles and competences required for the effective functioning of HRD.
Establishing the need for staff development is the starting point for the preparation, establishing what type of
programs is needed and who should attend. This stage also involves the identification of key skills that individuals need
in order to perform in their jobs.
Career development is a process that characterizes a long period of time, which completely takes over a
person's profession, encompassing programs and activities leading to the achievement of individual career plan. It can
also be seen as a product of interaction between what the company provides for the employee and his wish to achieve.
Employee development methods can be classified in methods directly related to the function (at work) and not
directly based methods (outside the workplace). The first category differs from the second in that it is more efficient for
staff development because it can be adapted to the preparation, attitude, expectations and responsibilities of each
individual.
Key words: Organisational development, Career development, human resources development programs,
human resource development methods.
JEL classification: O15
1.
INTRODUCTION
Being aware of the importance of human resources in economic activity determined the
action shifting focus of development since the success or failure of any organization is
dependent on the manner in which human resources add value to primary resources available in
the target system.
The concept of human capital, long disregarded by economists, has today the role of
explaining capabilities, skills and abilities of individuals, but also their potential for the
development and for linking the results of its human resources organizations, and even the
welfare and the economic development of a nation by its people.
Human resource development involves costs. These costs can be summarized in the
material side of activities that individuals made to acquire knowledge, or on the contrary the
intangible costs called opportunity costs arising from the beneficiary choice of different types
of training, leading to a lack of remuneration during training, for example, and also the resource
consumption time, which would otherwise have been used to obtain income.
2.
HUMAN RESOURCES DEVELOPMENT
Development of human resources can be one of the main functions of the human resources
department. Pat McLagan, using a study, tried to identify the HRD roles and competences required
for the effective functioning of HRD. The study described the relationship between HRM and
HRD’s functions as a "wheel” of human resources. The original "wheel" of human resources in
McLagan's study identifies three primary functions of human resource development:
• Preparation and development
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• Organizational development
• Career development
Preparation and development are necessary for establishing the necessary abilities that give people
the opportunity to perform certain tasks through planned training. As a result of occupying a certain job
certain types of training for individuals are used in order to improve their skills and knowledge. For some
of them emphasis is on technical training, that is how to use the equipment and software within the
enterprise, while others focus on skills training to work with others and how to plan and solve problems.
A training program will be successful only if the organization's needs are identified by
performing a thorough analysis of them. For training programs to be effective they need to be integrated
into company policy, to carry out a job evaluation and the individuals who occupy them in terms of
compatibility between skills and knowledge required by the job and those of the individual.
Organizational development aims at providing deep relations within groups and helping
them to anticipate, initiate and manage change. In the organizational development the enterprise is
viewed as a whole which can be improved through human resources by increasing their training,
skills and communication among its employees.
This term became a concept that could grab approximately everything that in the `70 -` 80
would have been organizational changes, such as: training, coaching, improvement of the work,
communication skills among employees, teamwork and creativity. Changes that occur are at micro
and macro-organizational level: the macro changes are intended to improve the efficiency of the
organization, while the changes from the micro level are directed towards individuals and teams.
However, beyond all organizational development has an important role in human resource
training and it is the approach of giving the widest meanings on optimizing the relationship between
the organization and the individual.
Career development is "an ongoing process by which individuals go through a series of stages,
each characterized by a relatively unique set of problems, issues and tasks". This activity is found in
high school or college of high level, but also within companies. Career development is a process that
characterizes a long period of time, which completely takes over a person's profession, encompassing
programs and activities leading to the achievement of individual career plan. It can also be seen as a
product of interaction between what the company provides for the employee and his wish to achieve.
There may be two types of career planning, namely organizational or individual. (1)
Long term career designing organizational model focuses on functions and building career
paths that provide a logical progression of people in certain positions. These paths are steps that
every individual can ascend in order to advance in a certain organization.
Individual career planning focuses more on the individual rather than on functions. Objectives and
people skills are focused on the analysis. Such analysis should consider both situations within and
outside the organization that can extend the capabilities of the employee.
Table 1 - Career planning of organizational and individual perspective (2)
Career in perspective
Organizational
Individual
The identification of future organizational needs of
staff
Steps of the career plan
Establishing the potential individual and their
training needs
Linking / balancing the organizational needs with
individual skills
Review and development of a career system for the
organization
The identification of abilities and personal interests
for each person
Planning the life and work objectives/targets
Establishing the alternative steps of the career
within
and
outside
the
organization
To notify the changes of interests and objectives, as
changes in the career and life stages
The career management has many affinities with other human resource management
activities. Thus, career planning is an integral part of human resources planning and performance
evaluation is a condition sine qua non for career development. From this point of view, human
resource planning takes into account both vacancies prediction and detection conditions for
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employment respective positions and performance evaluation is done not so much to substantiate
decisions regarding remuneration, but to identify employee development needs. (3)
3.
3.1
HUMAN RESOURCES DEVELOPMENT METHODS - A COMPARATIVE STUDY
ESTABLISHING THE NEED FOR HUMAN RESOURCE DEVELOPMENT
Establishing the need for staff development is the starting point for the preparation, establishing
what type of programs is needed and who should participate. This stage also involves the
identification of key competences that individuals need to perform in positions that they occupy.
The most objective and effective approach to this task starts from the job. Knowledge and skills
needed by a holder to meet the necessary standards are clarified in a thorough analysis of the job.
Of course it must be identified also the competence gap that is what is able to do the occupant of a
particular position and what should be done. The development is the first step to eliminate this gap.
It seems that development needs arise because our world is changing, affecting the environment in
which companies operate, employees must adapt, acquire new skills and knowledge, thus evolving
towards performance requirements. The need to develop occurs because people change jobs, they
can be transferred from one department to another, inexperienced graduates, people who have had
another job, need to adapt to the requirements of the organization in which they activate.
It is important to know the reasons for analyzing the need for staff development. These are:
(4)
• Interests to know what employees know;
• What should employees know in order to become better;
• The desire to build programs that focus exclusively on needs;
• Testing the level of knowledge;
• The analysis of the cost-benefit relation when talking about training programs.
The development is needed at three levels: the organization, the job and the employee.
Evaluation of the needs at an organizational level is usually done through an analysis of the
organization. The latter shows where is needed the human resource development and the conditions
that may affect the HRD effort. At the organizational level it starts from its strategy and general
objectives.
Job analysis is represented by collecting information about a particular job to find what
employees should receive training development to achieve the desired performance and skills that
lead to achieving the standards.
Employee analysis is performed in order to determine the training needs of ea$ch individual.
People who can provide information about a particular employee are bosses, colleagues,
subordinates, that lead to the identification of personal needs.
3.2. COMPLETION OF PROGRAMS FOR HUMAN RESOURCE DEVELOPMENT
After the first stage of establishing the human resource development needs of staff is over,
experts must carry out appropriate training programs. HRD practitioners’ mission seems to be
difficult in creating effective training programs, but must deal with the situation and the need to
convince the leadership on the importance of employees’ development.
Within this stage it is important to establish the program’s goals, choosing the best trainer,
the methods to be used and the necessary resources (material, financial, human, and informational)
and evaluating the individuals’ performances in order to identify the directions in which they
require training.
After the training need was identified one must establish the program's objectives. They
must refer to what students should learn after applying HRD. It is possible to create a program
within the organization or to purchase one by contacting an instructor, but first of all we must set
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Volume 12, Issue 2(16), 2012
goals, because the chances of success are bigger. Robert Mager defines a goal as "a description of a
performance you want learners to achieve in order to be considered skilled."
Once goals have been established by HRD professionals, a decision on how to provide the
program must be taken. They must decide whether to resort to internal creation of the program, to
its purchase or a combination of both. If they decide to buy a program or part of it, the supplier
must be chosen so that the products offered should accommodate to the needs of the organization.
The criteria for choosing a provider are of the most varied programs, namely: the cost charged, the
experience, the content of materials included in the program, including recommendations and
certifications held.
The next step is the choice of the best instructor to implement the program. He must have
the networking skills and characteristics, to motivate the others to learn and the manner to
communicate knowledge must be clear and comprehensible. The objectives of a program may fail if
the instructor is a disinterested, unmotivated and incompetent person.
For the proper development of the program it is recommended to use a lesson plan, a plan
that is the trainer's guide for providing the content of the course. Such a plan should include ideas to
be transmitted, the means of preparation, planning each activity, how to assess students and training
method used.
The next moment in the process of training is represented by the selection of the methods of
training. According to a study of the training magazine in 2006 it seems that the programs
organized in classrooms represent the most used training method. The method of teaching through a
course represent a passive way of training, methods such as simulations, role play, games make that
the attendance to the course to be an active one. The professionals in the development of human
resources take into consideration certain factors in choosing the most appropriate teaching method.
Among these there are the objectives of the program, which are a factor of a special importance.
Thus, if an inspired teaching method is chosen the success in achieving the proposed objectives is
guaranteed. Time and money are other factors which the managers and DRV specialists must take
into consideration to achieve the proposed objective. But, lots of organizations create programs
rapidly for witch small sums of money are allocated. Another factor which must be taken into
consideration for a successful program is the availability of the other resources, because sometimes
the program need some highly-prepared trainers and specialized equipment.
The next step is represented by the preparation of the training materials. If the program is
bought from outside the necessary materials for the activity are usually included in the organization
. Some of the training materials are: the advertisements, programs and coursebooks. The
advertisements inform the trainers about the training program, where are included.
The goal, objective, the place and the way in which an employee could qualify himself to be
able to participate at the program. The syllabus of a course communicates the aim/objective, the
content and the expectations of a development program and includes the objectives, the necessary
materials, the expectations from the individuals and a timetable of the events, exercises and selfevaluation.
The programming of an intervention of the development of human resources is a quite
difficult stage, because the trainers and the trainees must be available to participate at the program.
The programing may be during classes or after them.
3.3. THE TRAINING APPLICATION AND THE METHODS OF THE HUMAN
RESOURCES DEVELOPMENT
The goal of the training is that of raising the experience of those who take part in certain
courses in their fields. The developing methods of the employees may be classified in methods
directly connected to their positions (at their working place) and methods which are not directly
connected to their position (of their working place). The first category differs from the second due
to the fact that they are more efficient for the development of the personal, because they can be
adapted to the training, attitude, expectations and attributions of each individual. The training at the
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Volume 12, Issue 2(16), 2012
job/working place is the most frequent method of training, because most of the employers may take
its advantage and it could give them the opportunity of fitting better to a certain position.
Also, with the help of this method one can understand the overall way in which the
organization functions.
The training techniques at the working place are:
‐ The training for the job is a method of training the employees in which they achieve
instructions related to the key working processes, taught by a trainer (5). They should have
the desire of learning, to understand that everything is relevant and will be useful and why
not filling proud (that they can handle) of their work and efforts. When the trainees show in
a convincing manner that they can handle by themselves they have to be left alone, but the
trainer must supervise them and make sure that everything is all right;
‐ The rotation on the job represent the rotation of a trainer from a position to another, within
the same department of different departments and is a quite used technique in the human
resource development may be organized in a planned or not planned manner. Thus, when it
is made on planning , lists and diagrams are done, establishing exactly the rotation for each
individual. The activity of the person who is trained is supervised by an employee of the
same department with the responsibility of orientating and evaluating the trainee.
‐ Coaching is an interactive activity through which the employers are given the instruments,
information and opportunities they need to evolve, learn and prove the knowledge they
acquire. This permanent process take place within a given period of time as meeting of one
or two hours when people have to increase their level of knowledge to achieve their tasks
for a requested standard. Also, this method offers the individuals help for integrating in the
team and it is necessary to be used only when the interest towards the professional activities
of the employers is low or when they want to regain the faith in their abilities.
‐ Mentoring represents the professional orientation of an employee by a person called mentor,
who has the necessary experience and help to the individuals, asking them to develop from
the point of view of the career. Mentoring is a way of the working place, usually the best
way to acquire the specific abilities and knowledge for a job (6). In the same time,
mentoring adds the formal training of the employees because they get individualized
guidance from same managers who know the firm well.
The training techniques out the working place are:
‐ The course consist in verbal presentation by a trainer, in the presence of the same listeners at
which the participation of the audience is not significant. This way of training has as
advantage the fact that more people are familiar with it, but on the other hand there may be
the disadvantage of a passive listening. The lack of sharing ideas between trainees and the
lack of dialogue leads to thee criticizing of this method because the emphasis is on
communication in a single way.
The method of the course represents an efficient way of giving information to a large
audience, in a quite short period of time, but mixed with visual materials leads to the facilitation of
the transferring theories and concepts.
The debates imply stimulating, in a subtle way, the participation of people in discussion, the
orientation of the action in the proper direction, the repetition of the expressed ideas from time to
time, at at the end a summary of the discussion. This method gives the trainees the opportunity of
sharing ideas, viewpoints, getting feedback and answers to the vague points that may arise during
the debates. For the trainers to be active during classes, the trainer must ask direct questions, to
avoid dominating the debate, to offer the opportunity for the participants to express opinions and to
reach to a conclusion by themselves.
The method of the case study consists in displaying some situations and events, fictive or
real, which the participants have to analyze, to identify the causes of certain problems, as the ways
of solving them. This method is usually intended to the managers and team leaders fallowing the
idea according to which their perception might be developed through the analyses if some events
similar to the real ones.
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The Role play represents a developing technique of the staff/personnel, through which they
have to take in a role for a given situation and to act appropriately for this role. This method offers
the possibility of interaction between two or more people, each having to act the role as good as
he/she can, giving them a certain experience in solving some situations in direct contact with people
(interview-making, getting some complaints from the clients, selling). The possibility of reversing
the roles gives the opportunity to the characters of understanding the feelings among them, getting
to the development of the necessary abilities in such interaction.
Simulation is a training method which combines case study with role play. With the help of
stimulation some notions achieved in courses out of the working place become practical, and in the
class can be simulated real situations.
The instruction based on computer is a developing method with an interactive characters.
Three of its approaches are: the instructions assisted by computer, the instructions based on the
Internet and Intranet and the intelligent instruction assisted by computer.
The programs of the instruction assisted by computer may be electronic coursebooks which
use the approach of exercise and practice, CD-ROM presentations of a program of professional
development. These programs may be found at accessible prices and have plenty of materials
related to basic activities such as reading or electronic writing, engineering topics and the
maintenance of some devices. Multimedia programs bring an improvement to that of the traditional
programs of the instruction assisted by the computer, offering a video and audio content which is
more attractive. Most of the organizations replaced the courses held and taught by a trainer with
CD-ROM supports.
The instructions based on the Internet and Intranet. The Internet may be considered a
phenomenon which develops most rapidly in the whole world. The Intranet represents a computer
network which uses the Internet and the World Wide Web technology, tools for searching, creating
and transmitting information within an organization. An important part of the instruction based on
technology is called e-learning also known as electronic learning, which uses the Internet and
Intranet systems.
E-learning programs are not enough for creating human relationships, such as team work,
communication or public presentations, where direct contact between people is necessary. These
aim at the training in the organization’s frequent operations, many times they aim at training IT
abilities. The instruction based in Intranet contains inside networks for educational goals and with
its help the professionals in human resources development are able to communicate with the
employees through their organization Intranet. It may be also given materials for courses,
educational documents and they can apply tests no mattes the location of the employee.
The intelligent instruction assisted by computer is also called the intelligent teaching system
and is different from the instruction assisted by computer because its possibility of evaluating the
trainers’ performances from the point of view of the quality. Whereas a program of instruction
assisted by computer allows the trainers to choose their level (beginner, intermediate), an intelligent
teaching program distinguishes every individual ability from his/her answers and analyzes his/her
mistakes. What this system has in view is offering the trainers an electronic teaching assistant
which can give advice and help to each participant.
3.4. EVALUATING THE PROGRAMS OF HUMAN RESOURCES DEVELOPMENT.
The evaluation of the human resources is defined as “the systemic accumulation of
descriptive and critical information required for taking efficient decisions of training related to the
selection, carriage, valuation and change of different instructional activities”.
The evaluation of these programs is fundamental for establishing the positive and negative
influences on the trainers, but also of the gained results. This evaluation program provides
information that cannot be missed for analyzing the next stages of developing the personnel.
If a program proves inefficient, this should be changed or interrupted, and if a program is
useful then it should be applied to other parts of the organization. Using evaluation it may be
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Volume 12, Issue 2(16), 2012
determined the way in which a program has achieved its objectives, who should take part in such
programs, the strengths and weaknesses and also the forming of a data base which helps the
managers in taking decisions.
4.
CONCLUSIONS
Training is a planned change of behavior acquired by learning events, programs and
teaching, which gives people the opportunity to reach the necessary knowledge level, ability and
competence to efficiently carry the working activities. It may be considered that training is
necessary for a short period of time, for carrying out the necessary activities for the preset moment,
and the term “development” refers to more general horizons of time and competence. Development
is connected with future, a longer period of time, the development of personnel/staff throughout the
career.
Development is a long process in which people evolve from their initial state/condition
where they have a certain knowledge level, to a future condition in which superior. Knowledge and
abilities will be acquired.
Development contains learning activities which train people for following broader
responsibilities or more difficult responsibilities for their future positions/jobs, not for their present
ones. Human resources development aims at the training the employers professional abilities for a
permanent evolution and advancement within the firm. The goal of human resources development
is to increase the ability of an employee to successfully acquire obligations and bigger
responsibilities, of superior level.
The methods of the employers’ development may be classified in methods directly
connected to position (at the working place) and methods which are not directly connected to
position (out of the working place).
The evaluation of human resources development is the last step and is defined as “the
schematic accumulation of descriptive and critical information required for taking efficient
decisions of training related to the selection, carriage, valuation and change of different
instructional activities”
5. ENDNOTES
(1) Prodan, A., Rotaru, A. , (2005), Managementul resurselor umane, Sedcom Libris Publishing House, Iaşi, page
154
(2) Prodan, A., Rotaru, A., (2005), Managementul resurselor umane, Sedcom Libris Publishing House, Iaşi, page
55
(3) Lefter, V., Deaconu, A., Marinaş, C., Puia, R. (2008), Managementul resurselor umane, Teorii şi practică,
Economical Publishing House, Bucureşti, page 378-379
(4) Lefter, V., Manolescu, A., Deaconu, A. (2007), Managementul resurselor umane, Economical Publishing
House, Bucureşti, page 361
(5) Cole, G.A. (2000), Managemetul personalului, CODESC Publishing House, Bucureşti, page 393
(6) Armstrong, M. (2005), Managementul resurselor umane, Manual de practică, CODESC Publishing House,
Bucureşti, page 477
6. BIBLIOGRAPHY
1. Armstrong, M., Managementul resurselor umane, Manual de practică, CODESC Publishing
House, Bucureşti, 2005
2. Cole, G.A., Managemetul personalului, CODESC Publishing House, Bucureşti, 2000
3. Lefter, V., Deaconu, A., Marinaş, C., Puia, R., Managementul resurselor umane, Teorii şi
practică, Economical Publishing House, Bucureşti, 2008.
4. Lefter, V., Manolescu, A., Deaconu, A., Managementul resurselor umane, Economical
Publishing House, Bucureşti, 2007
5. Prodan, A., Rotaru, A., Managementul resurselor umane, Sedcom Libris Publishing House,
Iaşi, 2005
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of Economics and
Volume 12,
Issue 2(16),
2012
CORRELATION BETWEEN FOOD QUALITY AND
PRESERVATION METHODS
Lecturer Ph.D. Adrian STANCU
Petroleum-Gas University of Ploiesti, Romania
[email protected]
Abstract:
The food quality depends not only on raw materials, production process, personnel qualification etc. but also
on preservation methods used to maintain initial level of physicochemical and sensory characteristics after the product
is obtained. In order to emphasize the correlation between food quality and preservation methods, a study was
conducted on white wine. The wine samples were storaged according to its period of validity on two different
preservation conditions in which the air temperature was the only variable of preservation parameters. The study
showed that both levels of preservation temperatures have influenced the wine quality, but in different proportions.
Key words: food quality, preservation, physicochemical characteristics, sensory characteristics
JEL classification: L15, L66
1. INTRODUCTION
Most foods are obtained in different locations around the word and are consumed elsewhere
due to the specific conditions of production and raw materials, foods demand etc. So, between
production and consumption are some important processes such as re-packaging, preservation,
shipping, handling etc.
Every process influences the food quality in a positive or negative way. The positive way
refers to maintain the initial level of food quality until it will be consumed by the people. The
negative way implies that one or more processes reduce the level of food quality with different
proportions.
The food preservation must ensure that the level of storage parameters such as air
temperature, airflow, relative air humidity, air chemical composition, solar radiation, biological
factors etc. is in accordance with food requirements and kept under control.
The importance of food preservation equals the chemical composition because it has the
power to transform a safe product in unsafe one. For example, a food that is sell to distribution
agents by the producer and is under the safety regulations can disobey the quality standards if the
distribution companies will storage it on preservation parameters which are different from the one
specified in the certification of conformity.
For any food production or distribution company which has the quality management system
implemented and certified in conformity with SR EN ISO 9001: 2008 and/or SR EN ISO 22000:
2005, the product preservation is a important stage along with reception, production, control etc. to
ensure the food innocuity [9].
Although it is the penultimate stage before the shipping, the preservation must be
approached as a system, with inputs represented by tested products, outputs as products that will be
shipped and some internal and external factors that can have negative influence on product quality.
This system approach of food preservation, which is proper to quality management systems,
has advantages, on the one hand, for production or distribution companies because it allows them to
identify all the factors which interfere in preserving and to previously conceive and plan the
preventive and corrective actions according to the changes of product quality. On the other hand, it
contributes to ensure the consumer protection by purchasing only safe products, which don’t have
sensory, physicochemical or microbiological changes that can threat their health or life.
43
Volume 12, Issue 2(16), 2012
2. CORRELATION
METHODS
BETWEEN
WINE
QUALITY
AND
PRESERVATION
To highlight the importance of food preservation, a research was carried out on white wine.
It was chosen the medium dry Sauvignon Blanc wine. It is a DOC superior quality wine with CMD.
The sample was obtained by crushing the grapes from Dealu Mare vineyard (Prahova country) [6].
The study consisted in preserving the wine in two different storage conditions:
a) Air temperature 15oC, relative air humidity 75% and preservation period 60 days, which
are the regular preservation conditions for white wines.
b) Air temperature 20oC, relative air humidity 75% and preservation period 60 days, which
are the ordinary preservation conditions for white wines.
The difference between the two above storage conditions is represented only by the level of
air temperature because is one of the most important variables of preservation conditions.
Throughout the study, firstly, four physicochemical analyses have been conducted and
secondly, four sensory analyses at 0 (bottle day), 30, 45 and 60 days from the production date of
wine.
The physicochemical and sensory characteristics analyzed are presented in figure 1.
Physicochemical
characteristics
Sensory
characteristics
Alcohol content
Reducing sugar
Total acidity
Volatile acidity
Free sulphur dioxide
Total sulphur dioxide
Color
Clarity
Bouquet
Taste
Figure 1. The physicochemical and sensory characteristics analyzed in the study
Source: Made by author
The figure 1 shows that ten wine characteristics were analyzed which six are physicochemical
characteristics and four sensory characteristics.
The six physicochemical characteristics of wine which were selected for this analysis are the
ones mentioned in standards for wine testing. In the same way, the color, clarity, bouquet and taste
are the main sensory characteristics tested by sensory experts in the international wine
competitions.
The preservation methods influence both the physicochemical and sensory characteristics of
wine in different ways.
2.1. CORRELATION BETWEEN PHYSICOCHEMICAL CHARACTERISTICS
AND PRESERVATION METHODS
The two preservation temperatures had particular effects on each physicochemical
characteristic of Sauvignon Blanc wine.
Figures 2-7 show the evolution of physicochemical characteristics level of Sauvignon Blanc
wine preserved at 15oC (continuous line) and 20oC (broken line).
44
Volume 12, Issue 2(16), 2012
13.60
10.30
13.00
10.08
12.40
12.00
12.00
12.00
Reducing sugar (g/l)
Alcohol content (% alcohol by
volume)
12.00
11.80
11.20
9.86
9.74
9.42
30 days
45 days
0 days
60 days
6.20
6.00
5.73
5.73
5.73
5.60
5.40
5.20
0 days
30 days
45 days
0.18
0.16
0.15
0.15
0.15
0.15
30 days
45 days
60 days
0.14
0.12
0.10
60 days
0 days
Preservation period
Figure 4. Evolution of total acidity level of
Sauvignon Blanc wine preserved at 15oC
and 20oC
Figure 5. Evolution of volatile acidity level
of Sauvignon Blanc wine preserved at 15oC
and 20oC
177
62
Total SO2 (mg/l)
65
50
48
39
42
23
20
23
15
6
0 days
60 days
0.20
Preservation period
34
45 days
Figure 3. Evolution of reducing sugar level
and 20oC
Volatile acidity (g/l tartaric acid)
Total acidity (g/l tartaric acid)
Figure 2. Evolution of alcohol content level
and 20oC
5.73
30 days
Preservation period
Preservation period
Free SO2 (mg/l)
9.74
9.20
0 days
76
9.74
9.64
10.60
5.80
9.74
30 days
45 days
171
165
162
162
162
162
0 days
30 days
45 days
60 days
159
153
147
60 days
Preservation period
Preservation period
Figure 6. Evolution of free SO2 level of
and 20oC
Figure 7. Evolution of total SO2 level of
and 20oC
Source: Data from own analysis
Figures 2-7 show that during the 60 day preservation period, both air temperatures 15oC and
20 C had no influence on level of alcohol content, reducing sugar, total acidity, volatile acidity and
total sulphur dioxide. Only one physicochemical characteristic had changes of its level, i.e. free
sulphur dioxide.
o
45
Volume 12, Issue 2(16), 2012
The sulphur dioxide content of wines comes both from the natural fermentation of must and
most is added in the winemaking. It has anti-microbial properties against bad yeast and bacterial
growth and anti-oxidant action besides browning process, which ensure the wine preservations [1].
Even the free sulphur dioxide level decreased, Sauvignon Blanc wine has higher chemical
stability (than superior wines for example) due to the fact that it is a DOC (Controlled Designation
of Origin) wine.
The chemical stability of wine is directly proportional with the alcohol content and acidity
which have antiseptic proprieties, also. Thus, the wines can be preserved for extended periods of
time without being sensitive to harmful microorganisms. In some cases, ethanol (ethyl alcohol) is
being added in the wine during the winemaking in order to increase the chemical stability of wine
[3, 8].
In table 1 were computed the absolute and relative changes of physicochemical
characteristics (free sulphur dioxide) level of Sauvignon Blanc wine preserved at 20oC beside 15oC,
in order to emphasize the scale of changes.
Table 1. Absolute and relative changes of physicochemical characteristics level of Sauvignon
Blanc wine preserved at 20oC beside 15oC
Preservation period
0 days
30 days
45 days
sum*
%
sum
%
sum
%
1.
Alcohol content
2.
Reducing sugar
3.
Total acidity
4.
Volatile acidity
5.
Free SO2
-8
-16
-16
-41.02
6.
Total SO2
* specific unit of measure (see figures 2-7)
Source: Own calculation based on data from figures 2-7
No.
Physicochemical
characteristics
60 days
sum
%
-8
-34.78
-
Table 1 shows that the free sulphur dioxide level of wine preserved at 20oC beside 15oC
decreased with 16% in the 30th day preservation, with 41.02% in the 45th day preservation and with
34.78% in the 60th day preservation.
The evolution of changes in the free sulphur dioxide level of Sauvignon Blanc wine
preserved at 20oC beside 15oC is shown in figure 8.
Preservation period
0.00
-5.00
0.00 %
0 days
30 days
45 days
60 days
Change (%)
-10.00
-15.00
-20.00
-16.00 %
-25.00
-30.00
-34.78 %
-35.00
-40.00
-41.02 %
-45.00
Figure 8. Evolution of changes in the free sulphur dioxide level of Sauvignon Blanc wine
preserved at 20oC beside 15oC
In figure 8 is shown that at 20oC beside 15oC the free sulphur dioxide level had registered
only decreases which took place after the second half of preservation period.
46
Volume 12, Issue 2(16), 2012
The biggest decline of free sulphur dioxide level was in the 45th day preservation (41.02%)
and the smallest in 30th day preservation (16%). This means that even the difference between the
two storage temperatures was constant the free sulphur dioxide level had not the same trend.
2.2. CORRELATION BETWEEN SENSORY CHARACTERISTICS AND
PRESERVATION METHODS
If, in the case of testing the physicochemical characteristics the laboratory equipments were
used, for sensory characteristics the wine sensory experts assessed each sample on the four
moments of period of validity.
The evolution of sensory characteristics level of Sauvignon Blanc wine preserved at 15oC
(continuous line) and 20oC (broken line) are shown in figures 9-12.
2.4
2.0
2.0
1.8
Clarity (points)
Color (points)
2.1
2.3
1.7
1.5
1.3
1.2
2.1
2.0
1.9
1.8
1.5
1.3
0 days
30 days
45 days
60 days
0 days
30 days
45 days
60 days
Preservation period
Pre servation pe riod
Figure 10. Evolution of clarity level of
and 20oC
Figure 9. Evolution of color level of
and 20oC
11.3
3.9
3.2
10.8
3.2
3.1
3.0
3.0
2.7
2.5
2.3
Taste (points)
Bouquet (points)
1.8
1.7
1.5
1.2
0.9
3.5
2.0
2.5
10.5
10.5
10.3
10.0
10.0
9.8
9.3
1.9
8.8
0 days
30 days
45 days
0 days
60 days
30 days
45 days
60 days
Preservation period
Pre se rvation period
Figure 12. Evolution of taste level of
and 20oC
Figure 11. Evolution of bouquet level of
and 20oC
Source: Data from own analysis
Figures 9-12 illustrate that the two different preservation temperatures generated changes in
the level of all four sensory characteristics of Sauvignon Blanc wine.
Each sensory characteristic had its own trend. The color, clarity and taste level has been the
same at both 15oC and 20oC storage temperature from the bottle day until 45th day preservation.
The absolute and relative changes of sensory characteristics level of Sauvignon Blanc wine
preserved at 20oC beside 15oC are presented in table 2.
47
Volume 12, Issue 2(16), 2012
Table 2. Absolute and relative changes of sensory characteristics level of Sauvignon Blanc
wine preserved at 20oC beside 15oC
Preservation period
30 days
45 days
points
%
points
%
No.
Sensory
characteristics
1.
Color
-
-
-
-
-
-
+0.1
+8.33
2.
Clarity
-
-
-
-
-
-
-0.3
-16.66
3.
Bouquet
-
-
-0.2
-6.25
-0.5
-16.66
-
-
-
-
-
-
-
-
0 days
points
%
4.
Taste
60 days
points
%
Table 2 shows that the color and clarity level of wine preserved at 20oC beside 15oC
changed only in the 60th day preservation, i.e. the color level increased with 8.33% and the clarity
level decreased with 16.66%.
As well, the bouquet level declined in the 30th day preservation with 6.25% and in the 45th
day preservation with 16.66%. In stead, the taste level of wine had similar evolution in the two
preservation temperatures.
The figure 13 highlights the evolution of changes in the sensory characteristics level of
Sauvignon Blanc wine preserved at 20oC beside 15oC.
Preservation period
10.00
8.33 %
5.00
Change (%)
0.00
0.00
0 days
-5.00
0.00
30 days
0.00
45 days
0.00
60 days
-6.25 %
-10.00
-15.00
-16.66 %
-16.66 %
-20.00
Color
Clarity
Bouquet
Taste
Figure 13. Evolution of changes in the sensory characteristics level of Sauvignon Blanc wine
preserved at 20oC beside 15oC
In figure 13 is shown that all sensory characteristics had specific changes at 20oC beside
15 C. The clarity and bouquet level of wine had reductions and the color level of wine increased.
As well, the color and clarity levels of wine had contrary evolutions which came out at the end of
regular preservation period, i.e. in the 60th storage day.
Of the four changes of sensory characteristics, one change took place in the first half of
preservation period and three changes in the second half. This suggests that the difference in the
level of air temperature influences more the wine quality to the end of storage period.
o
CONCLUSIONS
Even if only one physicochemical characteristic changed due to increasing of preservation
temperature with 5oC, the level of wine quality was not invariable during the 60 days preservation.
48
Volume 12, Issue 2(16), 2012
The most liable sensory characteristic to air temperature increase was the wine bouquet. Its
level has decreased with 6.25% since the 30th day preservation and it has gone down to 16.66% in
the 45th day preservation (2.6 times more than the initial level).
The wine taste is the only sensory characteristic which had the same evolution in
preservation period on both 15oC and 20oC (in conditions of increasing the level of air temperature).
The correlation between physicochemical and sensory characteristics of Sauvignon Blanc
wine is checked-up throughout the level of free sulphur dioxide and bouquet. Thus, the decrease of
free sulphur dioxide level in the 30th and 45th day preservation (with 16.00% and 41.02%,
respectively) had as result the decline of bouquet level (with 6.25% and 16.66%, respectively).
A comparison of changes of physicochemical and sensory characteristics shows that each of
these had a particular evolution. In the 30th and 45th day preservation only one physicochemical
characteristic and one sensory characteristic changed its level. Instead, in 60th day preservation one
physicochemical characteristic and two sensory characteristic changed.
Since both physicochemical and sensory characteristic changed their level at 15oC and 20oC
temperature, the level of wine quality decreased which means that the preservation methods are
very important to maintain constant the foods quality from the moment of production until it is
bought by consumers and has inferences on food safety.
There are at least three possibilities to extend the current research of Sauvignon Blanc wine
presented in this paper. Firstly, the evolution of physicochemical and sensory characteristics of the
wine preserved at a new temperature (maybe 10oC) can be tested. Secondly, it can be measured the
evolution of wine quality level by changing the level of air temperature and relative air humidity in
the same time. Thirdly, an additional testing in the 37th day preservation can be set up, since it is
possible that some changes of sensory characteristics level will become visible quicker than 45th
day preservation.
REFERENCES
1. Bakker Jokie, Clarke Ronald J., (2011), Wine: Flavour Chemistry, John Wiley & Sons
2. Dougherty Percy H., (2012), The Geography of Wine: Regions, Terroir and Techniques,
Springer
3. Ene Corina (2008), Evoluţii actuale ale piramidelor alimentare ca instrumente ale educaţiei
nutriţionale, Studia Universitatis “Vasile Goldiş” Arad, Seria Stiinţe Economice, Nr.18, Partea. II,
pp. 342-349
4. Grainger Keith, (2009), Wine Quality: Tasting and Selection, John Wiley & Sons
5. Johnson Hugh, (2011), Hugh Johnson's Pocket Wine, Octopus
6. Label of Sauvignon Blanc Wine
7. Miller Frederic P., Vandome Agnes.F., McBrewster John, (2011), Romanian Wine, VDM
Verlag Dr. Mueller e.K.
8. Moreno-Arribas, M. Victoria, Polo M. Carmen, (2009), Wine Chemistry and Biochemistry,
Springer
9. Scutariu Adrian Liviu, (2006), Managementul calităţii – necesitatea implementării şi
certificarea, în Conferinţa naţională cu participare internaţională “Dimensiuni ale Dezvoltării
Durabile în România” (coordonator: Victor Pekar), Editura Universităţii “Alexandru Ioan Cuza”
Iaşi, pp.108-113
10. Stoian, Viorel, (2006), Marea carte a degustării vinurilor. Degustarea pe înţelesul tuturor,
Editura Artprint, Bucureşti
49
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
OLYGOPOLISTIC MARKET FOR CARS IN ROMANIA
Lecturer Ph.D. Cristina Florentina BÂLDAN
University of Pitesti, Romania
[email protected]
Abstract:
The article presents the oligopolistic market for cars in our country. In order to fulfil the objectives of this
paper, we will analyze the content of automobile market in Romania by considering the inflows (production and
imports) and outflows (sales and export) in the period 2007-2011, the structure of the market and the influence of the
Program of stimulating new acquisitions in the national auto park (Rabla) on the automobile market. Regarding the
sales situation for local cars in the studied period, we can notice a big decrease starting with the auto market crash in
2009 caused by the economic crisis, Comparing with the first year from the analysed period, we can notice constant
decreases year to year, thus in 2008 we can notice a decrease of 26.1%, about 81.945 comparing with 110.902 cars in
2007. The descending trend is even more abrupt starting with 2009, when, despite the efforts for stimulating the auto
market with the “Rabla” programme, we have a decrease of 65% comparing with 2007 with a level of only 38.736
cars. In 2010 the trend continued, but with a decrease level smaller than in 2009, but not sufficient to bring an increase
is sales, their level being 34.400 units, 4.336 less than in 2009.
Key words: oligopolistic market, inflow flux, outflow flux, competition, automobile.
JEL classification : D43
INTRODUCTION
The automobile market from our country, in 1990, consisted from the three Romanian brands
(DACIA, ARO ŞI OLTCIT). In our days approximate 51 brands imported and the two local brands,
Dacia Group Renault Mioveni and Ford, which have a sales network in fully development in the
entire country ensure the automobile market in our country. The high competition between
importers of the same brand and those multi-brand transforms this market in a battlefield in which
the arms are the marketing strategies, the commercial campaigns or the generous discounts (Bâldan,
2007).
The destinies of the plants in Craiova and Pitesti went in parallel. At the Koreans coming in
as investors at Daewoo Craiova, in 1994, they obtained tax breaks, which at the time drew the
discontent of the other manufacturer, Dacia. In 1999, Renault managed to obtain an exemption from
income tax for a period of five years starting with the first year when profit is obtained. The only
condition was that the company should record profit within three years after the full payment of the
price of shares acquired from the State Property Fund (Hagiu and Platis, 2012).
Once with the market penetration of big manufacturers, we can notice a visibly increase the
quality and the diversity of services concerning the sales process, warranty and post-warranty.
The competition, multiple financing solutions and border tax removal for automobiles
manufactured in Europe have led, besides the offer diversification, to a decrease in prices and to an
alignment with the prices from European Union, helped also by a similar fiscal regime.
Internalization and globalization trend of the economic activities that is a characteristic of
the last period led to the objective reality that organizations have to face a tighter and numerous
competitions and that makes this element a main force. The main factors that support this trend are:
internalization of the competition and rise of the fackers’ number (Drăghici et al., 2008).
The amount of FDI in a country is dependent upon the privatization strategy adopted by the
Government. Until the end of 2005, the Romanian Government has privatized most of the sectors of
the economy. The largest privatization deals concluded are: Romanian Commercial Bank (sold to
Erste Bank at the end of 2005), Petrom (sold to OMV in 2004), Sidex – the giant steel mill (sold to
ArcelorMittal in 2000), Romanian Development Bank (sold to Société Générale in 1998), and
50
Volume 12, Issue 2(16), 2012
Dacia car manufacturer (sold to Renault in 1997). The most recent important privatization contracts
were signed for car maker Automobile Craiova with Ford in 2007 (Rădulescu, 2012).
CONTENT OF OLIGOPOLISTIC MARKET. INFLOW AND OUTFLOW FLUXES
In this paper we will analyse the content of automobile market in Romania by considering
the inflow fluxes (production and imports) and outflows (sales and exports) in the period 20072011.
The end of year 2006 brought a spectacular increase. The sale numbers show that in the first
eleven months of the year we had an increase of 18.9% in gross sales comparing with the same
period in 2005. The exact number of sold units from the beginning of the year until November was
233.187. The main change comparing with 2005 was the increase of import cars, that exceeded the
national one’s. In the next table we will present a synthetic situation of inflow and outflow fluxes in
the period 2007-2008.
Table 1. Totals for inflows and outflows on the automobile market in Romania
in the period 2007-2008
2007
2008
Production and assembling
AUTOMOBILES
234.103
231.056
Export
AUTOMOBILES
121.866
153.595
Import
AUTOMOBILES
204.719
189.050
Sales
AUTOMOBILES
315.621
270.995
Source: Statistic Auto Bulletin – APIA, 2008
At a first glance, 2008 was a very bad year for the automobile market: comparing with the
previous year, the production has dropped with 1.3% and the sales with over 14%. The situation is
even more dramatic if we compare with the record year of 2007 when the production raised with
16.1% comparing with 2006 and the sales with more than 23%. The only indicator apparently
dynamic was export, which increased with 26% in 2008 comparing with 2007 after we had in 2007
an increase of 52.3%. Considering the import of automobiles, this indicator decreased comparing
with 2007 with 7.7%, reaching a level of 189.050 units.
in the period 2008-2009
2008
2009
AUTOMOBILES
231.056
279.320
Export
AUTOMOBILES
153.595
242.688
Import
AUTOMOBILES
189.050
91.457
Sales
AUTOMOBILES
270.995
130.193
The total production increased overall in 2009 with 20.9%, accompanied unfortunately by a
decrease in sales with half of the volumes, this thing leading to fluctuations in the effective demand
on the market uncorrelated with the production programming that led to considerable unsold stocks.
The phenomenon is attenuated by the increase in exports with 58%, double in volumes comparing
with 2007. From the total sales in 2009, 38.736 belonged to Dacia, their share decreasing at a level
of 29.8%, while in 2006 Dacia had a volume of sales of 96.306 autos with a market share of 37.5%.
51
Volume 12, Issue 2(16), 2012
Concerning the automobile import, this indicator also registered a major decrease of 51.6% in 2009
comparing with 2008, having only 91.457 automobiles.
In the period 2009-2010
2009
2010
AUTOMOBILES
279.320
323.587
Export
AUTOMOBILES
242.688
289.855
Import
AUTOMOBILES
91.457
71.928
Sales
AUTOMOBILES
130.193
106.328
Concerning the year of 2010 we can notice an increase in production comparing with 2009
of 15.8% and about 19.4% increase in exports. Also, on imports and local sales we can notice a
decrease of 21.4%, respective 18.3%. The decrease in sales is continuing the descendent trend
generated by the economic crisis which affected all the domains, thus if we compare the level of
sales from the first analysed year with 2010 we can notice a drastic decrease of sales with 66.31%,
in volumes 209.293 automobiles.
Next, we will document the evolution of sales in Romania in the period 2006-2010,
according with the data provided by the Auto Statistic Bulletin-APIA, 2010.
Sales in the Romanian market recorded until 2007 successive increases, reaching the peak of
315.364 units, afterwards, with the influence of economic crisis sales dropped dramatically,
reducing in 2009 with more than half comparing with 2008, until 2010 reaching a level of 106.328
units, 66.31% lower comparing with the peak in 2007.
For viewing how much was the decrease in sales after 2007, we will present in the figure
bellow the evolution of automobile sales in the period 2006-2010.
350000
300000
250000
200000
150000
100000
50000
0
Autoturisme
2006
2007
2008
2009
2010
256364
315621
270995
130193
106328
Figure 1.Automobile sales in the period 2006-2010
Further, we will present the evolution of inflow and outflow fluxes on the automobile
market. National production was registering an increase in total number of manufactured
automobiles in the last years. With a total of 323.587 automobiles manufactured until 2010 year
end, the auto industry documented an increase of 60.46% comparing with 2006 full year when the
total manufactured units was 201.663.
52
Volume 12, Issue 2(16), 2012
400000
300000
200000
100000
0
2006
2007
2008
2009
2010
Autoturisme 201663 234103 231056 279320 323587
Figure 2. Automobile production in the period 2006-2010
Concerning the export, we can notice a substantial increase in the past years, the biggest
increase being in 2009, when exports were bigger than the previous year with 58%. Year 2010
shows 289.855 units manufactured for export, with 137.85% bigger than in 2007. The export
evolution in the period 2006-2010 is presented in the bellow figure.
400000
300000
200000
100000
0
autoturisme
2006
2007
2008
2009
2010
80032
121866
153595
242688
289855
Figure 3. Automobile export in the period 2006-2010
After a weaker first half of year comparing with 2010. the auto market seems that it can’t
recover after the received shocks in the last three years, despite any programs like “Rabla” and
protective pollution taxes. In June 2011 have been registered only 8.606 cars, with only about 100
units more than past month, but with about 2000 units less than in June 2010. Therefore, sales have
decreased in 2011 with 11% comparing with the previous year.
The national production registered a total decrease of 4.1% concerning automobiles, which
mean 310.243 units. The main influence of this decrease was due to December, when we had a
production with 50% less than November. Next, over 90% from the total production is exported,
mainly in the countries from Western Europe (over 246.000 units, according to ACEA).
Exports decreased with 2.6% comparing with 2010 (total volume of 282.191 units). Also in
the exports case, December had an important contribution (-40% comparing with November) to the
total decrease in 2011.
Total sales of automobiles have documented an even bigger decrease, of about 11%. Total
sales have been, in total, in December, about 5.592 automobiles (decrease of about 45% comparing
with previous Month). Inside those numbers, comparing with 2010, we can see a decrease of 7.8%
from the imported one’s and a decrease of 17.6% for the local one’s. The top by brands is still
formed by Dacia, with 28.337 sold units (30% from total), followed by Volkswagen (10.043
units/10.6%), Skoda (8.260 units/8.7%), Renault (7.229 units/7.6%), Ford (5.547 units/ 5.9%) and
53
Volume 12, Issue 2(16), 2012
Opel (4.872 units/5.1%). By model, Dacia Logan remains the best seller, followed by Duster, Skoda
Octavia, Renault Clio and VW Golf.
Analysing market segmentation by classes, we can notice that classes A-C, that have relative
lower prices but with important volumes (3/4 of total market), registered decreases between 5% and
20%, while the other classes which includes automobiles with higher prices (1/4 of total market),
have percentage increases of 2 digits (between +14% and +74%).
Concerning 2012, this year will be influenced positively by the introduction of VAT
deductibility, in a percentage of 50%, and also the eventuality (but also the moment) of introducing
“Rabla” programme. Also, important influences (-/+) can appear following the general economic
situation at European level and/or local. Therefore, there are conditions (but also uncertainties) that
supplies will document small increases comparing with volumes from 2011.
MARKET STRUCTURE
A. SALES SITUATION FOR LOCAL AUTOMOBILES
Concerning the situation of local automobile sales in the analysed period we can notice a big
decrease influenced by the auto market crash in 2009 caused by the economic crisis. Comparing
with the first analysed year we can notice constant decreases, in 2008 we can see a decrease of
26.1%, i.e. 81.945 comparing with 110.902 autos in 2007. The descendent trend is even more
abrupt starting with 2009 when, despite the efforts of sustaining the auto market with “Rabla”
programme, we can notice a decrease of 65% comparing with 2007 with a level of only 38.736
units. 2010 continued in the same note, with a smaller level of decrease, indeed, comparing with
2009, but not sufficient to bring an increase in sales, the level being 34.400 units, with 4.336 less
autos than in 2009.
According with the latest statistics, Dacia is leader on the Romania market, with 26.055
vehicles sold, the Romanian manufacturer being followed by Volkswagen, with 9.456 sold units
and Renault, with 7.179 units. As always, the bestseller model in Romania was in the first months
from 2011 Dacia Logan, still representing the cheaper new automobile. Nevertheless, the Logan
market share decreased in this year, as happened also with the sales volumes, lower than in previous
year. The reason is the increased age of this model, cumulated with the expectation level of
customers that is higher and higher, especially for those one’s that had the necessary resources to
buy a new car in a crisis year. The price of the Logan starts at 6.500 Euros, from where we can take
out the “Rabla” tickets. Comparing with the first 6 months in 2010, in 2011 Dacia loss was 26.20%,
a high one, over the market mean. Statistically, Dacia is one of the players that influenced the
decrease in the first half of 2011. This means that the most affected by the economic crisis and the
other conditions are the buyers with less money. In March 2010, there were registered only 836
Dacia cars, from which only 86 Sandero’s. In the first trimester, Dacia registered a decrease of
77.6% comparing with 2009, and if we compare with 2008, when in the first three months we had
21.338 Dacia cars registered, we can notice that the constructor from Colibasi loose about 92%.
Therefore, on internal plan, Dacia is not having the great success as in the external plan.
Same negative situation is also for sales of imported cars which from 2007 until 2010
suffered a decrease of 64.8% in some cases, wit a number of over 130.000 automobiles.
54
Volume 12, Issue 2(16), 2012
120000
100000
80000
60000
40000
20000
0
2006
2007
2008
autoturisme 119112 110902 81945
2009
2010
38736
34400
Figure 4. Local automobile sales in the period 2006-2010
B. SITUATION OF IMPORTED AUTOMOBILE SALES
Sales for imported cars, similar with the local auto sales, have been lower starting with
2007, after a big increase of 49.16% comparing with 2006, i.e. from 137.252 units to 204.179 units.
After this peak, have been noticed successive decreases, the biggest decrease rate being documented
in 2009 with 51.62% comparing with 2008. The situation of imported autos sales in the period
2006-2010 is presented in the bellow figure.
250000
200000
150000
100000
50000
0
2006
2007
2008
2009
autoturisme 137252 204719 189050 91457
2010
71928
Figure 5. Sales of imported automobiles
For imported brands, the situation is different by one case to another, The biggest importer,
Volkswagen, closes the first half of 2011 with an increase of 5.27%. In normal conditions, this
evolution has been considered a modest one, at most normal, but in 2011 we can appreciate this as a
performance. Thus, the Romanian importer seems to be sustained by VW Group, which targets at
global level important increases. The next brand in the rankings is Skoda, group partner, which
obtains a similar result with the one from last year. For Skoda a detail that probably changed the
evolution from 2011 is the replacement of Octavia Tour model. Renault was ranked the third, at a
big distance comparing with the Czech constructor, after a good precedent year when they can
claim the second rank. Even if the Frenchs consider they have one of the best adapted portfolio of
cars from the Romanian market, the sales for Symbol and Fluence are inconstant, leading to a loss
of 21,34% in 2011. Recent changes of organisation at national level, by opening a new distribution
company, are for sure in correlation with these results and are targeting the revival of sales in
Romania. Opel and Chevrolet, two brands that impressed last year by positive evolutions, have
documented a regression of sales this year, especially the second one, which registered lower sales
(-36% comparing with last year), have practically the biggest decrease from top 20. Between those
55
Volume 12, Issue 2(16), 2012
two, is positioned Ford, also with a big decrease in volumes, one of the main reasons being the lack
of a cheap product in the portfolio, by comparison with the competition.
In the area with good increases, the best performance can be considered the one of Nissan,
that basically doubled the digits from last year, even if in absolute values we talk about a
supplemental volume of only few hundreds automobiles. Mercedes-Benz, Audi, BMW are models
that have better sales comparing with last year, but in addition of this premium brands exists also
volume brands, as especially Hyundai, but also Peugeot, Seat and Mitsubishi that discovered the
right formula for getting out from the crisis impasse.
Toyota
3.40%
Rest 21.80%
Vo lkswagen
12.20%
Renault
11.70%
Fiat 3.60%
Peugeot
3.60%
Hyundai
6.20%
Chevrolet
6.80%
Opel 9.00%
Skoda
11.20%
Ford 10.60%
Figure 6. Situation of imported automobile sales- December 2010
The sales of imported vehicles decreased in 2011 versus 2010 with 7.8 %, from 71.928 units
at 66.287 units. The sales of local vehicles registered a higher decrease, with more than 17 %, from
34.400 at 28.337 units.
The view concerning brands and types, both for local vehicles and for imported ones, for
2011, is presented in the tables below.
Table 4. Sales situation by models and brands in 2011
Top models (2011)
Units
Top models (2011)
Dacia Logan
Dacia Duster
Skoda Octavia
Renault Clio
Volkswagen Golf
Dacia Logan MCV
Dacia Sandero
Opel Astra
Volkswagen Polo
Volkswagen Passat
Opel Corsa
15.808
Dacia
7.249
Volkswagen
4.318
Skoda
3.920
Renault
2.922
Ford
2.761
Opel
2.519
Hyundai
2.222
Chevrolet
1.957
Toyota
1.750
Peugeot
1.655
Suzuki
Units
28.337
10.043
8.260
7.229
5.547
4.872
3.405
3.027
2.902
2.425
2.111
C. SECOND HAND MARKET CONSIDERATIONS
The total units of vehicles from Romania increased in 2009 with approximate 210.000 units,
second hand vehicles imported from other counties. At this figure we add also the 35.000 units,
representing used vehicles that were sold in 2009 on Romanian territory. It results more than
500.000 transactions representing second hand vehicles. In 2010 the situation remained steady
56
Volume 12, Issue 2(16), 2012
concerning second hand vehicles imports, with 48.000 units during the first four months, mean
while the internal sales of used vehicles reached 122.155 units reregistered on Romania’s territory.
This represents a monthly average of more then 42.000 transactions, both from import and
local market.
350.000
312.589
300.000
300.891
285.506
250.000
214.606
212.836
200.000
150.000
Noi
Rulate
123.842
116.012
94.484
81.709
100.000
50.000
0
0
2007
2008
2009
2010
2011
Figure 7. Evolution of new/ second-hand automobile registrations in the period 2007-2011
Concerning the market shares, Dacia came back from only 15% last year, concerning similar
period of time, at 25% in present, but much more below then the share market that the producer
from Mioveni registered at the end of 2010. Skoda gained almost 1%, as the other 11 brands from
Top 20. It has to be also mentioned that Opel got closer to Renault, once the most important
importer from Romanian market (5.8% versus 6%). If we take into consideration the few brands
that lost market shares, we have to mention first of all VW, that last year reached 16%, decreased
now at 10%, and Ford reaching a decrease from 12% at 7.5%. Over all, concerning both examples
the values are higher then the figures reached at the end of 2010.
THE INFLUENCE OF THE PROGRAM OF STIMULATING NEW AQUISITIONS
IN THE NATIONAL AUTO PARK OVER THE VEHICLES MARKET
« Rabla » Program is addressed to any owner / inheritor as individual or company, who
owns a used vehicle, registered in Romania and that is used more then 10 years. This program
involves a bonus of 3,800 RON for giving up a car used more then 10 years. When changing a car
older then 10 years you receive a ticket in quantum of 3,800 RON. The ticket is not nominal and
can be used by the owner at buying a new car. An individual can buy a new car using maximum 3
tickets. The objectives of implementing the program of stimulating new acquisitions are the
decrease of pollution by not using cars older then 10 years and the increase of accessibility to buy
new vehicles.
According to the Administration of Environment Fund, about 80,000 of the vehicles older
then 10 years were scrapped due to Rabla Program until the 18th of August 2010, meanwhile the
number of new vehicles sold by using the tickets reached about 13.000.
In 2010, due to Rabla Program were scrapped 189,323 of used vehicles and were bought
62,550 of new vehicles, of which 25, 263 from the local production. The best seller remained Dacia,
with 11,352 units, but registering a decrease with 27,12 % in comparison with the last year, when
15,576 of new units were sold. In the first five months of 2009, the selling of new vehicles reached
a decrease of 49% in comparing with the same period of the year before, representing 57, 894
units. During the same period, the registrations of new cars decreased during May with 53 %, at
11,475 units, but with 4% more then the last month, according with the figures published by the
Direction of Regime Licenses and Registrations of Vehicles (DRPCIV).
57
Volume 12, Issue 2(16), 2012
Regarding the number of second hand vehicles, this reached 17,705 units, representing a
increase of 64% comparing with last year. According to DRPCIV, in October 2010 there were
registered 8,281 of new vehicles, representing more then 21% versus August figures, and with 9,4%
versus October 2009.
According to specialists, Top 10 of most wanted vehicle in Romania was influenced in
2010, more then ever, by the Rabla Program. The decision of the authorities of offering the
possibility of selling on the free market of the tickets obtained due to the scrapping of vehicles used
more then 10 years, and the utilization of maximum 3 tickets for buying a new car, had a powerful
influence over the number of sales. According to APIA, almost 70% from the vehicles sold during
this year in Romania were made through the program offered by the state. The main beneficiary of
the Rabla Program was, like the years before, the local producer Dacia, who sold 23,292 units
during first 10 months.
Through Rabla Program, in the last 2 years, there were scrapped 305,964 of used vehicles
and were bought 101, 766 of new ones, of which 40,269 from local production.
In 2011 the Government allocated about 456 millions of Lei to scrap 120,000 used cars.
The selling of vehicles reached in January, current year, a decrease of 21% comparing the
similar period of last year, at a level of about 3,500 Units, according with statistics provided by the
main players of the market. The decrease comes in the context in which the Rabla Program was still
available in January 2010, meanwhile this year the scrapping program was no longer available.
35.000
29.499
30.000
25.000
21.932
19.712
20.000
15.000
Vanzari autoturisme
14.326
Inmatriculari autoturisme
13.815
10.000
7.110
3.443
2.131
5.000
4.399
2.648
3.475
0
0
2007
2008
2009
2010
2011
2012
Figure 8. Lower sales in January without “Rabla”.
Sales and registrations evolution in January in the past 5 years
Source: APIA, DRPCIV, players from the market.
At the entire market level, the decline of automobile sales has been more accentuated, of
over 25%, i.e. a bit more of 4.000 units, in the context in which the sales of commercial vehicles
have decreased with 50% at the level of January, from over 1.000 vehicles last year to about 600
units last month. The announced budget by the Administration of Environment Fund for 2012 is
114 millions LEI, the equivalent of 30.000 old cars. The value of a voucher will still be 3.800 LEI,
and when buying a new car there can be used maximum 3 tickets. The government hopes that
through Rabla programme in 2012 we will have a number of about 30.000 cars older than 10 years
out of use.
As banks are granting more difficult and more expensive loans for cars, the auto dealers are
expecting to sale cars to individuals when Rabla programme will start, by which the government
ensure a “discount” of 2.700 Euros, the afferent value for the three tickets. Also at national level,
the auto dealers are waiting the start of Rabla programme, especially in the less developed regions,
where we don’t have a high number of companies that can buy cars.
58
Volume 12, Issue 2(16), 2012
CONCLUSIONS
Concerning the situation of local automobile sales in the analysed period we can notice a big
decrease influenced by the auto market crash in 2009 caused by the economic crisis. Comparing
with the first analysed year we can notice constant decreases, in 2008 we can see a decrease of
26.1%, i.e. 81.945 comparing with 110.902 autos in 2007. The descendent trend is even more
abrupt starting with 2009 when, despite the efforts of sustaining the auto market with “Rabla”
programme, we can notice a decrease of 65% comparing with 2007 with a level of only 38.736
units. 2010 continued in the same note, with a smaller level of decrease, indeed, comparing with
2009, but not sufficient to bring an increase in sales, the level being 34.400 units, with 4.336 less
autos than in 2009.
Due to the fact that the trend of the automotive market in Romania is increasingly based on
companies and not individuals, casco insurance market recorded a slight increase. The main client
became a corporation, often international, who still has a business to allow changing the fleet and
has the financial resources to conclude an optional casco insurance. The optional casco insurance
supplements the mandatory civil liability insurance for car owners insurance part of the most
popular and best selling optional insurance products. The latest trend in optional casco insurances is
the emergence of Cobrend Casco, that joins several brands: car manufacturer, insurer, insurance
broker. Its purpose is to generate more incomes to the service segment, while providing more
quality and customer satisfaction to the auto brand clients (Clipici, 2010).
In 2010, due to Rabla Program were scrapped 189,323 of used vehicles and were bought
62,550 of new vehicles, of which 25, 263 from the local production. The best seller remained Dacia,
with 11,352 units, but registering a decrease with 27,12 % in comparison with the last year, when
15,576 of new units were sold. In the first five months of 2009, the selling of new vehicles reached
a decrease of 49% in comparing with the same period of the year before, representing 57, 894
units. During the same period, the registrations of new cars decreased during May with 53 %, at
11,475 units, but with 4% more then the last month, according with the figures published by the
Direction of Regime Licenses and Registrations of Vehicles. Regarding the number of second hand
vehicles, this reached 17,705 units, representing a increase of 64% comparing with last year.
According to DRPCIV, in October 2010 there were registered 8,281 of new vehicles, representing
more then 21% versus August figures, and with 9,4% versus October 2009.
REFFERENCES
1. Alecu Bogdan., Financial Newspaper, 10 of February 2012, pp. 7.
2. Bâldan Cristina, (2007), Competition on the automobile market in Romania, Paralela 45
Publishing, Piteşti, pp. 87.
3. Clipici Emilia, (2010), Commercial insurance, University handbook for part-time education,
Sitech Publishing House, Craiova, pp. 108.
4. Drăghici Constantin, Mihai Daniela, Brutu Mădălina, (2008), Management course - theory
and applied, Sitech Publishing House, Craiova, pp. 98, 99.
5. Hagiu Alina, Platis Magdalena, (2012), The evolution of the Romanian car industry and its
position on european market, Studia Universitatis Babeş–Bolyai Negotia, Volume 57
(LVII), 2, 2012, pp. 68.
6. Rădulescu Magdalena, (2012), FDIs analysis through the stimulation financial
macroeconomic policies, Lambert Academic Publishing, Berlin, Germany, pp.107.
7. http://www.apia.ro, (2010) – Auto Statistic Bulletin.
8. http://www.apia.ro, DRPCIV, market players.
9. http://www.ziare.com/auto/piata-auto-romania/vanzarile-de-masini-au-scazut-cu-peste-10la-suta-in-primele-zece-luni-din-2011-1135412.
10. http://businessday.ro/11/2010/numarul-masinilor-noi-inmatriculate-in-octombrie-a-crescutcu-94-fata-de-anul-trecut/.
59
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE PRIMACY OF EDUCATION IN INCREASING THE QUALITY
OF LIFE
Assistant Ph.D. Student Gabriela-Liliana CIOBAN
Stefan cel Mare University of Suceava, Romania
[email protected]
[email protected]
Abstract:
The investments in education are, or should be, a priority in the developed countries as well as in the developing
ones. Priority comes from the contribution of this sector to the economic growth of those countries and the positivism of
these ideas results from the coherent strategies regarding the economic growth over medium and long term.
For this purpose Europe has proposed through Lisbon Strategy to be an economy/society based on knowledge in
its development (in the sense that the economy sectors derive profit from knowledge produced by educational services).
Thus the social development is based on increasing knowledge, the number of innovations/inventions, their quick
adjustment and widely dissemination.
This aspect leads to the obligatory presence of global competition, creativity and talent of the employees from
any organization; employees’ creativity and skills are directly dependent on education. We talk about the employees’
adaptation to the new demands of the technology through their continuous training and improvement, situation that if it
was accomplished would increase the GDP / capita or the GNI / capita.
The need for these things is evident from the statements of some policy makers who issued the idea that education is the
strategic factor of the national development in the future, that it has an essential contribution to the formation of the
human capital.
Key words: Education, Innovation, Budget, Gross Domestic Product, Rate of unemployment, Public
Expenditure
JEL classification: A12, H52, I25
INTRODUCTION
Education services are a necessity of the XXI century both for human development in society
and for their contribution to the economic growth. We talk about the satisfaction felt by an educated
person in daily life, the safety of the workplace, the wages and implicitly the revenues increases, the
Gross Domestic Product growth etc. All these as a consequence of the efforts the families make
when they send their youths to University and not at last to Colleges.
In these cases the benefits of which the university young graduates enjoy are much higher
than those obtained by high school graduates both in terms of wages and employment. The
arguments brought in this situation are presented in the following chart:
60
Volume 12, Issue 2(16), 2012
Figure no. 1. The employees’ payment and the rate of unemployment by the level of education
Source: Bureau of Labour Current Population Survey
Note: The statistics were taken from the Bureau of Labour Statistics, Current Population Survey and include
people aged over 25 years1.
We observe an evolution of the earnings got in accordance with each level of education in the
U.S.A. Thus, earnings increase with each level of education from about 451 USD per week for the
secondary education level to about 1.053 USD per week for a graduate degree. The highest average
earnings in the U.S. in 2011 was about 1.551 USD per week for an employee with a doctor of
science degree. Regarding unemployment, it appears that the trend is rather opposite to that given
by the evolution of incomes in accordance with the studies held (the unemployment rate increases
from 2.5% for doctors of science to 14.1% for secondary graduates). This situation can be found
among the population of Romania2.
I. Eurostat data show that on average there is a difference of income at the persons who have
accumulated many years of school and a consistent educational knowledge. Thus the Romanians
with primary education have registered an average gross income of 1649 Euros, for those with
secondary education or post-secondary school, the average income was of 2943 Euros, while the
Romanians with higher education have an average income of 4944 Euros.
At the European Union level a person with primary education achieves an average annual
income of 13480 Euros, while the average in the Euro Area is of 14891 Euros. If we discuss about
the people with secondary education we notice that the average of the medium annual income in the
European Union is of 16363 Euros and the average in the Euro Area is of 19153 Euros. The average
income of the people with higher education in the European Union is of 24282 Euros and the
average in the Euro Area is of 25015 Euros.
Analyzing the data in terms of education level, we see that although the trend of the
unemployment rate growing is present regardless of the education level, the level of growth,
however, depends on the group that has been analyzed (table no 1). II. We notice that, by level of
education, the evolution of the employment rates differs substantially. Thus, for young people (1524 years) the total employment rate has fallen by 3,5% and for the higher education graduates
(ISCED 5-6) in the same category, it has decreased by 28% while for ISCED 3-4 it has decreased
by 7,2%, and for ISCED 0-2 it has decreased by 3,5%. For this category there is a trend in
employment retention of the categories of very low-skilled population.
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Volume 12, Issue 2(16), 2012
Table no.1 Employment rates by age groups and highest level of education attaned (%) 2003,
2006 and 2011
TIME
2003
2006
ISCED/
15-24
25-49
50-64
15-24
25-49
50-64
AGE
0-2
19,8
64,6
51,2
15,9
60,3
46,7
3-4
36,6
76,8
46,1
32,7
77,8
51,1
RO
5-6
71,3
91
59,3
57,6
92,2
74,2
TOTAL
27,3
75,8
49,9
24
76,4
51,5
Source: Eurostat (Labour Force Survey);
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Employment_statistics
GEO
15-24
2011
25-49
50-64
16,3
29,4
42,5
23,8
58
77,1
90,1
75,5
43,6
49,2
68,6
49,2
Therefore, the importance of education on the labor market, in 2010, continued the increasing
trend in the share of people who completed their education, from the total of the active population.
The data show that in the total of the active population, there are less illiterate persons.
EDUCATION BENEFITS
IV. Therefore, a stable, democratic society, can’t exist if most people do not have a minimum
level of civic culture. The idea would be that the education a child receives brings benefits not only
to his parents or to himself, but to the other members of society. "The education of my child
contributes to your welfare by promoting a stable and democratic society"3. The state support of a
minimum level of education of the population as well as the compulsory schooling of young people,
the requiring specialization of the people in the present context of rapid technological changes have
confirmed the presence of the benefits to the society.
The current situation reiterates that the Romanian education is likely to become a competitive
one if we consider that the investment in education generates both costs and benefits, justification
found in the analysis of the opportunity costs that highlight the potential gains that such persons
would have received if they had not continued the learning (specialization) process and had been
integrated into the labor market. The confirmation of this theory is found in the results obtained by
conducting a survey at the three high school educational institutions in the city of Falticeni ("Nicu
Gane" College, "Mihai Băcescu" Technical College, " The Agricultural College"). The participants
to this survey were twelfth graders in the day school form of education, in the school year 20102011, and the objectives pursued have been materialized in:
- the identification of the options of the high school graduates to continue their studies and /
or the options of employability;
- the development of certain proposals for the design of a monitoring system of educational
options and /or professional of the graduates;
- the delineation of the conceptual framework on education and lifelong learning and the
permanent guidance;
- the determination of the probability to find a job after the high school graduation;
- the comparison of anticipated benefits as a result of the alternatives.
This research aims to highlight "the options the students have after school graduation" as well as
the analysis of the main variables that affect the school route of the future graduate. The instrument
used for data collection was a questionnaire comprising 12 questions.
The results of this research revealed the following conclusions:
- the respondents who answered the question "Do you consider necessary to continue your
studies?" an important percentage of 45% said yes, and from the graduates who live in urban areas
37% expressed the desire to continue the studies. I mention that among the factors influencing this
decision there are: the parents’ education, their occupation, the traditional elements which are the
determinants of the educational decisions.
- most of the sample students choose to continue the studies both in post-secondary education
(25%) and higher education (50%). The remaining subjects are limiting themselves to complete the
62
Volume 12, Issue 2(16), 2012
level of education they are already included (12,63%), or they haven’t taken yet a decision in this
regard (12.37%).
- the perspective of the confrontation with the labor market concerns the questioned subjects
although almost 15,88% of them doubts on the possibility of their professional insertion after
graduation. This is due to the fact that in the young people’s mentality there is still the idea that
only the skills with a good quality training represent essential conditions of the professional
integration, of the success in profession, in life.
- 47,63% of respondents are optimistic and believe that only after graduating from higher
education will be able to integrate into the labor market, while 46,25% think that the salary will be
higher after completing these studies.
As we can see there is a high aspiration for completing the studies at higher levels of
education and training. The situation is explained by the fact that a significant share of students who
have opted for the secondary branch have the intention, from the very beginning to continue their
education, even if this intention is not always turned into reality. Moreover, in the last years, the
demand for higher level education has increased continuously as a result of the students' awareness
of the importance to continue the studies, respectively the investment in education for obtaining
future incomes.
Thus, by investing in education and giving up some immediate benefits is proved the fact that
respondents know and apply the concept of opportunity cost4.
The graduates make an assessment of the alternatives to be followed and they will answer the
question whether it is good or not to continue their studies. The hope that the skills and the abilities5
acquired will bring them a higher salary and faster employment opportunities will determine a quite
large percentage of high school graduates to continue their studies. The investment in education for
this social category is determined by other policy makers: the parents’ financial possibilities, the
parents’ education, the place of residence, the elements of tradition, the existing situation on the
labor market, the investment payback time, etc. The factors presented as well as the results of the
survey highlight the fact that a percentage of 63,9% of the respondents will invest in education
being convinced of the influence the studies have on the further studies.
We note that a percentage of 22,5% of graduates do not wish to continue their studies
assuming the risk of having a low income immediately after graduation.
Both the results based on the questionnaire and the trends registered in Romania in the recent
years on the educational levels showed that an increasing number of people have taken the "risk" of
continuing the studies6.
The continuation of studies imposes costs both for students and their parents and the cost of
this action measures "the gain obtained" by "losing" the best alternative (sacrificed variants) and it
is a decision based on the cost-benefit method, that is the evaluation and comparison method.7
According to Vadim Cojocaru8 in adopting a rational decision concerning the efficiency of
the investment in higher education we must take into account the fact that the period of the
university studies varies from 3 to 5 years, while the additional income will be obtained throughout
the active life. It is therefore necessary to update future benefits obtained after the university
graduation.
In order to find the value of the amount produced in a year (V1) we use the formula:
V1 = Vp (1 + i) where: Vp – the present value, i - the interest rate.
From the above relationship we calculate the present value of an income which is obtained
over a year.
V
Vp = 1 ;
1+ i
To obtain education costs and revenues over a period of time (5-6 years for some specialties medicine, architecture, etc.) it is created an extension of the presented formula:
E
E2
En
Vp = 1 +
+ .... +
2
1 + i (1 + i )
(1 + i )n
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Volume 12, Issue 2(16), 2012
where: E1, E2, ... En are earnings increases expected for each year of study, n the individual
expectancy for an active life; i - the interest rate.
If we want to know whether the investment made by the individual in his educational
preparation is justified, we use the internal rate of the investment return (r - called private return of
the investment in human capital), which is the discount rate for which the net present value of the
invested human capital is zero:
E
E2
E3
E4
E5
Vp = 1 +
+
+
+
=0
2
3
4
1 + r (1 + r ) (1 + r ) (1 + r ) (1 + r )5
where: E1, E2, E3, E4, E5, are direct and indirect costs corresponding to five years of university
studies (we consider even six years of study), r - the highest rate of interest that may be paid to
certain people to finance investment in human capital.
According to the above relationship the investment in the human capital is profitable when r>
i and the investment isn’t profitable when r <i.
The analysis made on the version Cycle 1 of studies (3 academic years) showed that r> i, so
the investment is profitable.
In the above presented context we find that the rate of recovery of the investment in the
educational capital is different for the different levels of education.
If we refer to the master and doctoral level where the alternative costs are high, the recovery
rate of investment in educational capital is the lowest compared with the rate for the compulsory
secondary education, where the alternative costs for this level are zero (the highest rate of return).
In conclusion, with the increasing of the educational level or of the number of the years of study,
the evolution rate of the return on education is decreasing.
The studies realized in USA, in the postwar period had as a result the obtaining of a formation
supplement of 5-15%, as a consequence of the training from each year in the higher education
institution, while the average rate of the benefit on real capital was only 4% . The result shows the
fact that the American public education occupies the first rank in the system of social needs.
At the same time, the private rates of the recovery of the investment in education on every
level of education on global regions are inferior to the social rates of recovery of the investment in
education, the difference being of 8,1 to 6,9 percentage points, more accentuated for the higher
level of education. A result obtained in the study by G. Psacharopoulos9 entitled "Returns to
Investment in Education" and whose explanation lies in the way the social rate is defined – there are
taken into consideration total costs (private and external) and the benefits, the social ones not being
included.
Therefore, in the regions where the average of school years is higher, it is obtained a
coefficient of recovery with the lowest value due to the fact that there remain fewer years for those
people to benefit from the investment made. This situation also explains the fact for which most of
the people who follow academic studies are young. In comparison with the countries of the
European Union where a percentage of 23% of the population has university education, in Romania
only 12% of the total population aged 15-64 years had graduated university studies in 2010 (table
no. 2).
Indicator
%
The
population
(15-64
years)
depending
on the level
of
education
Country
/area
Uniunea
Europeană
România
Classification
ISCED 97
Pre-primary, primary and
gymnasium - levels 0-2 (ISCED
1997)
High school and post- high
school levels 3-4 (ISCED 97)
University education levels 5-6 (ISCED 97)
1997)
2004
2005
2006
2007
2008
2009
2010
37
34
33
33
32
31
31
41
45
45
46
46
46
46
20
20
20
20
21
22
23
35
33
32
31
30
30
30
56
58
58
59
59
59
58
64
Volume 12, Issue 2(16), 2012
Employm
ent –
the level
of
education
Uniunea
Europeană
România
University education levels 5-6 (ISCED 97)
The rate of employment
-total
1997)
University education levels 5-6
The rate of employment
-total
1997)
University education levels 5-6
9
9
10
10
11
11
12
65
64
65
65
66
65
64
51
48
49
49
48
48
45
70
69
70
70
71
69
68
83
83
83
84
84
83
82
59
58
59
59
59
59
59
40
40
40
40
41
42
43
66
64
65
64
64
62
62
85
84
86
86
86
84
82
Sursa: INS 2011
Romania being on a modest position compared to EU-27 countries in terms of participation at
all levels of education of the population aged 6 -29 years.
This is understandable due to the major lack of funds, poverty, immigration, school dropout
and leads to increased unemployment. In order to remedy the above mentioned situation it is
necessary the supporting of the students and their families by attracting financial resources from
public and private sector of the economy as well as the increasing of the percentage allocated of the
GDP to education.10
CONCLUSIONS
To achieve these objectives that will lead to an improved quality of life is necessary to have a
democratic political system that should consider coherent demographic policies and well founded
strategies from demographic point of view. The lack of these needs leads to the appearance of some
negative effects (besides the positive ones) of subeducation / and overeducation which can be found
both in the discrepancy of incomes obtained by people who have benefited from education
compared to the others and in the effect known as "cogwheel"4 and also the effect on rural
economies11. Regarding this latter aspect A.H. Hawley12 believes that migration and urbanization
have positive effects on the economic development of a nation. Therefore, the relationship between
education on one hand, and the degree of a society development, on the other hand is mutual,
leading to an improved quality of life by satisfying people’s material, spiritual, human, biological,
psychological needs correlated to the conditions of the existence of the society and individual,
interpersonal relationships and those with the natural environment or created by society.
What is important to keep in mind is also the fact that the concern for maintaining and
developing this field results from the share of education expenditure in GDP by the state budget,
expenditure that are considered an advance of GDP. Thus, most of the world countries allocate
large sums for this service (about 6-9% of GDP), occupying the first positions among public
expenditure. It is interesting to note that a part (some) of the most educated countries rely the least
on public money, which covers only part of the total education expenditure. We have to mention
that in these circumstances the European Union is making good progress, but insufficient in
reducing the dropout rate (presents a slight decrease from 17% in 2002 to 13,5% in 2011
according to Eurostat), increasing the number of graduates of high secondary education (to
increase to at least 40%), improving the reading skills, and increasing the percentage of adults
participating in education or training.
We are talking about knowledge based societies, where knowledge is the real capital and the
first resource that leads to wealth creation and where school doesn’t end after the completion of
65
Volume 12, Issue 2(16), 2012
certain study phases but continues during a long-life process. To support these activities there are
different organizations, enterprises, institutions that aim to instruct and train their own employees.
These aspects13 can be cultivated and developed over time through an increased share of
public participation at all levels of education, age structure, and participation in full or part-time
programs. Participation is a fundamental feature of learning, an almost universal requirement felt
both at international level and at national, regional and local levels. We are talking about a concept
with a history developed during several decades involving an individual aspiration to integrity and
dignity.
All these7 can be found in the acceptance and not in the mandatory participation, fact that
explains the orientation towards problem solving, development of a common understanding of an
issue, problem detection, as well as their perception and formulation. The implementation of these
initiatives depends on the extent of participation at international as well as national and local scales,
taking into consideration that on the one hand the battlefield of global problems is local14 in reality,
but it can’t be related only to this because the preservation of mankind’s ecological and cultural
heritage, the solving of food and energy problems as well as of other world problems require
increased competence and taking initiatives in the general interest. We remark that the attributes of
participation are found in man’s preparation and development, in his integration into an active
mechanism that recommends the direct experiences and removes the illusion according to which the
active withdrawal from society is possible because it leads to a morbid isolation. In conclusion, the
participation in both local version and in the global one, attracts cooperation, dialogue,
communication, reciprocity and empathy.
The correct interpretation of the data taken from the Statistical Yearbook and the National
Institute of Statistics shows that, for the moment, there is a need for the improvement and
diversification of the opportunities offered by the Romanian education and of the vocational
training system. The need for these things is evident from the statements of some policy makers
who issued the idea that education is the strategic factor of the national development in the future,
that it has an essential contribution to the formation of the human capital. Related to the context
where we live, it is most important for Romania that education should become a public project of
strict priority over the next 20 years as education is equivalent to qualified employees and the
opportunity to exploit knowledge in order to become competitive in the world economy. All these
requirements are obligatory for imposing some coherent educational strategies, for changing
attitudes that contribute to get a quality human capital in a relatively short period of time. The lack
of investments in education can be disastrous for Romania's economic growth.
IX. I emphasize the fact that education is important both for the present and for the future,
too, giving people knowledge, skills, aptitudes to participate effectively at the social life, to develop
themselves and to successfully integrate on the labor market which will lead to the obtaining of a
lasting customer satisfaction.
METHODOLOGICAL NOTES15:
1. The unemployment rate represents the percentage of the unemployed persons, according
to the international definition (ILO), in the active population. It is calculated as the ratio
S
between the number of the unemployed persons and the active population (R =
*100 )
Pa
2. The employment rate is the share of the employed population from the age group x in the
total population of the same age group x. Thus, the employment rate of working age
population is the share of employed population aged 15-64 years in the total population aged
15-64 years.
3. The education level was grouped into:
- lower secondary (ISCED 2), primary (ISCED 1), without graduated school (ISCED 0);
-middle: high school, the first stage of high school and vocational level (ISCED 3), 66
Volume 12, Issue 2(16), 2012
-specialized post high school or technical education (ISCED 4);
- high education: university of short / long term (including Bologna type graduate and
master degree) or postgraduate (ISCED 5), doctoral or postdoctoral (ISCED 6)
The national classification regarding the educational level corresponds to the International
Standard for the Classification of Education (ISCED-97).
NOTES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
http://www.bls.gov/emp/ep_chart_001.htm
The correlation which is established between the educational level of the population and the overall income
obtained in Romania is well related, determined by factors such as age (usually, at the same level of education,
the youngest earn less than the older ones), inherited wealth, existing skills beyond the formal education (for
example the case of the leading footballers or the case of some entrepreneurs), distributional inequities, the
theft, etc.
Milton Friedman, Capitalism şi Libertate, colecţia Biblioteca Băncii Naţionale, Editura Enciclopedică,
Bucureşti, 1995, pag. 104
In the work Economic Education (Economic Publishing House, 2005), written by Marta Christina Suciu, it is
presented a model for evaluating the alternatives to be followed by the high school graduates.
Ben Porath Y has introduced in The production of human capital and the life cycle of learning, in Journal of
Political Economy, 1967, No. 4, pp. 352-365, a production function of the human capital. He believes that a
person can produce and incorporate in itself an additional amount of human capital Q in a fraction m from his
time, different from the free time. He uses a q quantity of goods (books) and training services and calls on the
H stock of human capital already incorporated in himself: Q = β0(Hm)β1 x qβ2. ( parameters β0 β1 β2 - express
the individual's skills to use the three factors of production, H – is a state variable, being inherited from the
past).
He takes into account the direct costs (tuition fees, administrative expenses and so on), the alternative costs
(giving up to the immediate earnings for the future ones), the expected monetary benefits, the non-monetary
benefits.
He takes into account the direct costs (tuition fees, administrative expenses and so on), the alternative costs
(giving up to the immediate earnings for the future ones), the expected monetary benefits, the non-monetary
benefits.
Vadim Cojocaru, Calin Făuraş, Education in economic approach, ASEM Publishing House, Chişinău, 2006,
p.10
G. Psacharopoulos, H.A. Patrinos, Returns to Investment in Education: A. Further Update, Wold Bank Policy
Research Working Paper 2881, September 2002.
When considering the importance of the education field in a country, we don’t have to refer to a share of GDP
but rather to the share of costs with this field in total public expenditure.
The educated people migrate to the large urban agglomerations creating labor shortages in rural communities
on the one hand, and employment growth more than labor supply in urban areas, on the other hand.
A.H. Hawley, D. Fernandez, H. Singh, Migration and Employment in Peninsular Malaysia, Econ. Dev. Cult.,
1979
The effective participation, the creative participation are based on consent because the requirement is rather
counterproductive - James W. Botkin, Mahdi Elmandjra, Mircea Malita, Contemporary ideas. The limitless
horizon of learning. The liquidation of the human gap, Publishing House, Bucharest, 1981, page 52
It is reflected in the culture of a civilization
The National Institute of Statistics, Press Release no. 89 of 17th April 2012
REFERENCES:
1. Botkin W. James, Elmandjra Mahdi, Maliţa Mircea, (1981), Contemporary Ideas, The
Limitless Horizon of Learning, The Liquidation of the Human Gap, Political Publishing
House, Bucharest
2. Cetină Iuliana, Brandabur Raluca, Constantinescu Mihaela, (2006), Marketing Services –
theory and applications, Uranus Publishing House, Bucharest
3. Deming W. Edwards, (2000), The New Economics, For Industry, Government, Education,
Second edition, ISBN 0-262-54116-5, 2000
4. Grigorescu Constantin, Ştefan Mihai, (1992), The Development And Specialization Of
Services, Romania Academy Publishing House, Bucharest
67
Volume 12, Issue 2(16), 2012
5. Iancu Aurel, (2003), The Intensive Development And Specialization of The Nations,
Economic Publishing House, Bucharest
6. Jivan Alexandru, (1998), The Economy of The Third Sector, Sedona Publishing House,
Timişoara
7. Niţă Dobre, Aceleanu Mirela Ionela, (2007), The Employment of Labour Resources In
Romania, Anachronistic Structures – Atypical Developments – Reduced Efficiency,
Economic Publishing House, Bucharest
8. Dictionary of Economics, Economic Publishing House, Bucharest, 2001
9. Romanian Statistical Yearbook, 2011
10. The National Institute of Statistics – Romania in figures, 2011
11. OECD - Education at a Glance. OECD Publishing
12. http://www.ecol.ro/content/
13. http://www.cersipamantromanesc.wordpress.com/2011
14. http://www.bnr.ro
15. http://www.businessday.ro/
16. http://www.insse.ro
17. http://www.unctaf.com
18. http://www.worldbank.org
19. http://www.wto.org/
20. http://www.wikipedia.com
21. http://www.ceeol.com
22. http://www.oecd.org/infobycountry
23. http://www.oecd.org/publishing/corriega.2009
24. http://www.epp.eurostat.ec.europa.eu
25. http://www.bls.gov/emp/ep_chart_001.htm
68
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
STRATEGIC ORIENTATION OF THE SOLID WASTE
MANAGEMENT
(CASE STUDY KORCA REGION/ALBANIA)
Ph.D. Candidate Eva DHIMITRI
Dr. Aida GABETA
Dr. Majlinda BELLO
Faculty of Economics, “Fan S. Noli” University, Korce, Albania
[email protected]; [email protected]; [email protected]
Abstract:
Waste management (WM) has more and more become an important issue for the entire world, the waste
humans are producing are now almost reaching a breaking-point for what the environment can take. This meaning that
it is time to look for an effective management system. Almorza et. al (2002) write that since we live in a world that is
more and more increasing its awareness, the waste management question has made many politicians and researchers
gain interest. The paper is based on the strategy of integrated and sustainable waste management incorporating waste
streams such as municipal, industrial wastes, agriculture wastes, hospital wastes and sludge. Integration refers to all
mentioned streams and management at all levels resulting in efficient and transparent system, where there is a clear
distinction between legislative and enforcement activities at all managerial levels. This paper focuses primarily in
general situation of the solid waste in Albania, in analyze the present situation, problems and difficulties The aim is to
provide the sustainable development from a global perspective and to design the Regional Strategy of Solid Waste
Management. Region of Korca in Albania is chosen as a case study area to design the regional integrated strategy.
Key words: waste stream management, waste hierarchy, integrated management, sustainable development.
JEL classification: A1; R1
INTRODUCTION
In Albania there is little environmental consciousness, and few effective ecological
standards. Uncontrolled fly-tipping of various kinds of waste (household, inert, scrap metal, tires,
etc.) remains a common sight in surrounding of dump sites. Some backyard waste dumped in the
center of cities and rural areas still exist. As a result of the housing demolition and reconstruction
effort, existing fly tips are growing and new ones are building up. Further, household waste
continues to be regularly dumped especially in communities with their integrated villages. Due to
limited financial possibilities, these areas are without any waste management structure. In order to
provide a reliable service to the people and to ensure that the financial resources of the donor
community are effectively utilized, it is necessary to change the actual waste management system in
short term. The general objective is to move away from the quasi-emergency phase towards a
sustainable development process. To finally these actions will also provide the necessary analyses
for long-term measures. Successful implementation and measures of new waste management
strategies requires a clear action plan and approval by involved institutions and persons.
ECONOMY WITHIN THE WASTE MANAGEMENT AUTHORITY IN REGION
KORCA
The Region of Korca stretches in the South-Eastern part of Albania. The Region represents
an area of 3.697 km2. Mountains occupy 58 percent of the areas, 17 percent is occupied by hills and
25 percent by fields. The Region consists of 4 districts (Korca, Kolonja, Devoll, Pogradec). Within
these 4 districts are 6 Municipalities (Korca, Maliq, Bilisht, Leskovik, Erseka and Pogradec), 31
Communes and 347 Villages.
69
Volume 12, Issue 2(16), 2012
POGRADEC_04
Pogradec_04.1
Maliq_01.2
Bilishte_03.1
Korca_01.1
KORCA_01
DEVOLL_03
KOLONJE_03
Erseka_02.1
Figure 1- Map of Korca Region
Source: http://www.infoalb.net/01oalbansku/albania-map.jpg
The existing municipal budget for SWM( Solid Waste Management) services is funded through the
following sources: i) Central Government (Ministry of Finance and Ministry of Public Service for
Dumpsite Operation) ii) Collection Revenues (in some of the waste collection areas not existing)
iii) Penalties and fines (still not executed) iv Donations
A missing accounting system prevents a cost center calculation such as costs for primary, secondary
waste collection, treatment and disposal. Additionally a gap of inventory list about assets is obvious
– therefore it is almost impossible to calculate capital costs. Land costs, values of buildings etc. are
not available. Financial gaps are mostly covered by central government’s budget.The fee is only
collected in cities and the collection rate is below 30%. The collected fees cannot even cover fix- or
operation costs at the moment. Only Pogradec has at the moment a overview of a payment structure
through an implementation of an electronic accounting system. The following table shows earnings
of employees working for the waste management unit in Region Korca
Table 1. Income Structure within Waste Management
Administration
&Technical staff
Average Salary(LEK)
30.500
Technicians
23.000
Permanent workers
Temporary workers
17.000
15.000
The salaries increase yearly by 2% from the primary salaries to compensate the inflation rate. It is
obvious that this salary is not sufficient to cover primary costs for living. Therefore most of the
employees have additional jobs.
TECHNICAL COMPONENT - WASTE MANAGEMENT
Waste is a serious problem in Region Korca, with long-term impact on environment. Of
particular concern are following waste types: municipal, industrial (hazardous and non-hazardous),
agriculture, hospital waste. Due to missing minimum standards for site selection actual dumpsites
are located on wrong locations with short and long term impacts on the environment. Therefore
rehabilitation actions have to be made on these dumpsites to reduce and to prevent impacts on the
environment and on the people living close to these hot spots. Municipal Solid Waste generation
different studies have based on 0,8 till 0,9 kg/PE/day within urban areas and 0,45 within rural areas.
70
Volume 12, Issue 2(16), 2012
These figures seem too high. Experience in South East Europe countries show an average rate of
waste generation of 0, 65 kg/PE/day in urban and 0,45 in rural areas. According present base line
data, 50.150 tons/year of waste is generated in urban and 34.430 tons/year in rural areas.
KORCA
KOLONJA
DEVOLL
POGRADEC
60.000
140%
urban
rural
total
Collection
% urban
% total
50.000
120%
100%
40.000
80%
30.000
60%
20.000
40%
10.000
20%
-
0%
KORCA
KOLONJA
DEVOLL
POGRADEC
Figure 2.Waste Collection Rate in Urban and Rural Areas
A SUSTAINABLE STRATEGY IS NEEDED TO REALIZE THE AIMS
i) The ‘waste hierarchy provides a sensible framework for thinking about how to achieve a
better balance between waste minimization, waste prevention reuse and recycling;
incineration and landfill;
ii) Measures taken to advance the strategy should take full account of the balance of benefits
and costs.
iii) Sustainable waste management is not just a responsibility of government and donors but
also of individuals, businesses and other stakeholders.
iv) A conception paper show how these principles can be put into practice. It puts waste
reduction, re-use and recycling at the forefront of its reform package together with creating
the right environment and new institutional structures to deliver change.
WHAT IS THE PURPOSE OF PREPARING A WASTE MANAGEMENT PLAN?
In short, the main purpose of the planning process is to establish the framework for
developing an effective and feasible waste management system, which is socially acceptable,
causes minimum harm to the environment and to human health and is in compliance with general
development of the territory.
The overall aim of the waste management planning is to promote the development of
coherent and appropriate waste planning practices across Albania in accordance with the provisions
in the relevant legislation and with good planning practices. The primary target group is the
administrative planners preparing waste management plans at region and local (municipality and
commune) level; municipalities and waste generators obligated to prepare and issue waste
management plans may however also find these guidelines useful. Several other parties such as
politicians, contractors, various public organizations and the wider public may also find parts of this
71
Volume 12, Issue 2(16), 2012
document of particular interest. To regional authorities and local authorities the plan and the
planning process is an opportunity to:
i)
Evaluate the existing waste management system.
ii)
Provide information about waste generation and identify future capacity needs.
iii)
To identify the waste problems to be solved and to provide a foundation for a systematic and
effective way of solving the problems.
iv)
State the objectives and targets of the waste management system.
v)
To prioritize restricted financial resources and identify the needs for future funding.
vi)
Make sure that the waste management system complies with policies, targets and initiatives
at superior levels and in other planning fields.
One of the results of the planning process is first the waste management plan. The plan will
function as a structured framework for further in-depth planning of waste treatment and waste
prevention for administrative staff and planners. To local authorities and waste generators, the
regional plans provide a framework for their waste plans and daily waste management. To citizens
and enterprises in the territory of concern the preparation of a waste plan provides an opportunity to
take part in the planning of the future waste management system, which is also the case of the
NGO’s whom may contribute significantly to the contents of the plan.
Time
line
Local authority baselines on present
situation
Data on draft plans from waste
generators
Regions’ baselines on present situation
National baseline on present situation
National waste management plan
Regional waste management plans
Local waste management plans
Waste generator plan
Figure 3. Coordinating the overall process
The figure illustrates a process, which is both bottom-up and top-down. Bottom-up in the
sense that authorities at lower levels deliver input to authorities at higher level regarding central
aspects of the waste management systems in the territories of concern. Basic descriptions of the
systems, waste data, typical problems etc. can be reported bottom-up in order to make a national
synthesis and baseline, where from a national planning framework can be prepared. This framework
works top-down as authorities at lower level must take into account the decisions made at higher
levels. In order to be able to plan the future waste management in the area, it is necessary to have a
clear picture of all aspects of the present situation. Therefore, one of the main tasks is to collect all
relevant data and information needed for this description. Management – planning and
administrative set-up, regulation, monitoring and inspection, reports. Some of the main aspects that
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Volume 12, Issue 2(16), 2012
also may be described and analyzed as a part of the baseline description of the present situation in
waste management are: Regulatory framework, organizational set-up, service performance,
institutional capabilities, and evaluation of the previous plan. Another way to produce information
about the present situation in the management of waste is to evaluate the previous waste
management plan. An evaluation also helps to integrate previous experiences in the current process
of preparing the waste management plan. It should be stated whether the objectives and targets were
fulfilled and whether the suitable measures were implemented or not. The objectives, targets and
measures from the previous plan should be revised accordingly also taking into account new
initiatives etc. Explanations of why targets were not fulfilled or measures not implemented should
be given in order to identify deficiencies in the system. The baseline description should end in an
identification of the main strengths and weaknesses of the existing situation in the management of
waste. Whereas the strengths point to what practices to preserve and enhance, the weaknesses point
out where to make improvements of the waste management. Both aspects are important in order to
evaluate the present situation in waste management. The description thereby serves as a baseline for
the subsequent tasks during the process of preparing the waste management plan.
FORECASTING THE FUTURE OF WASTE GENERATION.
At this stage of preparing the plan a baseline forecast of the future waste generation should
be made in order to plan waste management, i.e. to identify the future need for treatment facilities,
collection systems etc. and to avoid major environmental impacts. Different factors influence the
waste generation and composition, e.g. demographical changes, closing down major industrial
production sites, new legislation etc. Some of these factors are external to the region and
municipality / commune, i.e. the regions and municipality / commune cannot (or only to some
minor extend) influence the development of these factors. In order to assess the impact of the
measures included in the plan on the future waste generation the authorities need to know to what
extend external factors influence the waste generation. What to forecast? In general, the forecast
should provide information on the future generation of waste. Different kind of information may be
needed depending on the existing objectives and targets (e.g. it could be appropriate to estimate the
amounts of biodegradable waste going to landfills as there is a target about reducing these
amounts). This means that it may be appropriate to take into account existing objectives and targets
when deciding what to forecast. On the other hand, the forecast may show a need for setting targets
in new areas (e.g. if a new production generates wastes not dealt with by existing targets). How to
forecast? There is not one method for forecasting waste generation. In short the latest data about
waste generation should be used as a baseline for making the forecast and these data should be
extrapolated according to the expected changes in the above-mentioned factors. Whereas expected
changes in population size and economic performance of the society indicate changes in the total
waste amounts, the planned regulatory changes and initiatives and possible technological inventions
are more likely to concern the individual wastes and treatment methods. Knowledge of these
changes will help to state the presumed development of the individual wastes. As it is impossible to
predict the exact changes in the factors influencing waste generation the forecast will be rather
uncertain. The aim is to reduce the uncertainty as much as possible. Entities with detailed
knowledge about changes in activities that may influence the waste generation could be consulted
in order to get their assessment of the future waste generation. That is in particular enterprises
producing major amounts of waste or particular wastes, or authorities at lower levels that as a part
of their plan preparations also forecast waste generations. If information from waste generators or
other authorities is not obtainable the forecast should be based on general information about the
development of the above-mentioned factors. When the description of the present waste
management situation has been carried out, and possible problems and deficiencies have been
identified and the forecast on future waste amounts has been made, it is time for setting up
objectives and targets for the future management of waste. Objectives are in this guideline defined
as qualitative intentions of “where to go” in the plan period. They clarify the direction of the
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Volume 12, Issue 2(16), 2012
development of the waste management system and frame the choice of initiatives both in the long
term and in the short term. Targets are defined as measurable quantitative aims specifying the
objectives. Objectives and targets are thereby closely related, as a qualitative objective is
transformed into one or more quantitative measurable targets. Relevant objectives and targets in
other plans as plans at lower authority levels always should comply with plans issued by superior
authority levels, objectives and targets in these plans should be identified and adopted by the
authorities at lower levels. Compliance with superior plans does, however, not necessarily mean
that the lower level plans have to copy targets, objectives and measures formulated by superior
authority levels, as these are neither always relevant nor possible to meet at lower levels. On the
other hand superior targets may in some cases be too easily met at a lower level and targets that are
more ambitious can be set up. If a target is considered impossible to fulfill at a lower level, the plan
document should explicitly explain why. Assessment of the different aspects (assessing the
economy options, environmental options, social and technical options.) attached to the identified
options can lead to decisions on which waste handling should be preferred or which combination of
handling methods should be chosen. In order to find out which options should be selected for the
final plan, preliminary analyses of the impact on waste generation, environment and economy have
to be made. Effective management is necessary to ensure an acceptable level of service for waste
management. It must be ensured that: i) The institutional roles and responsibilities are clearly
defined ii) Cooperation between authorities is effective iii) Waste management planners are trained.
In order to identify whether the targets are fulfilled or will be fulfilled, it is necessary to monitor
how the plans are implemented. Monitoring demands: i)Cooperation with state environmental
inspectorate ii) Cooperation between municipal /commune and region offices on control with
enterprises iii) Continuous registration of waste data as amounts collected, treated etc. iv)
Evaluation of the reliability of waste data.
To increase the efficiency of the waste management, both enterprises and the public have important
roles. Various initiatives can be taken to raise the awareness about the necessity of proper waste
management, and not the least, distribute information about the waste management systems, making
it clear and obvious how waste must be collected, stored, transported, recovered or disposed of in
the right way. Awareness and information should be part of the plan, and described in details. In
practice waste management planning is a continuous process. For practical reasons the planning can
however be divided into long-term planning with a time horizon of up till 20 years and short-term
planning with a time horizon of up till five years. Long-term planning should ensure that the waste
management will be on course for a longer period, and that overall aims are pursued. A central
aspect of the long-term planning is to ensure that activities with an implementation horizon longer
than 5 years are taken into account and planned in advance. This may especially be the case when
planning new major installations, where location, public hearing and consultation with local
citizens, environmental impact assessment, design, contracting, construction and testing can exceed
5 years. The long-term part can also state the need for new organizational set-up and it can lay
down when information campaigns and other campaigns should be initiated and stipulate initiation
of programmers on waste reduction. The short-term part should ensure that the short-term targets
and objectives are fulfilled by implementation of the best measures. The short-term part of the plan
thereby goes into details about the first five years of the long-term part. It describes the options and
specific measures the authority has chosen to realize in order to fulfill the targets and objectives.
The parties that are going to be involved in the implementation of the different options should be
identified. The plan should state who is primary responsible for the implementation of each measure
and the parties to be involved could also be indicated in the plan. Furthermore, a part of the shortterm planning is to plan when to implement the measures that among other things depend on their
significance for fulfilling the targets and the time needed for further planning and finally
implementation of the measure. A waste management system requires substantial funding to secure
continuous collection, transportation and treatment of the waste amounts. Separate collection of
new waste types may cause new needs for funding. The planned waste management system will
most often also imply major investments and recurrent costs to maintain the waste collection
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Volume 12, Issue 2(16), 2012
system, transportation etc. The authority should specify the budgeted expenditures and revenues in
the field of waste management in the short-term period of the plan distributed on relevant entries. If
information is available, other economic aspects of the plan may be considered. As mentioned
economic indicators can provide useful information about the economic efficiency and make it
possible to compare the costs of different systems. Other calculations may also be of importance to
assess the efficiency and performance of the system as well. When the plan has been finalized and
disseminated, the implementation of the plan begins. Besides implementing the measures indicated
in the action plan, regularly reviews of the implementation and monitoring of the performance of
the waste management system is needed if the plan is to be an effective and active instrument in
waste management and not just another dusty document on a shelf. The time and activity schedule
for the plan provides a framework for the implementation phase as it shows the tasks to be carried
out, the persons or organizations responsible for the implementation and a time schedule for the
implementation of the initiative. As such implementation is simply about conducting and carrying
out the measures in the plan. Implementation is, however, not as simple as that and before carrying
out the measures more planning may be needed. Each of the measures can be considered as a task
involving planning to some extent, which means that some of the recommendations given in this
document also can be applied to more limited planning tasks. Depending on the size and complexity
of the task relevant parties for its implementation e.g. have to be pointed out and involved, and
terms of reference including time and activity schedules may have to be prepared. Monitoring and
review of the waste management performance is an important element in measuring the influence
and success of the plan and will ensure that the plan continues to be effective and delivers the
improvement in waste management in the area. By monitoring the fulfillment of the objectives and
targets during the plan period the effects of the plan and the need for additional initiatives can be
assessed. If targets are neither quantified nor measurable, indicators those are able to indicate
changes in the subject of concern should be identified and measured. (E.g. a target may be to raise
public awareness, but as this is a rather ambiguous target, measures such as percentage of
population participating in collection systems or the like may indicate levels of awareness). The
developer is obliged to ensure the monitoring and evaluation of the environmental impacts of
approved waste management plan or to apply the existing monitoring systems to provide:
Systematic monitoring and evaluation of the environmental impacts. Expert comparison of the
environmental impacts defined with the real impacts experienced during the plan implementation.
According to the legal obligation the developer is also obliged to implement a new mitigation
measure if it is proved that the environmental adverse impacts assessed in EIS (Environmental
Institution Services) are more significant than it was stated in the EIS. The obligation for the plan
developer is to ensure the changes, supplements or rewriting the waste management plan, if
necessary. What is very important to keep in mind is that the competent authority to lead the EIA
process and to develop the waste management plan is the same; the main review of the plan takes
place when preparing a new plan, but regularly, minor reviews should also be carried out during the
implementation phase. The plan should nevertheless be revised if radical changes in the waste
situation or waste management system occur. Radical changes could be new information about
dangerous environmental or health impacts from certain waste types or waste treatment methods.
But also if basic assumptions or preconditions for the plan change radically a new plan or
amendments to the one in force may have to be prepared.
CONCLUSIONS
To be successful, the strategy needs: i) A stable long term economic and regulatory
framework. ii)This should include significant increase in the fee collection rate and financial
incentives for households to reduce and recycle waste in a environmental sound manner “polluter
pays principal” iii) A package of short to medium term measures to put Albania and its regions on
the path to more sustainable waste management including measures to reduce the amount of waste.
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Volume 12, Issue 2(16), 2012
iv) Investment in recycling infrastructure and support for new alternative waste management
technologies Æ reduction of capital investment (landfill).
REFERENCES
[1] Almorza, D, Brebbia C.A, Sale D and Popov V (2002): “Waste Management and the
Environment”, Bookcraft, Bath, UK
[2] Karlberg Tina (2007)(SWECO) “Solid Waste Management Policies”
[3] Kume Vasilika (2010) Albania “Strategic Management”
[4] Millers Daina &Eberte Karin (2007) Sweden “Waste Management Strategy”
[5] Government of Albania, (2009), National Environmental Strategy 2009, Tirane.
[6] INSTAT, (2010), Albania in Figures 2010, Tirane, available at, http://www.instat.gov.al
[7] Solid Waste Management Project – Ministry of Environment and Korca region – ALBANIA Solid waste project in the Ministry of Environment and in the Korca region, Albania, Yearly
Report 2006, Budgetplan 2007. Funded by Sida.
[8] http://www.sida.se/sida/jsp/sida.jsp?d=1274&a=32796&searchWords=albanien10/4 11.33
[9] World Bank, (2007), Integrating Environment into Agriculture and Forestry. Progress and
Prospects in Eastern Europe and Central Asia, Volume II, Albania, World Bank.
76
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE NECESSITY OF ENVIRONMENTAL GOODS TRADE
LIBERALIZATION
Margareta TÎMBUR
Ph.D. student “Al.I. Cuza” University, Iasi, Romania
[email protected]
Abstract:
The environmental degradation presents a real global challenge from the causes and effect point of view.
Undeniable role of environmental goods for the mitigation of environmental issues has persuaded many of economies
to switch their industrial patterns towards production and consumption of this type of goods. This paper aims to
highlight the key issues surrounding the debate over environmental goods and the liberalization of trade in
environmental goods.
The objective of this article is to emphasize the importance of environmental goods for the sustainable
development and the people’s life, by analyzing the necessity of the international trade liberalization of this category of
goods.
This study analyses pragmatic issues involved in the identification and promotion of environmental goods in
developing countries. Also, this overview illustrates a picture about the evolution and achievements of trade with
environmental goods in Romania.
Key words: environmental goods, environmental goods’ lists, non-tariff barriers, trade barriers, trade
liberalization.
JEL classification: F18, Q56, Q57
INTRODUCTION
Nowadays, the environmental sector presents a distinguished importance in the terms of
globalization and trade liberalization. This sector is considered to be “with great growth potential,
generating wealth and creating jobs as well as playing a major role in the transition of economies
towards sustainable development” (EC, 2009).
The new environmental issues and the necessity to mitigate them have led to an increase in the
demand of environmental goods. This awareness has generated a huge interest in evaluating the
opportunities for trade in environmental goods (EGs), because the complexity of these issues
presents challenges not touched by other global problems. Due to trade liberalization, EGs can open
the ways for new environmental technologies which can promote the decrease of polluting and
resource-intensive production.
Taking into account that liberalization of EGs trade depends of many factors, the trading
partners should be aware while forecasting the future economic benefits, because these products
require a distinct segment on a viable consumer market. Besides this, the EGs can have positive
effects in one country, but may exacerbate environmental problems in other countries. Moreover,
today’s environmental goods may worsen environmental performance tomorrow.
In this purpose, it is necessary to consider and explore simultaneously the environmental and
economic indicators, as well as the key drivers which impact the trade of environmental goods.
(Jha, 2008)
1. WHAT ARE ENVIRONMENTAL GOODS?
Although, they cover a wide range of products across many different industrial sectors,
environmental goods are not defined. In 1995 OECD/Eurostat agreed the definition of
environmental industry as: “The environmental goods industry consists of activities which produce
goods to measure, prevent, limit, minimize or correct environmental damage to water, air and soil,
as well as problems related to waste, noise and eco-systems. This includes cleaner technologies,
products and services that reduce environmental risk and minimize pollution and resource use”.
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Volume 12, Issue 2(16), 2012
In other words the environmental goods have to: prevent, reduce, eliminate, treat and manage
pollution, degradation and natural resources depletion or restoring environmental damage to air,
water, biodiversity and landscapes; carry out other activities such as measurement and monitoring,
control, research and development, education, training, information and communication related to
environmental protection and/or resource management. (EC, 2009)
There are two broad classes of environmental goods:
- Type A EGs, which includes all chemicals and manufactured goods used directly in the provision
of environmental services;
- Type B EGs, which includes all industrial and consumer goods not primarily used for
environmental purposes but whose production, end-use and/or disposal have positive environmental
characteristics relative to similar substitute goods. These are considered environmentally preferably
products (EPPs), defined by UNCTAD as “the set of goods possessing inherent environmentally
superior qualities compared to substitute goods used in identical applications” (UNCTAD, 2005).
The Class A EGs are considered to have a multiple-utilization and a multiple-disposal which
make them sliding from one subclass to another in dependency of the destination. The Class B EGs
have single-use and due to the fast technological progress, these goods can be viewed as very clean
and performed today and not at the same rank, tomorrow, due to the permanent development and
evolution.
The lack of a international recognized definition have directed the countries and international
organizations to propose EGs classification under lists form. The most representative lists are the
OECD and APEC lists.
The OECD list includes goods spanning 132 6-digit Harmonized Commodity Description and
Coding System (HS) codes. Of these, 25 are minerals and chemicals used in water and waste
treatment, and in renewable energy systems, and 97 are manufactures that serve as components of
the systems and infrastructure used to provide environmental services. Also included in the OECD
list are some Class B EGs in the form of environmentally sound technologies or clean technologies
such as cleaner/resource efficient production and power generation systems.
The APEC list spans 104 HS codes. In contrast to the OECD list, it excludes minerals and
chemicals, while including a more extensive set of goods needed for environmental monitoring and
assessment. The two lists have 54 goods in common at the HS 6-digit level.
Figure 1. Classification of environmental goods
Source: UNCTAD, 2005
From the figure no. 1 we observe that most of EPPs goods are not included in the OECD and
APEC lists, in order to analyze EGs trade flows, these two broad sets of EGs have been
decomposed by UNCTAD into 10 homogeneous groups of EGs. [1] In our research, we relayed on
the UNCTAD classification to evaluate the dynamic and the structure of the Romanian international
trade flows.
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Volume 12, Issue 2(16), 2012
2 ENVIRONMENTAL GOODS TRADE LIBERALIZATION
„Gradual trade liberalization and carefully managed market opening in these sectors can be a powerful tool for
economic development by generating economic growth and enabling the transfer of valuable skills, technology and
know-how embedded in such goods.” (Mytelka, 2007)
The first paragraph of the multilateral agreement establishing the WTO mentions the necessity
to use „the world’s resources in accordance with the objective of sustainable development, seeking
both to protect and preserve the environment and to enhance the means for doing so” in accordance
with the needs and countries’ levels of economic development. It suggests and urges the countries
in fact, to limit their effects on the environment through trade liberalization by „pursuing reciprocal
and mutually advantageous trade arrangements” (OECD, 2005).
To assure benefits from EGs trade liberalization, the range of EGs supposes to be diverse,
wide and focused on the individual issues. In this way it will increase the interest for these products
and the consumers would also benefit from lower prices, greater choice and better quality
conditioned by the higher competition among suppliers.
The factors which depends the future development of EGs markets are numerous, but the most
important are: intellectual property rights, innovation and technology diffusion support, financial
support instruments for promoting cleaner technologies, trends in environmental and trade policies,
economic performances, population and population growth, state of the environment, pressure from
stakeholders, civil society and consumers, multilateral environmental agreements, and related
mechanism and institutions, regional trade agreements, domestic market of EGs.
It is well known that the greatest impediments for trade development and liberalization are the
tariff and non-tariff trade barriers. Despite the growth of international trade in EGs, considerable
trade barriers exist, among these are identified: restrictive technical standards and certification
requirements; disproportionately onerous labeling, packaging and documentation requirements;
subsidies provided to the domestic environment industry; non-transparent government procurement
and contracting procedures; restrictions on professional services, investment, and ownership; and,
product design/life cycle and recycling issues.
The average import tariff applied by most OECD countries on products included under the
pollution management group was less than 3%. Tariffs applied by OECD members Korea, Mexico
and Turkey were closer to 9% on average. However, for a group of emerging economies
(Argentina, Brazil, Chile, India, Indonesia, Malaysia and Thailand), applied tariffs averaged almost
20%. In the low- and middle-income countries the tariffs reach more than 8%. However, this
average disguises wide variations, with tariff rates ranging from close to zero in some smaller
developing economies, to 15%-30% in other countries, including several larger ones. (OECD,
2005) Besides this, in some developing countries exists a variation of tariffs’ level, due to the
difference between the applied level of tariffs and the maximum allowed level, which confuses the
investors and exporters and encourage them to redirect their capitals to more safe and credible
markets. Reducing or eliminating tariff and non-tariff barriers to trade in EGs offers a “win-win”
position: stimulating the trade, and mitigating the environmental challenges.
Economists and environmentalist, equally, consider the developing world accountable for the
obstruction of EGs trade liberalization. Zhang (2011) addresses an eloquent question concerning
this markets “what is the point of having opportunities if there are no capabilities?” These
capabilities consist in the need to: build supply capacities, adapt regulatory frameworks and develop
supportive infrastructure.
In developing countries, where the implementation and use of many EGs can solve many of
the environmental issues, it is observed that the tariff level is very low, but there are weak
environmental regulatory regimes. Additions to this, there are markets access barriers consisting in
the inexistence of environmental markets or in the insufficiency and weakness of these. The
development of environmental markets it is necessary but it requires high investments from local
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Volume 12, Issue 2(16), 2012
and foreign enterprises. These investments would have a positive effects leading to competitiveness
and hence to transfer of environmentally sound technologies, etc.
In recent years, few of the developing countries significantly expand their EGs trade flows.
This ascendant dynamicity is due to the awareness of the industrial diversification of their
economies with EGs, necessary for further economic development and integration into global
supply chains.
The examination of statistics shows the top 10 global EGs exporters account for almost 70
percent of global EGs exports and are concentrated in Europe, Asia, and North America. Among
top global EGs exporting countries, China has experienced the most dramatic growth, with exports
increasing by 490 percent between 2004 and 2008 to $27.4 billion. Germany is the largest exporter
of environmental goods, accounting for 16 percent of global EGs exports in 2008, followed by
China (13 percent), Japan (9 percent), the United States (9 percent), and Italy (6 percent) (figure 2).
The fastest growing exporters in terms of percentage growth between 2004 and 2008 include
Peru (increase of 540 percent), China (493 percent), Norway (352 percent), the Czech Republic
(239 percent), and Korea (220 percent). In terms of value growth over the period, the fastest
growing exporters include China (increase of $22.7 billion), Germany ($19.6 billion), the United
States ($7.7 billion), Italy ($5.5 billion), and Japan ($4.4 billion).
Figure 2. Global exporters of Environmental Goods
Source: OECD at www.stats.oecd.org
In figure no. 3 are represented the export flows by country categories. The supremacy of
exports is still held by the developed countries, but the developing countries record ascension. The
2009 recession of the world trade it is a consequence of the economic crisis, which affected more of
the exporters from developed than developing countries.
2.500.000.000
T
2.000.000.000
h
o
1.500.000.000
u
$
s
1.000.000.000
a
n
500.000.000
d
All Countries
Developed
Countries
Least Developed
Countries
Developing
Countries
0
2005
2006
2007
2008
2009
2010
Years
Figure 3. World Exports of EGs
Source: Authors' calculations based on trade data from UN COMTRADE database (accessed through the WITS)
The results obtained on the calculations basis indicated that the EGs exports accounted 14,1%
of the world exports in 2008. In 2009 and 2010 the EGs exports held 14,4% of the world exports.
80
Volume 12, Issue 2(16), 2012
The top global EGs importing countries are among the top global EGs exporters and
experienced significant import market growth between 2004 and 2008.
Figure 4. Global importers of Environmental Goods
Source: OECD at www.stats.oecd.org
In terms of EGs imports the leading countries are developed countries. The trade flows of all
categories of countries have an ascendant evolution, but the developing countries issues underlined
above justify the low level of EGs imports.
2.500.000.000
T
h
2.000.000.000
o
1.500.000.000
u
$
s
1.000.000.000
a
n
500.000.000
d
0
All Countries
Developed
Countries
Least Developed
Countries
Developing
Countries
2005
2006
2007
2008
2009
2010
Years
Figure 5. World Imports of EGs
The Results of our calculations denote that the EGs imports held a share of 13,9% of the
world imports in 2008. In 2009 the EGs imports increased to 14,4% of the world imports. In 2010
the EGs imports reached 14,6% of the total world imports.
3. ENVIRONMENTAL GOODS TRADE IN ROMANIA
Identified as an emerging class of products, the EGs gamma has begun to evolve in Romania
after 90’s. Only the big desire to be integrated into the world market has been not enough for the
development of EGs market in Romania. The modest economic power, the lack of experience
concerning the trade liberalization, the absence of the optimum and effective trade and
environmental policies, the lack of reaction of the Romanian industry to global market trends and
many other impediments have led to the stagnation of EGs trade development. The difficult
transition period has focused the government and consumers’ attention on the economic problems
rather than environmental.
In Romania, revival of the consciousness concerning the environmental issues relies on the
external, international drivers. In order to perform the country development and to fulfill the
globalization and European Union integration conditions, Romania has been changing the economic
and industrial patterns towards environmental sound production.
Nowadays we observe a high interest for the EGs. We should not imagine, now, this interest
as a revelation for environmental protection; it is rather the pursuing of financial benefits. The last
years ascending trends of EGs trade flows, we perceive it not as consequence of desire to mitigate
81
Volume 12, Issue 2(16), 2012
14.000.000
12.000.000
10.000.000
8.000.000
6.000.000
4.000.000
2.000.000
0
Developing Countries
LDC
Developed Countries
World
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Thousand $
the environmental issues on forefront, but as a strategy tool for country development, economic
gains and maintaining the competitiveness on the international markets. However, Romania
demonstrates opportunities and possibilities for further EGs trade development and liberalization,
goods aimed to protect the environment and improve environmental quality
The survey of Romanian EGs trade presented in below graphics indicates an ascending trend
of the Romanian exterior trade with EGs. The EGs imports and exports grow in a greater extent in
2005 - 2007 due to the: compliance with the conditions for EU accession, economic stability
reached for short period of time, globalization results, liberalization of international trade and not
the least the increase awareness of environmental issues and their mitigation.
In 2008 the EGs trade reaches the highest values. We believe the most plausible explanation is
that 2008 it is the year immediately following the integration (2007), when Romania has adopted
the EU trade and environmental policies, which justifies one more time that Romania has had only
advantages from it’s entry in EU.
In 2009 the crises consequences have been felt by the EGs market, as well. The Romanian
EGs imports have dropped substantially down with the 33% and exports with 21%.
Years
Figure 6. Romanian EGs imports (1000$)
12.000.000
10.000.000
8.000.000
6.000.000
4.000.000
2.000.000
0
Developing Countries
LDC
Developed Countries
World
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Thousand $
In 2010, it occur a rapid recovery and a relaunch of the EGs trade; the exports grow recording
the same level as before the crisis, while the imports rise only with 22 %, not strong enough to
regain the pre-crisis level. From figures no 6 and 7 we conclude that Romania exports mostly to
developed countries in proportion of 77% (2010) - 67% (2000) and developing countries 16%
(2001) – 23% (2010). The imports have mostly their origin in developed countries in proportion of
63% (2010) - 70% (2000) and developing countries 21% (2001) – 25% (2010). It is still vaguely
outlined but Romania is consolidating its EGs trade relations with developing countries, whose
potential on this market grows significantly.
Years
Figure 7. Romanian EGs exports (1000$)
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Volume 12, Issue 2(16), 2012
Between 2000-2005 EGs trade balance have been positive, the highest excess of 548 mil $ has
been recorded in 2005. From 2005 the EGs trade balance has reversed, in 2008 it has experienced
the 2.427 mil $ deficit. The leading causes of this reversal are the world crises and the Romanian
economic precarious situation. In 2010 the deficit has decreased to 655 million $.
Concerning the structure of exterior EGs trade of Romania, it has faced continuous changes
(Figures no 8, 9, 10). The EGs imports have been predominated by the goods from OA list
increasing from 32% (2000) to 37% (2010) and CT list increasing from 15% (2000) to 25% (2010).
Among the EGs exports the highest percentage it is held by the goods from EPPWOOD list 30%
(2000) decreasing to 21% (2010) and OA list growing from 9% (2000) to 20% (2010).
Romanian EGs imports 2000
EPPW OOD
4%
EPPR CY
2%
EPPWSA
0%
Romanian EGs exports 2000
O TH Typ AE
G
4%
EPPWSA
12%
O T H T yp AE
G
2%
OA
9%
CT
6%
C T F u e ls
2%
E P P C o re
8%
EPPWOOD
30%
OA
32%
EPPC M
17%
EPPC A
2%
CT
15%
C TFu e ls
16%
EPPR C Y
12%
EPPC A
26%
E P P C o re
1%
EPPC M
0%
Figure 8. Structure of EGs Romanian trade by Lists of EGs in 2000
In 2000 the Romanian EGs imports have been 2.113 million $. The largest share have had the
OA category goods, 663 million $, followed by EPPCM category with 368 million $ and category
CT Fuels with $ 345 million $. The imports of EPPWSA category goods have been only 8 million
$. Regarding the Romanian exports, which amounted 2.422 million $, predominantly have noted
the EPPWOOD list goods with 714 million $ and EPPCA with 602 million $. We observe a
positive EGs trade balance which has recorded a surplus of 309 million $.
E P P W O OD
6%
EPPR C Y
0%
EPPWSA
1%
O TH Typ AE
G
4%
EPPWSA
9%
OA
35%
E P P C o re
5%
C TFu e ls
18%
OA
15%
CT
8%
EPPWOOD
26%
EPPC M
12%
EPPC A
2%
O TH Typ AE
G
2%
EPPR C Y
7%
CT
17%
E P P C o re
2%
C TFu e ls
2%
EPPC A
29%
EPPC M
0%
Romanian EGs imports have reached in 2005 a value of 6.707 million $, 3 times more than in
2000. The most representative have been the EGs imports from OA list with 2.304 million $ and
CT Fuels list with 1.189 million $. We observe an upward trend of EGs imports value with a
constant maintaining of their rankings. Thus, the most dramatic value increase has recorded the EGs
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Volume 12, Issue 2(16), 2012
imports from the EPP WOOD list by 4.6 times. The EGs imports from EPPCM list have had a
decrease of 5 percentage points. In the same time the EGs exports have increased by 2.55 times
compared to 2000 reaching $ 6,172 million $. The EGs from OA list have topped with 938 million
$, 4.3 times more than in 2000, while the EGs exports from EPPCA list with a worth of 1.772
million $ have had the largest share in the total EGs exports from 2005.
EPPR C Y EPPWOOD
5%
2%
EPPWSA
0%
EPPC ore
6%
EPPWSA
5%
OTH TypAE
G
4%
EPPWOOD
21%
OA
37%
EPPC M
5%
EPPC A
4%
OTH TypAE
G
4%
OA
20%
CT
11%
EPPR C Y
15%
C TFuels
12%
EPPC ore
2%
CT
25%
EPPC M
0%
EPPC A
12%
C TFuels
10%
In 2010 the value of EGs imports have amounted 10,031 million $, increasing by 50%
compared to 2005. The largest share of 37% has been owned by EGs from OA list with a worth of
3.726 million $, followed by EGs from the CT list with 25%. The share of EGs imports from CT
Fuels list has fallen by 6 percentage points, recording a value decrease as well. A significant
increase by 5.43 times have been observed at the EGs from EPPRCY list ranging from 32 million $
in 2005 to 178 million $ in 2010. The Romanian EGs exports in 2010 have had an upward trend
reaching 9,377 million $, 52% higher than in 2005. The largest share of exports has belonged to
EGs from EPPWOOD list, with a 1.975 million $ value, increasing by 25% compared to 2005.
Followed by the EGs from EPPRCY list, which have increased 2.97 times compared to 2005, have
reached 1,373 million $ value. EGs exports from CT Fuels list have had the highest increase of 8
percentage points reaching 924 million $.
Analyzing the trends we observe in 2000 that Romania has imported the CT Fuels list goods
from Developing countries and OA list from developed countries, maintaining the same strategy
over time. Concerning the exports, in 2000 Romania has exported most of EPPCA and EPPWOOD
lists goods to developed countries, while in 2010 the EPPRCY list goods to developing countries
and OA and EPPWOOD lists goods to developed countries.
CONCLUDING OBSERVATIONS
The above overview has attempted to capture the general guidelines on environmental goods
and international trade in these goods. Although the environmental goods don’t have a unique
definition and a single list with EGs, the demand, the production and the trade with EGs will evolve
permanently. The environmental issues, continuing to worsen, require new resources and means to
control, monitor and solve them. The necessity of EGs it is recognized and acknowledged by the
entire international community which consider the use of environmental goods as one of the
approaches to protect the environment. In order to pursue this goal, the EGs should be based on
how they will contribute to addressing the global challenges ahead of us; otherwise, there is no
justifiable reason to produce and trade them.
Trade liberalization in environmental goods can not be accomplished if it is not assisted
complementary measures to encourage and support this international and long-term process. These
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measures provide the removal of limits and inhibitions. The most common and most widespread
obstacle for EGs trade liberalization, especially in developing countries, it is considered to be the
lack of optimal regulatory institutional and policy frameworks. Besides these there are many other
impediments and barriers which compromise the EGs trade liberalization.
The EGs world trade is dominated by the developed countries, which have longer experience
in environmental sector. Their specialization in EGs has allowed them to preserve the widest shares
of trade flows. Developing countries are still facing dramatically EGs trade deficits. Their position
on the world trade top can be improved through trade liberalization, which requires the elaboration
of a flexible country individual strategy accordingly to the country’s profile and specificity. Taking
patterns from other countries do not ensure the success, sometimes leading to downturn.
The Romanian EGs trade is developing, but there are still economic, political, social factors
which don’t allow the harnessing of its total capacity and potential. The necessity to set wellmanaged trade liberalization in EGs is still persisting in Romania. Although it is a long way, the
expectancies that the efforts will guerdon with success are very high.
ENDNOTES
[1] (UNCTAD, 2005)
Type A EGs have been subdivided into 2 groups:
An O+A list comprised of the group of all EGs included on the OECD and APEC lists while avoiding double-counting
of goods appearing on both lists.
An Oth-TypeA-EGs list comprised of several goods used to provide environmental services which have not been
captured by the OECD and APEC lists. This list contains, for example, plastic gloves and protective eyewear which are
used in environmental clean-up and remediation activities.
Type B EGs that have been subdivided into 8 groups:
A CT list comprised of clean technologies used for power generation. This list includes energy efficient natural gas
based power generation and renewable energy technologies and their components.
A CT-fuel list include fuels for CT, and some conventional (i.e., fuel-switching), power generation technology
applications. This list includes natural gas, propane and butane, as well as ethanol and a range of agricultural
feedstock – biogases and oilseeds – used respectively to produce ethanol and biodiesel fuels.
An EPP-core list comprised of consumer and industrial non-durable and semi-durable EPP goods. Goods on the EPP
list have been selected based on environmentally superior end-use and disposal characteristics only (i.e., not based on
PPMs). This list includes a wide variety of goods including natural fibers for industrial uses and in the form of textiles;
natural rubber; natural vegetable derivatives, colorings and dyes. An EPP-RCY list comprised of recoverable
materials that are reintegrated into the production cycle. This list includes scrap and waste paper, wood, plastics,
rubber and various scrap metals.
An EPP-WOOD list comprised of wood and wood-based products including building supplies and furniture.
An EPP-WSA list comprised of apparel manufactured from natural wool and silk fibers.
An EPP-CM list comprised of raw cotton materials and cotton textiles.
An EPP-CA list comprised of apparel manufactured from natural cotton fibers.
REFERENCES
1. European Communities, (2009), The environmental goods and services sector, Methodologies
and Working papers, Luxembourg: Office for Official Publications of the European Communities;
2. Hamwey, R., (2005), Environmental Goods: Where Do the Dynamic Trade Opportunities for
Developing Countries Lie? A Cen2eco Working Paper for the Sixth WTO Ministerial Conference
in Hong Kong in December 2005;
3. Jha, V., (2008), Environmental priorities and trade policy for environmental goods: a reality
check, ICTSD Trade and Environment Series Issue Paper No.7., Geneva;
4. Mytelka, L., (2007), Technology Transfer Issues in Environmental Goods and Services: An
Illustrative Analysis of Sectors Relevant to Air-pollution and Renewable Energy, ICTSDT, Geneva,
Switzerland;
5. OECD, (2005a), Opening markets for environmental goods, OECD Observer, September;
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6. UNCTAD, (2005), Environmental Goods: Identifying Items of Export Interest to Developing
Countries,
CBTF
Briefing
Note,
UNCTAD:
Geneva.
Available
at
http://www.unepunctad.org/cbtf/cbtf2/meetings/briefing.htm;
7. US Senate, (2009), Special report major opportunities and challenges to U.S. exports of
environmental goods, Washington;
8. Yoo, S., and Kim1 J., (2011), Trade Liberalization in Environmental Goods: Major Issues and
Impacts, Paper prepared for the AKES conference “Korea and the World Economy X” Claremont
McKenna College, August 12-13, 2011, POSCO Research Institute (POSRI);
9. Zhang, Z., (2011), Trade in Environmental Goods, with Focus on Climate-Friendly Goods and
Technologies, 2011.077 NOTE DI LAVORO, Fondazione Eni Enrico Mattei, available at
http://www.feem.it/userfiles/attach/20111171623124NDL2011-077.pdf;
10. www.wits.worldbank.org, accessed on 25.03.2012 for UN COMTRADE Data.
86
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of Economics and
Volume 12,
Issue 2(16),
2012
A WORD-OF-MOUSE APPROACH FOR WORD-OF-MOUTH
MEASUREMENT
Ph.D. student Andreia Gabriela ANDREI
Alexandru Ioan Cuza University of Iaşi, Romania
[email protected]
Abstract:
Despite of the fact that word-of-mouth phenomenon gained unseen dimensions, only few studies have focused
on its measurement and only three of them developed a word-of-mouth construct. Our study develops a bi-dimensional
scale which assigns usual word-of-mouth mechanisms available in online networking sites (eg: Recommend, Share,
Like, Comment) into the WOM (+) - positive word-of-mouth valence dimension - respectively into the WOM (-) negative word-of-mouth valence dimension. We adapted e-WOM construct developed by Goyette et al. (2010), and we
obtained a word-of-mouth propensity scale, whose items include the usual online mechanisms. Our scale measures
word-of-mouth propensity on 6 items grouped in 2 dimensions: positive word-of-mouth (index: Recommend, Share,
Like) and negative word-of-mouth (index: negative Comment, Share negative comment, Like negative comment). Scale
was tested along two studies, a German sampled one and a Romanian sampled other, highlighting adaptations to
cultural specifics. High reliability was found in both studies. Providing an instrument that would easily work as a
common denominator between theory and practice, present paper contributes to the dissemination of research findings
into the business and managerial area.
Key words: word of mouth propensity, WOM measurement, online WOM scale, online WOM, word of mouth
in online networking
JEL classification: M31, M13, D83
BACKGROUND AND MOTIVATION
It is known that advertising is no longer the powerful image creator it used to be in the 20th
century. While mainstream media still preserves an important role in disseminating mass and
general information, Internet channels offer new media choices and empower meaningful
interactions between companies and consumers, leading to a conversational style of marketing
which highly increases the importance of word of mouth (WOM), referrals and social marketing.
Since the new landscape of consumer-to-consumer influences emerged together with a
decentralized flow of information about products, companies are looking for alternative ways - such
as viral marketing and buzz marketing - to increase awareness and stimulate word of mouth. That
is, word of mouth proved to be a powerful influential tool that can act for or against a brand (Lam &
Mizerski, 2005). Social networking empowers people to promote their opinions about products and
companies and to influence others ( McCann, 2008, KPMG, 2009; Dann, 2009), contributing to the
brand creation (Qualmann, 2009; Bloomberg, 2010).
In an effort to increase the likelihood that online users will behave desirably towards their
brands, companies seek to understand what motivates audiences to generate word of mouth
(WOM). Such an understanding would help companies to adopt a proper strategy regarding
communication, networking and connecting with users in order to establish a committed
relationship with them.
More than before, delivered quality is judged not only through the lens of offered products,
but also through the lens of company - customer interaction. The importance of interactivity was
highlighted even before social networking explosion, when findings of Hanjun et al. (2005) showed
that consumers who interacted more evaluated the website more positively, leading to positive
attitudes toward the brand and increased purchase intent. As far as an important aspect of social
networking sites is their interactive nature, become easy to understand why companies tend to pay
a special attention to their online communication strategies and WOM generation.
Impacting awareness, expectations, perceptions, attitudes, intentions and behavior (Buttle,
1998) WOM influence consumers along entire purchase process through specific types of
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messages: product news that offer informations about product attributes, advice giving that relates
to a personal opinion without trial, and personal experience that express opinions about a product
after trial (Assael, 1995).
Because WOM occurs before and after buying a product (Buttle, 1998; Assael, 1995), we
focused on the effect of a launching communication on WOM giving propensity. We wanted to find
out if certain messages are able to engage potential consumers in WOM production, before
experiencing company's products.
PURPOSE OF THE STUDY
Our paper emerged from a larger objective relating with market - launch campaigns and
those messages that would be able to trigger consumer's positive impressions and attitudes.
For isolating the effect of messages from some other influences, we set up an experimental
frame to test for differences in willingness to buy and word of mouth propensity between our
participants.
Central to our interest was to understand what motivates audiences to generate word of
mouth (WOM) and how would they react in the online contexts.
Willing to fully benefit from our results, we sought to measure online WOM propensity in a
way that would enable us to easily compare test predictions with an implemented and tracked
campaign.
Thus, we start searching for a previously developed WOM measurement scale whose items
include LIKEs, RETWEETs, and other mostly used, eventually one-click-functionalities for opinion
sharing in online networking.
That was the moment of starting this intermediary research, because, despite of the fact that
a growing number of companies are struggling for getting LIKE's and all kind of instant-giving
word-of-mouse (Pickton and Broderick, 2005), we were not able to find out in academic literature
such a specific scale for measuring WOM.
We sought to develop a WOM scale whose items include the usual WOM mechanisms
available in online networking sites because we considered that it would easily work as a common
denominator between theory and practice.
WORD-OF-MOUTH SCALES. LITERATURE REVIEW
While word-of-mouth has been studied extensively, only few studies have focused on WOM
scales. As Harrison-Walker (2001) noted, “WOM was not treated as a construct to be measured but
rather as a category to be assigned based on responding to a survey.”
Goyette et al. (2010) highlights in their comprehensive review of the studies containing empirical
research on WOM, that “there are only six papers that explicitly present a Cronbach’s alpha“ and
“communicator’s viewpoint (individuals that start the conversation) had mostly been taken into
consideration while the receiver’s viewpoint had been ignored”.
Goyette et al. (2010) emphasize on the fact that most of the WOM scales used are measuring only
one dimension of WOM, on a single item, with no mentions about which dimension is measured.
Conducting an in depth analysis of the previously published papers, they found that a lot of onedimensional studies: Black, Mitra and Webster (1998); Bone (1995); Burzynski & Bayer (1977);
Singh (1990); Swan & Oliver (1989), measured word of mouth valence: positive WOM (prise) or
negative WOM. Depicting word of mouth valence (positive or negative) as a recurrent theme in
past one-dimensional studies, authors caught our attention on it and its importance.
Yet, there are three researches focused on the WOM construct. A first measurement was developed
by Harrison-Walker (2001) as a two–dimensions WOM construct comprising word of mouth praise
(2 items) and word of mouth activity (4 items). A second WOM construct, also bi-dimensional,
belongs to Godes & Mayzlin (2004) and it measures WOM volume and WOM dispersion. The
third, and most inclusive construct is e-WOM scale developed by Goyette et al. (2010).
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e-WOM scale was developed as an online word of mouth measurement on 9 items to measure four
dimensions, as follows: WOM content (2 items), WOM intensity (3 items which includes activity,
volume, dispersion), positive valence WOM (2 praise items), negative valence WOM (2 negative
items). Paraphrasing Goyette et al. (2010), e-WOM scale measures (1) what is being said about the
organization (content), (2) the scope of what is being said (intensity), and (3) the online users'
attitude (positive or negative) towards the organization.
Given the higher occurrence of positive word of mouth (East et al., 2007; Goyette et al.,2010), but
higher sharing rate (dissatisfaction is shared to 9 people, while satisfaction only to 5) of negative
word of mouth (Assael, 1995; East et al., 2007; Goyette et al.,2010) we sought to develop a WOM
scale to measure Facebook users' attitude (positive or negative) towards an organization, as an
effect of the company's launching communication. In this regard we adapted e-WOM scale for the
specific situation of WOM giving before purchasing, aiming to measure individual's intention to
talk about an organization (positively or negatively) to their online networking peers.
METHOD AND RESULTS
To test our messages effect on driving consumer's positive impressions that would increase
WOM giving propensity we placed our study in the context of online networking.
Since students are an important target for our product we started our empirical investigation with an
exploratory study.
We conducted 10 face-to-face interviews and participant observation with German graduate
students (25 – 28 years old, 6 male and 4 female), during May 2011, to explore participant's
opinions, motivations and habits of using Facebook and Twitter (as two important social
networking sites) as well as their WOM sharing habits.
Thus, participants were asked about their usual online networking destinations. With no
exception, all participants indicated Facebook as being their main networking destination.
When asking them to particularly talk about Facebook and Twitter we found a bigger
difference than we expected, regarding the time they use to spend on each of those sites. While
Facebook is a daily used tool, like e-mail, Twitter is only rarely used for information purposes,
being considered “rather a place for bloggers or experts wanting to gain followers and spread their
opinions or accomplishments, than a place for student's talk”(Christian, 27 y.o. graduate student).
Facebook appeared to be the place for doing a lot of things they are interested in: connecting,
relating and keeping in touch with people, grouping with others by interest; announcing, organizing
and scheduling group events; the place for getting and providing information but also for
discussing, joking, relaxing and time spending.
Results about low frequency of Twitter usage among German students, seems to come in
line with findings from an earlier qualitative study (Andrei, Iosub and Iacob, 2010) that we
conducted in order to explore Romanian users’ motivations of online networking. From a total of 50
Romanian participants we interviewed in that study, only 3 were Twitter users and all three were
bloggers – from which, one was student, too.
Interviewed German students were invited to detail their attitude towards business pages,
advertising or any commercial related news available in social networking context. They were
asked to talk about phenomenon of sharing WOM regarding products (or organizations), and how
this kind of WOM occurs in their friends network. They were invited to provide examples of
situations and reasons for engaging in sharing this kind of WOM , to talk about WOM content and
valence (positive or negative). On this point, 'LIKE' postings were reported as being the mostly
used WOM generators, followed by 'Comment', 'Share' or direct recommendations and ratings
between networked friends.
Confirming their previously declared Facebook orientation, our participants described word
of mouth sharing by exemplifying with WOM mechanisms available on Facebook. Thus, a scale
whose items would include the usual WOM mechanisms available on Facebook appeared to be the
closest measure of WOM propensity in social networking context.
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Following the opinion of Salzman, Matathia and O’Reilly (2003) about the “transfer of
information through social networks” and spontaneous WOM occurrence "without so much as a
raised finger on the part of a marketing specialist or any other person", we decided to measure
WOM propensity as willingness to produce or spread WOM through the usual WOM mechanisms,
available in online networking sites: Recommend, Share, Like, Comment.
In this regard we adapted e-WOM scale for the specific situation of WOM giving before
purchasing, aiming to concentrate on individual's intention to share (positive or negative) talk about
the company with their networking peers.
We reduced on 2 from 4 dimensions contained into e-WOM scale (WOM intensity; positive
valence WOM; negative valence WOM; WOM content) developed by Goyette et al (2010), to fit
our situation of analyzing before-buying moment, when online users would share their personal
opinions without product trial, when their WOM propensity would be an effect of company's
launching communication.
Based on the insights gained during the interviews, WOM propensity was measured on 6
items grouped in 2 dimensions: 3 items for measuring positive valence WOM ( + ) and the other 3
items for measuring negative valence WOM ( - ), as they were detailed below (table 1).
Table 1. WOM propensity scale.
Dimensions
WOM ( + )
WOM ( - )
Items
1. To what extent do you think people
would recommend this company to their
online networking peers?
4. To what extent do you think company
launch would receive negative comments
from Internet users?
2. To what extent do you think people
will 'SHARE to friends' events and offers
posted online by this company?
5. To what extent do you think people will
'SHARE' negative talk about company?
3. To what extent do you think this
company would receive 'LIKE' from
online users?
6. To what extent do you think people would
'LIKE' negative comments about company?
Resulted WOM propensity scale was applied using questionnaire as data collection
instrument, since literature review revealed that questionnaires, interviews and even experiments
(Burzynski & Bayer, 1977; Herr, Kardes and Kim, 1991; Bone, 1995) were used in previous WOM
related studies as data collection method.
Participants (N = 84; 62% female; ages 20-30; German students) were asked to fill in the
questions by providing rates on a 7 point Likert scale (1= not at all; 7= very much).
Paper-based questionnaire was filled in during a face-to-face interaction with researcher.
Projective technique was applied to formulate the questions, in order to reduce errors
resulting from eventual false responses, known to be higher when subjects are aware they report
their own behavior.
Consistency across items resulted when tested reliability on each WOM dimension: positive
WOM (index: Recommend, Share, Like; ά=.875) and negative WOM (index: negative Comment,
Share negative comment, Like negative comment; ά=.840).
When we scale reverted the ratings for negative WOM items from 1 to 7 scale into 7 to 1
(1= very much to 7 = not at all), high consistency was found across all 6 items we used to measure
WOM propensity: Recommend, Share, Like, negative Comment (scale reverted), Share negative
comment (scale reverted), Like negative comment (scale reverted); ά=.858.
We could observe that some participants mentally labeled our items under negative talk or
positive talk and they used one rate for all negative WOM items, respectively another rate for all
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positive WOM items, while other participants carefully differentiated between items, giving them
different rates.
We consider important to notice a higher occurrence of offering identical ratings for WOM (
- ) items, which reflects people's tendency to easier label WOM ( - ) under a negative talk umbrella,
but to distinguish clear differences between Recommend, Share, Like, assigning them different
ratings.
Knowing that the main constituent of WOM is positive valence (East et al., 2007, Goyette et
al.,2010), but negative valence is having a higher sharing rate - satisfaction is shared to 5 people
while dissatisfaction is shared to 9- (Assael, 1995; East et al., 2007; Goyette et al.,2010), we used 3
WOM ( + ) items and 3 WOM ( - ) items to measure WOM propensity.
As we observed in our participants' undifferentiated ratings, people tend to easier label all
WOM ( - ) items under the same umbrella, which might result in an inflated WOM ( - ) total score
because they might rate high all three items instead of only one which correspond with sharing a
dissatisfaction. Because of that situation, in some samples, it would be advisable to measure WOM
propensity by restraining negative valence dimension to only 1 item (from 3). That was the case we
applied to measure WOM propensity on a Romanian population sample (N = 50; 60% female; ages
20-30, Romanian students), in order to avoid a distorted effect resulted from an inflated WOM ( - )
score. We restrained WOM propensity on 4 (from 6) items in order to avoid an inflated WOM ( - )
score resulted from the combination of higher sharing rate of negative WOM with predictive power
of extraversion and communal orientations on an individual's propensity to produce WOM (Babin
et al., 2005; Mooradian & Swan, 2006; Goossens, 2008) and people's tendency to easier assign
undifferentiated ratings on WOM ( - ) items while rating differentiated on each WOM (+) items.
Thus, we restrained WOM ( - ) dimension on a single item: “To what extent do you think
company launch would receive negative comments from Internet users?” to measure Romanians
propensity to negative WOM giving.
WOM ( - ) item was scale reverted from 1 to 7 scale into 7 to 1 (1= very much to 7 = not at
all) before summing up with WOM (+) items into WOM propensity variable (index: Recommend,
Share, Like, Negative Comments, ά=.702).
Consistency across all 4 items resulted when tested reliability (ά=.702).
CONCLUSIONS AND MANAGERIAL IMPLICATIONS
A growing number of companies are daily monitoring how many LIKEs they have managed
to gather, or how user recommendation system performs. Online communication and WOM became
important subjects on their daily agenda, since consumer-to-consumer influence gained unseen
dimensions.
Despite of this reality, only few studies have focused on WOM measurement, and only three
of them developed a WOM construct. None of them considered to include usual WOM mechanisms
available in online networking when measuring word of mouth.
Our study developed a WOM scale whose items include the usual WOM mechanisms
available in online networking sites, such as: Recommend, Share, Like, Comment.
Adapting e-WOM scale developed by Goyette et al. (2010), we provide a new measurement
scale whose items include the usual online WOM mechanisms.
Our scale measures WOM propensity on 6 items grouped in 2 dimensions: 3 items
(Recommend, Share, Like) for positive valence WOM ( + ) and the other 3 items (negative
Comment, Share negative comment, Like negative comment) for negative valence WOM ( - ).
Developed WOM propensity scale was applied along two studies, different nation sampled:
German and Romanian.
Consistency across items resulted on German sample when tested reliability on each WOM
dimension: positive WOM (index: Recommend, Share, Like) and negative WOM (index: negative
Comment, Share negative comment, Like negative comment). High consistency was found across
all 6 items, after scale reverting the ratings for negative WOM items from 1 to 7 scale into 7 to 1
(1= very much to 7 = not at all).
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We noticed people's tendency to easier label WOM ( - ) under one umbrella and rating
identically for all WOM ( - ) items, but to distinguish clear differences between WOM ( + ) items
(Recommend, Share, Like), assigning them different ratings.
Thus, we identified situations when it is advisable to restrain negative dimension on only 1
item (from 3), resulting a total of 4 (from 6) items to calculate WOM propensity. This kind of
restraining is meant to avoid an inflated WOM ( - ) score which may occur in some samples
exhibiting extraversion and communal orientations. In such samples, distorted measurements can
result from combination of higher sharing rate of negative WOM, and people's tendency to easier
assign undifferentiated ratings on WOM ( - ) items, while rating differentiated on each WOM ( + )
items, with predictive power of extraversion and communal orientations on an individual's
propensity to produce WOM (Babin et al., 2005; Mooradian & Swan, 2006; Goossens, 2008).
We present such a case of measuring WOM propensity on a Romanian sample, with 3
WOM (+) items but a restrained WOM ( - ) on a single item.
Resulted WOM propensity variable comprised a total of 4 items (Recommend, Share, Like,
Negative Comments), and proved consistency across all 4 items, after scale reverting negative
comments from 1 to 7 scale into 7 to 1 (1= very much to 7 = not at all).
Rather than adding theoretical novelty, our approach adds value from a practical, managerial
perspective.
Meant to easily work as a common denominator between theory and practice, our
instrument provides a friendly interface for disseminating research findings into the business
practice, offering a valuable help to those managers that strive for likelihood that online users will
behave desirably towards their brands.
Not at least, reporting research results on this type of WOM scale, researchers would enable
managers to get new meanings from their online WOM metrics, such as consumers underlying
behavior or some hidden effects of the applied strategies.
ACKNOWLEDGEMENTS: This paper has benefited from financial support from the strategic grant
POSDRU/88/1.5/S/47646, co financed by the European Social Fund, within the Sectoral Operational Program Human Resources Development 2007-2013.
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2012
CLOUD COMPUTING BASED INFORMATION SYSTEMS PRESENT AND FUTURE
Ph.D. Student Maximilian ROBU
Faculty of Economics and BusinessAdministration
“Alexandru Ioan Cuza” University of Iasi, Romania
[email protected]
Abstract:
The current economic crisis and the global recession have affected the IT market as well. A solution came
from the Cloud Computing area by optimizing IT budgets and eliminating different types of expenses (servers, licenses,
and so on). Cloud Computing is an exciting and interesting phenomenon, because of its relative novelty and exploding
growth. Because of its raise in popularity and usage Cloud Computing has established its role as a research topic.
However the tendency is to focus on the technical aspects of Cloud Computing, thus leaving the potential that this
technology offers unexplored. With the help of this technology new market player arise and they manage to break the
traditional value chain of service provision. The main focus of this paper is the business aspects of Cloud. In particular
we will talk about the economic aspects that cover using Cloud Computing (when, why and how to use), and the
impacts on the infrastructure, the legalistic issues that come from using Cloud Computing; the scalability and partially
unclear legislation.
Key words: cloud computing, information system, implementation, strategies
JEL classification: L 86, D 80
INTRODUCTION
There are only a few technologies that have improved their productivity, revolutionising the
production and modernizing the business processes more than Information Technology.
Productivity growth in the producing industry, as well as the service one would not have happened
without process automation through IT.
Thus, it’s somewhat surprising that the IT industry is not industrialized. In what processes,
procedures and production models are concerned; the IT industry is actually in a pre-industrialized
stage: personalized projects are still used, while modular IT portfolios, with a service orientated
architecture are still scarce. The standardization and virtualization of IT resources promises to
change this status-quo. Cloud services, the processing power, data storage and the applications
provided through public or private networks, offer companies the option of moving a large part of
their IT from their own computer to the „cloud”, gaining an efficient, flexible, scalable and
countable processing power and a new work way. This trend aspires to change the traditional
system of IT services suppliers fundamentally, especially in the SMBs area.
The preponderant model used in the IT industry does not appear to be fully industrialized:
despite all the attempts to standardize the software development process, the IT projects mostly lead
to individual solutions. IT resources, software and hardware alike, are thus associated cu
customized IT islands, separate both logically and physically. This leads to the mass creation of
data centres that are inadequately used and spread and application environments that are separate by
complex interdependencies. The maintenance of such a complex IT industry has become a
challenge and service based architecture can prove to be really feasible. The simple fact that most
companies have IT systems, even those that don’t operate in the information technology area, but
the production and distribution of consumer goods, shows the lack of industrialization of
information technology. At the beginning of the industrial revolution the large production parks has
their own power plants. Today such services are being offered by specialized suppliers. This fact is
rational taking into consideration that energy production will not offer a concurential advantage on
the current market.
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Still, even SMBs keep at least at some level a physical infrastructure, a small sized server.
This is not usually benefic for the business: the hardware depreciates fast and becomes obsolete
very fast. Especially when talking about SMBs, the insufficient use and lack of scalability of IT
resources represent an issue. Even without considering the Green Computing debate, this aspect has
gained importance: an efficient scalability of IT resources is not only necessary for a quick
adjustment of the costs to the demand but also a necessity in order to gain long term sustainability.
Local IT systems will thus be replaced with standardized IT services, centralized, supplied through
communication networks. Central administrated services, with pay-per-use prices will replace
dedicated IT systems. The cost benefits resides in the effective usage of IT resources and the
increased flexibility, for instance the option of asking and using resources only when they are really
needed.
This creates a rather difficult image for large corporations. The IT resources they have are
most of the times heterogeneous and don’t come with a standardization of the services, but for
SMBs, that have less complex IT systems, Cloud Computing services represent a realistic
alternative.
CLOUD COMPUTING – THE NEXT BIG THING OR JUST ANOTHER BUBBLE?
Literature doesn’t offer any universally accepted definition or a "founding father" of this
topic, there are several approaches of the term.
One of the most frequently used definitions is the one who described cloud computing as a
style of computing where massively scalable IT-related capabilities are pro-vided “as a service”
across the Internet to multiple external customers (Gartner Research, 2008). This definition presents
the cloud computing concept refering to any computing capability that is delivered as a service over
the Internet.
National Institute for Standards and Technologies (NIST) (Grance and Mell, 2009) and Cloud
Security Alliance (Cloud Security Alliance, 2009) presents cloud computing as a model for
enabling convenient, on-demand network access to a shared pool of configurable computing
resources (e.g., networks, servers, storage, applications, and services) that can be rapidly
provisioned and released with minimal management effort or service provider interaction. This
approach leads to a consumtion basis way of pay for IT services just like it now happens with
electricity, gas or water.
Another interpretation explains cloud computing like an on-demand service model for IT
provision, often based on virtualization and distributed computing tech-nologies. Cloud computing
architectures have: highly abstracted resources; near instant scalability and flexibility; near
instantaneous provisioning; shared resources (hardware, database, memory, etc); “service on
demand”, usually with a “pay as you go” billing system; programmatic management (e.g., through
WS API) (ENISA, 2009).
As you could probably deduce by now, cloud compu-ting implies a service oriented
architecture (SOA) through offering softwares and platforms as services, reduced information
technology overhead for the end-user, great flexibility, reduced total cost of ownership(TCO) and
offers on demand services.
Basically, cloud computing represents the IT service, offered via a network, that is designed
to be scalable and thus, better adjusted to the customers needs.To conclude cloud computing it’s a
result of the con-tinuos expansion of the Internet, we are of course refering to the ease of access to
both data and applications, and a new concept that the IT market offers.
The Cloud Computing paradigm is a dynamic innovation in the software industry. A Cloud
service is defined by three characteristics which differentiates it from the traditional model. First,
the service is sold on demand (by the minute, the hour or per user). Also, it is flexible because the
user can use the necessary quantity of the service, at any time. Last but not least, the service is
managed entirely by the supplier, and the user only needs a PC and Internet access (Everett, 2009).
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As it was presented the Cloud Computing concept has a large extent and it refers to the
architecture when the services are designed. Though it’s difficult to find a precise definition, at the
base of this technology lays the idea that applications run in a network whether this means running
in an internal corporate network or the Internet.
THE FUTURE OF INFORMATION SYSTEM OF SMBs - CLOUD COMPUTING
SOLUTIONS
Cloud Computing technology implies a larger storage capacity than that of private PCs, and
on the other hand, the dependency for IT personal for maintaining the system lowers. The main
revenue that this technology promises is cost reduction, through the payment made step by step,
thus avoiding significant investments in infrastructure, which depreciates quite fast. Still, there are
some differences of opinion in what concerns the real cost of the supplied services because it
appears that this technology can come with hidden costs, concerning the conversion of the current
company system, the integration implementation, training the staff and redesigning the architecture
and processes. Though on the short term, or at the start of the business these costs are low, on the
medium and long term, these costs can be unpredictable.
Cloud Computing bring some benefits to SMBs that are synthesized in Table 1.
Table 1. The benefits of cloud computing technology for SMBs
Benefit
Accessibility and
Mobility
Maintenance
Data Recovery
Security
Minimal IT Staff
Description
Implications
Allows employees remote access
Access more easily with mobile
devices
Monitor employee activity during
work at home cycle
Service provider repairs and
maintains equipment
Telecommuting and Virtual Office
Remote/mobile employees
Track software maintenance plans,
schedule upgrades
Data is backed up regularly and is
stored in multiple locations
Data easily recovered
Important updates made
automatically in real-time.
No lost data due to disaster
Reduces need for work stations
Employees are not interrupted
by IT upgrades, more productivity
No time lost; back up is the responsibility of the
service provider
Less chance that data will be
stolen by employees
Protect against hackers, viruses
and intruders
Less support and management costs
Service provider monitors
infrastructure 24/7
Data is stored off-site
Service provider manages
infrastructure
Service provider end-user support
IT department/others can focus on strategic
initiatives
No capital expenditures on servers, networking
technology, etc.
Reduced electricity/air cooling costs
Access to best-in-class technology, service
Service provider takes care of
technology
Costs
Flexibility
Businesses share costs of
infrastructure with other
organizations
Easily change number of
users/accounts
Add office locations quickly
Cost savings
Time savings for IT department
Pay monthly, annually or per
transaction
(source: adapted from Cloud Computing for Small Business. 8 Reasons to Outsource Your IT to the Cloud,
http://www.nfib.com/Portals/0/PDF/AllUsers/benefits/webinars/cloudcomputing-nfib-webinar.pdf. )
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One of the main advantages offered is technology mobility because it allows access to the
employees to the organization data, wherever they are and the service flexibility enables business
development without the appeal to additional infrastructure (Whitton, 2011).
What this technology promises is related with design and implementation of applications
infrastructure solutions that are more efficient and cheaper. Still, the main challenges of these
applications remain the used platform, which is an unsecure environment: the Internet. Issues like
data availability, environment security, performance unpredictability and supplier dependency
characterize the Cloud Computing technology.
When talking about data security and confidentiality, there are a lot of disputes and
suspicions. Cloud computing implementation in company activity has as main hindrances supplier
or middle-man dependency (Internet connection) and the lack of security for the data that are stored
in the Cloud, as a service undertaken without the use of physical components.
The companies hesitation is justified when considering that confidential company info are
collected, stored and maybe processes by third-party companies, which can be connected to other
people contracted which may or may not be interested in these data (ENISA, 2009). Data location
can also be a problem considering data confidentiality laws which restricts data access and
circulation over borders for certain data categories. These types of restrictions must be taken into
consideration given the fact that suppliers are not so clear when referring to data location or
supplying some guaranties that these restrictions are complied.
Data protection is nowadays a weak point for Cloud Computing. The technology is still
young and thus data safety can’t be guaranteed in cloud. Data protection refers to controls and
control mean visibility. The main disadvantage of this technology is that the organization can’t
control what it can’t see. Data integrity and confidentiality refers to the reading and modification of
data only by authorized personnel. The server location is unknown as well as the data transfer
network. Also there is no guarantee that the supplier will react dynamically to the company’s
demands and expectations (ISACA, 2009).
Because the network and server are in charge of data for thousands of clients there is a risk,
because of a wrong authentication, for those data to be accessed by the service supplier personnel or
even by somebody from another organization. Still, data lost risk is not specific to this technology,
but you can find it even when using your own hard drives, given the fact that these are
“rudimentary” computer components, that can break at any time leading to data loss (Fitz-Gerald,
2010).
Despite that it’s fair to say that the data of a lot of companies, especially SMBs are a lot
more exposed to risk in their own organizational environment rather than in a well-structured and
secure Cloud.
Another unsecure territory is the relationship between supplier and company. The loss or theft of
information is a sensible aspect, but the fall of the provided service also means loss of business.
Using well known suppliers like IBM, Google or Salesforce.com, that have sufficient means of
maintaining online security, puts some of the enterprises worries concerning information
vulnerability to ease.
The main solutions for the elimination of protection risks and data security are the careful
pick of the supplier, the negotiation of an advantageous and well defined contract, a tight
collaboration between the two business partners in order to prevent the loss of control (Cambell,
2010).
The Cloud Computing suppliers offer must ensure data security through: supplying access,
data and information usage control, protecting the applications against fraudulent usage, error
prevention protection, service availability through the reduction of network components (server,
network, terminal), information concerning physical infrastructure security and perpetual
improvement.
There is talk about a new business era considering informational technology, the accelerate
motion of the globalization phenomenon and the world crisis. For SMBs using this solution is a real
advantage because it ensures access to a complex infrastructure, avoiding implementing or
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administrating it directly. Without a constant concern for the updating, expanding or solving the
informational systems problems, the company can focus on the perpetual development of the
business and on innovation.
Currently the Cloud Computing market for SMB is expanding includes more and more
companies, each of them developing the business as much as possible on this area. The main
determiner is the increasing popularity of this technology.
One of the pioneer, Amazon supplies many types of Cloud Computing. The most popular is
considered Amazon Elastic Compute Cloud 126, also known as Amazon EC2, which allows users
to access virtual servers through a web interface. The payment is per-hour according to the number
and size of the installed virtual machines, with an extra fee for data transfer. Other Cloud services
offered by Amazon include Amazon Simple Storage Service, Cloudfront, Simple DB and Elastic
MapReduce. The partner list for Amazon Web Services includes names like: IBM, Oracle,
Facebook or Red Hat.
Through applications like Gmail, Google Docs, Google Calendar, Google Maps sau Picasa,
Google offers some of the most well-known Cloud Computing services. In order to enter the Cloud
Computing landscape IBM launched the Smart Business product and services line. The main
advantage that this firm has is its name and omnipresence on the international market. Some of the
first clients are companies like: Nedbank from South Africa and Sinochem from China. The Azure
services platform from Microsoft brings an operating system based on Cloud, called Windows
Azure, which provides storage and infrastructure services that can be remote accessed. This OS,
available as an online service offers a scalable and familiar environment to users to host Microsoft
Cloud applications and services.
SMBs are starting to become the main component that will benefit from the advantages
provided by Cloud. We can’t talk now about a matured market for Cloud Computing for SMBs.
The fight for this area has only just begun.
KILLING COSTS AND BOOST PRODUCTIVITY - HOLTL RETAIL SOLUTIONS
In order to show how cloud computing can be implemented in a SMB here is an example
which shows the impact this change has had. It’s about a German company which offers POS
systems (Microsoft 2011).
Holtl Retail Solutions represents a German retail company which gained new customers
through the implementation of Cloud Computing. POSFlow is the POS system used by more than
50.000 users in a few European countries and it’s very popular with SMBs. In order to enlarge the
client base for the product and to make POSFLow a more cost effective solution, the company has
decided to transfer its program in Cloud, using the Windows Azure platform. The company has
developed an easy to use interface with Microsoft Silverlight 3. Prior to this migration a Holtl
technician needed 4 hours to install POSFLow and to train the client; now, even the smallest
entrepreneur can install it within 4 minutes. Cloud based infrastructure is efficient and still comes
with costs, but the flexibility, scalability and reliability will make POSFlow the right POS solution
for large retailer chains.
The problem that generated this whole process was the cost. When client updated or
installed the new POSFlow system the companies technicians has to go to the clients locations in
order to configure it and that leads to the rise of costs and at the same time a waste of time for the
client. In order to make the POSFlow solution attractive to smaller retailers Holtl has to find a way
to reduce the costs.
The chosen solution was to move POSFlow on Microsoft Azure and changing the interface
using Microsoft Silverlight 3, thus making the whole configuration process accessible to clients.
The Windows Azure platform was chosen because it’s easy to implement and it offers support for
web sites and web services, like POSFlow, in Microsoft data centres, which reduces the IT
investment. Microsoft Silverlight 3 is a browser plug-in developed under the .NET platform which
is compatible with a large number of browser as well as operating systems.
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The revenues didn’t fail to appear. The client saves time because the implementation of the
POS system in done by him, in a matter of minutes, and a cost reduction is present in what concern
installing and maintenance. Through cost reduction new business opportunities appear, scalable,
flexible operations are being offered and the interruption impact is minimized.
CONCLUSIONS
In the current economic environment, cloud computing is one of the top technology trends
and intends to be the saving solution for optimizing the IT budgets.
Currently, cloud computing is considered the next best thing when in comes to optimize IT
budgets in the current economic environment. It's believed that it will become a key technology
oriented at sharing in-frastructure, software or business processes. Cloud Computing is a way to
serve the needs of computation through the virtualization of some resources through the Internet.
It’s made of shared services under a virtualized management, accessible to users and other services
through the Internet under a “pay per use” payment system.
Nowadays the Cloud Computing market includes more and more companies, each and every
one of them developing the business more and more. The main reason is the acceptance and
adoption of these revolutionary technologies.
When speaking about Cloud Computing, risk management activities must take place
throughout the life cycle of information, and risks should be re-assessed periodically or in case of a
change.
Therefore, companies and organizations that have decided to use the services supplied
within the Cloud must consider not only the implied savings and cost reductions but also the
additional risks. Once risks are identified, a clearer picture will take shape at the level of
management, of how cloud services will influence the structure and operations of economic
processes.
We can conclude that the future of the XXI century is run, when talking about innovative
technologies, by Cloud Computing solutions which will, after going through some stages,
fundamentally modify the general perception over the informatics domain.
The changes in the SMB area will be major, in order to survive and prosper, all business
must adapt to the realities of the market.
This paper is the starting point for future research work that will focus on the analysis of
how Cloud Computing can be the determining factor in terms of growth among SMEs.
REFERENCES
1. ***, Cloud Security Alliance (2009), Security guidance for critical areas of focus in cloud
computing, retrieved from http://www.cloudsecurityalliance.org/guidance/csaguide.pdf
2. ***, ENISA (2009), Cloud computing: benefits, risks and recommendations for information
security, retrieved from http://www.enisa.europa.eu/act/rm/files/deliverables/cloudcomputing-risk-assessment/at_download/fullReport
3. ***, ISACA (2009), Cloud Computing: Business Benefits With Security, Governance
and
Assurance Perspectives, retrieved from
http://www.isaca.org/KnowledgeCenter/Research/Documents/Cloud-Computing-28Oct09-Research.pdf.
4. ***, Microsoft (2011), Windows Azure ISV Business Economics Package, retrieved from
https://partner.microsoft.com/download/romania/40163455.
5. Cambell, Anita (2010), Small Businesses Use Web Apps – and What to Look For, retrieved
from http://smallbiztrends.com/2010/10/how-small-businesses-use-web-apps.html.
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6. Everett, Catherine (2009), Cloud computing, A question of trust, Computer Fraud &
Security, Volume 2009, Issue 6, June 2009, pp. 5-7, retrieved from
http://www.sciencedirect.com
7. Fitz-Gerald, Stuart (2010), Cloud Computing: Implementation, Management and Security,
INTERNATIONAL JOURNAL OF INFORMATION MANAGEMENT,
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Issue: 5, 2010, pp. 472-472.
8. Gartner Research (2008) Definition of Cloud Computing. Cloud Computing: It's the
destination, not the journey that is important, DevCentral Weblog, retrieved from
http://devcentral.f5.com/weblogs/macvittie/archive/2008/11/03/cloud-computing-its-thedestination-not-the-journey-that-is.aspx.
9. Grance, Timothy, Mell, Peter, (2009), The NIST Definition of Cloud Computing,Version 15,
National Institute of Standards and Technology, Information Technology Laboratory,
retrieved from http://csrc.nist.gov/groups/SNS/cloud-computing.
10. Whitton, Tony (2011), Cloud Computing for Small Business. 8 Reasons to Outsource Your
IT
to
the
Cloud,
retrieved
from
http://www.nfib.com/Portals/0/PDF/AllUsers/benefits/webinars/cloudcomputing-nfibwebinar.pdf.
ACKNOWLEDGEMENTS
This work was supported by the the European Social Fund in Romania, under the
responsibility of the Managing Authority for the Sectoral Operational Programme for Human
Resources Development 2007-2013 [grant POSDRU/107/1.5/S/78342]
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of Economics and
Volume 12,
Issue 2(16),
2012
ECONOMIC ASPECTS FROM THE ACTIVITY OF THE
BUCOVINA’S UKRAINIAN MINORITIES, WITHIN THE INTERWAR PERIOD
Ph.D. candidate Ionuţ BRAN
The „Ştefan cel Mare” University of Suceava, Romania
[email protected]
Abstract:
The present article represents the partial result of the studies which were performed over the Ukainian
minority in Romania throghout the inter-war period, the way it is reflected from the organisational and actng point of
view, in the historical documents consulted within the Ministry of External Affairs’ Records. The material is focused on
economical aspects which capture manifestations of the Ukrainian minorities within the new context, characterized on
one hand, by the necessity of a rapid remaking of the post-war national economy, and on the other hand, by the
achievement of the Ukrainian population’s unity desideratum, in the borders of the independent Ukraine. The results of
the research emphasize the causal connection between the political and the economical element, existent at the level of
the Ukrainian minority, the purpose being the formation of their own national economy.
Key words: inter-war context, Bucovina, Ukrainian minority, economic organizations, objectives
JEL classification: N34
INTRODUCTION
The study aims at the valorification of historical information offered by a series of
unpublished documents, completed by the coroboration with the ones existing in accesible
speciality works, of certain Romanian historians. The understanding of the Bucovina’s Ukrainian
minority’s economic organization within the inter-war period is conditioned by the framing within
the general context of those times, both internationally and nationally. Subsequent to the First
World War, no state was without a national minority. The integration of national minorities within
the Romanian state has been a complex process, difficult at times, due to the tight connections
developed by the ethnic groups with their country of origin or thanks to their intentions of
unification manifested at the borders of their own independent countries.
The handling of the issue combines, in a chronological formula, demographic aspects with
other economical and political ones, which, even though briefly emphasized, offer a punctual image
over the evolution of the Ukrainian community of the inter-war Bucovina, a period in which the
Romanian state has made great efforts in order to implement a correct policy as to the cohabiting
populations.
SUMMARY
In 1919, the population of Bucovina summed up 811.721 inhabitants, out of which 378.859
(46, 7%) Romanians, 227.361 (28%) Ukrainians, 88.666 (10, 9%) Jewish people, 68.075 (8, 4%)
Germans, 34.119 (4, 2%) Polish and 14.641 (1, 8%) other ethnicities. Bucovina’s urban population,
representing 173.000 inhabitants, was composed of 64.000 Jewish people (37,2%), 44.000 (25,4%)
Romanians, 18.300 (10,5%) Ukrainians, 28.200 (16,3%) Germans, 15.400 (8,9%) Polish people,
while the rural one was mainly composed of Romanians (51,8%) and, in a lower quantum, of
Ukrainians (32,1%).
The 1921 agrarian reform produces significant mutations in the land plan and also from the
agricultural exploitation point of view, but the expropriation and the abolition of latifundia,
followed by allotment of land to the peasants, conferred a low lucrativeness to the Romanian
agriculture. By the agrarian reform Law, promulgated on September 23rd 1921, the big land owners
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would acquire the right of keeping a maximum of 250 hectares of the surface total previously held.
In the eastern part of Bucovina, in the Vijniţa, Coţmani şi Zastavna counties respectively, where the
percentage of Romanians was significantly low compared to the population total [1], representing
between 0,5 % and 1,5%, the Ukrainian ethnics were acquiring property right over 32.647 hectares
of land, while the congeners from the south-western part of the historical province, from Rădăuţi,
Câmpulung Moldovenesc, Suceava şi Gura Humorului, where Romanians were to be found in
absolute majority (73% - 79,9%), were the beneficiaries of a larger area, which summed up to
40.329 hectares of land [2].
According to the 1930 census, from the total of the 853.009 inhabitants of Bucovina,
499.608 were active, while 89,9% of the rural active inhabitants handled soil exploitation [3].
Once with the development of the handicraft workshops, belonging mostly to the Jewish and
the Germans, one would observe the diversification of handicrafts categories, served, in 1938, in the
county of Câmpulung, by 2.424 qualified workers and craftsmen, out of which 1317 were German,
585 Jewish, 500 Romanians and 22 Ukrainians [4], from a total of 9.502 inhabitants.
Due to the intensification of commercial exchange, favored by the road and railway
extension, the financial activity also got a boost. Thus, in Bucovina’s urban localities, we find
branches of central and popular banks belonging to Romanians, Germans and Ukrainians. In 1921,
in Bucovina 101 bank branches with 10.910 members were functioning, as well as other 220
popular banks, out of which 142 - Romanian, 65 – German and 13 - Ukrainian. At the same time, at
the level of 1925, we find 277 cooperative and consumer production companies with 42.000
members, out of which 23.000 Romanians, 11.000 Germans, 6.000 Polish and 2.000 Ukrainians.
UKRAINIAN ECONOMIC INSTITUTIONS
Throughout the inter-war period, one observed the decrease of the Ukrainian institutions’
activities [5] from Bucovina, a factual state which was seen in the gradual decerase of Ukrainian
number of cooperatives, following the First World War, from 207 to 17. The 190 cooperatives
functioning cease was blamed on the conflagration and its consequences, Ukrainians pretending
that, due to the Bucovina’s state of siege, the General Congres of the Ukrainian Cooperatives was
no longer possible, a congress which would have been the optimal moment for the remaking and the
boosting of the Ukrainian cooperatives.
In December 1929, only the „Popular Trade” Cooperatives in the Township of Bergamot the Credit and economies Cooperative for the Ukrainian townsmen, headquarters in Chernovtsy,
the Credit and economies Cooperatives from Doroşăuţi, Carapceşti, Călineşti, Lucavăţ, Orşăuţi,
Vicno and the Townships of Prihce, Stăneşti, Tăuteni and Jadova, the Zamistea Dairy Products
Cooperative, the Industrial and Trading Orthodox Cooperative from the Township of Brodina –
were still functioning [6].
These were functioning following the model of the „Bucovina de Nord SA” (tables 1 and 2)
şi „de Credit” Banks (tables 3 and 4) from Chernovtsy, as well as that of the „Vans Pumice” Credit
and Mutual Help Cooperative (table 5), headquarters in the Township of Abdicate, all of them
being Ukrainian.
Table no 1. „Bucovina de Nord SA” Bank Balance, December 31st 1930
Asset
Cash
Policies
Current account
Immovables: House on str. I. Flounder
33
In Minuend
Furniture
Suspense account
Liability
423.510 lei
11.649.806 lei
2.106.103 lei
200.000 lei
Joint stock
Reserve fund
Fructify. Dept.
Dividends
3.000.000 lei
212.869,90 lei
11.577.827 lei
7.204 lei
37.575 lei
60.000 lei
526.985 lei
15.003.979 lei
Profit
206.078,10 lei
102
15.003.979 lei
Volume 12, Issue 2(16), 2012
Table no 2. Profit and losses account, concluded on December 31st 1930
Flow
Fees and taxes
Administration charges
Wages
Income and house maintenance
Net benefit
Total
Credit
256.453 lei
306.399,90 lei
468.500 lei
459 lei
206.078,10 lei
1.237.890 lei
Interests
1.237.890 lei
Total
1.237.890 lei
Table no 3. Balance on the 1930 exercise
Asset
316.176 lei
6.321.313 lei
13.445.978 lei
143.715 lei
250.000 lei
160.199 lei
20.637.381 lei
Cash
Current account
Policies
Inventory
Immovables
Goods
Total
Liability
Joint stock
Deposits
Current account
Unpaid dived.
Reserve funds
Rediscounted bills
Antacid.
Cash.
Interests
Welfare funds
Net profit
2.000.000 lei
13.750.554 lei
3.186.526 lei
4.563 lei
222.283 lei
880.698 lei
146.675 lei
40.000 lei
406.082 lei
Table no 4. Profit and losses account, concluded on December 31st 1930
Flow
Credit
216.155 lei
152.397 lei
447.000 lei
28.000 lei
406.082 lei
1.249.634 lei
Administration
Taxes and fees
Wages
Net profit
Total
Interests
Administration
Goods
1.122.743 lei
45.422 lei
81.469 lei
Total
1.249.634 lei
Table no 5. Balance on the 1930 exercise
Asset
Cash
Policies
Delayed interests
Inventory
Total
Liability
9.276 lei
324.300 lei
5.874 lei
4.244 lei
343.694 lei
Reserve fund
Shares
Economies deposit
Cashed anticip.int.
Net income
Total
38.000 lei
45.756 lei
262.066 lei
5.645 lei
2.218 lei
343.694 lei
The management of the „Bucovina de Nord SA” Bank was represented by Mastino Conte
della Scala – president, Nicolai Rusnak – director, Isidor Hoinic – member, Florea Florescu and dr.
Basil Duceak – censors, as well as Voitenovici. With the headquarters in Chernivtsi, the „Bucovina
de Nord SA” Bank had as purpose the funding and supporting of the irredentism in Bucovina [7].
Isidor Hoinic has been co-opted in the administration council with the purpose of facilitating
the connection with the „liberal finance”, while Basil Duceak, considered to be the soul of the
Ukrainian movement in Bucovina, held solid connections within the Ukrainian National Party, a
political formation established in 1929, with the headquarters in Chernivtsi, which centralized and
managed officially, the political activity of the Ukrainian minority in Bucovina [8], of which
member of mark he was.
Standing on the term stipulated by the new Law of cooperation, all those 17 cooperatives
opted for the maintaining of the current method of functioning, until September 1st 1938, the way it
had been allowed by the old law. In fact, Ukrainians were hoping to succeed in uniting all
Bucovina’s cooperatives into a single solid and standalone organization. Due tot the lack of capital
which was necessary for the achievement of the desideratum, the Bucovina Ukrainians opted in
1930 for getting closer to the rich and well organized by Poland -Ukrainian cooperation, after
which, the previous year, the Ukrainian press from Bucovina had promoted the usefulness idea of
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re-establishing the Ukrainian cooperatives in villages, recommending „Raiffeisen” type of
cooperative.
The data extracted from the documents of that time emphasize the manifestation of a certain
dissatisfaction within the Ukrainian population from Romania and outside the country, expressed
whether directly or through intermediaries, regarding the economic development. The causes
invoked, characterized by an obvious overreacting tendency and sustained by unsubstantiated
allegations [9], vary from the supposed refusal of the Romanian village popular banks to grant the
requested credits, for reasons related to the lack of knowing the Romanian language, up to the
accusation of violation of the rights granted by the Paris Peace Treaty, signed on December 9th
1919.
Referring to the latter aspect, we emphasize the intercession made by Dr. Basil Duceak,
performed in 1924, by the Nations Society, under the form of a memoire within the contents of
which he emphasized the idea according to which the text of the Law regarding the acquiring and
loss of the Romanian citizenship, promulgated on February 24th 1924, contravened the provisions of
the Minorities Treaty [10]. In fact, art. 56 of the Great Romania’s normative act re-confirmed the
Romanian citizenship in the case of all people of Great Romania, provided they hadn’t opted for
another nationality, granting the possibility of acquiring Romanian citizenship to all Romanians
from the localities situated outside the country’s borders. At the United Nations’ request, the
Romanian authorities have defended themselves, considering the reasons invoked by Basil Duceak
as being abstract and illusory [11], while the Ministers Council meeting which took place on
October 20th 1924 has concluded that the dispositions of art. 56 of the Law regarding the acquiring
and loss of Romanian citizenship were not contravening the provisions of art.3 of the Minorities
Treaty. According to the Report given by the Romanian Delegation in Bern, no 501/ March 17th
1925, The Nations Society Council Three Members Committee, which dealt with the inspection of
Basil Duceak’s complaint, considered it as being groundless [12].
OTHER FORMS OF UKRAINIAN MINORITY ECONOMIC ORGANIZATION
Also in the economic field, in Bucovina’s inter-war period the following Ukrainian
companies were still functioning [13]:
„Misceansky Chor”, managed by Sidak and Mural, headquarters in str. General Averescu nr.
10, which purpose was the organization of Ukrainian craftsmen;
„Misceanska Citalnaea”, managed by Bendac and Bezborodko, headquarters in str. General
Averescu nr. 10, which was aiming at the organization of Ukrainian craftsmen;
„Cultfond” (The Cultural Fund), headquarters in Narodni Dim, Chernivtsi, managed by
senator dr. Zalozeţchi, dr. Duceak and Serbeniuk, which had in sight the centralization of the
Ukrainians’ financial life, along with the subsidy of the Ukrainian movement;
„Bucovenski Hospodar” (Agraria), headquarters in Chernivtsi, str. Petrovici nr. 4, was
managed by dr. Kohut and senator Zalozeţchi, having as main functioning objectives the
centralization of the entire economic life of the people and the boycotting of the foreign economic
institutions, by establishing cooperatives, under the slogan „Through economic power, we reach
political power”;
„Narodna Cancelaria” (Popular), headquarter in Chernivtsi, str. Petrovici nr. 4, has been
managed by Hrenek and was functioning as a department of the Ukrainian National Party, having
the purpose of clarifying all problems related to the organization and applying of the party’s
programs, which secondary objective was the maintaining of the connection with the congener
population from abroad. Among the last tasks granted to the „Narodna Cancelaria” organization,
one may find also the achievement of the Ukrainian population census from Romania.
CONCLUSIONS
The documents used for the elaboration of the present study, far from completely presenting
the organization method and the evolution of the Ukrainian minority in Bucovina, have
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economically the purpose to offer new information which would complete the knowledge in the
field, constituting an important support of the paper.
Future studies in the reference field may emphasize, as far as the Ukrainian minority in the
inter-war period is concerned, the structure of the occupation and their evolution manner in direct
relation with the economy’s degree of development, including by comparing it with the situations
from the other states, some of them more industrially advanced. Also, subsequent research may
contribute to the emphasizing of the role which the economic manifestation of the Ukrainian
community has registered in the development of those times’ Romania (1918-1940) and the manner
in which the country’s leadership knew how to capitalize the production potential of the Ukrainian
minority, especially in Bucovina.
NOTES
[1] Romania’s statistical bulletin, no. 3, 1920, p. 174 – 175.
[2] Daniel Hrenciuc, Continuity and change. Integration of Bucovina’s national minorities within the Great Romania’s
royalty. (1918-1940), Septentrion Publishing House Rădăuţi, 2005, p. 120.
[3] Romania’s general census from December 29th 1930, published by dr. Sabin Manuilă , vol. V, Bucharest, 1940, p.
XLII-XLIV.
[4] Suceava County Service of National Records, county Câmpulung’s Prefecture Fund, file 3/1938, f. 67, 75. Excerpt
of a report of the Câmpulung County Prefecture, dated 1938.
[5] Ministry of External Affairs Records (will be named as AMAE). Romania Fund (1939-1944). The Ukrainian
minority. Volume 390. informative bulletin upon the Ukraine’s irrident action from Romania, p. 30.
[6] AMAE, Romania Fund (1920-1944). Volume 388. Essay regarding the Ukrainian cooperatives and banks from the
country (Bucovina), p. 177-178.
[7] National minorities in Romania (1925-1931). Documents. Coordinators, Ioan Scurtu and Ioan Dordea, Bucharest,
1996, p. 475.
[8] AMAE. Romania Fund (1920-1944), Volume 389 The Ukrainian Minority, Essay regarding the Ukrainian National
Party, p. 57.
[9] AMAE. Romania Fund (1939-1944). Volume 390. From the letter of the Romanian General Consulate in Canada,
headquarters in Montreal, addressed to Grigore Gafencu, minister of Foreign Affairs, dated July 29 1939, regarding
the memoire addressed to Armand Călinescu by the Central Committee of the Society for the defending of Bucovina and
Basarabia, headquarters in Winnipeg, p. 34.
[10] Daniel Hrenciuc, op. cit, p. 127.
[11] AMAE. Romania Fund (1920-1944). Volume 386, p. 90.
[12] Idem. Volumul 388, p. 95.
[13] Romania’s national minorities (1925-1931). Documents. Coordinators, Ioan Scurtu and Ioan Dordea, Bucharest,
1996, p. 473-475.
BIBLIOGRAPHY
Records
Ministry of External Affairs’s Records (AMAE)
Romania Fund (1939-1944). Ukrainian Minorities. Volume 390
Romania Fund (1920-1944). Volume 388
County Suceava’s National Records Department
County Câmpulung’s Prefecture Fund
Works
1.
Romania’s statistical bulletin, no 3, 1920.
2.
Daniel Hrenciuc, Continuity and change. Integration of Bucovina’s national minorities
within the Great Romania’s royalty. (1918-1940), Septentrion Publishing HouseRădăuţi, 2005.
3.
Sabin Manuilă, Romania’s general census from December 29th 1930
4.
National minorities in Romania (1925-1931). Documents. Coordinators, Ioan Scurtu and
Ioan Dordea, Bucharest, 1996.
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2012
ECOMARKETING FOR THE COMPANY? WHY?
Ph.D. student Daniel MAFTEI
Stefan cel Mare University of Suceava, Romania
[email protected]
Abstract:
Under current conditions when the economic world pass through a period of profound transformation,
development and growth issues in close connection with the natural environment, requires a new vision concerning
economic equilibrium and a new coordinated: the ecological balance. Ecomarketingul addresses the social field
(associations, organizations, public) and the economic field (the education of policy makers). Regardless of the target
group, the ecomarketing promotes the idea that environment is a public good, to be protected and respected, regardless
of prevailing interests at a time. The most important task in environmental marketing related to the need to educate
markets, the producers oriented on short-term benefits, immediate, in connection with long-term benefits that are
brought by the environmental attributes of products.
Key words: ecomarketing, ecological product, ecological risk, sustainable development, consumer behavior.
JEL classification: Q50, Q30, M30
1. INTRODUCTION IN ANTITHESIS BETWEEN ECONOMY AND ECOLOGY
Environmental protection is now a major concern for companies[8]. Environmental
management refers to the inclusion of environment planning in economic decision. The
environment is a necessary support of economic and social development and its management is
extremely important. Environmental management policy must be conceived as a continuous,
dynamic process, which can be defined through a process of planning, design of new projects,
environmental control system.
For an effective achievement of some training programs concerning a good environmental
management, should be considered a series of key questions: first, an didactic approach by
identifying those ways which to proceed from the analysis of real cases, in the second, must be
achive the continue resonance line of theory with its baggage of knowledge, with practice, through
those final results. At the same time, given the environmental management, an essential aspect
consists of training specialists, for then, people should be involved and trained in this process.
An environmental management program can not be done anyway. It is necessary to follow a
series of steps from all stakeholders in the process: required a radiography of system, a look through
its components: social, economic, institutional, legal. Defining objectives can not miss at all in this
model of environmental management, which raises alternatives proposals which has to be evaluated
by means of use and by the impact that these have on the environment. Finally, shoud be done a
good control concerning the decisions adoption. It is clear that any program entails various
problems that can keep by internal factors or external factors. Environmental management issues
arise problemes concerning quantifying environmental variables, economic and social impact, and
the juxtaposition of different environmental policies.
Given this context, the ecomarketing[10] imposes like an efficient tool in strengthening the
company on various levels of activity. Of these we remember that companies have the opportunity
to enter green markets easier, increase the competitiveness of our products, to improve their image,
to cope more easily with external pressures that can come from civil society given the environment
and its pollution. These objectives can be achieved only through the information and the
compliance of the company. We ask ourselves if our century will be one of great green decision or
it will be an traditional one. Paradigm appears when we compare the nature with the system created
by man: the word waste does not exist in nature: matter cycles ensures a continuous and complete
transformation of its elements. But man, by work making, became a producer of waste that
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degrades in a fast rate the environment. Thus, we raise the issue of a way to get recycling for
producing biodegradable products.
Contemporary era confront another dangerous phenomenon, global warming. If his counter
efforts will be not sustained, higher temperatures will cause devastating effects. Ecological crisis
which the planet passes is caused by the production and consumption systems that have exceeded
the capacity of self nature. Trying to find those responsible, we turn to firms, in general, and to
marketing, in particular. Marketing is the target of many critics, because, they say, it tries to sell
quantities of increasingly large products, it generate exaggerated consumption, unjustified.
2. IS THE ECOMARKETING PROFITABLE? FOR WHO?
More and more small and medium companies are interested and actively involved in ecofriendly operations. Appeared in the United States in the late "80's and early" 90, and relatively new
on the local market, green marketing is a concept that involves the promotion of products with
environmental characteristics. As defined by the American Marketing Association, green marketing
is the products marketing that are supposed to be safe in terms of environmental protection[6].
Green marketing, eco marketing or sustainable marketing is a marketing technique that
promotes a product or service in terms of environmental benefits and environmental impact[1].
Take into account several parameters such as: organic production techniques to organic food, how
to design labels and packaging and promoting and advertising products[5]. Green product or service
may be green itself or may be produced or packed in a green way.
We find this concept known as sustainable marketing[1] because it is also responsible for
identifying, anticipating and satisfying consumer demand in a profitable and sustainable way,
without affecting human beings or the natural environment. In business culture and like an general
perception, green marketing refers specifically to promote products and services with features
targeted green. Alleged evidence of green marketing is that potential customers will see in the
"green" service / product an added benefit and will make purchasing decisions accordingly.
Moreover, the trend of the Community countries and even in Romania, is to look how it looks and
what about that product. To what extent are we willing to pay extra for green products remains to be
seen. Currently, we are witnessing a trend of consumption in this sense, consumers are more
sensitive to environmental impacts of products and their health, and this trend will certainly
increase in future years.
Thus, via green marketing or ecomarketing it promote an environmentally, friendly product
based on environmental performance or by one improvement in this field or by the consumer
benefits[7]. If we omit or emphasize either of these two components, we get a pseudo green
marketing, found in the new literature as greenwashing. If, however, green marketing is done right,
can become a very important tool in marketing strategy.
The ecomarketing aims to achieve a balance between social and economic activities and
interests: individual and collective – the groups and society interes for a short, medium and long
term or, to harmonize the interests of consumers with environmental requirements. It covers the
fields of environmental protection, on the one hand, and environmental products and services, on
the other. Meanwhile, the ecomarketing can be defined as a specialization of social marketing and it
consists in a set of activities aimed at identifying, influencing and satisfying consumers of goods
and services.
Ecomarketingul aims to define, to approche and interrelate areas such as selling products,
environmental protection, consumer education, etc. Ecomarketingul try to present a new philosophy
on the conduct of production and consumption, the philosophy that places its focus element in
education. Between environment and economy are interdependent and interacting actions[1]. In
Romania, under current condition, thr problem of environmental and sustainable development
should absolutely be part of all development strategies, both at macro and micro sectors, but too in
the social one. There are a number of economic instruments - still in force - which is not stimulate
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this approach: thus, the level at which competition occurs, state intervention in support of energyintensive industries, providing differentiated facilities, give rise to profound imbalance in the use
and conservation of resources. One of the serious problems facing Romania today is the low
efficiency of resource use and various forms of energy. Reality has shown that human activity has a
range of implications that can be felt in various fields. Thus, a particular technology produces
indirect effects in addition to direct effects, which at one time, by assessing its implications may
put under the question sign the validity and viability of such technologies.
3. CAN THE ECOMARKETING PRINCIPLE
STRATEGIE IN A GLOBAL CONTEXT?
FUNDAMENT
THE
FIRM
In the past consumers were informed only in general about environmental issues, but in the
future the ecological information will be specialized and specific. Omission of information not
presented too great ecological importance in the past. Consumer sensitivity to such omissions it will
develop very much in the next years.
Within these changes, companies have been and are obliged to change previous
strategies[2]. If before they had a big autonomy, economic activities are now increasingly
determined from outside, by laws or consumer desires. Practical examples show that this approach
is possible in a strategy compatible with the environment and its positive by specific activity of the
company, which meet the same criteria.
For the firm is crucial the calculation of costs of the new strategies, a useful tool in this way
being the cost-benefit analysis. In environmental protection fiel appears costs that can not be correct
measured and which raises questions in light of efficiency.
Ecological marketing must take into account the requirements of consumers, particularly
through product policy through changes in production and product life cycle[2]. An extension of
ordinary testing procedures for new products should take into account the phases of production, use
and abandonment of the product, the issue of resource intensity, safety features, the degree of
maintenance, information and reuse. Burn products according recognized standards complete these
possibilities. This is true for the packaging industry, where it is put the use question, on a
increasingly scale, of single and multiple use of packages.
In the EU, environmental policy and its protection have evolved. Treaty of Rome, by the
Single Act adopted in 1987, includes a special chapter regarding the environmental protection
policy and provisions on the harmonization of relevant national laws. Also, in 1992 it was adopted a
series of regulations aimed at European Eco-label, in 1993 settled the Community system of
voluntary environmental management and control. The EU Council adopted in 1993, the fifth
environmental program, named "Towards sustainability", including provisions for the period 19932000 and also new directives thereafter. U.E. Environment Policy, as it is required by the
Maastricht Treaty, has the following principles[7]:
Precautionary principle;
Fix the source;
The "polluter pays"
Ecomarketing firm strategy means adapting and adopting innovative elements in its culture
and practice. Among these we include technological excellence, defined as a form of management
that relate to innovation, environmental protection and profit. Technological excellence is actually
the result of wanting to be a leader in environmental protection. Technological excellence also
involves the use of management and ecologic marketing as indispensable tools in the competitive
fight. This "green competitiveness" means carrying out concrete actions such as[7]:
Provision, anticipating of
changes
Minimize the costs with
environment protection
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Obtaining a "green reflex"
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4. THE GREEN SAMSUNG MODEL REGARDING PRODUCTS – CASE STUDY[11]
Eco-Products
In 2004, Samsung developed and set up the Eco-Design Assessment system. This system
manages product’s compliance with environmental criteria developed based on resource efficiency,
energy efficiency and eco-friendly materials. This system ensures that Samsung products and
devices such as LCD and semiconductor to comply with the global environmental regulations as
well as satisfies consumer demands for eco-friendly products. Samsung is also launching various
innovative eco-products in the market and increasing the acquisition of global eco-labels and energy
labels through the eco-design management system.
In 2009, the company updated Eco-Design management system, introducing the eco-rating
system for all developed products. This assigns each newly developed product an eco-rating (EcoProduct, Good Eco-Product, or Premium Eco-Product) based on strict evaluation criteria.
Figure 1. Eco-evaluation Criteria
Source: samsung.com
Samsung has set a goal to ensure 100% of products exceed Good Eco-Product criteria by
2013. This will include introducing eco-friendly evaluation for products in the R&D stage,
enhancing energy efficiency, and increasing the use of recyclable and eco-friendly materials.
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Figure 2. Eco-Design Management Process & Eco-Rating System
Source: samsung.com
Samsung Electronics[11] believes that extending the lifespan of products is important for
sustainability and has a policy on providing reasonable product warranty and service parts
availability considering product categories, sales region and legal requirement.
Figure 3. The Period for Product Warranty and Service Part Availability
Source: samsung.com
In this way Samsung see a Green Strategy for its product categories [1]:
Smartphone - FOTA type OS upgrading service
FOTA (Firmware Over The Air) upgrading service will help smartphone users to upgrade the
operating system of their phone at anytime and anywhere through wireless networks. It enables the
user to upgrade their service without changing their phone.
Note PC - Battery life extension
Samsung Net book PC provides a battery life extension mode. When the PC is connected to main
power, the user can set this mode which enables the battery recharging cycle to be extended by up
to 2 times compared with other PC batteries.
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Solar powered Netbook - Renewable energy use
In August 2011, Samsung introduced the NC215 netbook, equipped with photovoltaic cells on the
cover. Two hours of exposure in the daylight enables up to one hour of netbook use.
Washing Machine - Inverter BLDC motor
Samsung washing machine has replaced previous universal motors with the inverter BLDC (Brush
Less DC) motor. The BLDC motor operates without a brush and by removing this brush, the life
span of the motor can be extended by up to two times in comparison with the universal motor.
Digital Camera - Universal Charging Solution(UCS)
All Samsung digital cameras have adopted the Universal Charging Solution (UCS) which can be
used for other mobile equipment such as smart phone, camcorder etc. This UCS standard initiated
by GSMA can reduce standby energy consumption and eliminates the need for discarding chargers
and keeping multiple chargers for different products.
Eco-Labels
Many countries have voluntary eco-label programs to encourage businesses to market
environment-friendly products and help consumers, both private and public buyers, identify ecofriendly products easily on the market. Samsung Electronics’ products have been recognized for
their eco-friendly design and technology, achieving eco-labels in many markets around the world.
Below[11] are some examples of Samsung’s eco-labeled products. By the year 2010, Samsung
Electronics had achieved a total of 2,210 externally verified product environmental certifications.
This means Samsung Electronics has the highest number of third party certifications out of 219
companies in the electronics industry.
Korea – China – Taiwan – Nordic Union – Germany – Eco Flower (EU) – USA – Sweden - Canada
Samsung Electronics provides the Product Eco-Declaration (PED) of all products to
stakeholders upon request. The PED contains environmental information on products regarding
specifications, energy and discarded product recycling activities.
5. CONCLUSIONS: THE SOLUTION! SOCIAL ORIENTATION OF THE COMPANY
Currently the environment is one of the global problems of mankind, which is closely
related to economic development. Environmental protection can be characterized by dynamism, his
evolution following the technological development and the complex issues facing the global
economy.
Developed countries have many organizations, associations and governmental and
nongovernmental organisms, financed and with a developed infrastructure, which performing a
strong influence on environmental protection. In Western Europe perform their activity a lot of
political parties, active environmentalist, supporting a complex environment protection legislation.
In the U.S. operate other types of organizations, compared with Europe, but their concerns are
similar, and in many cases more effective. In Romania the legislative drafting process is changing.
Thus, environmental information is a link between all the actors who play on the economic
and social scene. By improving public access to environmental information available is intended, on
the one hand, supporting conscious decision in this area and, on the other hand, a public
information and education to eliminate consuptions unsustainable models. Ignoring environmental
issues, both in Romanian society, but also globally, has several causes, including distinguished:
economic difficulties faced by most members of society, insufficient or no education, lack of full
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and accurate information, lack of appropriate legislation, etc.. But we can not omit the fact that
society response to the impact of environmental degradation is conditioned, in a large extent, by a
financial support. Not infrequently the contemporary period was called "information age". The
concrete ways of production, communication, knowledge, etc.. have evolved rapidly due to many
factors, including technological ones who are primordial. In this context, the collection,
transmission, processing and disseminating information are key steps.
Mankind is in front of a continuous degradation of the environment. It is trying to build a
new development - sustainable development, which aims to harmonize, on a long term, the
production and consumption needs on the one hand, and an environment protection, conducive to
life, to the another hand. In this new context, along with classic dimensions of the Planet, appear a
5th dimension, the informational one, that affects all systems and structures and overlaps the
environmental dimension, both with a global vocation.
From the perspective of the elements above, the environmental policies must address at least
two aspects, namely: environmental management, which will watch the amendment of all political,
economic, ecological, social decisions. Ecological information is an element comprising at least two
components:
• technical, information transferred to users or those interested must be of good quality
• communication with the public and changing attitudes towards environment.
During the following period EU Member States' policies have and will have an
environmental dimension. All draft legislation must take into account the impact of their application
environment. Thus, the key points of environmental protection strategies will be: the partnership
between central and local authorities, businesses and public distribution of responsibilities between
the protagonists of development, minimum standards on environmental protection, economic or
fiscal stimulus for friendly environment products and services, the need to inform and educate the
public, stimulating research and development in environment field.
REFERENCES:
1. Belz F., Peattie Sustainability Marketing: A Global Perspective. John Wiley & Sons, 2009.
2. IOSIF, GH., and colab. - The Ecomarketing of commercial companies, Bucharest,
Economic Tribune Publishing House, 1999
3. KOTLER, PH. – The Management of marketing, Bucharest, Teora Publishing House,
1997
4. MANOLE V. and colab. Marketing, Bucharest, ASE Publishing House, 2000
5. PAMFILIE, R. Commodity and expertise of import-export food products, Bucharest, Oscar
Print Publishing House, 1996
6. Season 5: It's Not Easy Being Green, Green Marketing - The Age of Persuasion (January 8,
2010) . CBC Radio. Retrieved 8 January 2011.
7. http://www.evz.ro/index.html
8. http://www.greenbiz.com/
9. http://www.green-report.ro/
10. http://www.mygreencity.ro/
11. http://www.samsung.com
“ACKNOWLEDGMENT
This paper has been financially supported within the project entitled „Doctorate: an Attractive Research Career”,
contract number POSDRU/107/1.5/S/77946, co-financed by European Social Fund through Sectoral Operational
Programme for Human Resources Development 2007-2013. Investing in people!”
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SECTION 2
MANAGEMENT AND BUSINESS
ADMINISTRATION
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NECESSITY TO IMPLEMENT A BUSINESS INTELLIGENCE
SOLUTION FOR THE MANAGEMENT OPTIMIZATION OF A
COMPANY
Associate Professor PhD. Luminiţa ŞERBĂNESCU
University of Piteşti, Romania
[email protected]
Abstract:
In order to make correct management decisions, based upon exact and up-to-date information, we need
something more than intuition. Taking into consideration that in large organizations there is a great amount of
information related to production indicators, financial reports given by sales, balance sheets, prognosis etc, managers
often lack the qualitative information, updated in real time and transaction data on the basis of which a decisionmaking support system can be built. Implementation of a Business Intelligence solution in a company responds to the
passage towards a new organizational culture, that of a management based upon clear, measurable objectives assumed
by the company and employees at each executive level. In this work, I tackled the importance of implementation of a
Business Intelligence solution in a company and I presented a case study in which I designed a few analysis reports
with the help of QlikVew application. The analysis of various data types, reference and search filters put at disposal by
QlikView application helps users to synthesize valuable information. Practically, electronically stored information
generates possibilities of data analysis in real time for substantiation of future decisions and actions regarding
management, marketing and sales. Business Intelligence should be considered as a solution which will complete the
company’s IT system and offer an extra efficiency in the business management, performances improvement and
decisions making.
Key words: Buiness Intelligence, management, reports, analisys, QlikView
JEL classification: M12, M15
INTRODUCTION
As to accomplish their daily tasks, employees need up-to-date information. In this sense,
they spend much of their time making different analyses to ensure the minimum of necessary
information to them and also to their superiors. As a result of this situation, the effective work time
allocated to accomplish the specific tasks is affected by the time allocated to the reporting.
Analysis of data generated by a company’s activities is an exhausting activity which implies
considerable human and time resources especially if the volume of information is great. However,
visual representations simplify things allowing users from any level of the company to better
understand the data on the basis of which they have to fulfill their goals. For example, a sales agent
wishes to know the sales volume realized in a certain time period (for example in the last year or on
several months) on each location (on deposits or per clients). As the majority of his colleagues, he
uses static reports in the form of list for data storage and processing and will try to obtain the
necessary answers from tables of figures, often a slow process and without many results. Their
conversion into visual representations is yet much more efficient: trends can be observed and
understood better and quicker.
A BI system comes to help non-technical users with very quick and intuitive modalities of
data processing and visualization, allowing to persons from any level of the company to ask
questions and receive answers in only few seconds(Anandarajan & Srinivasan, 2004). Through only
few steps, we can obtain interactive reports easy to understand by anyone.
Business Intelligence software solutions are practically decision support systems and can
comprise various functionalities starting from the simple static reporting under the form of tables
or/and graphs, visual analysis, performance management through the monitorization of synthetical
indicators of performance, planning / budget, statistical processing, dashboards etc(Zillman, 2010).
This work is divided into three sections. In the first section, I shall point out the reasons for
which it is necessary the implementation of a BI solution within a company. In the second section I
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shall emphasize the way of design of sales’analysis reports realized by a distribution company. In
the final section I shall present some conclusions.
WHAT CHANGES DOES THE IMPLEMENTATION OF A BUSINESS
INTELLIGENCE SOLUTION BRING UPON THE MANAGEMENT OF A COMPANY?
Business Intelligence refers to informatic systems of identification, extraction and analysis
of data available within a company, systems whose purpose is to provide a real support for business
decision-making.
We can define Business Intelligence as the platform of information presentation in a correct,
useful and specific way by each decision maker in due time in order to be helpful in making
efficient decisions.
The success of an organization depends of the method and rapidity with which it responds to
changing market conditions. Business Intelligence solutions provide an advantage to organizations
through the data basis overview, allowing them to make better decisions in a quicker
rhythm(Dresner, 2010). Each employee can have such an overview and can dispose of a set of
directing lines in order to act. These guiding marks are based upon a clear definition of the most
important performance indicators. Any BI solution takes over information from various sources,
either internal or external to the organization, no matter the format and integrates it in an unique
substantial datawarehouse. Thus, all data are gathered in a single place, without duplicates.
On the basis of substantial data, BI system allows analyses of exceptions which lead to the
identification of causes of problems revealing themselves within an organization. Realization of
interactive visualizations can last only few minutes. These can be ”assembled” in an interactive
form for a general insight(Moss & Atre, 2003). Depending of the facilities of the BI system or the
platform upon which it is developed, the analysis reports can be shared with anyone through the
Internet. These can interact directly with the report: they can filter, sort out and rearrange the
information. The analysis reports can be shared also through other methods: they can be embedded
on a site, on a blog, can be used in presentations or exported in a static format as PDF.
The reason why Business Intelligence is needed in the activity of a company or of an
institution in Romania is connected to the need to cope with the competitiveness imposed by the
European market, by the standards and the legislation that must be observed, as well as by the acute
need for a time and profit and performance economy. The problems faced by most of the
organization, especially by the public ones, is the lack of fast, centralized and relevant information,
the huge amount of information only partially used and the impossibility to turn the data into
benefits, as a result of users’ superficial and sporadic access to it.
A few reasons for which a company needs a BI system can be defined as follows:
1. Easy and quick data access. A BI solution allows for the analysis of a great volume of
data, bringing at one click distance, substantial information about products, clients, cash-flow,
profit, discounts, stocks etc. Data can be represented and analyzed through an unlimited number of
visualizations from which trends or problems can be easily observed and decisions are taken much
simpler. Access to BI system and corresponding data is no longer limited by the hardware
component, the information can be accessed from any device desktop or mobile: smartphones,
tablets, portable computers. Flexibiliy is an important aspect for most managers and the online
collaboration offers not only mobility but also liberty in choosing devices(Raisinghani, 2004).
2. Exploration, understanding and discovery of new information. A BI system is simple,
visual and easy to understand, offering employees the liberty to answer questions on the spot. The
way of visualization can be changed only by a single click depending of the needs of every user. A
BI solution allows users to focus on questions, on finding solutions to problems and not on how to
use the system.
3. Relevance and deep data analysis. Each employee from a department needs information
with direct impact upon the activity he develops. The employee’s burdening with irrelevant
information or data to which it shoudn’t have access can have the contrary effect and affect his
performance. Fast customization of reports and analyses according to the needs of each user will
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contribute to the employees’ targeting towards relevant indicators and making of correct and
informed decisions.
4. Short response time. A BI solution includes a support system in making decisions which
is acted by a database. This database offers managers access in real time to ad hoc reports, online
tables, graphic dashboards. Moreover, the instruments of alert-notification which allow for the
constant monitorization, notification and automation of some processes offer the possibility to the
company to answer fast in certain situations defined as critical.
The new BI era integrates information into the decision process through the means of
decision services, relates business processes to rules that may be changed at any time, and integrates
BI benefits to capabilities provided by teamwork, cooperation, and business process management.
The best organizations are still in the first stage of BI maturity. According to John Hagerty,
vicepresident of Advanced Marketing Resources Research, organizations may be in one of the
following stages of BI maturity (Henschen, 2008):
a) Stage 1: introduction of BI instruments into the problem areas of the organization.
b) Stage 2: introduction of BI instruments into different business parts.
c) Stage 3: cooperation and recognition of cause-effect relation between different business
parts.
d) Stage 4: running the organization so that “everyone singing from the same sheet of
music”.
Business Intelligence solutions are now more necessary than ever, taking into consideration
the worldwide economic circumstances. It is essential to make the best business decisions based
upon real and exact information. They help to control and diminish costs, to seize opportunities and
obtain the profit growth(Turban & other, 2007).
Soon, tables and graphs manually conceived for data processing will become history. In the
actual context, BI solutions become more than simple solutions of cost reduction: they are business
instruments with strategic impact for managers who wish such a power of understanding of
processes and opportunities within organizations they lead. The change from the approach ,,pen and
paper”, which most of the times servs only to a predominantly tactical management with reduced
impact upon activity, to professional BI solutions represents a great step for businesses which find
themselves in front of a determining choice for their future(Stodder, 2008).
In the last years, most Romanian managers started to adopt slowly but surely, software
applications of business intelligence type which offered them support to make decisions in real time
on the basis of precise information, to measure, manage and optimize the performances so that
companies become efficient and obtain benefits.
DESIGN OF SALES ANALYSIS REPORTS WITH THE HELP OF QLIKVIEW
APPLICATION
In order to design the reports on analysis we used the QlikView application, which is an
excellent tool in analyzing the critical information on a business. QlikView is a complete BI
platform with ETL functionality (Extraction, Transformation and Loading), especially developed to
allow users to rapidly combine data from multiple sources, an in-memory data warehouse and a set
of BI instruments well integrated to develop very interactive graphic applications. It fits especially
the needs of departments and work groups because of the ease of use and independence from IT.
QlikView is a complex and powerful BI software package and data analysis which offers a
better way to work with the data of a business(QlikTech International, 2011). The graphic interface
offers an increasing interaction to the users. With a few clicks on the mouse, they have immediate
access to information that goes from the general level to the level of the slightest details. The
organizations, thus, succeed in discovering still unsuspected information, in understanding better
what is going on in their current activity and, as such, in making the best decisions for their
development.
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QlikView application offers the power to handle great amounts of data in an easy way and
allows the data analysis from multiple sources, demonstrations of scenarios “How would it be if?”
and printing of complex reports in any way without restrictions(Swoyer, 2008).
From the analysis of the reports and charts projected with the QlikView application a
manager can answer in a short time the following questions, questions that are vital for the
company:
1. Which customers bring the highest/ lowest value?
2. Which parameters affect sales?
3. What competitive advantages does the company offer to its customers as compared to its
competitors?
4. Which are the products or industries that lose/ earn money?
For exemplification I have considered a company that merchandises many products. The
company has many storehouses at different addresses and delivers products to many customers all
over the country. The used information refers to:
- Articles characterized through: Product Code, Product Name, Weight, Product Group,
Group Type;
- Customers defined through: Customer Code, Customer Name, Location Code, Customer
Location Name, Customer Group, Customer Group Type, Department, Town, Invoicing Code;
- Invoice heading which comprises: ID, Invoicing Code, Date, Warehouse Location,
Warehouse and Bill
- Invoice lines consisting of: ID, Product Code, Quantity and Price.
As a result of the connection of QlikView application to spreadsheets which contain data
previously explained, we obtain the following image of the database (see figure 1):
Figure 1. Image of the database
I will present part of the reports made to show the usefulness of implementing a BI solution
in a company:
1. Client groups. In this report, there are emphasized the clients from each location, per
groups of client. We can notice for each group of clients the total quantity purchased and by
changing the option from menu, it is displayed the value corresponding to quantity sold. This report
is used to determine the way of distribution of products to clients on each location. We can notice
that for example on Bucharest location, the best group of clients is “DET”, fact which doesn’t
happen in other locations(see figure 2).
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By simple or multiple selection, we can have a clear image of the quantity sold or value
obtained for each group of clients :
- on a certain time period (on each day, week, month or year separately, on several months);
- for a certain group of products or for a certain product;
- for a specific type of clients (partners or non-partners);
- for a certain point of sale.
Figure 2. Client groups
For example if we select a certain product we can visualize information about the name, the
customer’s type and location to whom the product was distributed, about the group of product to
which the particular product belongs, the warehouse, the delivered quantity and the price of the
product.
2. Product groups structure. In this graph it is presented the monthly value realized for all
groups of products on each warehouse location. By a few clicks, there can be emphasized the
products from certain selected groups corresponding to all groups of clients or to certain types of
clients, on a selected period of months.
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Figure 3. Product groups structure
3. Evolutions per periods. In this report we make a detailed analysis of the sales following
several dimensions graphically represented on one axis or two. Here we can establish if there is or
not logical correlation between the chosen dimensions, on certain periods of time, for example
between the average price and quantity (we can study what happens to the quantity if the average
price rises, or the other way) (see figure 4).
The dimensions of this graph can be changed so that to be displayed the quantities sold and
the average price on another period of time (monthly, weekly, daily, annually, etc), for a group of
products or many, for a group of clients or many, etc. At the same time, it can be displayed the
comparative evolution between other coordinates as for example: quantities sold versus value,
number of clients versus number of products, average price versus number of points of delivery,
etc.
A very important thing for the drawing of all the spreadsheets is the dimension established
as representative for them. Thus we used as dimensions: time, location of warehouses, customers,
products, etc. These can be selected and altered on each sheet and we can use combinations of these
dimensions in order to define groups.
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Figure 4. Evolutions per periods.
4. Daily report. In the following table there are presented for each warehouse location the
situations from a day regarding the quantity sold and number of clients. I also realized a comparison
between current day and the day from previous week or with 2, respectively 9 days ago.
This chart can be modified easily by changing the dimensions, in this way, visualizing the
same information grouped differently. For instance, we can find differences in the quantities and
number of customers for a group of products , or for other customers or types of customers
(partners or non-partners), or from certain warehouses, or from a locality, or from a invoicing code
etc. Selections can also be made, for example, we can choose to draw a statistics only for a certain
group of products, for a certain customer, a certain geographic area or for a certain group of
customers etc. In fact, these selections can be made in all accounting papers built by means of this
QlikView application(Manohar, 2008).
Figure 5. Daily report
Examples of this type can continue. It is important to keep in mind the fact that:
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- from the point of view of the informatician who implements a BI solution within a
company, this thing is realized with minimum effort, the solution customization according to
company’s needs being very easily to accomplish.
- from the manager’s point of view, he has access to correct data in real time and can
analyze and make decisions in a short time, which represents a real advantage on the competitive
market.
CONCLUSIONS
One of the most efficient modalities to improve daily operations as well as financial
previsions, profitability of certain sectors and hypothetical business scenarios (variation of certain
indicators as number of products sold, number of clients, average price, average quantity sold) is
the implementation of a business software system which allows managers and employees to make
informed decisions when they found themselves in the maximum point of impact, in an easier and
simpler way than at present. Thus, the most entitled person to make a decision will have access to
valuable information. This is the final goal of software solutions of Business Intelligence type.
In Romania, systems of BI type are in best cases spread and used marginally in current
activity. Even in the context in which there are certain investments in the field of information
technology, a great part of the data used are not coordinated, analyzed or implemented as to
improve operational performances. At present, because of the financing restrictions, most managers
have to accept a single solution: a better use of resources they already have at hand.
Successful BI instruments are not only simple but also relevant: they are simple to allow the
access to a great number of users by means of a friendly interactive interface – no matter the type or
source of information – and relevant, so that users could use them to answer to their immediate
needs and decisions which influence directly the business.
BI solutions improve the business’ results providing a much better support to decisions
making regarding the activity of the whole organization. This security is given by the qualitative
level of received information, these being complete, clear, concise. Thus, the decision-making
support can benefit from a competitive advantage on the market and can support considerably the
fulfillment of development objectives of the business.
Solutions of Business Intelligence type mean reason, saving time, clear and complete image
of premises on the basis of which business decisions are made. Moreover, they are solutions in
continuous development on the basis of market dynamics and types of management needs.
Obviously, in the next 2 years, solutions of Business Intelligence type will be a mandatory
condition for business success.
REFERENCES
1. A darajan, M. & Srinivasan, C., (2004). Business Intelligence Techniques : A Perspective from
Accounting and Finance, Germany: Springer – Verlag Berlin Heidelberg.
2. Dresner, H., (2010). Profiles in Performance: Business Intelligence Journeys and the Roadmap
for Change, ISBN 978-0470408865, New Jersey: John Wiley & Sons Inc Hoboken.
3. Henschen, Doug, Next-Era BI: Proactive, Pervasive, Performance- Oriented, (2008),
www.intelligententerprise.com/print_article.jhtml?articleID=205906754
4. Hoberman, S., (2001). Data Modeler’s Workbench: Tools amd Techniques for Analysis and
Design, New York : John Wiley & Sons
5. Loshin, D., (2003). Business Intelligence: The Savvy Manager's Guide, San Francisco: Morgan
Kaufmann Publishers , Elsevier Science.
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6. Manohar
S.
R.,
(2008).
Qlikview
http://businessintelligencedw.blogspot.com/2008/06/qlikview-vs-others.html
Vs
Others,
7. Moss, L. T., & Atre, S., (2003). Business Intelligence Roadmap: The Complete Project
Lifecycle for Decision-Support Applications, Boston: Addison – Wesley, Pearson Education.
8. QlikTech International, (2011). QWT Business Intelligence – Enterprise Script, Sweden:
Qlik®Tech International AB, http://www.qlikview.com.
9. QlikTech International (2011). QWT Business Intelligence – Professional Layout, Sweden:
Qlik®Tech International AB, http://www.qlikview.com.
10. Raisinghani, M, (2004). Business Intelligence in the Digital Economy: Opportunities,
Limitations and Risks, USA: Idea Group Publishing
11. Rasmussen, N., Goldy, P., Solli, P., (2002). Financial Business Intelligence : Trends,
Technology, Software Selection and Implementation, New York : John Wiley & Sons.
12. Stodder,
David,
BI
Megatrends,
www.intelligententerprise.com/print_article.jhtml?articleID=205602945
(2008),
13. Swoyer, S., (2008). QlikView's Rapid Time-to-Implementation Improves BI Value,
http://tdwi.org/articles/2008/12/10/qlikviews-rapid-timetoimplementation-improves-bi-value.aspx
14. Thompson,
O.
(2004).
Business
http://www.technologyevaluation.com .
Intelligence
Success,
Lessons
Learned,
15. Turban, E., Aronson, J.E., Liang, T.P., & Sharda, R. (2007). Decision Support and Business
Intelligence Systems, Pearson, New Jersey: Prentice Hall.
16. Vitt, E., Luckevich & Stacia, M., (2002). Business Intelligence: Making Better Decisions
Faster, USA: Microsoft Press
17. Zillman,
M.,
(2010).
Business
Intelligence
http://whitePapers.VirtualPrivateLibrary.net/Business Intelligence Resources.pdf nan
122
Resources,
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
LEVELS OF CULTURE AND BARRIERS IN ORGANIZATIONAL
COMMUNICATION
Ph.D. Lecturer Angelica-Nicoleta ONEA (NECULĂESEI)
“Al. I. Cuza” University, Iaşi, Romania
[email protected]
Abstract:
In an organization, the communication problems may occur even if the employees come from the same nation.
The individual is influenced by multiple levels of culture, each of them contributing in some way to shaping his cultural
identity. National culture, which exerts the greatest influence, may be the basis for creating the cohesion in the
organization, beside other values-as its instrument, if it is not the case of a multicultural company. In the latter case,
managers are tasked to develop a strong organizational culture, able to ensure the employees’ integration and
organization’s adaptation to the environment. The objectives of this article consist in presentation and descriptions of
these levels of culture, as well as in suggestion of the induced influences. The qualitative analysis based on deductivetype explanations emphasizes that organizational communication barriers are generated by these levels of culture that,
through specific combinations, induce differences between individuals.
Key words: cultural barriers, organizational communication, levels of culture
JEL classification: M19, Z1
INTRODUCTION
The employees in an organization belong to particular different groups and categories at the
same time. This can happen even within the organization, especially when we consider the human
being as a whole and we perceive him as the result of influences manifested over time. These
influences come from various levels of culture, as follows (Hofstede, 1996):
- National level, depending on country or countries (for people who migrated during their
lifetime);
- Regional and / or ethnic and / or religious and / or linguistic affiliation level, because
most nations are composed of different cultural and / or ethnic and / or religious and / or
linguistic regions;
- Gender level, depending on the person’s gender;
- Generation level, which separates the parents’ generation from the children’s etc.;
- Level of social class, associated with educational opportunities, occupation or
profession;
- Organizational level, depending on how employees have been socialized into the
organization process of their work (Hofstede, 1996).
Cultural influences, from several levels, lead to differences between the individuals’
perceptions, creating barriers in communication in general, and in the organizational
communication in particular.
ORGANIZATIONAL
CULTURAL INFLUENCES
COMMUNICATION
-
MANIFESTATION
FIELD
OF
Although the organizational culture is intended to be a tool for the company’s management,
through which consensus and full integration of employees are achieved, experts admit that the
employees do not enter disarmed culturally in the organization, and there are many levels of culture
that influence them. Even if we make reference to an organization that has employees from its own
country, communication problems still occur. There is, indeed, a common background, consisting
in specific elements of national culture, but also differences, which are particular combinations of
the characteristics described by other levels of culture. Problems are manifested more pointed in
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multicultural organizations, because of the differences that arise from the national cultural level and
whose influence is stronger on individuals.
Below we describe each level of culture in order to identify its influence on the members of
an organization, but also the problems that may occur due to the barriers it induces.
• National culture refers to the culture of a country. It is the level with the highest influence
on individuals, because that is especially acquired early in life, when the image on world is formed.
The national culture is distinguished by its particular characteristics that transcend the sum of
individual cultures of the groups that compose it. Although we may speak about a continuous
evolution of this type of culture, changes are so slow, that they can be observed after several
generations (Meier, 2004, p. 22-23). In case of multicultural companies, the barriers generated by
the differences identified at this level raise the most numerous problems. This happens also due to
the occurred language problems.
Nationality reveals specific features of communication at the working place, induced by
values that guide the choices of individuals. These grouped values correspond to some dimensions
of cultural specificity or to some orientations of societal values. The bigger the differences between
values of individuals’ national cultures, the more likely to occur misunderstandings in the
organizational communication.
• A particular influence on individuals is also manifested by regional culture. When we
consider regional cultures we take into consideration several countries or parts of the same country.
Regional cultural differences come from historical, geographical, political, ethnic, linguistic,
religious, economic, etc. variations, manifested over time. Common elements that gather the
members of a region lead to the appearance of some specific cultural features that may start cultural
disagreements sometimes, even within the same country. The influence of regional culture on
individuals from a particular country depends on the extent of its variations in relation to national
culture. That is also a level of culture that leads to barriers in the organizational communication,
and stereotypic descriptions can be an example of what differences’ perception is. Obviously,
devaluing stereotypes will lead to communication barriers.
• More ethnicities can live together on a national territory, as one ethnic group may be
located on different national territories. Ethnicity designates a group of people who claims to have
a common origin, a name (ethnonym) and a common cultural tradition. Its members are aware they
share the same language, same territory and same history (Lapouge, cited Ferreol and others, 2005,
p. 283). Each ethnic group is characterized by attitudes, behaviours and positions regarding action,
which, in contrast to those of other ethnic groups, lead to new barriers in the organizational
communication. There are stereotypes at this level that reflect intolerance, discrimination,
unacceptance of alterity.
• The linguistic affiliation offers other distinctive features that may sharpen new levels of
culture, generating barriers in the organizational communication.
Language as externalization and mean of forming the spiritual specificity of nations
(Humbold, 2008) is the central element of language, ensuring understanding between individuals of
the same culture. It determines the manner of thinking, the logic schemes, the nature of reasoning,
the preference for a particular type of communication, the accuracy, the acting position. Each
language is actually a gnosiological-type grid that can alter the perception upon the environment,
cause of the misunderstandings that occur.
Cultural differences related to linguistic affiliation refer not only to the language, but all the
idiom related elements. Saussure (1998) distinguishes between idiom (as a possibility to use a
language), language (as a set of signs used by a community) and speech (as a speaker’s formulation
in a particular language). All these reflect possible areas of building barriers within the
organizational communication.
• Religion is one of the cultural levels that influence the individuals. This level is
particularly important as influence on individual, its values corresponding to the deepest field of
values in the human soul. Blunders can be easily produced by ignorance at this level, with the most
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devastating effects. Often it is indicated to avoid topics on religious subjects, especially when the
collocutor’s opinions are not known
With reference to this level, we further present the criteria of differentiation related to
religion as a factor determining a certain cultural specificity, which may suggest areas where
problems may occur in the organizational communication. In Table 1 we present the main
characteristics that describe two distinct religious universes (Thery, 2002, p. 225-241).
Table 1 - Main features in the monotheistic and samsaic universe
Criterion
Person/group
Monotheism
- the person matters;
- individual responsibility;
Time
Hierarchy
- important, valorous;
- equal people, same rights;
Economic involvement
- the production effort is seen as unit
of measurement;
Buddhism and Hinduism
- the family matters;
- transmigration leads to the decrease
of individual responsibility;
- it does not matter;
- fair disparity, according to actions
from the past lives;
- it appears the moral of
relinquishment, of cancellation of
desire.
Adaptation [A.N.O.] cited Thery, 2002;
• Another criterion that may stay at the basis of a cultural demarcation is the gender. Gender
differences are not usually described in cultural terms (Hofstede, 1996, p. 33), but in every society
exists a feminine culture and male culture. Women and men have different symbols, specific ones,
which may make the traditional roles of gender be hardly interchangeable in some societies, or, on
the contrary, easily. There are labels that were traditionally attached to the individual in society.
The differences are developed in early childhood and they are emphasised in school period, as a
result of the groups formed between the members of the same gender. Variations towards the world
are induced through these groups. For example, the manner in which the two genders perceive the
present in relation to the future varies: for men it is important what they do, for women it is
important what they are (Hall, 1992). Similarly, at the level of language, which reflects the social
role: women consider communication as the essence of relationships, while men perceive it as a
form they exercise control, they keep or demonstrate their independence, they improve their status
(Mulvaney, 1994). Hence, men and women have different communication styles, reflected by
different objectives and strategies. We talk, therefore, by examples of different perceptions, which
lead to communication barriers.
• Generation is another criterion of demarcation of new levels of culture, with influence on
individual’s behaviour. There are well-known disputes, controversies that arise between
generations, due to different mentalities. At the organizational level a reticent attitude towards
newcomers occurs quite often, thus problems of status and experience raise barriers to
communication.
An important factor that contributes to the difference between generations is the
technological progress. It should be recognized that, at least in the last half century, progress was
impressive, affecting lifestyle, manner of solving the tasks at work, etc. Employees with seniority in
the organization, with fewer skills in information technology perceive young people as a threat to
their jobs. In this regard we mention that specific research revealed that the American workforce,
early this century, came from four different generations, situation that caused problems at work
(The Silent Generation, The Baby Boomers, Generation X, The Millennial Generation – see
Stanciu, Ionescu, 2005, p. 63).
• Social class can be considered as cultural level or criterion of demarcation of some
cultures within a culture. Stratifications made upon social class have three elements: similarity of
the ways of working, living and thinking; consistency and coherence in time; sense of belonging and
solidarity (Halbwachs, cited Ferreol and others, 2005, p. 128). There are close links between these
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elements (for example, the income level determines choices related to career, marriage / partner,
area / district of residence).
Social class, defined as the position in the hierarchy of society, guided by the economic
criteria (income level, ownership, accumulations), education, occupation, system of values,
attitudes, language and forms of expression, lifestyle (Jandt, 2007, p. 16; Urse(1)) affects
individuals. There are studies (EVS - European Values Survey) that reflect differences induced by
this level. According to them, superior social position is associated with positive attitudes towards
gender roles, marriage, abortion and euthanasia, environmental policies, support for democratic
institutions, intrinsic motivation, and work ethic. Economic elite (managers and owners) is more
conservative than the cultural elite (professional workers). Lower social position is characterized by
higher levels of religiosity and egalitarianism. The educational variable induces also differences: the
more educated people support gender equality more; they are more secular, more post-materialist,
more tolerant with immigrants and more intrinsically motivated (Vasile, 2008, p. 374). Professional
identity, based on secondary socialization, through which is acquired specialized knowledge
relating to a given field of activity, with a specific language and a symbolic world, is required in
other elements of specificity, with impact on individuals, inclusive at the level of organizational
communication.
For Romania, these categories appear in various forms. We illustrate one of the formulas
considered relevant to understanding the approached issues (Urse, cited works): the upper class
(successful entrepreneurs, bankers, managers of large companies, famous successful lawyers,
famous doctors with outstanding professional achievements, some representatives of intellectual
elite); middle class (businessmen, entrepreneurs, managers, traders, clerks, technicians, university
graduates) working class, peasantry, lower class.
• Organizational culture (corporate culture) is another level of culture with a recognized
influence on the individual who is analysed, this time, from the activities and working relationships’
point of view. There are different definitions of the organizational culture and we do not intend to
develop a deeper analysis on different perspectives from which the concept is discussed; that is the
reason we further reference only to few definitions that describe the general meaning.
By organizational culture we understand "all the references and records shared in the
organization and developed along the company’s history in response to the environmental problems
and internal cohesion that are brought in it" (Thevenet, cited Zaiţ, 2002), "system of representations
and values shared by all members of the company" (Lemaître, cited Zaiţ, 2002),"the specific way of
thinking, feeling and acting that people in an organization have learned, as a result of all the
procedures designed by managers, but also the influence of the social environment in which they
have lived and have been formed"(Nica, Iftimescu, 2004). Because the organizational
communication is the main issue, it is evident that the procedures, rules, organizational practices
related to it will influence the employees. It is important that by organizational culture to encourage
values such as tolerance / respect for diversity, flexibility, acceptance of the new, cooperation,
orientation to learning.
From the above mentioned aspects, we notice that nationality is only a factor that leads to
differences and when we refer to communication barriers, the linguistic code is only one of them.
Other barriers come from the diversity of the axiological valorisation forms in the other cultures of
the individual (the social, political and religious environment, the ethnic status, age and gender,
etc.), cultures that define him, shape his identity and influence him in the communication process.
Misunderstandings may occur due to differences manifested strictly in the communication plan
(intonational and rhythmic codes, codes for non-verbal language, narrative codes, ritual codes,
regionalisms, professional jargon, etc.), but also because of differences in attitudes, perceptions,
thinking etc.
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CULTURAL BARRIERS – CONSEQUENCES OF DIFFERENT LEVELS OF
CULTURE
Describing the levels of culture that influence an individual, we attain the following
findings:
- The national culture, the level with the highest influence on individuals, provides a
common axiological basis to the individuals from the same country, having a unifying
role;
- The action of other levels of culture "individualises", fragmentises, diversifies.
Important is the plan of discussion. If we consider organizational communication in
companies whose employees belong to the same country or which operate in a single country,
without business relationships that involve other national cultures, we may speak about that "value
core" provided by the national culture. But, if it is about a multicultural company, differences
related to national culture also intervene.
Which are the consequences of influences coming from these areas, influences that mark the
communication behaviour of the employee? Differences appear at the level of perceptions,
attitudes, behaviours, positions towards action and towards solutions. Moreover, stereotypes and
prejudices that work towards those who are "different", but also the natural tendency to
ethnocentrism, lead to barriers in organizational communication.
CONCLUSIONS
Different levels of culture with influence on the employee generate cultural barriers by the
induced differences. It is important in organizations, managers be aware that employees have a
cultural background which can lead to problems in communication. The national cultural
background can be exploited to enhance consensus in organizations with employees from the same
country. This is possible by using the organizational culture as an instrument of employees’
induction. If the company's value system will consist of values compatible with the employees’
ones, but also of new values, which ensure the company’s performance in the specific field of
activity and adaptation to the external environment, employees will identify a common ground with
what they possess, but, at the same time, they will integrate new values, the same for all, developing
thus the common axiological plan. Developing cultural sensitivity and skills on management of
differences by the managers are ways to overcome cultural barriers. This should be considered not
only in terms of internal organizational communication, but also for external communication. The
conclusions remain also valid for the multicultural company, provided that, when employees belong
to different cultures, the managers are tasked to develop a strong culture, able to ensure the
integration in the organization and to adapt it to the external environment. Although differences
lead to problems, we must not forget their positive role (access to a "wide range" of solutions) and
that they can be valorised.
ENDNOTE
(1) Urse, L., Clase sociale şi stiluri de viaţă în România, http://www.scribd.com/doc/6810550/Clase-Sociale-i-Stiluride-Via-In-Romania
AKNEWLEDGEMENT
Development of Human Resources Operational Programme 2007-2013, contract no.
POSDRU/89/1.5/S/61755.
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Volume 12, Issue 2(16), 2012
REFERENCES
1. Ferréol, Gilles and Jucquois Guy (2005) Dicţionarul alterităţii şi al relaţiilor interculturale.
Iaşi: Editura Polirom.
2. Hall, Edward (1992) La dance de la vie. Temps culturel, temp vecu. Paris: Editions du Seuil.
3. Hofstede, Geert (1996) Managementul structurilor multiculturale. Bucureşti: Editura
Economică.
4. Humboldt, Wilhelm (2008) Despre diversitatea structurală a limbilor şi influenţa ei asupra
dezvoltării spirituale a umanităţii, Bucureşti: Humanitas.
5. Jandt, Fred (2007) An Introduction to Intercultural Communication: Identities in a Global
Community. London: Sage Publication.
6. Meier, Olivier (2004), Management interculturelle. Paris: Dunod.
7. Mulvaney, Becky (1994), Gender Differences in Communication: An Intercultural Experience,
http://digilander.libero.it/linguaggiodelcorpo/mulvaney/, accessed in 2009.
8. Nica, Panaite and Iftimescu Aurelian (2004) Management. Concepte şi aplicaţii. Iaşi: Editura
SedcomLibris.
9. Saussure, Ferdinand (1998), Curs de lingvistică generală. Iaşi: Polirom.
10. Stanciu, Ştefan and Ionescu Mihaela-Alexandra
organizaţional. Bucureşti: Comunicare.ro.
(2005)
Cultură
şi
comportament
11. Thery, Benoit (2002) Manager dans la diversite culturelle. Paris: Editions d'Organization.
12. Vasile, Octavian-Marian (2008) 'Stratificare socială în România: o analiză de clase latente',
Calitatea vieţii, 19(3-4): 365-388.
13. Zaiţ, Dumitru (2002) Management intercultural. Valorizarea diferenţelor culturale. Bucureşti:
Editura Economică.
128
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
A METHODOLOGY FOR MEASURING RESPONSIBLE
CORPORATE GOVERNANCE IN COUNTRIES OF EMERGING
EUROPE
Ph.D. Lecturer Mariana Cristina GANESCU
Constantin Brâncoveanu Universitaty of Piteşti, Romania
[email protected]
Ph.D. Lecturer Andreea Daniela GANGONE
Constantin Brâncoveanu Universitaty of Piteşti, Romania
[email protected]
Abstract:
This paper aims to create a methodology to measure responsible corporate governance with the help of an
index composed of five sub-indexes, each corresponding to a certain dimension of responsible corporate governance.
The research is based on a review of scholarly literature on responsible corporate governance and offers some
guidelines for measuring corporate governance in developed and emerging countries. It also aims to determine a
responsible corporate governance index based on the following dimensions: shareholders’ rights and equal treatment,
relationships with stakeholders, responsibilities of the management team to monitor company objectives, corporate
ethical behaviour and transparency, and the implementation of internal and external control systems. The methodology
for determining the index of responsible corporate governance enables a ranking of emerging countries in Europe and
can be used in any context.
Key words: corporate governance, responsible corporate governance, responsible corporate governance index,
corporate social responsibility, Emerging Europe.
JEL classification: G34, M14, P2.
INTRODUCTION
Sustainable development policies implemented by some countries of the world have clearly
highlighted the key role of corporate social responsibility. Environmental and social
responsibilities, but especially those related to responsible corporate governance are an integral part
of medium and long-term performance and sustainability.
Empirical studies regarding corporate governance conducted in various countries of the
world highlight the features of corporate governance in conjunction with economic performance,
ownership structure, industry, legal system, control actions and demonstrate the voluntary nature of
implementing corporate governance practices.
Corporate governance has become an important issue in emerging European countries in
recent years, but is still widely unknown in many other countries. In many emerging countries,
corporate governance remains a controversial idea in terms of conceptual basis, characteristics,
efficiency and future development (Kuznetsov and Kuznetsova, 2009), emphasizing the importance
of good corporate governance, which should result in an increase in share price and in attracting
capital (McGee, 2008).
The purpose of this study is to rank emerging European countries based on an index of
responsible corporate governance. First of all, we identified the dimensions needed to measure
responsible corporate governance and the components of each dimension. Then we determined a
method to calculate the index of responsible corporate governance for emerging European
countries. Thirdly, we ranked analysed states according to the value of the index of responsible
corporate governance. Finally, we analysed the correlations between indicators that form the
various dimensions of responsible corporate governance. We used the initial hypothesis that there is
a positive correlation between the dimensions needed to measure responsible corporate governance.
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Volume 12, Issue 2(16), 2012
THE CONCEPT OF CORPORATE GOVERNANCE - DEFINITIONS
The process of identifying definitions for the concept of corporate governance facilitates the
understanding of differences between views regarding the content of this concept. The first attempt
to explain the concept of corporate governance belongs to Berle and Means (1932) who consider
that corporate responsibility refers to the "equitable control" that managers must exert to meet the
interests of shareholders.
A widely used definition belongs to the Cadbury Committee (Mallin, 2007): "the system by
which companies are directed and controlled". Shleifer and Vishny (1997) approach corporate
governance while having in mind the means by which "resource providers" and financial investors
ensure the profitability of their investments. Corporate governance can mean: „leadership,
organizational structures and processes that help ensure that an organization’s functions sustain and
extend its strategies and objectives. Put more simply, it is the culture, policies, procedures and
controls that help ensure a company will meet its business goals.” (Lamm, 2010a), "a system of
rules and norms, of either institutional or market nature, within which various categories of
stakeholders, shareholders, management, public administration, staff, customers, suppliers, etc.
arise or develop" (Bostan and Bostan, 2010), "a concept that encompasses a wide range of
activities, rules, processes and procedures designed to ensure optimal use of resources and corporate
strategies in order to meet its objectives " (Dobroţeanu et al., 2011).
The development of the concept of corporate governance was made in connection with a
number of theories. The agency theory (Jensen and Meckling, 1976) dominates other theoretical
approaches of corporate governance and extends the basis theory on the separation of ownership
from control, analysing the relationships between those who delegate authority (shareholders) and
those who perform services to the benefit of the former (CEOs), as a consequence of information
asymmetry. Recent research demonstrates the implications of transaction costs on resource
allocation and on the structure of organizations (Iacobuţă and Frunză, 2006). Transaction cost
theory states that the transaction is the basic unit of analysis in economics; economic governance is
essential to optimizing resource allocation and increasing economic efficiency (Williamson, 1975).
Stewardship theory shows that managers, as administrators of the business, are inclined to meet the
interests of shareholders. This theory (Donaldson, 1990) eliminates the idea of personal interests,
arguing that variations in performance obtained by managers are determined by their position.
Stakeholder theory (Donaldson and Preston, 1995) provides a legal framework for the inclusion of
stakeholders in the managerial decision-making process (Crane and Ruebottom, 2011). The main
goal of management should be to create value and satisfaction for all stakeholders (Aggarwal and
Chandra, 1990; Kochan and Rubinstein, 2000). In this context, some research sought to analyse the
topic of shareholder value versus stakeholder orientation based on empirical studies of managers
from top U.S., UK and European companies (Stadler et al., 2006).
A series of corporate governance models have been individualised in scholarly literature.
Albert (1993) distinguishes two models of corporate governance: shareholder value model (AngloSaxon model) and stakeholders model (Rhineland model). De Jong (1997) considers that there are
three alternative models of corporate governance: American (Anglo-Saxon or market-oriented
system), continental (Germanic or network-oriented system) and Latin (represented by companies
from Italy, France, Spain, etc.). Yoshimori (1995) believes that we can identify three distinct
concepts related to corporate governance: "monistic, dualistic and pluralistic". In another vision
(Bostan and Bostan, 2010), the two models of corporate governance are: the “insider system” model
and the “outsider system” model.
TOWARDS RESPONSIBLE CORPORATE GOVERNANCE
According to traditional understanding, corporate governance practices may be involved in
societal activity provided that they are fully voluntary and result in a positive contribution to profit.
Only for this reason, directors are informed about environmental risks, liabilities and key
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environmental compliance issues the company may be facing (Kuhndt et al., 2004). Starting from
this idea, the corporate boards are believed to be accountable only to their shareholders and to no
other group in society. Hence, the board is answerable to shareholders and, in some systems, to
employees and creditors.
Recently, a new approach to corporate governance has been developed which relies on the
assumption that man is free and responsible (Aras and Crowther, 2010). On this basis, corporations
are viewed as communities of free and responsible persons engaged in a creative project, able to
contribute to the common good. The terms "good corporate governance" or "responsible corporate
governance" are used ever more often in scholarly literature. Bad governance is being increasingly
regarded as one of the underlying causes of all evil in our societies (Shil, 2008).
Good corporate governance is a must in ensuring the values required by different
stakeholder groups. It enhances the performance of corporations, by creating an environment that
motivates managers to maximize return on investment, enhances operational efficiency and ensures
long–term productivity growth. Consequently, such corporations attract the best talent available on
a global scale. It also ensures the alignment of corporations to the interests of investors and society,
by creating fairness, transparency and accountability in business activities among employees,
management and the board (Oman, 2001). Good corporate governance in a corporate set up leads to
legal maximization of shareholders’ value, in an ethical and sustainable manner, while ensuring
equity and transparency to every stakeholder – customers, employees, investors, vendor-partners,
government, and community (Murthy, 2006).
Another aspect of stakeholder empowered corporate governance is the development of
“Leadership for Responsibility”. This refers to utilising the resources of corporations to bring about
societal change. A leader in responsible corporate governance sees the whole policy approach as an
opportunity rather than a challenge. Leadership requires the creation of a demand for sustainable
action rather than answering demands for responsible action (Kuhndt et al., 2004).
Some authors believe that corporate social responsibility is an important regulator of
corporate governance. Responsible corporate governance „is a stakeholder-oriented policy that
allocates responsibilities to societal actors and that will drive corporate accountability” (Kuhndt et
al., 2004).
Responsible corporate governance is a never-ending process, which progresses through
conflicts, under the condition that conflicts are solved, as far as possible, through integration and
not through domination and compromise. Therefore, responsible corporate governance lies in
entrepreneurial democracy, which systematically questions the organization’s mission and its
relation to the common good (Aras and Crowther, 2010). Good corporate governance therefore sets
the balance between economic and social growth (Zinkin, 2010).
Contemporary experts have identified the elements of responsible corporate governance:
“stakeholder empowered corporate governance; management and performance evaluation systems;
transparency enhancement; accountability verification” (Kuhndt et al., 2004).
Businesses characterized by responsible corporate governance must abide by the following
principles (Kuhndt et al., 2004): „assume societal leadership for responsibility; clearly and
specifically identify their social, environmental and economic values in accordance with the
demands of their stakeholders; define their social, environmental and economic priority areas of
action; adopt specific management practices to integrate these values into their operations and take
measurable action; disclose comprehensive data on their social, environmental and economic
impacts; involve in comprehensive review of their activities; strive for continuous learning”.
In our view, responsible corporate governance can be used with direct reference to
governance that is based on three important principles: fairness, transparency and accountability.
Responsible corporate governance practices are the foundation of the organization's overall
vision, decision-making processes and structures that support long-term business sustainability.
Adoption of responsible corporate governance practices is considered a voluntary act of
organizations (Anand et al., 2006), enabling them to generate economic, social and environmental
results. According to this view, best practices in corporate governance require vision, processes and
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Volume 12, Issue 2(16), 2012
structures that ensure long-term sustainability.
MEASURING CORPORATE GOVERNANCE IN DIFFERENT STUDIES
Macey (1998) suggests three empirical ways of measuring the performance of a system of
corporate governance: by determining the level of control exerted by shareholders compared to their
participation; by measuring the willingness of entrepreneurs to make initial public offerings of
stock; by analysing the functioning of internal and external markets from a corporate control point
of view.
For this purpose, some studies succeeded in measuring the growing influence of
shareholders and the effects this has on industry and even nation-wide relations, and proposed ways
to reduce shareholder pressure by trade union actions (Van den Toren, 2000).
Most of the attention in terms of corporate governance was geared towards making
predictions about the performance of organizations as a result of the choice of corporate governance
practices (Gillan et al., 2003) or associating costs to some corporate governance mechanisms
(McKnight and Weir, 2009).
Indices for measuring corporate governance were developed by many companies and
researchers, but most of them are relevant only for developed countries: the corporate governance
index developed by Khanna, Joe and Krishna (2001), Klapper and Love (2002), Ananchotikul
(2008), the FTSE-ISS Corporate Governance index, the Gompers, Ishii and Metrick index (2003).
Also, some institutions, such as the Institutional Shareholder Services, The Corporate Library and
Governance Metrics International, have developed corporate governance rankings. Corporate
governance issues are the focus of agencies such as Moody's Investor Services, Standard and Poor's
and Fitch Ratings.
The evaluation of corporate governance for Chinese listed companies focused on six
dimensions: „the index of controlling shareholders’ behaviours, board governance index, top
management governance index, information disclosure index, stakeholders’ governance index and
supervisors’ committee governance index” (Li and Tang, 2007). The results show that the
implementation of responsible corporate governance leads to increased profitability, operational
efficiency, financial flexibility and security for analysed companies.
Another study focused on quantitative measurements of the quality of corporate governance
and ownership (Bebczuk, 2005) and used the example of 65 Argentinian listed companies to
highlight the considerable effect of governance measures on assets’ profitability.
In some emerging countries, the national system of corporate governance is reflected in
standards and measures aimed at increasing foreign investment and channelled towards protecting
investors (Kuznetsov and Kuznetsova, 2009). The state and dynamics of corporate governance in
Russia are described in some studies (Lazareva et al., 2009), which show that most companies
operating in that country adhered to standards of corporate governance. Some studies carried out on
emerging markets emphasize the connection between corporate governance, investor protection and
performance (Klapper and Love, 2002) to better understand the environment in which corporate
governance is of greater importance.
Another interesting research aims to identify a composite index of corporate governance
regulation in European countries between 1990-2005, based on three distinct categories of indexes,
“the protection of shareholder rights index, the minority shareholder protection index and the
protection of creditor rights index” (Martynova and Renneboog, 2010).
A METHODOLOGY TO DETERMINE AN INDEX OF RESPONSIBLE
CORPORATE GOVERNANCE FOR EMERGING EUROPEAN COUNTRIES
In Romania there are still very few studies on corporate governance (Răileanu et al., 2011;
Popescu-Duduială and Stoichin, 2011) that assess corporate governance compliance of listed
companies or corporate transparency in applying corporate governance principles.
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Volume 12, Issue 2(16), 2012
This is the reason why we set out to propose a methodology to assess the national level of
responsible corporate governance in emerging European countries.
Emerging Europe Monitor grouped these countries into three categories (Emerging Europe
Monitor, 2012): Central Europe & Baltic States (Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Poland, Slovakia), Russia & CIS (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan) and South-East
Europe (Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Romania,
Serbia, Slovenia). Of these, for Turkmenistan, Uzbekistan, Kyrgyzstan, Tajikistan, Armenia and
Belarus no relevant data was found. We found it useful to include Turkey in the analysis because of
its geographic location and economic position.
The Organisation for Economic Cooperation and Development first established the basic
principles of corporate governance in 1999, and then revised them in 2004: ensuring the basis for an
effective corporate governance framework; the rights of shareholders and key ownership functions;
the equitable treatment of shareholders; the role of stakeholders in corporate governance; disclosure
and transparency; the responsibilities of the board (OECD, 2004).
Starting from the OECD vision, we recommend the following dimensions of measuring
responsible corporate governance, structured as follows: D1 - Shareholders' rights and their equal
treatment; D2 - Relations with stakeholders; D3 - Responsibilities of the Management Board in
pursuing corporate objectives; D4 – Ethical corporate conduct; D5 - Transparency and the
implementation of internal and external control systems.
To assess the five dimensions of responsible corporate governance we used the Global
Competitiveness Report published by the World Economic Forum (Schwab and Sala-i-Martin,
2012) as a data source. We chose this source because it evaluates all countries covered by our study
in a consistent manner, ensuring data comparability. From the multitude of indicators used for
reporting, we chose those indicators that cover the content of the proposed dimensions.
Dimension 1, "Shareholders' rights and their equal treatment", refers to corporate obligation
to protect shareholders' investment and to equal treatment for shareholders, providing secure
mechanisms for registration and confirmation of shareholder ownership, voting rights and
collection of dividends. To determine this sub-index, we used the following indicators: I1.1 Protection of shareholders and I1.2 - Investment protection. Dimension 2, "Business relations with
stakeholders", aims to maintain transparent and fair relations between company and its stakeholders
(employees, customers, etc.). In this respect, we chose the following indicators: I2.1 - Hiring and
firing practices, I2.2 - Relations between employers and employees, I2.3 - Degree of focus on
consumer. Dimension 3, “Responsibilities of the Management Board in pursuing corporate
objectives", is assessed with the use of two indicators: I3.1- Management training and I3.2 Delegating responsibilities to employees. Dimension 4, "Ethical corporate conduct", is based on a
single indicator (I4), which measures the perception of ethical corporate behaviour in a given
country relative to other countries. Dimension 5, "Transparency in the implementation of internal
and external control systems", refers to compliance to reporting standards and is determined using
indicator I5.1-Compliance with reporting and auditing of financial performance. Any organization
needs to maintain independent external auditors as an important tool of responsible corporate
governance.
Limitations to this study arise from the nature of collected data, which expresses perceptions
of respondents in the respective countries. As the countries of the world will improve reporting on
their social and economic environment and ensure its continuity, the proposed methodology could
be applied to quantitative data generating better scientifically proven results.
The index of responsible corporate governance for emerging European countries is a
composite index based on five sub-indexes, which correspond to the responsible corporate
governance dimensions explained above, and each sub-index is determined by using the chosen
indicators.
The methodology of calculating the index of responsible corporate governance is the
following:
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Volume 12, Issue 2(16), 2012
- the values of each indicator within each dimension are sorted in descending order and the
best (maximum) and lowest result (minimum value) are defined;
- each value of indicators receives points from 0 to 100 (0 for the minimum value and 100
for the maximum value);
- normalization is achieved by applying the following formula:
Pi=100*(Xi-valmin)/(valmax-valmin)
(1),
Where: Xi=the value of the indicator to be normalized, valmax =maximum value, valmin =minimum
value;
- weighting coefficients are set: each indicator is equally weighted within each dimension
and each dimension has equal weight in the overall index;
- dimensions are aggregated by multiplying the number of points awarded during
normalization with the weighting coefficients (0.50 for D1, 0.33 for D2, 0.50 for D3, 1 for D4 and
D5), using the following formula:
Pi/d= Pi*C d,
(2),
Where: Pi/d=points for indicator i after weighting, Pi=points for indicator i, C d = weighting
coefficient;
- the index is calculated by summing the points of each sub-index, using the following
formula (total index will have values between 0 and 1):
Ic= (Pi/d1+Pi/d2+Pi/d3+Pi/d4+Pi/d5)/5/100,
(3),
Where: Ic=composite index, Pi/d1,2,3,4,5=points for indicator i after weighting;
- states are ranked in decreasing order in terms of responsible corporate governance, the
state with the highest index value having greater awareness of responsible corporate governance.
RESEARCH RESULTS
By applying the methodology described in the previous section, we determined the value of
the responsible corporate governance index (RCGI) for each state. The results show (Table 1) that
ten of the twenty-three states have average and above average performance in terms of responsible
corporate governance, with RCG index values over 0.5. Estonia ranks first, far from runners up with
an index value of 0.911, which shows that the perception of respondents is very favourable to
following responsible corporate governance principles. Out of five dimensions, three scored a
maximum value. Romania ranked 20th, with a low value of the index.
Figure 1 presents a comparison of the RCG index for the top 3 countries and Romania. The
differences are significant and our country recorded above average values for only one of the five
sub-indexes.
1
100
80
6
60
2
40
Estonia
20
Polonia
0
Lituania
România
5
3
4
Figure 1. Romania, compared to top 3
134
Volume 12, Issue 2(16), 2012
Table 1. States ranked by RCG index value
State / acronym
Estonia (Est)
Poland (Pol)
Lithuania (Lit)
Albania (Alb)
Latvia (Let)
Turkey (Tur)
Kazakhstan (Kst)
Montenegro (Mnt)
Slovenia (Svn)
Azerbaijan (Azb)
Czech Republic (Ceh)
Georgia (Grg)
Hungary (Ung)
Bulgaria (Blg)
Slovakia (Svc)
Macedonia (Mcd)
Moldavia (Mld)
Bosnia-Herzegovina (BoH)
Croatia (Crt)
Romania (Rom)
Ukraine (Ucr)
Russia (Rus)
Serbia (Srb)
Sub-index
D1
71.3
66.2
59.5
88.3
65.4
68.3
88.2
75.8
57.3
74.9
56.6
66.9
44.9
57.4
44.0
64.0
38.2
27.2
29.4
51.5
20.5
20.5
16.3
Sub-index
D2
84.4
55.3
63.3
84.6
63
71.8
64.4
49.6
36.4
84
54.4
55.4
48.7
54.7
45.2
49.7
37.5
56.9
22.6
19.8
60.1
25.2
15.9
Sub-index
D3
100
48.7
57.5
55.8
51.3
37
39.9
57.7
54.1
41.7
56.6
15.8
15.8
21.2
45.1
2.6
23.9
46.1
15
12.4
6.2
7.9
7.1
Sub-index
D4
100
57.9
47.4
42.1
47.4
47.4
42.1
57.9
57.9
42.1
15.8
52.6
26.3
21.1
15.8
26.3
15.8
0
26.3
5.3
5.3
15.8
0
Sub-index
D5
100
82.4
70.6
23.5
52.9
52.9
41.2
29.4
52.9
11.8
64.7
29.4
76.5
29.4
29.4
35.3
23.5
5.9
23.5
11.8
0
0
5.9
Index
GCR
0.911
0.621
0.597
0.589
0.560
0.555
0.551
0.541
0.517
0.509
0.496
0.440
0.424
0.368
0.359
0.356
0.278
0.272
0.234
0.201
0.184
0.139
0.090
To demonstrate the existence of connections between the indicators that compose
responsible corporate governance dimensions, we applied the correlation method. The results
(Table 2) obtained using Excel’s Data Analysis show very strong correlations between
“Management vocational training” and “Compliance in terms of reporting and auditing of financial
performance” (value 0.75), between “Management training” and “Delegation of responsibilities to
subordinates” (value 0.74), between “Management training” and “Shareholder protection” (value
0.71), between “Shareholder protection” and “Ethical corporate conduct”, between “Shareholder
protection” and “Compliance in terms of reporting and auditing of financial performance”.
Table 2. Results of statistical correlation
I 1.1
I 1.2
I 2.1
I 2.2
I 2.3
I 3.1
I 3.2
I4
I5
I 1.1
I 1.2
I 2.1
I 2.2
I 2.3
I 3.1
I 3.2
I4
1
0.281021
0.183219
0.630532
0.633708
0.710048
0.537535
0.671693
0.670343
1
0.351694
0.435429
0.204991
0.075189
0.294665
0.444015
0.068146
1
0.523895
0.053439
0.001229
-0.0682
0.10375
-0.20113
1
0.518598
0.670689
0.566228
0.583298
0.420803
1
0.672739
0.613186
0.546065
0.576502
1
0.745555
0.687856
0.752921
1
0.639744
0.44626
1
0.69684
I5
1
Also, there are no connections between “Hiring and firing practices” and “Delegation of
responsibilities to subordinates” and between “Hiring and firing practices” and “Transparency in
implementing internal and external control systems”.
In this study we developed a two-dimensional classification of countries of emerging
Europe using the responsible corporate governance index and the GDP/capita (as an indicator of the
level of economic development of the analysed states). We aimed to emphasize that responsible
corporate governance is related to economic development by applying descriptive statistics (Adams
135
Volume 12, Issue 2(16), 2012
et al., 2007), which allows a graphical representation of data. Thus, we were able to observe a
scattering of states based on two elements (scatter plots).
Index GCR
100
Est
90
SENSITIVES
PERFORMERS
80
70
60
Alb
50
Mld
20
Svn
Ung
Blg
Mcd
30
Pol
Lit
Let
Ceh
Grg
40
LOSERS
Tur
Kst
Mnt
Azb
Svc
INDIFFERENTS
BoH
Crt
Rom
Ucr
Rus
10
Srb
0
0
5000
10000
15000
20000
25000
30000
GDP/capita
Figure 2. Two-dimensional classification of states of emerging Europe
Figure 2 shows four categories as follows:
9 Performers are countries with excellent performance in terms of corporate governance and
the highest level of GDP/capita. Estonia’s noteworthy position is based on the best
performance in corporate governance, although its economic development places it slightly
above average; Czech Republic and Slovenia’s positions are also worth mentioning because,
while they do not benefit from the best economic conditions, they achieved average
performance in terms of corporate governance.
9 Losers represent about a third of the emerging European countries, including Romania, and
have a low level of both responsible corporate governance and economic development. We
believe that these countries can improve their business performance and competitive
position in international markets by using tools and practices of responsible corporate
governance.
9 Sensitives are those who have above average scores in terms of responsible corporate
governance index, but extremely low levels of economic development. This paradox can be
explained by a favourable perception of respondents.
9 Indifferents are the category of states with real opportunities of developing responsible
corporate governance practices, as they have higher GDP/capita. However, they have a
correct perception of the importance of adopting responsible corporate governance.
We consider that the methodology used to determine the responsible corporate governance
index and to establish a dimensional classification of states can also be applied to developed
countries, not only to emerging ones.
CONCLUSIONS
Responsible corporate governance involves a long-term vision that integrates economic,
social and environmental responsibilities into the business strategy, highlighting opportunities and
allocating capital to meet the interests of shareholders. The role of corporate governance is
manifested in: creating value for the corporation and supporting transparency (Lamm, 2010b);
protecting shareholders' rights and ensuring their equal treatment, acknowledging the interests of all
entities that develop relationships with the company, assuming responsibility by the Board of
Directors, integrity and ethical behaviour, transparency in implementing internal and external
control systems to certify the validity of corporate financial reports (Dobrotă, et al., 2011). We
therefore consider that responsible corporate governance has the following functions: allows
monitoring corporate activities with the purpose of following its basic principles, supports the
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control of activities in order to abide by the principles of social responsibility, protects shareholder
investment, reflects the importance of corporate management and corporate monitoring, supports
sustainable corporate development.
As well as being fundamental to investor confidence, good corporate governance is essential
to attracting foreign new investment, particularly for developing countries, where good corporate
governance is often seen as a way of attracting direct investment at a favourable rate (Mallin, 2007).
It appears that not even scholarly literature is very concerned with measuring responsible
corporate governance, but rather studies the voluntary aspect of corporate governance, in general,
and the legal regulations of different states aimed at imposing the principles of corporate
governance.
The responsible corporate governance index established in this study encompasses the major
aspects of governance that any investor would want to know, possibly in the form of sub-indexes.
The results of applying this methodology to determine the index highlights major differences in
perception between emerging European countries, which stem from the environment that
corporations create in those countries. The ranking of emerging European countries into categories
based on responsible corporate governance index and GDP/capita shows interesting relationships,
perception differences and paradoxes. The study shows that little is known about the role of
responsible corporate governance in most of the analysed states.
However, the research can be interesting for investors who establish their investment
strategy based on a correct understanding of the specificity of responsible corporate governance,
possibly based on rankings like the one proposed by our study.
ACKNOWLEDGEMENTS
This work received financial support through the "Postdoctoral Studies in Economics: a
training program for elite researchers – SPODE" co-funded by the European Social Fund as part of
the Human Resources Development Operational Programme 2007-2013, contract no.
POSDRU/89/1.5/S/61755.
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of Economics and
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Issue 2(16),
2012
MULTINATIONAL CORPORATIONS IN THE ARCHITECTURE OF
GLOBAL ECONOMY
Ph.D. Rozalia KICSI
“Stefan cel Mare” University of Suceava, Romania
[email protected]
Ph.D. Simona BUTA
“Stefan cel Mare” University of Suceava, Romania
[email protected]
Abstract:
In the business profile of the beginning of 21st century, the relations and interdependencies are expanding on
a global scale; at the moment, much more than before, the production, capitals and people are becoming more and
more interconnected; the business entities considerably extend their activities, becoming more global than
international. More and more companies, many of them achieving sales figures higher than the GDP of some countries,
consider every corner of the globe as a feasible source of raw materials, cheap labour force or market opportunities.
The consolidation of the role of multinational corporations in the global economy has led to numerous debates on
the international stage. However, even though MNCs stands for a significant force in the global economy, ‘the
protagonists’ remain the nation- states. The national economies are regarded as the main cells of the global economy.
Key words: global economy, multinational corporations, nation state, international business
JEL classification: F00
NATIONAL AND TRANSNATIONAL
INTRODUCTORY CONSIDERATIONS
IN
THE
GLOBAL
ECONOMY
-
During the post-war period and in the first years of the 21st century, there are brought into
discussion a series of aspects regarding the role and importance of the nation-state in a more and
more dynamic and interdependent global economy; its ‘non-state actors’ acquire a growing
influence and become significant when coming to ‘the game rules’. During centuries, the state
identified itself with an economic force, and not only; the state actors continue to play the most
important role in the sphere of international relations, but during the recent decades, the power
balance tends to lean more and more towards the transnational actors, especially those of
multinational corporations type. G. H. von Wright states that ‘the nation-state erodes itself… the
erosive forces are transnational… the transnational forces are mainly anonymous, and therefore,
difficult to identify.’ (Wright, 1997, p.49)
The majority of analysts agree with the idea that we face a transformation regarding the
power of the states; this transformation does not produce itself in the sense of diminution, but it is a
reconstruction of power around the consolidation of both internal and international relations.
(Weiss, 2002) There are more and more voices claiming a transition from the nation-state to the
global community, as well as an erosion of the state roles as a dominant international actor. (Florea,
1982)
During the last decades, ‘the architecture’ of the international business profile has
significantly modified; the scaffolding is represented by the extraordinary globalization of
production, being based not only on exporting raw materials or manufactured products, but also
focusing on the organization of production outside the national borders. (Toffler, 1983) The world
continues to be divided into national states, but, once the multinational corporations have appeared,
the world’s classification into political entities mutually exclusive interconnects with a network of
economic institutions. Alvin Toffler states that in this matrix, the power that the national state used
to have once as a dominant force in the world’s arena, now diminishes substantially, at least
relatively speaking. The transnational corporations, through the proportions they have acquired,
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took over some of the attributes of the national state, when referring to the power report on a world
scale; the development of the transnational corporations have not strengthened the role of the
national state; on the contrary, they have diminished it. (Toffler, 1983, p.436)
***
The UNCTAD's have shown the fact that the magnitude of the corporatist phenomenon in
the world economy follows an ascending trend. Thus, in 1983, the incomes achieved by the biggest
200 multinational corporations were the equivalent of 25% of the global GDP, and in 2005, they
were equal to 29,3% of the world GDP; this rise is extended proportionally if one takes into
consideration the new value created inside these companies. (Roach, 2007)
A suggestive image can be also seen when referring to the comparison between
multinational corporations and national economies. Sarah Anderson and John Cavanagh have
analyzed the corporatist phenomenon, reaching to a series of conclusions that offer a perspective
towards its amplitude and extension; thus, from the world’s 100 biggest economic entities, 51 are
global corporations, while 49 are national economies. (Anderson, Cavanagh)(1) 200 giant
corporations, many of them bigger than many national economies (for example: Wall Mart is larger
than countries like Israel, Poland, Greece; General Motors is larger then Denmark; Toyota is bigger
than Norway; Ford is bigger than South Africa etc) are controlling more than ¼ of the world’s
economic activity. In 2000, ExxonMobil registered about 63 billions USD, more than the GDP of
countries like Hungary, New Zeeland, Pakistan etc. According to the same report, the combined
sales figure of the first 200 multinational corporations was, in the same year, higher than the GDP
of 182 countries of the world (except for The United States of America, Japan, Germany, France,
Italy, Great Britain, Brazil, Canada and China). Yet, far from creating the global village, these
corporations give birth to a global economic apartheid, to some real production networks,
consumption and capitals that generate benefits only for about 1/3 of the world population.
(Anderson, Cavanagh)
In conclusion, it can be said that these economic entities are real forces that cannot be
ignored anymore nowadays. The process of the rising integration of contemporary economic
relations, present during the last decades of the 20th century and the beginning of the new
millennium, had as a premise the expansion of the multinational corporation, and therefore, the
intensification of the investment, technological and informational tides between the issuing
countries and the receiving economies, leading inevitably to the activation of the structures
generating the socio- economic progress, and thus, to the creation of the new world economic
system. (Dambischi, 2004)
THE INTERNATIONAL BUSINESS ENVIRONMENT
Any business activity takes place in a milieu mostly shaped by politics; the implication/
intervention of the state is almost omnipresent, irrespective of the domain where affairs are
developed. In some areas, the countries encourage the free rivalry, and they self-restrict their
intervention over the market; in other regions, the states become business entities themselves, and
they forbid competition. In some areas, the markets are dominated by oligopolies or business
cartels; in others, the big companies are forcedly divided into smaller companies. However, it is
appreciated that the international business environment is the most favorable to creating richness by
MNCs. (Goldstein, Pevehouse, 2008)
In the complexity of developing contemporary systems there occur tendencies of
crystallization of entities that surpass both cultures and borders. ‘Over the planet there are thrown
so-called networks that tighten it as if they would protect it from disintegration. One belongs to the
instantaneous communication, another one is related to unlimited information, another relates to the
financial side or the global economy; a network refers to ecology, another regards both the security
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and political institutions, all of them overlapped on the old network of scientists and on the ancient
one of the universal ideal.’(Malița, 1998)
The changes from the post-war period regarding the structure of the world economy have
created new conditions focused on the development of the global economic circuit of values. These
modifications were the result of the changes recorded on the world political map, as well as the
effects of the technological revolution. Another factor leading to the development of the global
economic circuit was represented by the intensification of the international economic
interdependencies, generated by the mutual relations between the world states. This economic
circuit reflects the place occupied by every country when referring to the international division of
work. (Dicționar Economie, 2001)(2) On the other hand, the multidimensional universe specific to
the contemporary period is mainly the result of important activities conducted by some
multinational companies. These are economic structures whose bases are to be found inside a
determined state, and which own, administer and control (to a higher or lower extent) branches that
work in other countries, displaying both facilities and employees. Inside this strategy that is directly
focused on the global environment and global market, there are different international transactions
belonging to trade, cooperation or implantation methods, all of them helping to the development of
global opportunities.
The main trends identified for the global business profile can be classified as follows (Wall
a.o., 2012)
8 The dynamic growth of trade and investments. In 2003, the world exports of good and
services had a doubled value compared to that of 1980. During the same period, the direct
foreign investments rose fourth times. During 1978- 2003, the global exports of goods and
services recorded a rising rate of 5% annually. The developing countries strengthened their
position regarding global exportation, recording higher rates of GDP than the rich countries.
8 The rapid growth of cross- border fusions and acquisitions. Starting especially with 1990,
the acquisitions and over-border fusions knew a pronounced growing rhythm (despite a
decline registered during 2000- 2002); most of them could be seen in the financial services
system, insurances, telecommunications and mass-media. During 1990- 2002, for example,
the value of these services rose from about 150 billions USD to almost 600 Billions USD.
As a result, the largest MNCs extended their profits abroad with up to 20%, the hired labour
force up to 19%, and the sales figure up to 15%.
8 More liberalized market on a global scale. This fact has direct consequences over the
development of goods, services and capitals at a global level.
8 More globally dispersed value chains. The liberalization of markets lead to the
intensification of the global competition, which, together with the rapid technological
changes induce pressure to the large companies in order to select the best locations for
market and production. As a result, MNCs are more and more stimulated to choose other
locations for certain production/ activities sectors in the low-cost regions. In other words,
MNCs are engaged into a continuous race for rising the competitive advantages in terms of
costs, resources, logistics and markets; being somehow forced to reconfigure their
geographical localization of activities.
8 Tripolarization. ‘The old bi-polar global economy dominated by North America and
Europe has turned into a tri-polar economy, through the presence of South-East Asia on the
international stage. These three regions concentrate about 80% of the total value of the
world exports and about 84% of the added value in the processing industry. The projections
for the next decades show that countries such as China, India, Indonesia, South Korea,
Thailand and Taiwan will be placed in top ten. This will lead to MNCs’ attention regarding
these regions.
8 The proliferation of the regional trading arrangements. The last decades have been marked
by a proliferation of the regional commercial blocks, based on preferential treatments
concerning the goods and services trade. This has generated an internalization tendency,
meaning that MNCs tends to locate the productive capacities in the integrated spaces, thus
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8
8
8
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avoiding either the protectionist or discriminating borders, and benefiting from the other
associated advantages.
Growth of bilateral investment and trade treaties.
The increase of sovereign wealth funds. This one can refer to investment resources,
separately managed from the official resources; these funds have been stored by the
governments as a result of the price increase concerning the exporting industry (for
example, energy, food and other main products). Generally, these funds are invested in highrisk projects that may have consistent incomes in the future.
Growth of ‘defensive techniques’ to combat global insecurity. Many analysts focused their
attention on the parallel between the rapid growth of the formal, legal relations between
countries and the proliferation of the illegal ones (including activities associated with the
international terrorism). It is supposed that some features of globalization are meant to
generate such consequences; it is mainly about the erosion of the nations’ power and
control, as well as the development of new communicative methods, more difficult to detect.
Changing area patterns of international costs. MNC is mostly interested in the cost of the
labour force (both the salaries and non-salaries, contributions to social insurances, the leave
payment etc).
Globalization as a multidimensional process. Globalization is seen by specialists from at
least four perspectives:
- the economists focus themselves on the growth of international trade, of capital circuits
and of the MNC’s predominance over the global and aboriginal activities
- the political analysts consider globalization as a process that generates the undermining
of the nation- state and shapes new governing forces
- the sociologists see globalization as the occurrence of a global culture; moreover, they
take into consideration the global companies as dominating forces over the media
industry
- the experts concerning international relations tend to focus on the amplification of the
global conflicts and on the consolidation of the international institutions.
THE MULTINATIONAL ACTIVITY IN A GLOBAL CONTEXT
The dynamic of the business environment, strongly stimulated on the one hand by the
radical political changes from the states that used to have centralized economies, and on the other
hand by the magnitude of the economic liberalization all over the world, significantly developed the
opportunities for the multinational corporations. The quickness with which these economic forces
are spreading is emphasized by the fact that in 1997 UNCTAD estimated the existence of about
45,000 MNCs, having approximately 280,000 office branches, while in 2009 their number got to
82,000, having over 800,000 branches. (UNCTAD, 1998, 2012) At least 12% of these branches
were present in the developed countries. China was hosting more than 280,000 branches,
representing over 36% of the world total and approximately 69% of the total of the branches
implanted in the developing countries. MNCs concentrates a significant part of the industrial
investments, production, trade and labour force.(Cherunilam, 2012)
While developing, a company has the tendency to surpass the local, regional and national
restrictions of the business environment through the extension of activities in the global economic
space. Among the most important factors that generate the irreversible engagement of a company in
the global economy, in various rhythms but more and more dynamic, there can be identified the
following aspects(Ciobanu, Ciulu, 2005)
• the increasing diversification of markets, products and technologies;
• the increasing influence of the financial or legal issues on an international scale;
• the emerging of the ecological restrictions in the economic universe.
The multinational corporations agree to invest in other countries the moment they have
identified the existence of certain advantages:
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Volume 12, Issue 2(16), 2012
- comparative: the technological development, the dissimilitudes regarding the profit rate and the
risk level, the differences concerning the transport costs or the disparities from the financial
domain;(Fatehi, 1996)
- competitive: the enlargement of the perspective regarding the business profile, the possibility of
locating the production capacities, the direct knowledge of the market requests, the projection,
production and the efficient marketing or providing superior products in terms of quality/ price;
(Porter, 1990)
- strategical: the owning of an acknowledged technology, the distinction between products, the
owning of a famous brand, the managerial expertise, expert knowledge, the establishing of relations
stipulated by contract, the creation of own organizational structures. (Andreff, 1996)
The impact of multinational corporations can be analyzed differently. As it has been stated
above, some surveys compare these entities with the national economies. UNCTAD, in World
Investment Report (which offers one of the most comprehensive annual images towards the circuit
of foreign investments and the situation of transnational corporations) analyzes the corporatist
phenomenon according to a series of factors such as: the volume of the economic resources held
abroad, according to the transnationality index or the sales volume.
Starting with 1995, UNCTAD calculates a composite index, index of transnationality (TNI)
according to the share of economic resources abroad out of the total of active resources, the share of
sales abroad out of their total, the share of the employees abroad out of the total of the corporation’s
employees. This index can be calculated the same as an arithmetic average, as follows: (UNCTAD,
1995)
TNI= (economic resources abroad/ total economic resources + sales abroad/ total sales +
employees abroad/ total employees)/3
This index offers an image about the magnitude of the activities developed by a company on the
international market.
Other indicators used by UNCTAD when analyzing the business internalization are
(UNCTAD, 1995):
- total assets of foreign affiliates- these are the tangible resources in the intangible ones existent in
the operational unities outside the origin country; they quantify the investment force of a
multinational corporation, and a high concentration of these abroad can reflect a much higher
attraction of the international business environment in comparison with the domestic one (under the
aspect of the given facilities, costs or the market absorption capacity).
- sales of foreign affiliates- represent the net value of the sales made by the branches abroad (the
sales gross value diminished by the added value tax and other taxes); they may include the
intercompany exports as well, meaning the exports made by the mother company towards the
branches. This indicator also reflects the intensity of the concentration of companies towards the
national or international markets.
- employment by foreign affiliates - we refer here to the number of employees hired on the basis of a
labour contract, either full time or part time, in the operational unities abroad. Generally, this
indicator is connected with the amount of the economic resources abroad, but it also depends on
other factors, such as the nature of the company’s activities, the differences indicated between the
costs of the labour force etc.
- the network- spread index, NSI, offers an image over the dimension of transnationality; it is
related to the number of countries where the corporation was implanted. A high value of this index
reflects high implantation costs, but also good knowledge regarding the external market, the
capacity of valuing the opportunities provided by the international markets and so on. A limit of
this index would be the fact that it does not offer an image regarding the implication degree of the
corporation in the host economies. In order to make a comparison with other indicators, such as the
transnationality index, NSI calculates the reference of the countries where the company has office
branches to the total f the potential countries where it could be implanted. This potential number is
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given by the total number of countries that benefit from this or that are investment sources, less the
origin country.
If we analyze the expansion of the corporatist phenomenon at a global level through the
indicators mentioned above, there can be seen a tendency of amplification in the last decades.
Table no. 1. Corporatist phenomenon at a global level
Years
1990
Item (bil. USD)
2005-2007
2009
2010
2011
(pre-criză)
Sales of foreign affiliates
5102
20656
23866
25622
27877
Value added of foreign affiliates
1018
4949
6392
6560
7183
Total assets of foreign affiliates
4599
43623
74910
74609
82131
Exports of foreign affiliates
1498
5003
5060
6267
7358
Employment by foreign affiliates (mii)
21458
51593
59877
63903
69065
Source: * * * World Investment Report, 2012, www.unctad.org
CONCLUSIONS
The large multinational corporations represent nowadays true economic, political, even
cultural forces, impossible to ignore in the contemporary business environment. The big
corporations have an impact over billions of people’s lives, most often in a complex and vague
manner. The concepts of multinational corporation, global corporation, transnational corporation
are mixed when speaking about international affairs; they depict the same reality, that is a company
that owns and manages branches in at least two countries.
Some analysts consider the expansion of the multinational corporations as a positive force,
generating progress, working places, low prices, quality products etc. Some others accuse these
entities of exploiting the workers, controlling/ influencing the adopting process concerning public
politics, destroying the environment and degrading the cultural values. Irrespective of the position
we are placed on, we are sure about one fact: the global corporations have become an important
presence in the global business profile, and their position continues to improve/ consolidate in the
future as well. From this point of view, the issue that comes out focuses less on the role of the
corporations in the modern economy/ society, but mainly on their adapting to the major purposes of
the society, be they economic or not. These entities have created new mechanisms and have
determined transformations in the contemporary competitive milieu. In the same time, they have
seriously brought into discussion the role of the nation state and even opened the way to the erosion
of its position in the sphere of international business.
It is out of question that the multinational companies and their investment measures have a
major impact upon locating the economic activities in the world, upon the international trade pattern
and the national growing rates of both economy and productivity. Irrespective of the development
level of every country, MNC represents important technological sources, capital, knowledge; their
activity has a major impact towards the global distribution of richness.
MNCs has a relatively long history in the global economy; the corporatist power has risen
considerably towards the end of the 19th century. At present, the multinational corporation occurs as
a real global economic system, a complex mechanism that has dispersed components all over the
world, but which are interconnected, evolving and transforming themselves permanently. This
evolution and transformation is an active response to the dynamic and changes of the global
business milieu, focused on the main objective that is of valuing the competitive advantages and
maximizing the profits.
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Scale economies have contributed to the expansion/ growth of the multinational
corporations; their dominant feature remains though the transnational mobility in terms of
identifying the low-cost production opportunities.
The magnitude of the corporatist phenomenon is quite difficult to evaluate; in most cases,
we speak either about comparisons made with the national economies or about a series of indicators
used by the international institutions. An image of the internalization tendency, of concentrating the
activities outside the origin country, is given by the analysis of the value of the economic resources
from the branches abroad, by the number of employees in these branches, as well as by their sales
figure.
Starting with 1995, UNCTAD analyzes the corporatist phenomenon on the basis of the
transnationality index, which incorporates the external dimension of a company’s activities.
The transformations from the global business profile have considerably increased the
opportunities for the multinational corporations; the CMN’s expansion was encouraged by the
following aspects: the renunciation at the totalitarian regimes, the centralized governing in many
countries from Central and Eastern Europe, the tendency to follow the economic liberalism.
Another factor can be considered the growth of the private sector in almost all developing
economies; other factors are: the rapid technological changes that transform the organizations and
the international location of production, the market globalization, the extension of the arrangements
regarding regional integration etc.
At present, it is difficult to believe that a company would still develop and prosper only if
one refers to the national business profile. The feature of the global business environment tends to
become more and more complex; as more and more countries tend to get industrialized, they offer
both opportunities and threats in the global business milieu. The world has the tendency to become
a global market that will allow the companies to produce and sell wherever they wish; globalization
reduces the distances, transforms time and widens the borders.
ENDNOTES:
(1) Sarah Anderson, John Cavanagh - Top 200: The Rise of Global Corporate Power, Global Policy Forum,
http://www.globalpolicy.org/component/content/article/221/47211.html
(2) DICŢIONAR DE ECONOMIE, Editura Economică, Bucureşti, 2001, pag. 237
REFERENCES
1. Wright, G. H. von, (1997), The crisis of social science and the withering away of the nation
state, Associations,1
2. Weiss, L., (2002), Mitul statului lipsit de putere. Guvernarea economiei în era globalizării,
Editura TREI, Bucureşti
3. Florea, E., (1982), Naţiunea – realităţi şi perspective, Editura Ştiinţifică şi Enciclopedică,
Bucureşti
4. Toffler A., (1983), Al treilea val, Editura Politică, Bucureşti, pag.433
5. Roach, B., (2007),Corporate Power in a Global Economy, A GDAE Teaching Module on
Social and Environmental Issues in Economics, Global Development And Environment
Institute, Tufts University
6. Anderson, S.; Cavanagh, J., Top 200: The Rise of Global Corporate Power, Global Policy
Forum, http://www.globalpolicy.org/component/content/article/221/47211.html
7. Dambischi, A., (2004), Corporaţiile Multinaţionale în procesul globalizării economiei , teză
de doctorat, ASE Bucureşti
8. Goldstein, J., S., Pevehouse, J., C. , (2008), Relaţii internaţionale, Editura Polirom, Iaşi
9. Maliţa, M. , (1998), Zece mii de culturi. O singură civilizaţie, Editura Nemira, Bucureşti
10. * * DICŢIONAR DE ECONOMIE, Editura Economică, Bucureşti, 2001
11. Wall S. ş.a., (2012), International business, Pearson Education Limited
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12. Cherunilam F., (2010), International Business: Text and Cases, 5th edition, PHI learning
Private Limited, New Delhi
13. Ciobanu, I., Ciulu, R., (2005), Strategiile competitive ale firmei, Editura Polirom, Iaşi
14. Fatehi, K., (1996), International Management. A Cross-Cultural and Functional
Perspective, Editura Prentice Hall, New Jersey
15. Porter, M. E., (1990), The Competitive Advantage of Nations, Editura Macmillan, New
York
16. Andreff, W., (1996), Les Multinationales globales, Editura La Decouverte, Paris
17. * * World Investment Report, 1998, 2010, www.unctad.org
18. * * World Investment Report, 1995, www.unctad.org
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of Economics and
Volume 12,
Issue 2(16),
2012
THE NON-QUALITY OF COUNTERFEIT PRODUCTS AND THEIR
EFFECT ON CONSUMERS AND THE INTELLECTUAL PROPERTY
RIGHT
Lecturer PhD. Emilia PASCU
Lecturer PhD. Petronela-Sonia NEDEA
Lecturer PhD. Oana-Maria MILEA
Faculty of Touristic and Commercial Management
"Dimitrie Cantemir" Christian University, Bucharest, Romania
[email protected], [email protected], [email protected]
Abstract:
Breaking the intellectual property rights (IPR) has huge effects on the free movement of merchandise and of
the occupying degree of work places, affecting both economic development and consumers’ health, and the rightful
trademark owners and the companies which legally exploit them are the main “actors” to undertake the effects of this
phenomenon which, in the last few years, has grown with more than 1000% according to data published by the World
Trade Organization.
In the last 20 years, the growth of cases of breaking the intellectual property rights has led to the development
of various agreements at a global scale.
The TRIPS agreement was created by World Intellectual Property Organization and World Trade
Organization and it represents the main element of fighting against counterfeiting and piracy in all member states.
Key words: innovation, certifies and guarantees, counterfeit products, intellectual property rights
JEL classification: D1, D2, O3
1. INTRODUCTION
Breaking the IPR equally refers to the following two phenomena: counterfeiting and piracy.
Counterfeiting refers to breaking trademark rights in the case of products and services (trademarks)
and the term piracy is usually used in relation to breaking the author’s right or to copying the
patterns and registered designs without the rightful owner’s consent. As a generic term for all types
of breaking the rights, the term “counterfeiting” is sometimes used in a wrong manner, even by
experts.
Due to the important amount of money obtained, the counterfeiting industry represents an
important source of tax evasion, but at the same time it can be perceived as a significant danger for
producers, distributers, consumers and the state.
We can talk about a “globalization” of counterfeiting because all cities in the world deposit
counterfeit products, their producers taking advantage of the fact that borders are now free and open
and they also use high technology for producing such items. Words are not enough when it comes
to fighting against counterfeiting; actual measures are needed in order to discover what lies under
the tip of the iceberg.
2. THE INTELLECTUAL PROPERTY RIGHTS THROUGH THE LENSES OF
COUNTERFEITING
The agreement which funded the World Intellectual Property Organization, signed in
Stockholm, July 14th, gave a huge official importance to the intellectual property right and it
includes four major domains (figure 1.1).
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Figure 1.1. IPR components
Source: Pascu, 2011
World Trade Organization defines, in art. 51 of TRIPS Agreement, the counterfeiting of
trading merchandise as being: “any type of merchandise, including wrappers which wear, without
having authorization, a trademark identical to the legally registered trademark for such products or
which cannot be differentiated in what regards its essential features from such a trademark and
which consequently breaks the rightful trademark owner’s rights, placed under the laws of the
country which imports it”. In this sense, WTO equals the terms of crime and counterfeiting,
suggesting all member states to develop penalties similar to those for drug trafficking operations.
There are a lot of methods that can be used in order to counterfeit various products because
these producers’ imagination is beyond any limits (figure 1.2) (Răducanu, 2002).
Figure 1.2. Counterfeiting methods
Source: Pascu, 2011
3. THE DEVELOPMENT OF COUNTERFEIT PRODUCTS’ MARKET AND
THEIR IMPACT
Starting with the 2000s, especially after 2002, the value of counterfeit merchandise has
registered the most significant growth (14 times), in 2011 reaching the total of an annual 400-500
billions, approximately 350 billion Euros. The underground economy which is the result of the
trade in such products annually occupies approximately 25% of the world trade volume, according
to international studies. We talk about huge profits which are excluded from the normal circle of
economy, and there are times when legal authorities are helpless in dealing with this phenomenon.
In 1999, a number of 25.285.838 items were seized at EU’s borderlines because they were
considered to prejudice an intellectual property rights (IPR), representing 4.694 cases. In 2009
(according to World Customs Organization) there were noticed 43.672 cases of breaking IPR,
consisting of 117.959.298 items.
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There are fears that such activities of breaking the IPR through counterfeiting and piracy are
used by the Mafia in order to finance their actions; in this context, FBI defines counterfeiting as the
“21th century’s criminality” (Viefhues, Linklaters, Oppenhoff and Rädler, 2004).
An indirect effect of this phenomenon is the economical decrease of developing countries
because of the lack of investors on markets full of counterfeited products. The lack of a solid
legislation able to discourage the trade in counterfeited products is the first signal for investors who
are threatened by such products. A direct consequence of this type of trade is the decrease in the
money given for innovations, because of the low level of living and the low purchasing power of
the consumer.
Innovation is one of the key instruments in developing successful businesses which could
impose advantages on the market. Therefore, companies will have to constantly improve their
products, as well as the technical solutions for obtaining them. The main disadvantages for rightful
company owners appear when counterfeiting leads to obtaining benefits from the sums used by the
rightful owners – a situation known as free-rider (1).
Another effect (on the consumers) of trading counterfeited products is represented by a
decrease of original products sales when the product does not fit the quality standards of the
original product because of the low quality of the counterfeited item. Moreover, if the rightful
owner is responsible for the authentic product, he can continue to be blamed by consumers for the
damage produced by falsified items (2). Such problems are due to the fact that counterfeit products
are being made under the quality standards of the real products, leading to a negative effect of trade
in such products by diminishing consumers’ protection. There are behaviors which still determine
the purchase of falsified products because these items are cheaper than the original ones and similar
to them. However, consumers must understand that counterfeited products don’t have the same
quality as the original ones, although there are cases in which they look similar to the real goods
thanks to the latest technology used in producing them. Moreover, security and guarantee services
aren’t available for counterfeit products. The purchase of such products, without knowing that they
are false, leads to another problem. The consumer acknowledges the product’s low quality and he
loses interest in that precise trademark. This happens not only in developed countries, but also in
developing ones.
From a social point of view, counterfeit products affect the good functioning of society, but
there are also cases in which the consumers’ health and security are put in danger. We should
remember that counterfeited medicines represent up to 10% of the world pharmaceutical industry’s
business number (World Health Organization, 2010).
The economic impact of products’ counterfeiting has serious consequences for IPR rightful
owners, as well for the global economy, taking into account the financial loss. In this case,
counterfeiting is connected to cross-border criminality. This is the reason why trading counterfeited
goods (or any other products which break the IPR) leads to serious damage to producers, traders
and rightful owners who respect the law and it also puts in danger the consumers’ health and
security (CE, 2003).
Figure 1.3. Damage produced by counterfeited products
Source: Pascu, 2011
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4. QUANTIFYING THE REQUEST FOR COUNTERFEITED PRODUCTS
Taking into account that the main counterfeiting determinant is the request for such
products, according to the Organization for Economic Co-Operation and Development the
following reasoning could be applied in order to notice the extent to which the request for
counterfeited products influences the offer of such goods (Pascu, 2011).
Supposing that i is a client who is satisfied regarding his experience with a k good, the
satisfaction level achieved by agent i is directly proportional to the consumed product’s quality
level (a higher quality determines a higher satisfaction degree as a result of consuming the product).
In this sense, we could say that the value of the client’s satisfaction is vi(k) (OECD, 2008).
The traded goods differ according to the easiness that their quality is being acknowledged
by consumers. This acknowledgment equals the consumer’s estimation of a product’s performances
in domains in which he is particularly interested. The estimation must be prior to the purchase and
the easiness of this process determines the extent to which the needs of a certain consumer have
been satisfied after consuming that good.
The quality of certain types of products cannot be estimated at the moment of their
purchase. The effect of consuming products such as those from the pharmaceutical, food, beauty
industries are to be seen after their consumption. Moreover, the purchase of a specific product could
be influenced not only by the consumer’s personal experience, but also by features such as the
notoriety of the trademark, certain recommendations (flyers, prospects etc.). It must also be taken
into account the fact that we cannot establish if we can achieve the anticipated effects of that
product before its consumption. As compared to pharmaceutics or cosmetics, the quality of other
product types (such as those belonging to music or clothing industry) can be easily tested. Still, we
cannot talk about cases in which the consumer is able to exactly establish by himself the quality of
the good. In turn, clients can have different expectations regarding the quality, and this expectancy
level is determined by:
(1.1.
E[vi (k )] where: E represents the function of the product’s real quality.
This function reflects that a consumer acknowledges the possible performances of the given
product.
In order to optimize a good k, the client must make a minimum of effort before purchasing
the product and this effort would be translated by searching and locating the product. This
nonmonetary cost would be known as ci (k ) . Therefore, if the price of product k is given by p(k), the
utility of using a good k predicted by an agent i is given by the equation:
(1.2.) ui (k ) = E ([vi (k )]) − ci (k ) − p (k )
The client will buy the good k only under the conditions of a higher utility than the
predicted one, regardless any other alternative, including that of not purchasing the good k, referred
to as Ai(k) (3).
Clients differ according to their expectances of consuming a good k, the alternatives
assessment or the assessment of not purchasing it, as well as according to the efforts that they are
willing to sustain in order to obtain the good. These differentiations are realized from the point of
view of every agent’s particular features (taste, preferences, income (4), assessments and the
interest in health and security etc.). Placing the agents in a hierarchy according to the estimated
satisfaction degree minus nonmonetary costs, taking into account the condition that to a hierarchical
inferior it corresponds a higher satisfaction level, it permits determining an expression for the
request of a good k.
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Therefore, the request is determined by the number of clients for which the estimated
satisfaction, minus nonmonetary costs of the purchase, being higher than the economic value of the
non-purchasing.
(1.3.)
D( p (k )) = ∑ (E [vi (k )] − ci (k ) − Ai (k ) − p (k ))d i
5. ANTI-COUNTERFEITING MEASURES
It is said that any trademark is a product, but not any product is a trademark. A trademark is
much more than a simple product.
In fact, a trademark can be perceived as a complex symbol. The trademark represents the
immaterial sum of all those features which constitute a product: name, package, price, history,
reputation, promoting methods. A trademark also contains the customers’ opinions related to their
experience with the product or related to previous market experiences. Therefore, the process of
maintaining the quality is essentially based on keeping these intrinsic features of the product. In this
direction, the fight against counterfeiting becomes an issue of global importance as counterfeiting
has developed both at a national and international scale.
There are some products which bring high profits from sales and there are others that –
thanks to the so called reverse engineering. That means that the counterfeiter acknowledges the
functioning principles of the original product by analyzing its internal structure and way of
functioning. Then, the products would be produced at a large scale and traded by breaking the
regulations (Blakeney, 2006). The prices are similar to those of the original products, therefore the
consumers are misled and determined to buy an “original”.
The best tool in stopping this phenomenon is a good cooperation between the IPR rightful
owners and the national control authorities. Moreover, by means of harmonizing the national
legislations in the field of intellectual property, the EU’s member states can obtain a homogenous
system in their fight which has grown even more difficult because of the differences between the
legislations in this field.
There is a technical solution for fighting against forgery and for protecting trademarks
already on the market, consumers, trademark users, authentic products and services, or for
respecting the regulations regarding the protection of producers and consumers, for applying the
CE’s rules in Romania. It is a secured marker and its highly qualitative design is verified and
registered in Hologram Image Register – London (Counterfeiting Intelligence Bureau) at Hologram
Manufacturers Association (5).
The hologram certifies and guarantees the original product or service and it is verified by
the control organisms for assessing its authenticity and responds to any claim of the consumer by
means of verifying both the product and the juridical entity which produced or imported the
product.
The material of which the hologram consists is a mix of aluminum and polyester, having
dimensional stability and exceptional mechanical resistance to the majority of the usual solvents.
When one tries to unstuck it (by means of vacuum deposition metal layer) one gets a controlled
breach which leads to an easily detectable irreversible destroy.
Holograms can be applied to products, wrappers, documents, electronic equipment labels,
clothing, alcohol, software, CDs, watches, sportswear, medicine, notarial documents, various
documents which need to be certified etc., the legal organisms being able to detect the counterfeit
product.
From 2005, another method of fighting against counterfeiting is represented by applying the
correspondent labels depending on the specific categories and having the possibility of controlling
them. The label mentions the number of milliliters, the alcohol concentration (dal) and their
customization according to each marking owner. Moreover, the fiscal repositories have been
introduced, in the sense that all the transports of products which can be excised come with
administrative documents of the merchandise (DAI) which are printed at the National Printing
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Office. It has been introduced mark encoding in order for each mark could be identified in an
individual manner by particularizing each label. Therefore, date and time of delivery as well as
emission features become easily accessible; it annuls any type of fraud even when the labels
disappear in order to be used at another time.
Despite these facts, counterfeiters prefer alcoholic beverages due to their known trademarks
which can generate high gains by avoiding excises and taxes. The most frequent method of alcohol
counterfeiting is by refilling the original bottles with inferior substitutes and also creating mixed
beverages, which contain both qualitatively inferior and superior alcohol in order to mask the
distinctive taste of the alcoholic base.
A report published by Food&Drink Europa states the fact that Moscow annually loses over
1 billion dollars because of counterfeited products.
Taking into account that taxes are the main component of the selling price (they can reach
even 80% as in the case of alcoholic beverages), cigarettes are very interesting for counterfeiters
(6), the most common way of breaking the intellectual property rights in this domain being the
abusive use of a trademark (design counterfeiting is rare) (Treasury, 2006).
In order to diminish this phenomenon in Romania (given its dimensions, we cannot hope
that it would stop, at least not immediately or totally) we could consider the following possible anticounterfeiting measures:
9 creating a secure climate regarding anti-counterfeiting in the trade circuit.
9 managing the conflicts regarding the anti-counterfeiting process between various
economic agents.
9 developing some legislative projects regarding the optimization of commercial
relations and the consequences of such relationships, allowing trading companies to focus more on
those available resources which are going to be used in order to protect the consumer and to
develop original products and services that would correspond to legal regulations which set the
frame for quality standards (that should be respected) and the consumers’ requests.
9 developing partnerships with the authorities, public institutions and representative
organisms of civil society;
9 creating a partnership between investors, producers, consumers and authorities in an anticounterfeiting campaign by means of creating a solid economic climate which would also be
open to investments.
9 collaborating with international networks of fighting against counterfeiting; signaling
counterfeiting cases by means of information, data images regarding traded counterfeited
products, as well as the companies which sell them. They should be periodically mentioned
in the consumers’ benefit in order to prevent such situations and to discourage the purchase
of such goods.
9 the periodical signaling of those cases in which counterfeited products are detected:
localization, market segments, interest in buyers and the elaboration of a risk analysis
regarding the forgery of a trademark on the Romanian market, ended up with creating a file
for each counterfeited trademark;
9 aligning to the EU’s legislation is the most important measure which needs to be taken in
order to fight this expanding phenomenon.
6. CONCLUSIONS
An important contribution to fighting against counterfeiting is the development of a set of
regulations, in the sense that the country of provenience of a certain product should be mentioned
(especially when it comes to third party member states of the EU), allowing the growth of
transparency regarding the origin of various products such as clothing, which are often
counterfeited.
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All these can help to diminish the phenomenon which is currently affecting all international
markets and which cannot be fought. The care must be oriented towards the consumer’s protection,
not only towards protecting IPR.
The fight against counterfeiting can be efficiently made even by educating the consumer, the
best example being that of Germany, where there are shops which comparatively present both the
original product and the counterfeited one, coming from the import. They present identification
features and prove their low quality, the comparative resistance of each product and they also
explain from an economical point of view the benefits of purchasing the original (keeping the work
places, guarantee certificates, product’s life, economic growth). This way they try to diminish the
requests of counterfeited products.
NOTES
(1). For example,the economists are talking about the "free-rider" problem, when certain people obtain
benefits from the expenses or investment of somebody else
(2). In the mobile phones industry, for example, a producer has registered image damage and sales
decrease after a phone recharger exploded while it was in use. The analysis proved that it was
counterfeited.
(3). In most of the cases, this has value zero; in other cases, for example, when k is a remedy for a
incurable disease, the value of not purchasing it might tend towards - ∞, E([vi(0)]) = - ∞.
(4). It reflects the budget constraint of an agent i
(5). International Holograms Manufacturers Association is a
nonprofit
organization that
represents and promotes the worldwide interests of producers of holograms. Founded in 1993, the
association currently has 90 members worldwide and offices in Europe and America.
(6). From the point of view of counterfeited cigarettes’ provenience, The European Organization for
Trade and Development suggests than over 50% of the total production of counterfeited cigarettes
come from China, where there are estimated over 100 billion counterfeited cigarettes annually, also
taking into account its own trade.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
Chaudhry P., Zimmerman A. S. (2009), The Economics of Counterfeit Trade, Springer
Publishing,
HM Treasury, (2006) New Responses to New Challenges: Reinforcing the Tackling
Tobacco Smuggling Strategy, www.hm-treasury.gov.uk
Pascu E. (2011) Harmonizing the Romanian and the European Union’s legislative
frames regarding the fight against counterfeiting in relation to consumer’s protection,
Bucharest: the Universitary Publishing House
Răducanu, I (2002) Falsifying Industrial Merchandise, ASE Publishing House,
Bucharest, cited by Părăian R. and Pascu E. (2011) in Merchandise Expertise,
Bucharest: Prouniversitaria Publishing House
Viefhues, M., Linklaters Oppenhoff & Rädler (2004), Counterfeiting and Organized
Crime, Special Report of Counterfeiting, International Trademark Association
*** Council Regulations (CE) no. 1383/2003-12-03 regarding customs control actions
pointed against products which are suspected to interfere with the intellectual property
rights and the measures that need to be taken against all counterfeited merchandise
***
OECD (2008), The Economic Impact of Counterfeiting and Piracy, OECD
Publishing,
*** Global Status Report on Health (2010) World Health Organization,
http://www.who.int/whosis/whostat/EN_WHS10_Full.pdf
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SECTION 3
ACCOUNTING - FINANCES
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Issue 2(16),
2012
HOW DOES GLOBALIZATION INFLUENCE CORPORATE
GOVERNANCE AND RESPONSIBILITY? AN OVERVIEW OF
ROMANIAN COMPANIES
Lecturer Ph.D. Florin BOGHEAN
„Ştefan cel Mare” University, Faculty of Economic Sciences and Public Administration, Suceava, Romania
[email protected]
Lecturer Ph.D. Carmen BOGHEAN
„Ştefan cel Mare” University, Faculty of Economic Sciences and Public Administration, Suceava, Romania
[email protected]
Abstract:
Corporate social responsibility has been the hot topic of recent debates. More and more consumers trust those
organizations that also focus on issues related to the issues people are facing each day. These problems mostly relate
to: poverty, air pollution, water pollution, global warming, energy consumption. According to most researchers, social
responsibility is a means to be used in order to built and also maintain the capital of a brand. However, there are
researchers who argue that organizations should and ought to be socially responsible, since this would be the fair way
of acting within a society. The main principles of social responsibility are: transparency; taking responsibility and
sustainable development. The occurrence of the financial crisis has also intensified debates around the concept of CSR.
Most debates refer to the role played by CSR in society and the pros and cons related to the involvement of a company
in such social responsibility activities.
Key words: audit, corporate governance, social responsibility, financial accounting.
JEL classification: M42
1. INTRODUCTION
The present research uses an interdisciplinary approach of such topics as: the management
of business entities in relation to corporate governance; the relationship between various control
systems and the internal and external audit, as well as the corporate social responsibility directed at
increasing the stakeholders’ trust in the information provided.
The focus of the paper transitions from the international perspective towards the domestic
market and particularly targets various issues related to corporate governance and corporate social
responsibility, starting from the assumption that a synthesized summary of the results obtained from
these comparative analyses is absolutely necessary and could become actual illustrations of the
various corporate governance theories that may further refine the best practices of corporate
governance in general and audit in particular. The range of benefits provided by such a research
endeavour includes the possibility of identifying and becoming acquainted with the international
best practices in the field of corporate governance, thus assisting in the implementation of the
principles of corporate governance and increased CSR for Romanian entities.
Carroll and Buchholtz’s four part definition of CSR provides that “social responsibility
encompasses the economic, legal, ethical, and discretionary expectations that society has of
organisations at a given point in time”. This so-called “four-part model of CSR” that has been first
introduced by Archie Carroll in 1979 and later refined in a paper written in collaboration with A. K.
Buchholtz is accepted as the most elaborate and extensive model of corporate social responsibility.
In the author’s opinion, corporate social responsibility is a multilayered concept that
encompasses four closely connected aspects: economic, legal, ethical and discretionary
responsibilities, arranged in a pyramidal structure. Therefore, true social responsibility entails the
presence of all four dimensions within a corporation.
The European Commission defines corporate social responsibility in the Green Papers as „a
concept whereby companies decide voluntarily to contribute to a better society and a cleaner
environment and interacts with the stakeholders affected by their business”. CSR is also defined as
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the obligation to exert a positive impact and, at the same time, reduce the negative effects on
society. The comparative analysis of the positive and the negative impact of the CSR projects, has
revealed that the lack of social responsibility activities and negative information impact consumers
more than positive endeavours. There is also evidence that the information about the CSR activity
of certain companies may even have influenced their brand.
2. OBJECTIVES AND ASPECTS OF DECISIONS IN RELATION TO CORPORATE
GOVERNANCE
Numerous studies on the behaviour of public and private investors operating in developing
economies have shown that 80% of them are willing to pay more for the shares of those companies
with an efficient system of corporate governance. Two criteria must be met in order for corporate
governance to positively influence the market value of the company:
• firstly, corporate governance should contribute to raising the shareholders’ income, and
• secondly, the financial market should be efficient enough for the stock price to accurately
mirror the performance indices recorded by the company. These criteria are most frequently met in
countries with well developed financial markets.
The American professional literature documents several corporate governance models that have
been designed by K.H. Spencer Pickett, models that have been adopted by the international best
practices, as follows (K.P. Spencer Pickett, 2006):
A. The Agent Theory, that focuses on the need for managers to be monitored by the
shareholders in order to prevent any opportunistic conduct of the former (Fama, 1980; Jensen and
Meckling, 1976; La Porta et al., 1999; Nicholson and Kiel, 2007). The agent theory approaches the
dominant elements of the relationship between the owners of the company, i.e. the providers of
capital (called principals) and the managers of the companies (called agents). Therefore, some of
the issues addressed by the agent theory focus on the following aspect: the managers, as legal
advocates of the investors, have the obligation to augment the profits to the benefit of the latter but,
if their goals are in conflict, the agents can choose to maximise their own personal benefits. The
phenomenon has also been analysed by Berle and Means (1932), the first researchers who have
grasped the factors we eventually came to know as lack of management ethics, i.e. a situation when
managers knowingly deceive. The phenomenon was later analysed by Jensen and Meckling (1976)
who have predicted and studied the opportunistic behaviour of managers and their proneness to
pursue their own interests against the best interest and at the expense of the company they work for.
The recent developments in the corporate environment have validated the aforementioned
predictions as general truths and there’s no further need for academic evidence to support this
concept. Professional literature provides an example in this respect, namely the granting of very
generous indemnities. Both American and British professionals believe that this particular factor
(extremely generous salaries for the management) relates corporate bankruptcy to the failure of
corporate governance. The specific case of WorldCom may be quoted here, a company that has lent
Bernard Ebbers, its executive manager, the amount of $5 billion. Another popular example in
economics is that involving the compensations granted by Enron to its executive managers between
1998 and 2000, amounts that have augmented from $103 million to $1.4 billion during these two
years (a seven fold rise), a situation that had occurred a year before the company went bankrupt.
The surprising fact is that, as the stock price was falling dramatically – in 2001 that is – the
company awarded its key employees the amount of $54 million (Murray, 2006). The agent theory
has been heavily criticized since the end of the 20th century by the supporters of the stakeholder
theory.
B. The Stewardship Theory states that managers are keen administrators who eagerly perform
in the best interest of the shareholders since they believe this is the best long term approach and the
reason why they will not try to pursue their own personal goals (see the analyses conducted by
Donaldson and Davis, 1994; Donaldson, 1990).
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The stewardship theory starts from the assumption that managers are essentially trustworthy, as
far as corporate governance, and that they do not automatically, when left on their own, turn against
the best interests of the company. The theory is mainly based on the development of the Y Theory,
devised by McGregor Douglas (part of the integrated Theory of human motivation, alongside the X
Theory). The Y theory starts from the assumption that managers are rational beings and, as such,
their behaviour doesn’t need to be excessively monitored, as provided by the Agency Theory
(Nicholson and Kiel, 2007), thus resulting in lower costs for monitoring the management since their
actions are not very likely to distress shareholders. (Donaldson and Davis, 1994). The management,
as trustee of the shareholders’ wealth, will protect and maximise the interests of the owners by
enhancing the performance of the company. This is at least one of the reasons why the administrator
position is a very advantageous one (Davis & al., 1997) , as the long term benefits are multiplied if
one chooses to act in the best interest of the company and not against it (Braun and Sharma, 2007).
According to the stewardship theory, the managing structure needs to include members from within
the company, or at least have a majority percentage.
The theory further details that managers from outside the company could pursue short-term
goals rather than long term strategies (Baysinger and Hoskisson, 1990). In contrast, managers
promoted from within the company can develop long-term strategies and invest in research and
development activities (Hoskisson, et al., 1995) rather than pursue hire purchase or market
penetration strategies. This is mainly due to the fact that the latter type of managers has access to
information pertaining to long term development strategies.
C. The legitimacy theory establishes the connection between the company and society through
the social contract (Gray et al., 1996; Mathews, 1993). From the theoretical perspective of corporate
governance, companies should regulate, control and direct the activity so as to meet the collective
interests of the stakeholders – shareholders, employees, creditors, suppliers, the government and the
community it operates in.
Companies are becoming aware that the social function they perform can be in their favour and
thus they can decide to provide information on the activities they develop. When a company is
active in the manufacturing business that may affect the environment, it is expected to provide
complete and accurate information on pollution or other environmental issues that the community
may be interested in (Solomon, 2008). Therefore, this theory was the basis for our suggestions
concerning the companies’ voluntary disclosure of information.
D. The stakeholder theory states that companies must protect the interests of the stakeholders
– members of the community, employees, creditors and suppliers – which means that the
responsibilities of companies are not necessarily confined to the interests of the shareholders or of
the owners of the company (Charron, 1985; Donaldson and Preston, 1995; Jonge, 2006).
From a corporate governance standpoint, this last theory described above states that the
company is not only liable to the stakeholders but to the society at large as well. According to
Charron (1985), companies that enjoy security and protection as a result of their presence and
activity within a community, must pay for the support and the public services they benefit from.
This theory was specifically considered to provide a proper framework that would support the
arguments formulated in the present paper and emphasize the fact that companies must be
encouraged to provide information on the activities they develop, not strictly to the shareholders or
stakeholders.
3. THE FINANCIAL CRISIS AND CORPORATE SOCIAL RESPONSIBILITY
The occurrence of the financial crisis has intensified the debated around the concept of CSR.
Most of these debates mainly focus on the role played by CSR in society and the pros and cons
concerning the involvement of a company in such social responsibility activities.
The main benefits provided by CSR and acknowledged by professional literature are: it
boosts the financial performance, ensures the increasing notoriety of the brand and strengthens the
reputation, it boosts sales and customer loyalty, increases productivity and quality, develops the
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ability of attracting and retaining employees, attracts the respect of the community and facilitates
access to capital resources.
The main assets gained after these companies implement CSR are:
• increased reputation;
• more motivated employees;
• and a better relationship with the stakeholders and the business environment.
CSR contenders believe that any company should focus on its most important objective, i.e.
profit maximization, by observing the laws of the state and business ethics. This is believed to be
the only way to create new jobs and to pay government taxes. They also argue that social
responsibility is quite a dangerous endeavour and it may keep entrepreneurs from focusing on the
main purpose of a business which is profit maximization.
The research on the number of CSR projects developed during the financial crisis is quite
scarce. Karaibrahimoglu emphasizes the effects the financial crisis had on the number and scope of
CSR projects (Karaibrahimoglu, Yasemin Zengin,, 2010). The findings have revealed that the main
stakeholders companies focus on are the employees and the social issues. The crisis and the panic
that ensued have brought about a significant decrease of CSR projects in 2008 developed by the
Fortune 500 companies under analysis.
Njoroge has researched the effects of the financial crisis on CSR projects and has concluded that
most companies have decreased their social responsibility activities and the corresponding budgets.
The author also mentioned that the main effects of the crisis in this case are the delay or
cancellation of some very numerous and important social responsibility projects (Njoroge, J.,2011).
Table no.1. Corporate social responsibility strategies
TYPE OF CSR
STRATEGY
Reactive strategy
PURPOSE AND EFFECTS
OF THE STRATEGY
BENEFITS
Increasing efficiency and legitimacy Flexible organisational structure; rapid and
through the adjustment of internal efficient restructuring of the internal procedures;
procedures
investments in trainings, resources and
innovation in order to speed up the compliance
with the stakeholders’ demands.
Adjustment strategy Maintaining the current market presence Raising and increasing social capital; activating
through actions that influence the demand social networks in order to maintain the current
of the main stakeholders
position on the market; lobby for containing
unforeseen changes.
Defensive strategy
Proactive
strategy
Gaining competitive advantage and Consistent investments in environmental
increasing reputation by taking preventive protection; employing professionals and gaining
measures based on the anticipation of the knowledge about the changes occurring in the
changing demands of the stakeholders
stakeholders’ demands; anticipatory forecasts
about changes in demands lead to a more
efficient allocation of the resources.
Actions meant to model and redefine the Influencing the social culture; this strategy can
demands, wishes and values of the main enable the company to actively create and
stakeholders in order to correlate them to develop its fundamental rules and regulations in
the fundamental values of the company order to guide social culture in the desired
direction.
(Source: Adapted from Fang, Shyh-Rong, Huang, Chiung-Yao, Huang, Stephanie Wei-Ling , Corporate social
responsibility, dynamic capability and organizational performance: Cases of top Taiwan-selected benchmark
enterprises, African Journal of Business Management, Vol. 4(1), 2010, pp. 120-132.)
The figure below is meant to describe the relationship that should be developed between
corporate governance and social responsibility. We believe that this relationship is essential if we
take into account the small number of enterprises that actually benefit from such alliances, the
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American model of corporate governance being a relevant example in this respect. Nevertheless,
such a model should be adjusted to the specific circumstances of the Romanian business community
before it could be implemented.
Figure no.1. Mapping of the 4 recommendations related to the corporate governancesocial responsibility relationship
Source: process by the author.
The combined enforcement of property rights and inefficient methods of settling conflicts of
interests among the multiple shareholders could result in “corporate governance” issues that
eventually lead to a negative progress of capital markets, insufficient funds, lower enterprise market
value and a higher capital cost, etc.
4. SOCIAL RESPONSIBILITY ACTIVITIES OF ROMANIAN COMPANIES
Corporate social responsibility is still a new concept in our country, and the main companies
that get involved in social projects and allocate considerable resources in this respect are
multinationals. The annual CSR market in Romania accounts for €30 million, ranging from a few
thousand Euros deployed by SMEs to millions of Euros spent by large companies (1).
Nevertheless, social responsibility and public relations are frequently mixed up. The main
purpose of CSR is to create long term value, as well as a good relationship with the stakeholders.
The financial crisis is a good opportunity to revisit the ethics of business practices and to redefine
the fundamental principles of CSR, directed at social welfare, environmental protection and the
proper development of the economy as a whole.
Table no.2. The amounts allocated by Romanian companies for social projects
List of companies 2008
Company Amount
allocated
(€ mil)
Petrom
2,62
Vodafone
Romania
1,99
Holcim S.A.
0,70
A&D Pharma
0,31
Raiffeisen
Bank
0,27
Unicredit
0,25
Amount
allocated
(€ mil)
Petrom
2,70
Vodafone
Romania
2,70
Transylvania Bank
0,76
Unicredit Ţiriac
0,30
Company
GlaxoSmithKline
Alexandrion
160
0,27
0,21
Company
Amount
allocated
(€ mil)
Petrom
4
BCR
Transylvania
Bank
BRD
EON
Romania
Apa Nova
2
1,28
1,17
0,95
0,81
Volume 12, Issue 2(16), 2012
Ţiriac
Agricola
Alexandrion
Grup
“Lukoil
Romania”
SRL
Orange
Romania
0,24
Grup
Agricola
0,20
0,208
Mol Romania
0,20
0,19
0,18
Unicredit
Ţiriac
Raiffeisen
Bank
0,8
0,6
IBM Romania
0,13
JTI
0,5
SC Pasmatex
0,09
Danone
0,46
Source: http://www.forumuldonatorilor.ro/proiecte/top-corporate/44
The main criterion used in the analysis of Romanian companies consists in the number of
competitions they organize each year. One of the events is the Top Donors, where the Donors’
Forum awards the first 10 companies that were actively involved in CSR activities in Romania. The
award winning companies are selected based on the quantitative analysis of the funds allocated for
CSR activities. Participants provide information on the areas of interest they sponsor, the target
group of stakeholders and the CSR instruments they make use of.
As can be seen in the above table, the official statements made by companies on the amounts
they invested sound very encouraging and the amounts follow an ascending trend. Thus, Petrom has
raised the amount from € 2,6 million in 2008 to €4 million in 2010.Most large companies maintain
the same level of CSR budgets as the ones allocated in 2009. On the other hand, the SMEs that took
an interest in CSR have reduced their allocated budgets by 30% as opposed to the ones they had in
2009.
If we take a look at the media coverage, certain companies that have developed CSR activities
embrace a reactive strategy and respond to the demands of the stakeholders only when a problem
arises in their activity and must be settled in order to reinstate their credibility.
An eloquent example in this respect is Danone. When the company was accused of consumer
dioxin poisoning, first waited for the lab results and afterwards withdrew the products from the
shelves. As a consequence, their sales decreased by almost 80% in the first three months after the
scandal and the company image was severely affected. Nevertheless, after the scandal, the company
has become involved in social projects aimed at restoring their image. Thus, they have reached an
official CSR budget of €0,46 million in 2009.
On the other hand, Petrom has resorted to a proactive strategy in order to influence the
demands of the stakeholders and to become a leader in their specific industry. Their projects (e.g.:
Andrew’s Country) have a social impact and make an active reference to their value in the
community.
BCR has launched a highly important programme called My finances – Financial Education
for Young People. The financial education of young people is probably the most important part of
the bank’s social responsibility strategy as it aims at educating future customers to be responsible in
their consumption/spending habits and investments. Thus, in the autumn of 2008, BCR joined
forces with Junior Achievement Romania and launched the financial education programme for
young people: My finances. The programme provides high-school students with relevant
information on:
the stages of an efficient financial planning;
the components of an age-appropriate personal budget;
savings and investment principles, types of investments;
credit details – advantages and disadvantage, types of loans and related costs – as well as
detailed information on what human resources and a banking career entails.
At the beginning of 2009, the pharmaceutical chain DONA has started an osteoporosis
diagnosis and prevention campaign, called “Free of charge transportation towards health”. (Eugenia
Iamandi, 2010).The campaign lasted for 4 months and approached issues such as: puberty,
contraception, pregnancy, cancer screening, osteoporosis, and menopause - conditions women are
most likely to encounter. Moreover, campaign coordinators handed 30 000 brochures and 10 000
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free DEXA bone densitometry coupons for women over the age of 65, who are highly exposed to
the risk of osteoporosis. The campaign has thus managed to establish contact with a number of
2145 patients.
According to research findings, consumers believe that the adequate concern for employees and
suppliers is one of the fundamental principles a reliable enterprise should observe. The employees
and the community are among the stakeholder groups Romanian companies mainly focus on.
During a budget cut “age”, such as the one triggered by the current economic crisis, the working
environment may influence the attitude and the performance of the employees. Thus, a company
should ensure that the work space mirrors the company values and has a positive effect on the staff.
The companies that have allocated considerable resources for employee training and development
are, among many others: Petrom, BCR, BRD, Coca-Cola HBC, MOL, Vodafone, Unicredit Ţiriac.
5. SOCIAL
ENTERPRISES
RESPONSIBILITY
IN
INTERNATIONAL
COMPANIES
AND
An increasing number of companies have taken an active interest in social causes. American
Express, Avon, The Body Shop, Ben & Jerry's are the international brands that mostly support the
development of social responsibility programmes. Companies believe they are making a difference,
that their contributions are highly appreciated by consumers, whose loyalty they subsequently gain
as long as their products provide something different from those of their competitors. The top
companies – according to Kotler and Caslione – that have demonstrated their commitment to social
responsibility and the social causes they have supported are (Kotler, P., Caslione, J.A., Chaotics, 2009):
Table no.3. Companies and social causes supported
Company
Social cause
Aleve
Arthritis
Avon
Breast cancer
Best Buy
Recycling used electronics
British Airways
Children in need
General Mills
Better nutrition
General Motors
Traffic safety
Home Depot
Habitat for humanity
Kraft Foods
Reducing obesity
Levi Strauss
Preventing AIDS
Motorola
Reducing solid waste
Pepsi-Cola
Staying active
Shell
Coastal clean-up
Starbucks
Protecting tropical rainforests
Sursa: Kotler, P., Caslione, J.A., Chaotics, The Business of Managing and Marketing in The Age of Tubulence,
American Management Association, 2009, p. 185-186.
The Corporate Social Responsibility (CSR) concept defines the voluntary commitment of
companies to social and environmental issues, as part of their business activity and in their
interaction with various stakeholder groups.
There are several terms used interchangeably on the European market (Corporate
Responsibility, Corporate Sustainability, Corporate Governance, Corporate Citizenship), and they
are often employed in reference to corporate social responsibility.
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6. CONCLUSIONS
CSR can generally be defined by the following essential aspects:
• Responsible entrepreneurship;
• Voluntary initiatives that transcend legal obligations or binding contract clauses;
• Development of activities to the benefit of employees, stakeholders (including the society at
large) or the environment and ecosystems;
• Planned rather than isolated activities (e.g. based on a business strategy vs. Ad-hoc);
• Positive contribution in relation to the target groups and reduced negative effects for others
(especially the environment).
Corporate social responsibility can have positive effects on the competitiveness of SMEs, such
as (Oprea, L.,2005):
• Improved products and/or manufacturing processes that can lead to greater customer
satisfaction and brand loyalty;
• Increased visibility over winning awards, competitions and/or word of mouth advertising;
• Increased loyalty and motivation of employees, thus leading to a higher degree of
innovation and creativity;
• Favourable market positioning;
• Better relationships with business partners and local authorities, as well as ease of access to
public funds due to a successfully restored company image;
• Reduced costs and increased profitability due to a more efficient management of the human
and production resources;
• Increased (sales) turnover, due to the competitive advantage created by all of the above.
To conclude with, globalization creates various and dynamic opportunities and issues for
international organisations. The improved ability to access information and to control stands at the
core of corporate governance.
International exposure entails the adjustment to global competitors, and these specific
circumstances also strengthen globalization, thus urging companies to consolidate and to streamline
their corporate responsibility mechanisms in order to meet the ever changing needs of society.
ENDNOTES:
(1) http://www.forumuldonatorilor.ro/proiecte/TOP-Donatori-editia-a-4-a/126
REFERENCES:
1.
Pickett Spencer K.H. (2006) The Internal Auditing Handbook, Second Edition, John Wiley
& Sons, River Street, Hoboken, NY 07030, USA
2.
Karaibrahimoglu, Yasemin Zengin, (2010), Corporate social responsibility in times of
financial crisis, African Journal of Business Management Vol. 4(4)
Njoroge, J., Effects of the global financial crisis on corporate social responsibility in
3.
multinational companies in Kenya, Covalence Intern Analyst Papers, Available from the
World Wide Web: http://www.covalence.ch/docs/Kenya-Crisis.pdf
4.
Eugenia Iamandi, (2010), Corporate social responsibility in multimantionals
(Responsabilitatea socială corporativă în companiile multinaţionale), the Economic Publishing
House, Bucharest
5.
Kotler, P., Caslione, J.A., Chaotics, (2009), The Business of Managing and Marketing in
The Age of Tubulence, AMACOM American Management Association
6.
Oprea, L., (2005),Corporate social responsibility: from theory to practice, Tritonic
Publishing House, Bucharest
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of Economics and
Volume 12,
Issue 2(16),
2012
THE CORPORATIVE GOVERNANCE AND INTERNAL AUDIT.
CASE STUDY: ROMANIAN CREDIT INSTITUTIONS
Lecturer Ph.D. Mariana VLAD
Ştefan cel Mare University of Suceava, Romania
[email protected]
Abstract:
While traditionally the role of the internal auditor was to help the organization to maintain the internal control
system of the financial statements, a new series of opportunities emerged as an outcome of the corporative governance.
The supreme challenge for the internal auditor is to find the means in order to offer the reasonable degree of insurance
expected by all participants. To put it in other way, the internal auditor must become a key element in the corporative
governance process. The audit committee tries to improve its efficiency having better and frequent contacts with the
internal auditor which stays one of the best sources of information for the committee. Once the alignment of Romania to
the European legislative aquis for the banking system in Romania, complies the recommendation of the Committee on
Banking Supervision Basel, instituting mandatory existence of an Audit Committee within each bank. The reason for
this recommendation lies in the need for an advisory permanent body, supporting a bank's Board of Directors in
fulfilling the difficult tasks to maintain and strengthen internal control system.
Key words: audit committee, corporative governance process, role of the internal auditor, Romania banking
system, credit institutions
JEL classification: M41, M42
INTRODUCTION
The fact that the internal auditor plays an important role within the corporative governance
is well known by many organizations, for instance Bank for International Settlements (BIS): „ The
role of the auditors is vital for the process of corporative governance. The efficiency of the
administration and of the superior management can be improved through the following: the
recognition of the importance of internal audit, the adoption of measures improving the
independence of the auditors, using quickly and efficiently the conclusions of the auditors, ensuring
the independence of the audit committee. The committee must recognize the fact that internal and
external auditors are their important critics.” Another key aspect is the position of the internal
auditor in the corporative governance environment, taking into consideration potential relations
(internal or external) with the attendants which usually are not considered.
Another issue analyzed by the literature referring to this subject is the independence of the
audit committee, mainly determined by the number of outside members. Taking into account
numerous codes, presently in effect in different countries, one may say that there are presently two
principles governing the structure of the audit committee: the audit committee should have
members that are both non-executives and independent or the members of the audit committee are
all non-executives and the majority of members being independent. This option allows the former
members or the important shareholders to become members of the audit committee. Nevertheless
they can be barely defined as independent.
According to the information supplied by BIS, the audit committee is most often formed
exclusively from the non-executive members of the board of directors. In Romania the law of the
trading companies stipulates for the audit committee and the remuneration committee a structure
containing only three non-executives administrators and at least one with solid background in
accounting principles implementation or in financial audit. The specialized literature affirms that
the relation with the audit committee must be usually a reporting relation.
In the same direction the Basel Committee alleges that „ when the internal audit reports
directly to the audit committee this practice is very well valued from the corporative governance
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Volume 12, Issue 2(16), 2012
point of view, providing neutral information concerning audited activities”(Basel Committee on
Banking Supervision, 2006).
Therefore, in order to „add value” to the organization, an effective collaboration is desirable
between the administrative management and the internal auditor. This can be justified by the fact
that in the yearly audit plan, the internal auditor must take into account all the risks and all the
control tasks identified by the management (Crăciun Ș, 2006).
1.
THE INTERNAL AUDIT OF CREDIT INSTITUTIONS
Starting from 2001 in Romania some institutions including banks were required according
to law (Law no. 1267, 2000) to do the internal audit within their own entities as „the activity of
objective examination of all the activities of the entity in order to provide an independent
assessment of the management and control risk and of the processes of entity management”.
The interest to organize the internal audit was low, but the National Bank of Romania
managed to force the commercial banks to organize internal audit departments as well as permanent
audit committees with consultative role, independent from the directors of the credit institutions and
directly subordinated to the Board of Directors. The National Bank of Romania issued the rule
15/2003 concerning the organization and the internal control of the credit institutions activity and
administration of significant risks, as well as organization and implementation of the internal audit
of the credit institutions. The rule was repealed in June 2010 and was replaced by the regulation
18/2009 issued also by the Romanian National Bank. According to these regulations, credit
institutions have to create an internal audit function allowing the management to ensure over the
quality of the internal controls, regarding their efficiency and also their effectiveness. The
efficiency and effectiveness applies also to risk control function and conformity function and to an
Audit Committee that must include mainly, members of the supervision department who aren’t
implied in the management function and who clearly understand the role of this committee within
the internal audit performance. The establishment of an internal audit department at institutional
level was justified by „relieving the directors of the responsibility to maintain and review the
internal controls.”(KPMG, 2008)
Credit institutions are organizing their internal audit activity within assurance commitments
or, as needed, providing consulting services aiming to ensure that the policies and the procedures of
credit institutions are followed. The audit activity is must ensure that the policies, procedures and
control mechanisms are reviewed such as to remain adequate to the activity developed.
In order to fulfill the goal, the internal auditor will stipulate within the insurance
commitment the following activitie:
¾ The assessment of the efficiency and the degree of aptness of the internal control
system;
¾ the assessment of the efficiency and the application of the risk management procedures
and the methodology to asses the significant risks;
¾ the assessment of the accuracy and the credibility of the financial statements and of the
accounting records;
¾ the assessment of the appropriateness of the adequacy degree for the bank’s own
functions regarding the risks they are exposed;
¾ testing both the operations but also the operation of the specific checking procedures;
¾ the assessment of the banking operation efficiency;
¾ the assessment of the compliance with the legal dispositions, requirements of the
behavior codes as well as the assessment of the implementation of the bank’s policies
and procedures;
¾ testing the integrity , credibility and, if needed, the opportunity reports, including for the
external users.
From the above list of activities, one can infer the main types of bank audit (Palfi C. A.,
2009):
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¾ financial audit, having as purpose to check the credibility of the informatics and
accounting system and of the yearly financial statements;
¾ compliance audit, having the purpose to check the compliance with the laws,
regulations, policies and procedures.
¾ operational audit, checking the quality and the adequacy of the systems and procedures,
the critical analysis of the organizational structure, the assessment of the method’s
appropriateness and resources in relation to the predefined objectives;
¾ management audit, which qualitatively assesses the management function in order to
fulfill the objective of the credit institution.
Another aspect that one must observe is that the competence area for the internal audit is allembracing: internal control system, risk management, informational system, accounting, quality of
asset management, banking operation, surpassing a traditional internal audit (administrative and
accounting checking).
Unlike the insurance commitment, a consultancy commitment involves scheduling meetings
with the representative of the branch/department in order to assess the nature and extent of service
to be provided, the confirmation that the service beneficiary understands and agrees with the type of
consulting engagement, assessment of the consultancy commitment in terms of compatibility with
the audit plan, documentation in agreement with the conditions and general requirements and other
important factors, the results dissemination and monitoring the implementation of the
recommendations.
The importance of the involvement of the corporative governance in the risk management
was recently recognized. The banks are under pressure to identify the risks facing it: the social
risks, ethics and environment, financial and operational, and how to manage them to an acceptable
level. At the same time, despite the fact that banks agrees with the benefits when approaching the
risk management, internal auditor's role should not be neglected in the process of managing the
entire process of appropriate risk management and its contribution to improving processes and
internal control environment of business.
The internal audit, by both roles played in according insurance and consultancy, contributes
to the risk management in many ways, its importance increasing more and more in the context of
the present financial crisis. Risk management activities are undertaken to identify, assess, manage
and control all types of events or circumstances that may affect the bank.
One can observe that the role of the internal auditors is to alert both the operators and
managers concerning the risks of violating the law, the regulation procedures and the consequences
of own banking activity as well as “to educate the management in order to identify efficient
solutions and to implement and develop techniques and tools needed in this field” (Ghiţă M.,
Hlaciuc E., Boghean F., ş.a., 2010).
The conclusions and recommendations of the internal auditors are written on the internal
audit reports which are submitted to the management in order to be informed. “The quality and the
presentation of such reports adds substance to the value added by internal audit and its
functions”(Ioanăş C., Tuţu A., Botea M., 2006). Supervising and managing of the internal audit
function is part of the general responsibilities of the audit committee.
Concerning the constituents, the competences and the running of the Audit Committee, the
Romanian National Bank applies three of the Basel Committee recommendations: the activity of the
committee must be carried on the basis of a regulation approved by the Board of Directors, the
component of the committee must prevent the occurrence of the conflict of interest (its own
members to be also members of the Board of Directors, without being managers of the credit
institutions and at least one member to have background in audit and accounting).
The competences of the Committee are general, encouraging the communication among the
Board of Directors members, the managers of the credit institution, internal audit, external auditor
and the banking supervision organizations. The main areas of interest of the Audit Committee refers
to (Mihai I., Velicu I. C., 2006): operation of the internal control system and of the internal audit
department, risk areas that have to be covered by the internal and external audit, the accuracy and
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the credibility of the financial information supplied to the bank management and other institutions,
credit institution's compliance with legal and regulatory provisions. The committee can issue
recommendations to the Board of Directors regarding the bank policy in the field of internal
control, internal audit and financial audit, as well as the appointment of the financial auditor for the
credit institution.
Conclusively, the internal auditor and the audit committee can ensure an improved
efficiency by using more adequately the human and material resources as well as a better
synchronization among different departments of the company. Internal audit guarantees that the
company obeys corporative governance standards and contributes to establishing of an integrity
renown which will help business relations to develop based on trust.
2.
THE CONTRIBUTION OF THE
CORPORATIVE GOVERNANCE
INTERNAL
AUDITOR
TO
THE
Keeping in mind different aspects and features specific to the corporative governance we
will analyze a range of aspects that can be valuable, emphasizing the contribution of the internal
auditor to the corporative governance.
We are pointing out that corporative governance is based on the ethical behavior of the
society. Nevertheless, it appears that there are moments that make difficult to balance between
ethics and profits. The relations between ethics and profits can be unbalanced, dangerous and ideal,
the latter is desirable but almost impossible to accomplish. A written ethics and demeanor code
including values such as honesty, trust and integrity should be transmitted to all the members of the
organization and even to all the members of the relating organizations in order to be aware of what
is acceptable. This is in fact the role of the internal auditor: to advice with the management and to
suggest the issues which have to be included in the code. The role of the internal auditor is also to
asses if the code was correctly applied and to identify any infringement.
Fraud or more likely minimizing it is another key aspect of the corporative governance. In
the paper entitled “The internal audit in Europe” ECIIA asserts that: “the internal audit will ensure
that the fraud risk was correctly identified and assessed by the executive management. The internal
audit will ensure the correctness of the design of internal checks in order to approach the fraud risk
and the fact that there are efficiently functioning”. The IIA position referring to the eventual
contribution of the internal auditor in detecting and preventing the fraud is clear enough in the
following text: “the internal auditor should have sufficient knowledge to identify the indicators of
fraud but is not expected to have the expertise of a person whose primary responsibility is detecting
and investigating fraud. Internal auditors should, among other things, have full responsibilities
defined in the prevention, detection and reporting of fraud, and must implement actions aimed to
create “awareness”. It appears useful in this case antifraud policies or specific training activities
dependencies that must be made to increase the perceived need to prevent this fraudulent activity, to
identify it and alert” (Chersan C., 2004).
One of the most effective means of preventing fraud is certainly is to update the control
environment, mainly the actions agreed by top management (all these must show impeccable
behavior), as well as by a behavior code appropriately communicated to all. Thus, the role played
by the internal auditor in detecting and preventing fraud is a direct contribution to good corporate
governance and should be encouraged the management and administration. However, we can not
emphasize that a company auditor plays a role, more likely preventive than a detective role, being
prepared rather to play a more active role in fraud (detection and prevention) committed to the
detriment of the organization than its benefit.
Although the fraud was treated as a separate risk it’s worthwhile to take a closer look at the
relationship between the internal auditor, on the one hand and risk management on the other. We
have seen that risk assessment and risk management are vital aspects of corporate governance, but
in terms of the internal auditor only two issues are addressed: reputation risk management and risk
management in a bank.
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In order to gain the trust of their clients and to have a recognized reputation, the banks must
dispose (Trenca I., 2007) firstly of a solid financial situation, suppoted by the existence of an
adequate working capital an by a reasonable flow of incomes and secondly of qualified personell
and a cautious manager. There are many banks that can be affected by management mistakes, lack
of internal control structure, etc. The reputation of the risk management is a special category of risk,
who despite the fact of referring to the management, it reaches over the corporative reputation. A
bank reputation (one of the key elements that determine the external perception) can become
malleable and by far the most important element for the future success of the organization. We must
understand that “the reputation of a bank is not a risk, but the loss of reputation is always”(Cattrysse
J., 2005). There are many risks that may jeopardize the reputation of an organization, such as
financial performance, corporate governance performance, management quality, ethical, fraud,
compliance with laws and regulations, etc. It’s the risks that are leading back to the basic aspects of
the corporative governance. In fact, an important contribution can be made by the internal auditor
through the assessment of the corporative vision and responsibilities, the ethical code, the
performance policies, the compliance with the expectations of all involved, the risk management
system, the vision in external relations (partners, suppliers, clients).
Concerning the internal auditor, the greater the emphasis on risk management, the more
focused the audit planning will have to be in the direction of the risk audit, concentrating more on
the risk process. He can bring an important contribution to the “risk process” of the organization
providing the insurance referring to the appropriateness and the efficiency of the risk management
procedures and consultancy to improve risk identification.
CONCLUSION
Effective corporative governance policies are essential in order to maintain client confidence
in the banking system, which is important for the global performance of the economy. Poor
corporate governance may contribute to bank failures, which may cause significant and serious
expenses because of their potential impact on economic operators and therefore the possibility to
extend at macroeconomic level, causing the risk of contamination and impact on payment systems.
Moreover, a poor corporative governance can cause the markets to loose the confidence in
the ability of a bank to manage properly the assets and liabilities, including the deposits, causing a
liquidity crisis. Excluding the responsibilities towards shareholders the bank have the responsibility
towards its depositors.
For instance, Romanian Commercial Bank (RCB) is the first bank who reformed its
corporative governance system, according to UE standards and international banking standards. As
a consequence, between 2003 and 2005 the value of the bank increased six times, the bank being
upgraded by Fitch (fro D to C/D) and Standard and Pours (long term assessment from BB- to B+).
Both rating institutions mentioned the improvement of the corporative governance and of the risk
management as main reasons of the increased rating. (Bright C., 2009)
Credit institutions must organize the internal audit as a component of the activity of
supervising the internal control system and assessment of the own funds adequacy degree
depending on the risks the credit institutions are exposed, in order to ensure an independent
assessment of the policies and procedures adequacy and the way they are abided.
For credit institutions, the internal audit extends more than on issues directly related to
administrative and accounting checks. The internal auditor most important tasks are to ensure the
existence of corporative governance, the control systems and risk management processes. While the
board of directors is seen eventually as the management of risks, the audit committee can be seen as
an extension of the risk management function belonging to the board.
The audit committee plays for corporative governance the role of a valuable tool helping the
management to identify and process risk situations issued in a bank.
Finally we can say that the key elements of solid corporative governance in a bank include:
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¾ establishment and enforcement of clear responsibilities, decision-making authority and
other responsibilities that are appropriate for the risk profile of the bank;
¾ strong financial risk management function (independent of the business lines), adequate
internal control systems (including internal and external control functions) and
functional processes design, with subsequent check;
¾ corporate values, rules of behavior and other standards of appropriate behavior and
effective systems used to ensure compliance. This includes special monitoring of a
bank's risk exposures where conflicts of interest expected to occur (eg, relationships
with related parties);
¾ transparency and appropriate information transmitted internally and to their users.
REFERENCES
1. Basel Committee on Banking Supervision, Enhancing corporate governance for
banking organizations,(2006), article available on www.bis.org
2. Bright C.,(2009) Corporate Governance as a Tool to Assist MFIs in Azerbaijan in
Managing their Success, p.10, article available on http://www.ifc.org
3. Cattrysse J., (2005) Reflections on corporate governance and the role of the internal
auditor, article available on www.ssrs.com
4. Crăciun Ş., (2006) Auditul intern. Evaluare. Consiliere., Editura Economică, București.
5. Chersan C., (2004) What is the audit committee?, article available on
ttp://ideas.repec.org/a/aic/journl/y2006v13p37-41.html
6. Chersan C. I., (2012) How to prevent fraud?, article available on
http://econpapers.repec.org/ article/jeswpaper/y_3a2009_3av_3a1_3ap_3a36-42.htm
7. ECIIA, (2005) Internal auditing in Europe, article available on www.ssrs.com
8. Ghiţă M., Hlaciuc E., Boghean F., ş.a, (2010) Guvernanţa corporativă şi auditul intern,
Editura Tipo Moldova, Iaşi.
9. KPMG, (2000) Internal Control:A Practical Guide, p.19, article available on
http://www.ecgi.org
10. Ioanăş C., Tuţu A., Botea M., (2006), Auditul intern. Rolul auditorilor şi caracteristicele
raportului de audit intern, Analele Univ. Oradea, volumul II, p. 460
11. Mihai I., Velicu I. C., (2006), Audit în sistemul bancar, Editura Fundaţiei România de
Mâine, Bucureşti, p.23.
12. Palfi C. A., (2009), Management financiar –contabil al riscurilor în activitatea bancară,
Editura Risoprint, Cluj-Napoca.
13. Trenca I. I., (2007), Metode şi tehnici bancare – principii, reglementări, experienţe.,
Editura Casa Cărţii de Ştiinţă, Cluj-Napoca, p. 19.
14. *** Ordinul 1267 din 2000 pentru aprobarea Normelor minimale de audit intern
(Cadrul general), M. Of. Nr. 480 din 02 oct 2000.
169
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
CONSIDERATION REGARDING THE LEGAL CAPACITY OF THE
ASSIGNEES OF THE BANK CREDIT AGREEMENT
Senior University Lecturer Anca POPESCU-CRUCERU, PhD.
Artifex University Bucharest, Romania
PhD. Student at Academy of Economic Studies Bucharest, Romania
[email protected]
Abstract:
Any proffesional lending activity, outside the special legal authorization, is prohibited, in this category af
activities being also included the acquisition of loan porfolios. Credit granted to a person keeps the legal frame and
features only if a bank or nonbanking financial institution is part of the credit agreement, facing, from this perspective,
a legal monopoly, the need to regulate lending itself being obvious for stability financial system. To circumvent
prudential regulations, banks practice the assignment of debts, assignee being a company established as having the
majority shareholder (or sole) shareholder the bank-assignor. This situation, in the absence of the express
authorization of the National Bank of Romania, makes the assignment contract violate the conditions of specialized use
ability. In these conditions, the operation itself, done by fraud law, is void. The aims of the presented study bring to the
conclusion that only the companies which are authorized by the National Bank to run credit operation have the judicial
capacity to take over, by assignment, banking credits, any other solution being equivalent to recognize the right of each
entity (why not of any individual) to develop credit operations specific to banks, in any conditions, by establishing any
kind of accessories.
Key words: assignment contract, bank credit agreement, ability to use, credit institutions, non-banking
financial institution, fraud law
JEL classification: K12, K22
INTRODUCTION
Conditions of access to banking and of its holding in Romania are subject to prudential
supervision exercised by the Romanian National Bank, lending activity being legally conducted by
credit institutions or by non-bank financial institutions (NFI).
The legal framework of the credit institutions consist of GEO nr. 99/2006 regarding the
credit institution and the adequation of capital, approved by the Law no. 227/2007, modified and
completed ba the GEO no. 215/2008, GEO no. 25/2009, GEO no. 26/2010, Law no. 71/2011, GEO
no. 13/2011, Law no. 287/2011 and GEO no. 1/2012.
Also, the legal framework of the non-banking financial institutions consist of Law no.
93/2009 regarding the non-banking financial institution, completed by GEO no. 42/2011 and Law
no. 287/2011.
The credit institutions, Romanian legal entities, are able to be registered according to the
general provisions aplicable and also to the specific requirements provided by the Second Part of
the GEO no. 99/2006, their organization being as banks, cooperative loan organization, savings and
loan banks for housing and mortgage banks (purely banking activity).
The non-bank financial institutions are other legal entities, incorporated according to the
general provisions of the Law no. 31/1990 of the commercial companies, which are authorized by
the National Bank of Romania to develop professional loan activities, consisting of consumer
credits, mortgages credits, microcredits, financing of the commercial transactions, factoring,
forfaiting, financial leasing, pledges or any other forms of finacing similarly to credit activity.
Any proffesional lending activity (such as the proffesional activities being regulated by the
article 8 of the Law no. 71/2011), outside the special legal authorization, is prohibited, in this
category af activities being also included the acquisition of loan porfolios.
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In this legal framework, it is revealed that the subjects of banking law are specialized
institutions, which are prior authorized by the National Bank of Romania, which impose special
requirements in order to get the full capacity of use by the legal entities which act as a creditor.
Thus, corroborating the above mentioned legal provisions and the provisions of art. 207
New Civil Code, the consequense is that the operations and contracts fulfilled in the absence of the
legal authorization are void.
According to the Law no. 216/2011, art. 3, lending money with interest, being
professionaly, by an unauthorized person, is an offence punished by jail up to 5 years, the
ammounts of money which are coming from this offence being confiscated, the offence being also
regulated by the New Criminal Code project.
SPECIAL CONDITIONS FOR AQUIRING THE ABILITY TO USE BY THE
ASSIGNEES
According to the GEO no. 50/2010 on credit agreements for consumers, credit agreement is
defined as the contract by which a lender (legal person, including branches of credit institutions and
foreign non-bank financial institutions, which operate in Romania and gives or agrees to grant
credit in the business activity or professional) gives, promises or provides the possibility to grant a
consumer credit in the form of deferred payment, loan or other similar financial accommodation.
Thus, a credit to a person keeps the name and features only if a bank or NBFI is part of the
credit contract - in this regard, it can be stated that we are facing a legal monopoly, the need to
regulate the credit activity being obvious for the stability of the financial system itself.
Bank credit agreement establishes the obligation borne by the debtor to pay, at maturity,
related rates, as the contract being concluded with successive execution.
In the absence of contrary stipulation in the contract, the creditor-bank has only the
possibility, in case of non-compliance, to ask for termination of the contract on judicial terms, or, if
the contract provides, has the option to request enforcement of outstanding rates.
To avoid reference to the provisions of the enactment, but also due to the reaction of
debtors, who have left unpaid rates on loans contracted by the end of addenda modifying credit
agreements, which, especially towards the financial year end, would have led the charge balance
sheets of the banks with bad loans that would attract the attention of the National Bank, the solution
adopted was to transfer the chose in action originated from the credit contract - procedure that fas
an obvious illegal character.
One of the most commonly used methods of circumvention current banking on risk
provisions, but also bypass the GEO no. 50/2010, is the practice where the banks debt assignment
contract covering overruns due loans.
Typically, the assignee are constituted as companies with majority (or sole) shareholder the
assignor-bank, which would qualify the assignee company as apparent, a false person, as it operates
a confusion between the patrimonies of those two legal entities.
From this point of view, due to the fact that the company is apparent, because of its illegal
aim (to circumvent prudential norms of the National Bank of Romania), it can be questioned the
very commercial company nullity, under art. 56 lett. a) the first sentence („the instrument of
incorporation was not executed”, Romanian incorporated legal provision of the former Directive
68/151/EEC "no instrument of constitution was executed”, disposition held by the Directive
2009/101/EC), in conjunction with the lett. e) of the Law no. 31/1990, republished ("missing
authorize administrative legal incorporation of the company").
The assignment agreement (civilian regulated by art. 1566 et seq. NCC) is the contract
which aims to transfer a chose in action, achieving, by paying the purchase price, a substitution of
the active subject of legal relationship with another topic active.
Under the civilian law, the assignment of certain choses in action may be free or against
payment, to fulfill the general conditions of validity of legal documents. For opposability, the law
requires notification of the debtor or authentic statement of accepting by him.
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Principally, any certain chose in action can make the object of an assignment, with the
exception of cases in which the assignment is forbidden by law, or if, through its nature, the chose
in action is linked to the person of the creditor (art. 1.573 NCC), becoming intuitu personae.
In the latter case it is required, ad validitatem, the debtor's consent.
Articles 70 and 71 GEO no. 50/2010 established the general conditions that can operate the
credit assignment, the al. 5 of art. 71 setting but that "notification shall state the creditor that will
charge the consumer for repayment amounts by assignment, and the name and office address and
the endpoint of the legal representative in Romania".
Text of law, linked with the definition of "creditor" made by art. 7 Section 5 of the law
("creditor” - the legal person, including branches of credit institutions and foreign non-bank
financial institutions, which operate in Romania and gives or agrees to lend the course of his trade
or business" ) basically reinforces the specialized ability to use analysis in credit activity.
As for the assignment of banking chose in action, there are imposed, in this context, some
comments, that make, in our opinion, the assignment derived form banking credit contracts (where
the position of assignor is held by debtor’s bank and the position of assignee is held by a limited
liability company which is not authorised by the National Bank of Romania), to be illegal.
From this perspective, the credit contract aquires an intuitu personae character for the bank,
the assignement resulting from the conclusion of such contract may be made only in special
circumstances.
Thus, through the assignment of chose in action originated from the credit contract to a
commercial company, the late practically subrogates the rights and obligations of the assignor
creditor.
From this point of view, the commercial company, without authorization according to
financial norms, even if acquires the obligations of the banks, eludes the authorization procedure,
practically breaking the legal monopoly – in this context, it can be appreciated that the operation
itself, concluded by breaking the law, is void.
Simultaneously, the personal subrogation that is the effect of the cession puts into discussion
the change of the judicial nature of the very credit contract, since only banking institutions or NFI
have the judicial capacity to sign banking credit contracts.
Thus, this subrogation has as effect the modification of the judicial nature of the contract,
which can exist, legally, only with the agreement of all partners – from this perspective, the judicial
operation practically trespasses the limits of receivable cession, becoming, actually, an unilateral
modification of the contract.
Also, it is emphasized even the break of the limits of the specialized use capacity of the
assignee commercial company, the judicial act thus signed becomes absolutely null.
But, in the measure in which they prevail on the credit contract, the assignee of the
receivable derived from the banking credit contract acquires for himself the quality of “creditor” as
GEO no. 50/2010 provides – “judicial person, including the subsidiaries of credit institutions and
non-banking financial institutions from abroad, that run on Romanian territory and that grant or
engage themselves to grant credits within their commercial or professional activity” – sense in
which it could be appreciated that the grantee commercial company acquires, ope legis, the
obligation to adapt the contracts, in compliance with GEO no. 50/2010!
If the assignee company has common shareholder with the bank, the problem of the
simulation can be raised – in the measure in which is proven that the operation has as purpose the
break of imperative norms related to the obligation to form risk provisions and to keep the
minimum level of solvability of the assignor bank.
Furthermore, according to the credit contract signed between the debtor and the bank, the
latter would have the possibility to enforce only the eventually-matured rates (in the measure in
which, through contract, the possibility of anticipate maturity is not treated or such operation did
not took place).
In these conditions, each eventual „cession” of a chose in action to a third party can have as
exclusive object matured debts, but the notification addressed to debtors cover sums much greater
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than the credit itself – from this point of view, the sum not being exigible, the enforcement cannot
start.
According to general legal provisions, through the effect of the assignment, the chose in
action is transferred for the nominal value of the receivable, regardless the context in which the
cession was made at a smaller price or even charge-free (the last variant, in our opinion,
strengthening the illegal character of the operation, since the very judicial nature of the commercial
company assumes the intention to obtain a profit).
In the case of banking credit contracts, and even more pregnant in the context of existence
of some debt accessories reported to a variable reference indicator, the problem of the certain
character of the transmitted chose in action comes forward.
Practically, the assignor creditor cannot oppose to the debtor the existence of a true, liquid
and exigible chose in action towards the debtor, even if, usually, through the assignment contract,
the assignor guarantees to the assignee the fact that „the receivable is real, liquid and exigible”.
It is observed the refuse of the partners in the assignment contract to communicate also the
contents of the contract.
The explanation is easy, because if the assignment is charge-free, the illegal character of the
operation is granted, and in the extent that the contract is onerous, the assignor guarantees to the
assignee the existence and validity of the receivable, but not the solvability of the debtor – the
solvability guarantee intervenes only in the context of express assumption of this obligation, in
every situation, only to the level of the really paid price. Generally, the law affords to guarantee
including the future solvability of the assigned debtor.
Considering the exemplary case of a decision, made in 2008, High Court of Cassation and
Justice ruled that banks can perform any other activities or operations necessary to achieve the
authorized object of activity, without requiring their inclusion in the authorization, which includes
debt recovery operations, which may result in assignment contracts, seeking collection or recovery
of nonperforming credits.
The banks’ right to conclude assignment contracts is expressly stated and regulated in
normatives peculiar to the banking domain, respectively in the Law no. 190/1999 regarding the
mortgage credit and Law no. 289/2004 regarding the judicial regime of the consumption credit
contracts, and these are base don the general provisions of Banking Law no. 58/1998 (repealed by
the GEO no. 99/2006).
Thus, the first court ascertained the absolute null character of the assignment contract signed
by the assignor bank and assignee commercial company, taking into consideration that through the
assignment, the chose in action of the assignor for its given debtor were onerously transmitted,
receivables resulted form the credit contracts determined. The two credit contracts were guaranteed
through two mortgages of rank I and II, according to the real mortgage contracts.
On the context, the first court noted that the action is founded, taking into view that
assignment contract was signed by a subsidiary, without judicial status, so it signed the convention
without contracting capacity, according to art. 3 pt. 4, Law no. 58/1998.
On the other hand, it has been appreciated the cause of the assignment contract as illegal,
because banking law at the date of contract, namely Law no. 58/1998 expressly stated at art. 11 – 13
the activities allowed for banks, the assignments not being among these.
Besides, the banking debts cannot be transmitted, the recovery of banking debts could be
made only through banks’ own executioners or judicial executioners, especially knowing that the
assignee commercial company does not have stated in its object the recovery of debts.
The appeal declared by the bank was admitted, irrevocably, motivated by the fact that the
initial court made a wrong interpretation of the articles 11, 12 and 13 of the Law no. 58/1998, in
effect at the contract signing date.
Thus, only art. 12 states, in a limitative manner, the activities that cannot be run by banks,
the assignment is not mentioned. But art. 11 and art. 13 rule the activities that can be run by banks
for the fulfillment of their object of activity and such activity is undoubtedly the recuperation of
granted credits, through any legal mean.
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Accordingly, the activity of transfering of a chose in action obtained through credit granting,
and the transferring of the related guarantees, is accessory to the credit activity and is not forbidden
by art. 12 of the Law no. 58/1998.
This argument strengthens the contrary opinion, that only an entity authorized to run
banking activities has the judicial capacity to run credit activities – capacity which is not given to
the assignee company without a special authorization given by the National Bank of Romania.
According to the provisions of the Law no. 190/1999 on the mortgage credit for real estate
investments, the assignment of mortgage debt is the financial investment operation that could claim
the transfer of individual mortgages or mortgage receivables portfolios.
Besides, the discussion could take place only in the measure in which this commercial
company only had a mandate from the bank to recover the matured debts – but in the case of an
assignment contract, after the notification, the valid payment can be done only to the assignee, the
payment made to the assignor does not clear the debtor.
In this context, the decision of the High Court is objectionable, as the assignment contract
has an illicit purpose.
It can not be held the argue according to which the debts are incorporeal movables which
may be of legal translation, that can be transmitted to specific contracts, such as the contract of
assignment of debt (but not only).
Art. 11 align. 3 of Law no. 58/1998 states that banks can perform any other activities or
operations necessary for the realization of their authorized activity object, without including them in
the issued authorization, so inclusively receivable recovery operation, that can become effective as
contracts and asignment of certain chose in action, through which the encashment and recovery of
non-performant receivables is pursued.
But GEO no. 99/2006 content no reference to such activities, art. 20 showing that credit
institutions may also perform other activities permitted under the authorization granted by the
National Bank of Romania, as follows: non-financial mandate or commission operations, especially
on behalf of other entities within the group to which the credit institution belongs, managing a
property consisting of movable and / or property owned by them, which are not carrying out for the
financial activities, their customer services which, although not related to the main activity, is an
extension of banking operations.
Also it is shown that these provided activities should be consistent with the requirements of
banking activity, particularly those relating to maintaining the good reputation of the credit
institution and protect the interests of depositors, the total amount of revenues from these activities
can not exceed 10% of revenues obtained by the credit institution through classical banking
activities.
The National Bank of Romania, through the Rule and Authorization Department, has stated,
in 2007, that „transmission (through assignment) of a chose in action resulted from a credit facility
granted by the credit institution to a person or legal entity, represents for the respective credit
institution an accessory aspect of the credit activity and does not require a distinct authorization, on
the provisions of art. 18, GEO no. 99/2006. We appreciate that the same reasoning is applicable to
the provisions of Law no. 58/1998 regarding banking activity, re-published”.
But, this is an a fortiori argument in the reasoning regarding to which only the companies
which are authorized by the National Bank to run credit operation have the judicial capacity to take
over, by assignment, banking credits – to admit the contrary would be equivalent to recognize the
right of each entity (why not of any individual) to develop credit operations specific to banks, in
any conditions, by establishing any kind of accessories.
CONCLUSIONS
As a practical matter of topical interest, bank credit assignments must be understood as
representing a legal act in which the validity of the convention itself depends on the full capacity to
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use of the asignee, acquired through the special authorization procedure of the National Bank of
Romania .
Also, facing the intuitu personae character of the bank credit agreement, the asignment
requires, as a mandatory fund condition, obtaining prior consent of the assigned debtor, which, only
in the context of direct participation in negotiating the contract of assignment, may supervise the
exigible conditions of the bank debts.
In these circumstances, the assignee’s claims against the assigned debtor, derivated from the
assignment, loose the certain and exigible character, as long as, lacking the ability to use required
by law, the assignee can not opose the debtor a bank credit and derived banking accessories.
Therefore, enforcement started by the assignee must be preceded by the acquisition of
enforceable in common law procedure, the following procedure may be pursued to determine the
quota of the claims and the certainty of it, as provided by art. 372 and following of the Procedural
Civil Code.
REFERENCES
1. Adam I. (2011), Drept civil. Obligaţiile. Contractul, Ed. C. H. Beck
2. Adam I., Savu C.N. (2010), Legea societăţilor comerciale. Comentarii şi explicaţii,
Ed. C. H. Beck
3. Cărpenaru, St., David, S., Predoiu C., Piperea Gh. (2006), Legea societăţilor
comerciale. Comentariu pe articole, ed. a 3-a, Ed. C. H. Beck
4. Lefter C., Dumitru O.I. (2009), Theoretical and Practical Aspects Regarding the
Nullity of Commercial Companies, ECTAP, no. 11/2009, p. 33-40
5. Peligrad V., Niţu G. (2011), Regimul juridic al instituţiilor financiare nebancare,
RRDA, no. 1/2011, p. 68-83
6. Piperea Gh. (2012), Drept comercial. Întreprinderea, Ed. C. H. Beck
7. Stătescu C., Bârsan C. (2003), Drept civil. Teoria generală a obligaţiilor, Bucureşti
8. Directive 2009/101/EC of the European Parliament and of the Council of 16
September 2009 on coordination of safeguards which, for the protection of the
interests of members and third parties, are required by Member States of companies
within the meaning of the second paragraph of Article 48 of the Treaty, with a view
to making such safeguards equivalent (Text with EEA relevance)
9. GEO nr. 50/2010 on credit agreements for consumers
10. GEO nr. 99/2006 regarding the credit institution and the adequation of capital
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The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
COSTS MANAGEMENT AND THE ADDED VALUE METHOD
IN THE CONSUMER PERCEPTION
Ph.D. Lecturer Marius BOIŢĂ
Western University “Vasile Goldiş” of Arad, Romania
[email protected]
Ph.D Professor. Dorina ARDELEAN
[email protected]
Ph.D Professor. Cristian HAIDUC
[email protected]
Ph.D. Economist Emilia CONSTANTIN
Romania
[email protected]
Abstract:
Knowledge of production costs in all its theoretical and practical complexity, as shown in the research
specialized literature, is a basic tool for the operating management and is used to increase business efficiency.
The cost study aims at solving the complex issue of cost production in various aspects, both at the
microeconomic and macroeconomic level; at microeconomic level are solved the costs problems of an economic unit,
the subject being an order, a production phase, an activity center, a product for which research is carried out of the
theoretical and practical phenomenon, the study of the causes which have generated it, growth and forecasting of the
activity, and depending on the particularities of the production process is carried out the calculation of the cost of
production.
Key words: consumer, costs, activities, strategy, opportunities, added value
JEL Classification: D24
INTRODUCTION
Cost management is a philosophy, an attitude and a set of techniques to create a higher value
to lower costs (Blocker Edward, et all, 2006) [1].
In any economy in any industry, companies compete for customers and
resources. Competition means there will be winners and losers.
The winners of the economic competition create products and service that customer’s
value. Losers either aren’t providing value to customers, or cannot do it at a cost low enough.
In today's financial world losers are left behind and most valuable customers, employers and
sponsors will go elsewhere.
Cost management information helps identify opportunities and eliminate costly processes
and practices. Competition and customers can be anywhere in the world. Thanks to the Internet and
World Wide Web technology information about products and market opportunities are available to
anyone almost instantly.
There can be observed the following global trends:
1. Cost Management allows energy to focus on opportunities, strengths and
problems of each company. Information about cost management may indicate, for example, that an
organization can improve its product quality and reduce costs by using services provided by others,
which are specialized in supplying them.
2. Information technology, in particular electronic commerce through the World Wide Web
makes it possible for a company located anywhere in the world to serve customers that find
themselves, also anywhere in the world. Electronic commerce is the process to order and pay for
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goods and services through electronic connections between customers and suppliers without paper
documents. Delivery of physical goods is "arranged" electronically and performed by traditional
methods. Cost management information allows to the decision makers to identify the lowest cost
suppliers for goods and services.
The main responsibility of managers is to use scarce resources wisely and profitably.
Managers compete for scarce resources globally demonstrating their success by satisfying
their customers, gaining market share, introducing new products and services and generating
profits. Managers also compete in finding plans and strategies to identify future opportunities for
using resources.
Very few organizations are isolated from global competition. This means that managers
need to identify and measure the impact of alternative decisions that may potential affect operations
worldwide. Managers need to gather and report information within the organization, as well as
information about current and potential customers and about current and potential competition.
The information provided by cost managers must identify sources of competitive advantage.
Cost managers are able to measure strategic alternatives costs because they understand what
generates costs and how a change in scale and goals of the organization can change the expected
profits. Financial managers create financial scenarios that are expected results from alternative
decisions on the scale, scope and use of resources. Financial scenarios allow top managers to make
informed decisions on what is considered to be the best strategy (Cokins Gary, 2001) [2].
MANAGEMENT BASED ON THE COSTS (ABM)
Management based on activity has as a principle the evaluation of costs and activities levels
in order to identify opportunities to improve performances. ABM combines cost analysis with the
analysis based on value added activities in order to improve the processes that bring value to
customers and reduce wasted resources. ABM is a popular approach in the redesign of process; it
focuses on the concept of value for the customer, broader concept than the one of quality.
ABM uses and is built around the ABC analysis, which identifies: all major activities of the
organization's ties located within the value chain, cost determinants of the organization and rates of
determinants costs specific for each activity.
Management based on activity adds to these:
■ customer perceived value of each activity;
■ value-added and non-value-added activities, opportunities to improve;
■ value-added activities and reducing or eliminating non-value added activities.
Cost analysis is most often understood as a process of assessing the financial impact of
alternative management decisions. In contrast, strategic cost analysis is a cost analysis in which the
strategic elements became obvious and where cost data are used to develop strategies aimed at
achieving substantial competitive advantages.
In the conception of the American authors, Shank and Govindarajan, companies’
management is a continuous, cyclic process, consisting of:
■ formulating strategies;
■ communicate these strategies within the organization;
■ development and implementation of tactical solutions to achieve these strategies;
■ development and implement of control means for monitoring success of implementation
steps and therefore to achieve strategic objectives.
STRATEGIC COST MANAGEMENT IS THE RESULT OF COMBINING TWO
MAIN COMPONENTS:
1. Value chain analysis.
2. Analysis of strategic positioning and sources of cost.
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The concept of value chain requires a wider coverage than that of production, extending
outside the company as well. Such an approach is vital to control costs effectively. Value chain in
any company regardless of industry, is that related set of activities that creates value, which, starting
from raw materials that parts / components are made of, continued with obtaining the product,
including its delivery to the customer.
What is the leitmotif of this approach is to maximize the difference between inputs and
outputs.
Exploiting connections with customers is the basic concept of life cycle costs, which deals
with the relationship between the amounts paid by a customer for a product the total cost, paid by
the customer during the life cycle of a product use.
Looking at the perspective based upon lifecycle cost, it is concluded that it can generate
increased profitability. Moreover, special attention given to post-acquisition costs can lead to more
effective market segmentation and a better position of the company within it, well knowing that the
design of a product with lower costs repurchase may be an important tool in gaining competitive
advantages (Eldenburg Leslie, Wolcott Susan, 2004) [3].
The map of the organization can be depicted as a set of business processes arranged
horizontally. These processes cross traditional organization compartments.
A function may participate in multiple processes simultaneously. Organizing upon processes allows
following the process from its beginning to the end allowing more focus on maximizing plus value
and eliminating activities that do not add value. The whole business can be arranged based upon
these processes. Therefore, there can be process managers that follow a process from beginning to
its end, the goal being to finish it through maximizing efficiency.
The choice of processes that we want to follow is very important. In general, are chosen the
processes that bring added value to customers.
The concept of strategic positioning is about finding the answer to the question: What role
cost management plays in a company?
In the strategic costs management, the role of cost analysis differs depending on the method
chosen by the company in the competitive struggle. A firm can compete either through lower costs
(attracting customers through lower prices) or by offering superior products (differentiation).
Since the differentiation and primacy of cost assume different decisions, they involve
different cost analysis. In this context, the basic components of management accounting are:
■ evidence of expenditure;
■ solving problems;
■ directing attention.
In strategic cost management is accepted the idea that most costs are caused by multiple
factors complex correlated. Understanding cost behavior requires understanding the complex
interdependence of the set of sources of cost.
According to some opinions, the production volume is an inappropriate criterion for the
exact explication of the behavior of costs. Thus Porter and Riley tried to establish a complete list of
sources of cost. Within it, a first category is represented by the sources of "structural” cost. They
concern the economic structure of the company and depend on: scale, range of coverage,
experience, and technology and production complexity.
Each factor involves structural choices from the company that will determine increases or
reductions in product cost. Thus:
■ Scale: it sets how big investment in production, design and marketing should be;
■ Range of coverage: It concerns the degree of vertical integration, horizontal integration
being more linked to the "scale";
■ Experience is taken into account as many times, as in the past, the company has done what
it wants to achieve at present;
■ Technology: Considers the technological processes used in each step of the value chain of
the company;
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■ Complexity: This refers to how wide is the range of products / services offered to
customers.
The second category of cost sources is represented by "enforcement sources."
This refers to ability to perform well the operations. Unlike structural sources for each
"source of performance", "more" always means "better". The main sources of performance include:
■ Manpower, participation of it in continuous improvement of activities;
■ Total Quality Management (hopes and achievements concerning the quality of products
and processes);
■ Capacity utilization (depending on the scale chosen to build production capacity);
■ Product configuration (design effectiveness);
■ Exploitation of the links with suppliers and/or customers, as indicated by the value chain
of the company.
So, whatever the sources of cost are taken into consideration, the basic ideas remain the
following:
■ in strategic analysis, the volume does not better explain the behavior of costs;
■ in the strategic sense, it is useful to explain cost position in terms of structural options and
performance skills that outlines the company's competitive position;
ABM has two goals common to all firms:
1. Improve the utility value received by customers.
2. Improve profits by increasing the above value.
Value-added activities in the customer and business perspective
Activities create outputs and consume resources during the production process. Activities
with added value increase the value of the products and services in the eyes of the consumer
together with achieving the organization goals.
The consumer can be both internal and external to the organization, but the final test of
consumer value is given by external consumer perception. Activities without added value do not
contribute to the value perceived by consumers. Elimination of such activities by redesigning
processes will not reduce the value in the eyes of the consumer.
In a competitive environment, an organization must consume as little as possible resources
to activities without added value, as competition continues to create more added value at lower
prices.
Competition can occur unexpectedly; an environment that does not currently have a great
competition can quickly become competitive.
All organizations have certain activities without value that may be reduced or even
eliminated. In manufacturing firms, the most common sources of non-value activities are:
■ waiting for processing;
■ transportation from suppliers and to the customers;
■ reducing defective products and services.
Even in a less competitive environment, the organization may be interested to reduce
activities which don’t have added value in order for the organization to redirect resources to
activities that produce value or to distribute them to the employees or owners of the organization.
Organizations without non-value activities should be more competitive than those that have allowed
for wasteful practices to become part of their practices.
The answer to the following questions can determine whether or not an activity brings value
to the consumer, and it is performed as a test as it follows:
■ would a foreign consumer encourage that increase of the activities volume?
■ the organization is closer to that goal or task?
If both answers are "Yes" then the activity brings a plus value.
If both answers are "No”, the activity brings no added value and it probably uses resources
in a useless way.
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Analysis of added value
Added value can be measured on a scale of 1 to 5 in ascending order (5 being the highest
value, with 1 being the lowest).
Complete value-added analysis measures the costs and values of the entire value chain
activities of the organization. Even if this seems a difficult one it is imperative to do because
departments and processes depend on each other. Thus improving a range of activity requires
changes in many other departments.
Management based on activities uses information arising from the analysis of value added
activities in order to identify opportunities to improve the process. It's hard to believe that an
organization can eliminate unnecessary activities without redesign work processes. This could mean
only the decision to reduce costs, which reduces both activities without added value and the valueadded ones, without changing the work to be done.
If the organization can eliminate non value added activities through process redesign, the
resources wasted on such activities can be used either to reduce costs or they can be allocated to
value-added activities in order to increase their effectiveness. Thus, simply eliminating non value
added activities can create short-term benefits, but also redesigning processes, in order to eliminate
the need for such activities, can generate long-term profits.
CASE STUDY
To highlight the implementation of decisions based on activities, we will exemplify by
presenting a case study of a company that manufactures plastic office supplies. We’ve analyzed
combined data from the cost analysis with value-added activities to prepare the data for (Table 1).
Table1. Breakdown of injection activity in manufacturing office products
DATA FROM THE ANALYSIS OF COSTS PER ACTIVITY
DATA
ON THE
ADDED VALUE
A
B
C
D
E
F
Activity
Description of
work
Injection
processes
Adding materials
Manual injection
Computer
injection
Cleaning the
system
Setting the
machine
Production
Inspection
Recycling
damaged parts
Storing the good
products in the
inventory
Removing the
roughness
Placing the
roughness in
recycling bins
Placing the good
The Cost of the
sub-activity
The Cost of
activity
The Cost of
process
45.530 €
Value for the
consumer
1.
1.10.
2.
3.
4.
1.10.1.
1.10.2.
1.10.3.
5.
1.10.3.1.
6.
1.10.3.2.
7.
8.
9.
1.10.3.3.
1.10.3.4.
1.10.3.5.
10.
1.10.3.6.
11.
1.10.3.6.1.
12.
1.10.3.6.2.
13.
1.10.3.6.3.
42.650 €
545 €
665 €
47 €
3
112 €
3
46 €
174 €
49 €
5
3
1
154 €
53 €
1
11 €
1
23€
3
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piece o the rack
Completing the
16 €
pieces lot
15.
1.10.3.6.5.
Moving the
32 €
complete lot to
the warehouse
16.
1.10.3.6.6.
Registration in
18 €
the inventory of
the lot
17.
1.10.3.6.7.
Finishing
42 €
production
Source: Data processed by the author, taken from the production technology Manual
14.
1.10.3.6.4.
3
2
2
3
The most direct use of the information in (Table 1) consists in sorting the activities by value
and cost. This classification can clarify opportunities for improvement of activities that bring added
value and of other as well.
Considering computer-controlled injection activities contained in the 1.10.3 activity, by
totaling the costs of activities with the same score value contained within this complex activity, we
obtain (Table 2).
Table 2. Comparison of consumer value given to the activities with the cost of activities
Value in the consumer eye
5 (maximum value)
4
3
2
1 (minimum value)
Total
Source: Data processed by the author
Sum of the costs of sub activities
46 €
414 €
50 €
64 €
574 €
Percentage
8,1 %
72,1 %
8,7 %
11,1 %
100 %
This table shows that only 8.1% of the process resources are consumed on activities with the
highest rate of value (denoted by 5).
This is a very low percentage of value added but not unexpectedly small for processes that
require improvement before ABM method. Managers must find out why this process generates so
little added value and why it uses 11.1% of its resources for activities marked with "1", the lowest
value. Consumers will not want to pay for these costs; a competitor that could eliminate these
activities without value would have an advantage.
It seems that there is room for much improvement of the process. For example, if they could
eliminate the activities denoted by "1" and "2" by redesigning the process, its costs would be
reduced by 19.8%. Even if these resources cannot be saved because they were purchased,
reallocation of resources to activities marked with "4" and "5" can significantly increase value for
consumers.
Table 3. Cost analyses through the added value
BEFORE IMPROVING THE PROCESS
AFTER IMPROVING THE PROCESS
ACTIVITY
DURATION
ACTIVITY
DURATION
1.10.3.6.1.
144 MIN.
1.10.3.6.2.
30 MIN.
1.10.3.6.3.
72 MIN.
1.10.3.6.3.
72 MIN.
1.10.3.6.4.
10 MIN.
1.10.3.6.4.
0,1 MIN.
1.10.3.6.5.
20 MIN.
1.10.3.6.5.
10 MIN.
1.10.3.6.6.
10 MIN.
1.10.3.6.6.
0,1 MIN.
TOTAL TIME
286 MIN.
TOTAL TIME
82,2 MIN.
Source: Adapted from Chadwick, Leslie, The Essence of Management Accounting
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From the above analysis, it was concluded that a large proportion of costs are consumed
with low-value activities. We’ve closely watched a number of activities, among which was included
sub-activity"1.10.3.6.6. - Spare good inventory ", which has no high-value activities; with the
purpose to find out where they could make changes. The results of the analysis of the "1.10.3.6.6."
activity appears in Table 3, that shows the flow of activities and their duration before and after
improving. The old process is represented on the left. The reviewed process appears in the right.
Anyone who has had around a young graduate knows that he often tends to ask experts
"Why". This is, in fact, the rational process of exploration through which we can find out why
activities without added value remain in the organization. If you ask "why" enough times (some
experts consider that a sequence of five times would be sufficient), you will get to the roots of the
problem.
Identification and modification of these primary causes leads, almost always, to the
elimination of the need for non value added activities and often brings additional benefits, because
of the links between processes.
Thus, while consulting with the provider of dies, appeared questions for the employees
about the need to eliminate roughness of plastic molded products as follows:
● Why? Because the appearance and function of the product requires removal of excess;
● Why? Because, due to high injection pressure, mold plastic flows on the edges;
● Why? Because high pressure is required for the proper molds;
● Why? Because mold design allows dripping;
● Why? Because molds are based on an obsolete design.
We concluded that the company must replace the old molds with some improved ones that
eliminate, in turn, the need to take the excess material and recycle. This would save 174 minutes,
reduce workload and prevent loss of good material.
Resource cost savings
Workers on the injection machines earn, on average, 5 € per hour.
Before improving the process, activity "1.10.3.6.6. - Spare good inventory " for an order of
100 pieces coasted:
(286 minute/60 minute per hour) x 5 € per hour = € 23.83)
After the improvement, the cost of this activity was reduced to:
(82, 2 Minute/60 minutes per hour) x 5 € per hour = € 6.85)
This means savings of € 16.98 (23.83 to 6.85) for each order of 100 pieces of plastic office
supplies. The percentage of savings is 71.25% (16, 98:23, 83).
It may be unrealistic to expect to find the same level of savings in each process; however the
company can pass the economy to the consumer, or to use the saved resources (time, labor and
materials) for added value.
CONCLUSIONS
Free economies are characterized by an increase in production of goods and services, each
economic agent assuming the responsibility for ensuring the appropriate profit for all products
manufactured and services rendered.
Lack of production cost level may lead to erroneous decisions in the production
process. This implies the need to adopt an adequate system of cost calculation, forecasting, tracking
and control. All this can be achieved only with costs given by the cost study.
Economic activity depends on the perspective adopted in the organization, by the depth
followed and by the position occupied by the person (manager) involved in the activity, or by the
interests they have.
As a result, managers are interested in data collection and analysis of sources internal and
external, processing, interpretation and communication of results in order to plan, make decisions
and control in a more fundamental manner.
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Strategic management is vital as it involves understanding the organization's objectives
"where you want to reach."
Therefore, in any management system, there should be a process of evaluation, control and
also change when necessary.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Andronic, B.C., (2001), Performanţa firmei, Editura Polirom, Iasi
Blocker Edward, Stout David, Cokins Gary, (2006), Cost Management: A Strategic
Emphasis (4th Edition), Editors McGraw-Hill/Irwin, [1]
Calin, O., Cârstea Ghe., (2002), Contabilitatea de gestiune şi calculaţia costurilor, Editura
Genicod Ltd., Bucuresti
Cokins Gary, (2001), Activity-based Cost Management: An Executive's Guide, John Wiley
& Sons [2]
Chadwick, Leslie, (1998), The essence of Management Accounting, Prentice Hall Europe
Eldenburg Leslie, Wolcott Susan, (2004), Cost Management: Measuring, Monitoring, &
Motivating Performance, Editura Wiley [3]
Govindarajan, Shank, (2003),Strategic Cost Management: The New Tool for Competitive
Advantage, Editura Free Press
Kaplan Robert, Cooper Robin, (1997), Cost & Effect: Using Integrated Cost Systems to
Drive Profitability and Performance, Harvard Business School Press
Mowen Maryanne, Hansen Don, (2006), Management Accounting: The Cornerstone for
Business Decisions, Editura South-Western College Pub
Porter E. Michael, (2008), Despre concurenţă, Editura Meteor Press, Bucureşti
Shank John, (2005), Cases in Cost Management: A Strategic Emphasis, Editors SouthWestern College Pub
Smith Ralph, (2006), Business Process Management and the Balanced Scorecard: Focusing
Processes on Strategic Drivers, Editura Wiley
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of Economics and
Volume 12,
Issue 2(16),
2012
MANAGEMENT ACCOUNTING, AN IMPORTANT SOURCE OF
INFORMATION FOR THE DECISIONAL PROCESS IN THE COAL
MINING INDUSTRY
Assistant Ph.D. Ionela-Claudia DINA
Constantin Brâncuși University in Târgu Jiu, Romania
[email protected]
Abstract:
Currently, the evolution of the coal mining industry is marked by a growth in the interdependencies with the
surrounding environment, it being conceived as a cybernetic system, reflected both in the „inputs” represented by the
production factors, as well as the „outputs” identified in the material goods, works or services through which they
are integrated in the national or international environment. To adapt to this new kind of enterprise, the first position
is ta ken by the general informational system, and inside it, by the cost informational system.
For the information on cost accounting to be a basis for substantiating decisions, management accounting
must provide certain processing, both structurally and as volume, on the costs taken from financial accounting.
In the case of coal mining extraction the efficiency activity should consider developing a program of measures,
which should remember to take into account a series of political and economic objectives - financial environment and
current economic conditions of the specific reservoir.
In conclusion, the cost of production is a key indicator in the decisions of the productive units in general,
particularly coal mining, the help they provide managers to ensure profitability, competitiveness and enterprise
stability.
Key words: management accounting, decision, production cost, coal mining industry, information
JEL classification: M 11, M 41
INTRODUCTION
Management accounting primarily aims to provide factual information to the managerial
decision-making aimed at the long-term perspectives on mining enterprise development and current
use of resources.In the current market economy, businesses need to act and develop in a more
unstable and risky environment. In this respect management activities using various information
are to be created, provided, analyzed and controlled ever more rigorously, so that enterprises can
improve their ability to react to external factors. Thus, managers are forced to assume
responsibility as optimal browsing pathways for obtaining maximum results with the use of
resources increasingly limited and expensive.
DECISIONS AND THEIR ROLE IN MANAGING PRODUCTION
The nature of decisions is overwhelmingly influenced by the quality of information
provided and the promptness with which they are transmitted.
Between information and decision there is a relationship of interdependence in the sense that
the information are provided to serve management decisions, and they, in turn, once sent to the
implementation system, transform themselves into information (1).
The decision is an essential element of the production process because without it, "the
company is created, it exists not as an end in itself but only as a means that the manager has
available to achieve certain objectives".
The manager's role is precisely "to ensure that the objectives are achieved, the corrections
made to work, whenever it" deviates" from the way it has to follow, actually realized through a
continuous series of decisions and orders relating to the management organization's efforts toward
its ultimate goal."
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Volume 12, Issue 2(16), 2012
All activities undertaken by directing unit of the coal mining unit end with decisions to do or
not do something, to act or not in one area or another, thus demonstrating that the decision is the
essence of management activity in general and production activity in particular.
Analyzed in terms of process management, decision represents the passage from thought to
practice, which aims to find the most rational way for future action to ensure maximum
effectiveness of management actions. The continuing increase in the effectiveness of management
requires that any decisions have a solid scientific foundation. From this point of view, the decision
is an expression of a rational act, consistently based on interpretation of information to be
processed in order to choose an alternative designed to lead to predetermined objectives.
Whether the goal is tactical or strategic by nature, that it seeks to influence potential
customers and adapt to their claims, whether aimed at enhancing domestic supply and the efficient
use of company resources, we can say about the decision that it pursues a course of action, an
objective and concrete ways to achieve it. Looking from this point of view, Ovidiu Nicolescu (2)
affirms that management decision is "the choice of remedies to achieve objectives through the
application of which it’s affecting the activity of at least a person other than the decision maker".
Analyzed in terms of coal mining managers, which enables them to attract and combine the
resources available to manage the production process, the decision is the main instrument for
achieving the objectives set for a given period.
At the level of the coal mining unit, in a decisional situation one can achieve the same goal,
using several different options and resources, but asking from the managers a high professional
competence and responsibility, both in terms of determining the possible options, their evaluation
and selection of the best value and on their consequences.
Alternatives that can achieve the same objective of any one specific features on: the level
and structure factors of production allocated, labor productivity, yields and others with the same
time, different immediate or future consequences.
Thus in the case of the coal mining units, we encounter a particular situation regarding the
conditions under which decisions are taken and their effect over time. In this case, the complexity
of risks with the decision-making process is influenced by technical, economic and leadership risks
resulting from probabilistic states of struggle with nature, especially that in a large part, the
measures indicated in this industry are unique and are irreversible.
Seen from the point of view of long term planning, the coal mining industry represents a
particular case in comparison with other productive branches because:
¾
operating activities are determined by the existence of limited reserves, which
involves considerable investment enhancement, leading to a very wide horizon of the forecasts,
often over a century, due to the time it is expected that full exploitation of the deposit would take
place;
¾
coal reserves are unevenly distributed in the basement;
¾
exploited deposits are irreproducible, which emphasizes the need for appropriate
methods especially regarding technological forecasting. Given that coal natural resources are
limited and can be fully depleted at a time, a development in those areas is necessary, some
manufacturing industries to ensure continuity of industrial activity are needed;
¾
the ongoing research and exploitation of reserves, require the permanent investment
both to maintain and to develop productive capacities;
¾
considering that major fixed assets, consisting mainly of mining constructions of
high value, have a lifetime projected to that of the mine’s life, led to the use of a special
depreciation which led indirectly to more than 100 years of regular horizon for the financial
forecasts;
Given the natural conditions (geological and environmental) that operate coal mines, the
manager must use in decision making, various methods and techniques of management that always
keep in mind the possibility of unforeseen circumstances.
Special attention is given to the development of annual plans of operation management,
whose provisions abrogates fairly quickly and are sometimes ineffective work, otherwise very
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Volume 12, Issue 2(16), 2012
laborious to draw them, year after year and sometimes quarter by quarter, given waivers or
additions to the contract by the beneficiaries.
We also believe that the problem of mining safety must occupy a central place in the
preparation of forecasts, plans and programs at the level of coal mining, besides the desire to
achieve higher production with involvement of lower costs.
To better understand the decision making process, the types of decisions that are taken at a
mining company and the types of costs which are used on different levels of decision-making
systems, one should know the hierarchy and decision-making powers at each level of such an entity.
Thus, at the National Society of Lignite Oltenia (SNLO), we distinguish three decision levels,
hierarchically structured as follows:
•
lower level, consisting of lead mining;
average level, composed of directors of directorates of the central administration:
•
Mining Division, Economic Department, Human Resources Administration Division;
•
upper level, consists of the leadership of the company: General director (including
services administered directly by it: secretariat, department of information, counseling, office
director, planning and development departments), the Board of Directors and General Meeting of
Shareholders.
Decision-making within S.N.L.O. involves five stages, shown in the figure below (fig.nr.1).
Figure nr.1. Decisional process within the S.N.L.O.
Information and decision are, in the company under study, two closely related concepts in
the sense that the decision is the information and decision determines actions, results, thus
information.
Under pressure of economic results, company managers, at all levels consider the stage of
obtaining information about costs: historical data or estimates.
From lower level management of mining companies, we notice that, unlike the environment
in which decisions are made by specialized areas of jurisdiction directions, a quarry director must
make decisions on all aspects of his unit: technical decisions, financial decisions, decisions with
implications for personnel policy, organizational decisions etc.
Usually, it is the quarry’s management that deals with decision-making regarding current,
largely concrete ways of carrying out the decisions of higher authorities.
For example we present a scenario illustrating the decision process of mining. On
15.03.2011, the Board of Directors decided to increase coal production by 475,000 tons per month
for six months, from May 2011. From this quantity one quarry has the amount of mining of 50,000
tons per month.
Receiving this directive, the management's operation will be to decide what action is
necessary for compliance. For this the physical condition of existing equipment is very important at
the 4 career subordinated and for each exploited state deposit.
In the phase of information, directors of mines request from those responsible information
concerning:
¾
exploitable potential of each career, namely the current status of each area. Through
this information they determine the exact thickness / layers of coal, overburden ratio, estimated
reserves, the amount of coal overburden etc.;
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¾
the technical conditions of operation of each quarry: provision of equipment, their
physical condition, staff position available;
¾
each quarry’s opportunities to increase production rate, number of shifts, coal
storage capacity etc.
On the basis of data furnished by the chiefs of the technical compartments, the management
of the unit formulates a series of scenarios to be evaluated.
The director of the unit studied, together with technical responsibles of each quarry establish
3 scenarios:
•
var. 1 - all four quarries of mine to contribute equally to increased production, which
means 12,500 to monthly;
•
var. 2 - pits 1 and 3 each provide 17,000 tons / month and quarries 2 and 4 by 8000
tons / month;
•
var. 3 - pits 1 and 3 to provide the extra production.
Decision-making stage involves evaluating each scenario and adopting the best solution
under the selection criteria.
Analyzing the 3 working variants, the mine management decided that alternative 2 will be
implemented, for the following reasons:
1. according to the note report of the technical department, exploitable coal reserve of each
quarries is different, and geological conditions are different. These natural conditions determines
monthly production rate of each of the four quarries, respectively: quarry 1 (C1) to 35,000 quarry 2
(C2) to 12 000 quarry 3 (C3) to 38,000 quarry 4 (C4) to 16,000. If scenario 1 is adopted as a
solution, C2 and C4 quarries would have to double its monthly production and quarries C1 and C3
to increase monthly production by 30%. Scenario 3 would be the wrong choice of the quarry
because waste dumps 1 and 3 would be loaded more quickly, which would have required additional
work planning.
2. according to background notes prepared by the Finance and Human Resources
departments, Scenario 2 is correct inasmuch as it involves the lowest production costs related to
additional production. In scenario1, quarries 2 and 4 would have to support the work by hiring staff,
current and capital repairs and planning much earlier than would have resulted in incorrect charging
load on the two quarries. Scenario 3 would determine the same high production costs, higher than
for scenario 2.
The decision being adopted by career managers and heads of working groups will be
followed by its implementation. Throughout the implementation its progress will be monitored, any
deviations or sudden problems, based on feedback thus obtained, will try to be corrected on the go
through the adoption of other decisions. Thus we can say that decision making is a continuous
process,
a
chain
of
information,
deliberation
and
decisions.
The decision process is repeated at the middle level as well, indicating that each department has a
strict area of competence, decisions being of specialization. The main tasks of the middle echelon
decision-making departments are:
¾ Mining Division - is responsible for planning and achieving production in the quarries
and underground geo-topo activities, investment activities, land and property acquisitions,
construction, underground storage, software maintenance (maintenance and repair of equipment to
maintain their status operation, to prevent and avoid possible effects of physical and moral wear)
and modernization of equipment;
¾ Economic Department - is responsible for financial and accounting activities, aimed at
registration and record of the monetary value of economic phenomena in society, developing and
implementing annual procurement programs, tracking contracts, award contracts works, services
and products, management of sales .
¾ Administrative Human Resources Department - is responsible for human resources
management and administrative activities in the field of general administration(secret documents,
secretarial, records, documents, etc.)
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Practically, at the "middle management" tactical and current decisions are taken – with a one
year time horizon. It is based on their estimates, especially in cases transmitted by the lower
hierarchical level. At the median, given its consequences to taking decisions, the cost (in all its
forms reporting) becomes very important. This involves making decisions with significant financial
implications on the company and assess the impact of measures to be taken on the complete cost
and on production, which must be rigorous, fair and take into account all technical and
organizational aspects.
Top management (General Meeting of Shareholders) is at the top of the flow of
information and has as attributions to (3):
a) approve a proposed global strategy development, refurbishment, modernization,
economic and financial restructuring;
b) approve the organizational structure and number of positions and establishing normative
functional and production departments;
c) elect the Board of Directors according to Law no. 31/1990 on trading companies,
republished with subsequent amendments;
d) approve the income and expenditure for the next financial year;
e) approve the balance sheet and profit and loss analysis reports of the Board and auditors,
approve the profit distribution law;
f) act bank borrowing long term, including external sets by the skills and the current bank
borrowing, trade credit and guarantees, including pledging according to current laws.
Schematically, the information-decision between the various echelons of the company may
be presented as such (fig.no.2).
Conducting an effective management process is conditioned largely by how the leaders
pursuing the development of the application of decisions in practice by the performers. To obtain
the expected results by the decisions it is necessary to perform a systematic analysis of how to bring
out the measures set.
Implementing
a decision
Informational
Feedback
Figure no. 2. Decisional hierarchy of a coal mining company
Control aims at knowledge and analysis of results obtained during the reference period,
identifying negative-acting factors or of errors in decision making and their neutralization. By
performing a complex timely control, adjustment of the system or subsystem shall be ensured at the
parameters initially set.
PRODUCTION COST – BASIC INDICATOR FOR ADOPTING DECSISIONS
Decision making occurs at all levels of the mining organization, taking into account both
short-term and long-term perspective. Plans are implemented through decisions whose purpose is
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Volume 12, Issue 2(16), 2012
embodied by formulating rational conclusions, derived from financial and quantitative analysis.
Thus, management accounting practice is deeply involved in decision making.
An integral part of management accounting in the mining industry is the information
system of cost. If it is focused on extracted mass mining cost and directed to provide highly
detailed information, it supports planning, control and grounding decisions to be applied onto future
activities.
In the current economic climate, costs is the key tool in making decisions on resource
allocation (which are often limited), volume and structure of production, increase or
withdraw supply of goods or services on the market, etc. In these circumstances the best solution
of choice is the minimum cost. Calculating the cost is not only made overall, but are also taken into
account: the cost of distribution, labor costs, cost of education, health, information, administration,
time, debt (credit), inflation, unemployment, economic reform, environmental costs etc .
A complex knowledge of costs is the key factor that the manager of an organization can
use in making decisions that would have to increase business efficiency. This requires adoption
of a suitable computing system, forecasting, tracking and cost control.
For the information of "cost" to be useful to support decision of the management process at
the level of mining units, it must meet the following characteristics (4):
• relevance - information is relevant when it influences the economic decisions of users,
helping them evaluate past, present or future events, to confirm or correct their previous
evaluations;
• reliability - requires that the information on costs should not contain significant errors,
and users can trust in it;
• comprehensibility - can be excluded because the information on costs is addressed to
managers who are deemed to have sufficient knowledge to understand it;
• comparability - feature particularly true when analyzing the relationship between actual
and pre-calculated costs.
In the case of economic agents operating in the mining industry and especially in the coal
industry, a new feature would have to be added to take into account environmental costs, knowing
that
expenditure
in
this
area
significantly
affects
companies'
costs.
The following table (table no. 1) presents some of the information provided by the cost
information system and their possible use by enterprise management, as follows:
Table no.1. Possibilities of using information of the cost type by the management
Information provided by the cost
information system
I.Unitary cost of the extracted mining mass
II.The cost of running a shop, a department, etc.
Possible uses of this information by management
• Decisions on setting the selling price, production
planning and cost control;
• Decisions on the acquisition or abandonment of
property;
• Assessment (measurement) and managing
performance.
• Decisions on the organizational structure, improving
the production and supervision of activity.
III.Wage costs per ton of mining mass or for a
period of time
•
Planning production, salary policies.
IV.The volume of scrap and technological losses
•
Planning production, control of material expenses.
189
Information provided by the cost
information system
V.Behavior of costs according to level of
activities.
VI.Cost analysis
Volume 12, Issue 2(16), 2012
Possible uses of this information by management
• Estimating profit, decision of "make-or-buy"
(outsourcing) and cost;
• Decisions on ways to increase the performance of
unit.
• Decisions concerning cost reduction;
• Decisions on managing products and clients
(maintaining, substituting, eliminating);
• Decisions concerning ways of growing performance
of the mining unit;
• Evaluating effects, measures taken/forecasted by the
manager on costs.
Source: Boghean, F. – Managementul costurilor – curs pentru învăţământul la distanţă, Suceava, 2008, p.33.
At the level of a production facility, and therefore the coal mines, the complexity of
technology and organizational structure required in their use of integrated computer systems that
meet all business functions (research and development, production, trade, financial and accounting,
personnel) and whose organization must take into account certain general requirements, such as
restrictions on the specific activities, how to expand the interface with future systems (open system
character), the potential for control from outside the system, the fulfillment of economic and
technical principles to ensure compliance with existing regulatory framework and flexibility
according to new legislation (5).
CONCLUSIONS
Thus, for the accounting information concerning costs to be the base for substantiating
decisions, management accounting must ensure some processing, both structurally and as volume,
on the expenses taken from financial accounting.
In the case of coal mining units the efficiency of extraction activities must have in view the
elaboration of a program of measures which, besides the factors of influence mentioned, must also
take into account a series of political, economic and financial objectives of the current economic
environment, as well as specific deposit conditions.
In conclusion, production cost represents a basic indicator in adopting decisions in the
productive units in general, and coal mining units in particular, through the help it offers to
managers in ensuring profitability, competitiveness and stability of the enterprise.
Thus, having in view those before mentioned aspects concerning production costs, we can
say that in the coal mining units, this represents a resulting economic indicator, which
expresses the value of used resources for obtaining a ton of mining mass, meant to help in the
evaluation of the efficiency of the production activity and to assist the process of taking
managerial decisions with the purpose of selecting the most rational leadership variant.
ENDNOTES:
(1)
Iacob, C. - Sistemul informaţional contabil la nivelul firmei, Tribuna Economică, Bucureşti, 2000.
(2)
Nicolescu, O. (coord.) - Management, Editura Didactică şi Pedagogică, Bucureşti, 1992, p. 10
(3)
HG 103/2004 concerning some measures for the restructuring of production activity of electric and
thermic energy on lignite, Appendix 4.
(4)
International Accounting Standards Board – Standardele Internaționale de raportare Financiară
(IFRSs), Editura CECCAR, București, 2006, pp. 40-44.
(5)
Dobrin, M. – Contabilitatea de gestiune şi calculaţia costurilor în industria textilă, Editura Bren,
Bucureşti, 2004, p. 30.
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Volume 12, Issue 2(16), 2012
BIBLIOGRAPHY:
1.
Albu, N., Albu, C. (2003) Instrumente de management al performanţei, vol. I,
Contabilitate de gestiune, vol. II, Control de gestiune, Editura Economică, Bucureşti
2.
Anica Popa, L.E. (2005) Conducerea întreprinderii prin costuri. Recursul la
modelele contabilităţii manageriale, Editura Economică, Bucureşti
3.
Bărbulescu, C. (2000) Pilotajul performant al întreprinderii, Editura Economică,
Bucureşti
4.
Călin, O., Nedelcu, M. V. (2006) Rolul contabilităţii de gestiune în activitatea de
conducere a producţiei, Revista Gestiunea şi Contabilitatea Firmei, nr. 4
5.
Cristea, H. (2003) Contabilitatea şi calculaţiile în conducerea întreprinderii, Ediţia
a II-a, Editura CECCAR, Bucureşti
6.
Dobrin, M. (2004) Contabilitatea de gestiune şi calculația costurilor în industria
textilă, Editura Bren, Bucureşti
7.
Iacob, C. (2000) Sistemul informaţional contabil la nivelul firmei, Tribuna
Economică, Bucureşti
8.
Nicolescu, O. (coord.) (1992) Management, Editura Didactică şi Pedagogică,
Bucureşti
9.
HG 103/2004 concerning some measures for the restructuring of production activity
of electric and thermic energy on lignite, Appendix 4.
10.
International Accounting Standards Board (2006) Standardele Internaționale de
raportare Financiară (IFRSs), Editura CECCAR, București
191
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
A NEW PERSPECTIVE ON INDIVIDUAL TAX COMPLIANCE: THE
ROLE OF THE INCOME SOURCE, AUDIT PROBABILITY AND
THE CHANCE OF BEING DETECTED
PhD. Candidate Gabriela ŞTEFURA
Alexandru Ioan Cuza University from Iaşi, Romania
[email protected]
Abstract:
Individual tax compliance remains an important area of research and still gives many directions that can be
followed by economists in their constant struggle to understand the puzzle of taxpayer behaviour. The aim of this article
is to offer a new approach regarding individual tax compliance and self-reporting behaviour, through a quasiexperiment with 102 students from three different professional areas: medicine, law and accountancy, which took place
in Iaşi, Romania. The main results found highlight the importance and the role played by the income source, audit
probability and the perceived chance of being detected. Potential taxpayers report less income when there is no
evidence on paper for its existence and when the audit probability is low. As the perceived chance of being audited
rises, the amount of reported income also rises. The perceived chance of being detected also rises simultaneously with
the audit probability. The results are useful to both theorists and practitioners, but also to policy makers.
Key words: individual tax compliance, quasi-experiment, self-reporting behaviour, potential taxpayers
JEL classification: H26
INTRODUCTION
Tax compliance has been in the attention of specialists for the last two decades and many
studies have highlighted its importance for economy. Tax compliance may be defined as the
voluntary obedience to the rules and laws of the tax system. The compliance of taxpayers could be
also associated with the idea of fulfilling the role of the consumer-citizen within a state. By
complying, the consumer-citizen contributes to the public budget by paying taxes and fees and, on
the other hand, he uses public services (health, education, etc.), funded by these contributions
precisely.
Kirchler and Wahl (2010) consider that compliance is the most neutral and inclusive term
that describes people's willingness to pay taxes.
Most of the researchers have chosen the direction of compliance behaviour analysis in
relation to income tax. The most common view which is disseminated in the specialty literature
captures compliance as a function of the rational pursuit of self-interest contributors (Wenzel,
2005). From this perspective, taxes are costs that taxpayers seek to avoid or reduce them.
The main direction in the economic literature on compliance has been drawn by Allingham
and Sandmo, in 1972, in an earlier study that continues to be the starting point for many other
research studies. According to their theory, taxpayers are faced with a choice: to declare their
income entirely or less. Yitzhaki (1974) has continued the development of the Allingham-Sandmo
model by highlighting the fact that the penalties, in most tax systems, are not calculated according
to the size of undeclared income, but rather to the amount of unpaid taxes.
Other studies expanded these models by taking in account different types of variables, such
as: risk aversion, in a clearer manner (Eisenhauer, 2008), taxpayer morale (Eisenhauer, 2008;
Traxler, 2010) etc.
The purpose of this article is to examine the role played by the opportunity of
noncompliance, as described by Fischer et al. (1992), the audit probability and the perceived chance
of being detected in the tax reporting behaviour of potential taxpayers from Iaşi, Romania, through
a quasi-experiment.
The primary objectives of the study start with the analysis of the role of opportunity, as
described by Fischer et al. (1992), on three directions: occupation, income level and income source.
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Secondly, the potential taxpayers’ perceptions about the chance of being detected are put into
discussion. The audit probability plays also very important part by creating different situations in
which the taxpayers have to make their compliance (or noncompliance) decisions.
The income tax is different in every country, in level, but also in form. Also, the tax systems
differ by the way they are shaped and by the forms of applicability. In Romania, the income tax is a
flat tax of 16%, applied on most categories of income (liberal professions, wages, pensions at a
certain level, dividends, rent, investments and others). But only some of these categories are subject
of self-reporting behaviour and people who have a liberal profession are included here: doctors,
lawyers, notaries, self-employed accountants, legal experts etc.
In the following sections of the paper, some theoretical aspects regarding the development
of the hypotheses will be presented, followed by the description of the research method, the results
obtained and, finally, the conclusions, which resume the main contributions of the paper,
limitations, future directions of research and practical implications.
HYPOTHESES DEVELOPMENT
The opportunity of noncompliance has been rarely approached in the tax compliance
literature. One of the first approaches was made indirectly by Allingham and Sandmo (1972), who
built their model on the theories describing the self-interested nature of humans. Fischer et al.
(1992) and Blanthorne and Kaplan (2008) have emphasized on the importance held by opportunity
in tax compliance behaviour.
Three different concepts may describe the nature of opportunity: income source, income
level and occupation (Fischer et al., 1992; Chau and Leung, 2009). The income source refers to the
chance of earning untraceable income or amounts of money that do not appear in the records of the
taxpayers (Chau and Leung, 2009).
Very few researchers have studied occupational differences among taxpayers (Ashby et al.,
2009), and the necessity of a specific analysis, by focusing on particular groups of interest and not
on a wide range of taxpayers, it is more and more felt among specialists (apud Trivedi et al., 2003,
p. 182). As Fischer et al. (1992) and Chau and Leung (2009) stated, the occupation of taxpayers
seems to have a direct influence on their tax compliance behaviour.
H1: There are significant differences between the occupational groups analysed, in terms of
the income reported.
The opportunity to evade taxes given by the source of the income appears to be a very
important factor of influence. Smith (1990) found o positive relationship between tax evasion and
opportunity. Blanthorne and Kaplan (2008) analysed the influence of opportunity to underreport by
dividing their sample in two categories: low opportunity and high opportunity. The high
opportunity group comprised those taxpayers who mentioned that they own a business and they
have obtained cash income which has not been reported. They showed that opportunity has direct
and indirect influence on the reporting behaviour (the influence on other factors like ethics etc.).
H2: The participants will report a significantly smaller income after the treatment (the
introduction of experimental factor).
The income level has been perceived differently by specialists and its importance and
relationship with tax compliance has not been very often analysed. Ho and Wong (2008) reached
the conclusion that income level does not have a direct influence on tax compliance. On the other
hand, the income could have a negative influence on the tax morale of taxpayers. The better they
earn, the less they start to report (Andreoni et al., 1998; Torgler, 2003).
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H3: There are significant differences between the amounts of income reported according to
the real income earned by the participants.
Alm et al. (1992), Mittone (1997), Cullis et al. (2006), Mittone (2006), Maciejovsky et al.
(2007), Lewis et al. (2009) and Cummings et al. (2009) have analysed the “audit probability”
effects in their studies (the possibility that a taxpayer has to become the subject of an audit
performed by the tax authorities), this being the most common approach that describes the chance
of being audited.
Regarding the audit probability, the studies have shown that tax compliance and audit
probability have a positive relationship, mainly, as the audit probability rises, the compliance of
taxpayers also rises (Alm et al., 1992; Cullis et al., 2006; Lewis et al., 2009; Cummings et al.,
2009). Also, people, after the happening of an audit, are less compliant because they believe that a
new audit is not very likely to occur (Maciejovsky et al., 2007).
H4: The amount of reported income rises as the audit probability rises.
The chance of being detected has been approached by specialists in various forms: perceived
detection risk (Carnes and Englebrecht, 1995), probability of detection (Allingham and Sandmo,
1972; Fischer et al., 1992) or probability of being detected as guilty of evasion (Mittone, 1997). The
most conclusive definition is probably given by Fischer et al. (1992, p. 4): “the probability of
detection is the probability that noncompliance will be discovered and that the IRS will seek to
rectify the deviance”. The authors also underline the fact that the two concepts, “the probability of
being detected” and “audit probability” are very different and might be confusing for readers, if the
concept used is nor properly defined. But the chance of being detected is not a concept that can be
measured in advance, it relates more with the perceptions of the taxpayers.
No matter how the perceived chance of being detected is defined, the results from previous
studies are the same. The perceived risk of being detected has a positive relationship with tax
compliance (Carnes and Englebrecht, 1995). Also, when the probability of detection is high, tax
compliance is also high (Alm, 1991).
H5: There is a positive significant correlation between the perceived chance of being
detected and the income reported.
Although the chance of being detected and the audit probability have been carefully
analysed in the past, their influences in the same context have not been put into discussion. Also,
the way how they interact and influence each other might be an interesting direction of research.
H6: The perceived chance of being detected rises as the audit probability rises.
METHODOLOGY
This study approaches as method of research the quasi-experiment. Experimentation in tax
compliance research has been the choice of many researchers because it gives to the researcher the
chance to obtain more honest answers regarding a noncompliant behaviour (Torgler, 2002), the
main issue addressed by the research on the subject of tax compliance.
Quasi-experiments are at the boundary between field and laboratory experiments, being
preferred especially when the researcher has a small budget. Their main feature is the fact that
participants are selected and exposed to treatments in a non-random manner.
In tax compliance research, quasi-experiments have been applied either on students or on
taxpayers, keeping a relatively simple design of the method. Some of the authors that used quasiexperiments, applied different treatments in the same time and using the same research instrument
(questionnaires mainly), relying on the fact that the participants had received their instruments
individually and could not realize that they are part of an experiment and also they could not
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communicate with each other (Bobek et al., 2007; Dijke and Verboon, 2010). Other authors applied
the quasi-experiment during courses, where students or even taxpayers had participated, trying to
maintain in this manner some characteristics from the lab experiments (Carnes and Englebrecht,
1995; Fallan, 1999; Lewis et al., 2009; Leder et al., 2010).
The design of the quasi-experiment follows, mainly, the next structure:
O1
X
O2
(O1– pre-treatment groups; X – the treatment; O2 – post-treatment groups)
The present study has two phases. Participants receive the same test instrument in the first
phase. After a period of time of minimum 2 hours, they receive the test instrument modified, in the
second phase. The modification regards only the introduction of the experimental factor (or the
treatment), and so, the two test instruments used in the two phases differ only by introduction of
this treatment. The quasi-experiment takes place during student courses.
The participants for the study were chosen from three different categories (potential doctors,
potential lawyers or notaries and potential accountants), who might choose to practice these
professions in the future and be self-employed. The target population was represented by students
from two public universities from Iaşi, Romania: students from the Faculty of Medicine, master
students from the Law Faculty and accounting master students from the Faculty of Economics and
Business Administration.
As one of the main characteristics of quasi-experiments is the rational extraction of
participants from the target population and not a random extraction as in the case of classic
experiments, the sampling method approached in this study follows three main criteria of selection.
Firstly, the courses where the target population is present must be accessible for this type of study
(the cooperation with the attending professor). Secondly, the number of hours of the course or
courses taken in the same day by the same group students must be at least 3 (a minimum 2 hours
break is necessary between the two phases of the study). Also, the students should participate at the
study on a voluntary basis.
In order to have a better control on the quality of the sample, students were asked, before the
session had started, to participate only if they intend to practice, in the future, one of the three
professions mentioned before.
The test instrument was formed from a file received by each participant. In the first phase,
the materials in the file are:
- An identification code, attached on the first page, necessary to identify the participants
in second phase;
- A page containing instructions;
- A page containing the description of a hypothetical situation;
- Three small white envelopes (114x162 mm), marked with A, B and C and the
identification code, which contained answer sheets.
The files from the second phase are identical, except a short questionnaire which contains
demographic measures and other types of information.
After receiving the file in the first phase, the participants were asked to keep the
identification code for the second phase, but also to be rewarded at the end of the study with a
voucher to buy a coffee or other similar products from a place close to the faculties involved in the
study. In this manner, the students were motivated to keep the code and it facilitated their
identification in the second phase.
In the instructions page, the participants are informed about the purpose of the study, what
kind of materials are in the file and how they should act. Also, they are asked to give sincere and
individual answers, as their identity remains unrevealed during the study. After reading the
instructions, they find out that they should read the hypothetical situation, on the next page. They
are asked to image themselves as practicing one of the three professions (doctor, lawyer/notary or
accountant), according to the group they are in. The text states that at the beginning of the year, they
submitted a report form containing the income that they estimate to obtain during the following year
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(the amount is the same for each participant: 20 000 Ron, the equivalent of 4650 Euros). At the end
of the year they must submit a new report form containing the real income obtained. They earned
more than 20 000 Ron and now they must decide how much of the extra income they will report
(the extra income is 10 000 Ron for the whole year, or 2325 Euros). The participants are also
informed in the text of the possibility of being audited by the authorities and if they did not declare
the whole income, they might be detected and accused of tax evasion. No values for audit
probability or the chance of being detected are mentioned in the text.
The text is almost identical in the second phase, excepting the introduction of the
experimental factor, which will be described in the next section of the paper.
VARIABLES
The dependent variable, e.g. the degree of compliance, has been measured through the
amount of extra income reported, on a 5 level scale, each level describing a certain amount from the
total extra income earned by the participants, from 0 to 10 000 (1 – 0, 2 – 2500, 3 – 5000, 4 – 7500,
5 -10 000). Henderson and Kaplan (2005) also used this type of scale in describing compliance, but
they had 6 levels of income (the first level was also 0, and the last level the whole amount) and their
respondents had to decide which amount they would not report. The scale is written on each answer
sheet from the three envelopes in the file (A, B and C) and the participants must choose what the
amount they wish to report.
The audit probability has three predefined levels: 1%, 10% and 25% (Cullis et al., 2006 and
Lewis et al., 2009 also used three different levels of the probability of detection). Each level
describes a different situation, respectively three cases: A, B and C. The audit probability is written
on each answer sheet from the envelopes in the file (case A – 1%, case B – 10%, case C – 25%),
before the measure of the degree of compliance.
The perceived chance of being detected is described by the second item on each answer
sheet. After choosing the amount they want to report, the participants must evaluate what chances a
person who does not report entirely his/her income has of being detected by authorities, in the
specific situation described on the answer sheet. The item has an answer with 8 levels: 0% - 1%,
2% - 9%, 10% - 24%, 25% - 39%, 40% - 54%, 55% - 69%, 70% - 84% and 85% - 100%, similar to
the item used by Carnes and Englebrecht (1995). The question was built by using an indirect style,
by asking the participants to express their opinion about “a person”, and not about their own person,
in order to have a better control over social desirability bias induced by the sensitivity of the subject
(Jo, Nelson and Kiecker, 1997).
The experimental factor introduced in the second phase of the quasi-experiment changes the
hypothetical situation described in the first phase by the fact that the extra income earned (the 10
000 Ron) is now untraceable on paper (there are no records to prove their existence). Previously,
there were no statements about the situation of the extra income. So the degree of compliance and
the perceptions about the chance of being detected are measured two times: before and after the
introduction of the experimental factors.
The real monthly income obtained by the participants can be described by 7 different
intervals (manipulated according to the minimum wage level in Romania and the fact that the
participants are students, so most of them have very low incomes): less than 700 Ron (162 Euros),
between 700 and 1000 Ron, between 1000 Ron and 1300 Ron, between 1300 Ron and 1600 Ron,
between 1600 Ron and 1900 Ron, between 1900 Ron and 2200 Ron and the last, more than 2200
Ron (512 Euros). The amounts have been rounded up because most of the potential participants do
not have a fix income, so they are asked to choose the level that better describes their average
monthly income.
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RESULTS
The quasi-experiment took place in October-November 2011, in Iaşi, Romania, separately
for each group. The total and final number of participants at the both phases is 102 students. The
data obtained has been analysed through SPSS 13.0.
The first group tested was the potential self-employed accountants. In the first phase, 53
students participated, but in the second phase, after two and a half hours, only 31 files were
distributed and fully completed. In the case of potential lawyers/notaries, in the first phase
participated 34 students and in the second phase, after two hours, only 31 remained. The quasiexperiment took place twice in the case of potential doctors. The first group tested had only 16
participants in both phases so a second group was needed and resulted 24 participants in the both
phases (26 in the first), and a total of 40 participants from the potential doctors group.
From the total of 102 participants, 74 were women and 28 were men. This shows us that
women attend classes (courses) more than men. The mean age of the entire sample is 23.45 years
(SD = 2.037).
In matters of monthly income, the majority of the participants (63.7%) earn less than 700
Ron (approximately 162 Euros). Only three participants checked the highest income box (more than
2200 Ron or 512 Euros).
The questionnaire filled out by the law master students contained an extra question
regarding their preference for one of the two professions destined to this group. 87.1% would
follow the lawyer profession and only 12.9% would work in the future as notaries.
In order to apply the most appropriate tests, we have first tested the normality of the
distribution for each variable (independents and dependent), through a Kolmogorov-Smirnov test.
The significance level of the tests, for each variable was lower than 0.05, so the distributions of the
variables differ from a normal distribution. In these conditions, to test the hypotheses, we have used
nonparametric tests.
In order to test the differences on the occupational level described by hypothesis 1, a
Kruskal-Wallis test has been applied. The significance levels of the Kruskal-Wallis tests were
higher than 0.05, so the differences between the degree of compliance of the three occupational
groups tested are not significant and will not be further discussed.
The differences between the mean income reported in each phase, according to the three
situations given by the three different levels of the audit probability, have been tested through a
Wilcoxon test, for each pair from each case: the amount reported in the first phase with the amount
reported in the second phase (in case of 1% audit probability and so on), obtaining in the end three
different pairs of variables to test.
Table 1. Differences between the mean income reported before and after the introduction of
the experimental factor (mean income in Ron)
Audit
probability
Mean income
reported in phase 1
Mean income
reported in phase 2
1%
8063
10%
8504
25%
9240
*Based on positive ranks.
4117
4681
5588
Wilcoxon Test
Z
p
-6.328*
-6.272*
-6.121*
.000
.000
.000
The significance level (p value) of the Wilcoxon test is lower than 0.05 in each case. The
participants reported a significant smaller amount of income after the introduction of the
experimental factor. Although the extra income was untraceable, some of the participants did not
chance their behaviour in the second phase of the study and so the differences between the amounts
reported in the two phases are lower than expected.
The differences between the amounts of income reported according to the real level of the
income obtained by the participants have been also tested. The results of the Kruskal-Wallis test
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show that there are no significant differences according to the monthly income obtained (p > 0.05 in
all the cases). This might be explained by the fact that the majority of the participants declared that
they obtain a very low income, as they are studying and most of them are not working, so the real
income variable could not give the differences expected.
In order to test if the amount of income reported is different in each case given by the three
different levels of audit probability (1%, 10% and 25%), a Friedman test for multiple paired
samples has been used, for both phases of the quasi-experiment. The significance level of the test in
each phase was lower than 0.05, with a Chi-Square result of 42.941 for the first phase and 47.255
for the second phase. At least one of the amounts of income reported differs from the others, in both
phases and the differences can be viewed in table 2. So we can conclude that the mean income rises
as the audit probability rises.
The correlation coefficients calculated to analyse the strength and the direction of the
relationship between the perceived chance of being detected and the amount of income declared
show, as predicted, that the correlation of the two variables is positive and significant. The results
are presented in table 2.
Table 2. The correlation coefficients between the perceived chance of being detected and the
income reported
Audit
probability
1%
10%
25%
Phase 1 (before the experimental factor)
Pearson’s
p
Spearman
p
R
.334
.001
.305
.002
.339
.000
.304
.002
.308
.002
.281
.004
Phase 2 (after the experimental factor)
Pearson’s
p
Spearman
p
R
.479
.000
.477
.000
.512
.000
.565
.000
.570
.000
.577
.000
The significance value of each correlation coefficient is lower than 0.05, confirming the
existence of a significant correlation between the variables. The values of the coefficients show,
according to Cohen (1988), a medium correlation in the first phase, excepting the case when the
audit probability is 25%, for the Spearman coefficient which shows a small correlation. In the
second phase, the correlation coefficients are visibly stronger, indicating medium and high
correlations in all the cases.
To test the differences between the perceived chances of being detected, in each case given
by the audit probability, Wilcoxon tests have been applied on three pairs of variables (the perceived
chance of being detected from the first phase with the perceived chance of being detected from the
second phase, when the audit probability is 1% and so on). The significance value of the test, in
each three cases, was lower than 0.05, showing that the variables differ in distribution. The sum of
ranks is -7.206 for the pair formed when the audit probability is 1%, -7.759 for the pair formed
when the audit probability is 10% and -7.555 for the pair formed when the audit probability is 25%.
The conclusion which can be drawn from this final analysis is that the perceived chance of being
detected rises when the audit probability rises.
CONCLUSIONS
The tax compliance of individuals remains a subject of great importance and interest for the
economic literature. Income reporting behaviour gained the attention of the specialists, as it is the
most frequent approach in terms of tax compliance.
Some of the researchers focused on the analysis of economic determinants of tax
compliance (Allingham, Sandmo, 1972; Yitzhaki, 1974), while others continued their work by adding
noneconomic factors (Fischer et al., 1992; Torgler, 2003; Eisenhauer, 2008; Blanthorne, Kaplan, 2008;
Traxler, 2010), trying in this manner to have a better perspective on the puzzle of tax compliance.
The present study has approached both economic and noneconomic factors that influence
the income reporting behaviour of three categories of taxpayers: doctors, lawyers/notaries and selfemployed accountants (according to the Romanian fiscal law, only certain categories of individual
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taxpayers report on their own the income obtained and the professions analysed are included in one
major category – liberal professions). The approach of specific categories of taxpayers is the first
major contribution of the study, following the need of focusing on specific groups of interest felt in
the specialty literature (apud Trivedi, Shehata, Legun, 2003, p. 182).
The results are consistent, on most of the aspects, with the previous findings on individual
tax compliance. In matters of opportunity of noncompliance, only one component resulted to be an
important factor of influence, the income source. The participants at the study reported a
significantly lower income when they were informed that the income they had to report was
untraceable on paper. The occupation and income level did not show a significant relationship with
the income reported, contradicting in this way the model of Fischer et al. (1992).
Another important contribution of this study results from the approach of the audit
probability and the perceived chance of being detected in the same context. The participants
reported higher amounts of income as audit probability rose. Also, positive correlations have been
found between the perceived chance of being detected and the income reported, this meaning that as
the perceived chance of being detected was higher, the degree of compliance was also higher.
Significant differences were found between the perceived chances of being detected, in each case
described by the three different levels of the audit probability. As the probability of being audited
was higher, the participants perceived also a higher chance of being detected for those people who
report less income and face an audit.
The study has its limitations, starting with the sensitive subject of income reporting which
makes it difficult to have control over social desirability bias. To minimize their effect, some of the
questions have been written in a indirect style and the anonymity of the participants was kept across
the whole study. Obtaining individual answers has also encountered difficulties. Although this
requirement has been mentioned verbally and also specified in the instructions, the quasiexperiment was not completed in total silence.
Another limitation regarded the accessibility of the potential participants and this is shown
by the rather small number of participants included in the study. Also, this limited the random
selection of the participants, who have been chosen by following rather rational criteria of selection.
The time between the two phases of the study was also limited to a minimum of two hours, as the
courses taken by the participants did not allow a different approach.
The results must be treated and interpreted carefully, as the number of participants in each
group is not significant from the statistical point of view (a minimum 50 participants for each group
would have given more reliable results).
As future directions of research, more occupational categories may be included in a similar
study. Secondly, extending the study on the entire country or even on other countries (with a similar
tax system as the Romanian one) might bring new interesting results. Last but not least, the
approach of more variables, especially noneconomic, in a study with a similar design, would help in
obtaining a better view on the behaviour towards income reporting of individual taxpayers.
The practical implications of the results start with the necessity to minimize the opportunity
to non-comply that taxpayers have, by stimulating the correct record-keeping of all the income
obtained by self-assessing categories of taxpayers. This may be done in two ways: increasing audits
and asking the population to stop paying for the services of the mentioned professional categories
without receiving a proof of their payment. The increase of audits may be also useful, due to the
positive effect on the compliance of the participants at the study. Also, as the chance of an audit
gets higher, the perceived chance of being detected those who try to cheat the system is stimulated
to grow and taxpayers may feel a higher risk and may try to report correctly the income obtained.
ACKNOWLEDGEMENTS
This work was supported by the European Social Fund in Romania, under the responsibility
of the Managing Authority for the Sectoral Operational Programme for Human Resources
Development 2007-2013 [grant POSDRU/88/1.5/S/47646].
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REFERENCES
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analysis’, Journal of Public Economics 1: 323-38.
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21. Henderson, Charlene B. and Steven Kaplan (2005) ‘An Examination of the Role of
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39. Trivedi, Viswanath Umashanker, Mohamed Shehata and Bernadette Lynn (2003) ‘Impact
of Personal and Situational Factors on Taxpayer Compliance: An Experimental
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Journal of Public Economics 3(2): 201-02.
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of Economics and
Volume 12,
Issue 2(16),
2012
WAYS OF HANDLING THE NATIONAL CURRENCY IN THE
CRISIS ECONOMY
Ph.D. Student Mihai REBIGA
Alexandru Ioan Cuza University, Iaşi, Romania
[email protected]
Abstract:
This paper aims to present a new vision on national currencies, focusing on power reserve currencies
belonging to the major economic powers, that play a critical role in the world economy and international economic
relations. Moreover, it wants to be measured as the first milestone, starting the publication of an econometric model
which quantitatively demonstrates the way in which their influence can generate benefits in terms of nation's wealth it
produces.
Key words: Central Bank, Power reserve currency, Financial Crisis
JEL clasification: E51, E52, E58, F31, O24
INTRODUCTIVE NOTES
The Crisis Economy is a special category during which most times people and governing
bodies of states behave atypically, implementing special measures and policies that, most likely,
during healthy economy times they would not take.
During the undertaken research the author focuses on the concept of crisis economics, the
ways to influence it, and the nations’ abilityto ensure suplimentary income for a better management
of the implemented measures, in particular through central banks. Also the international currency
market in the shape of foreign exchange markets (Forex) is a central point in the author’s conducted
studies and research.
Thus, bonding of the above categories, it creates the framework for a new concept derived
from existing elements but also coming with new visions and new aspects of how power reserve
currencies can play an important role in generating value for the states that issue and know how to
put them at work.
The power reserve currency concept is based on the privileged category of currencies
issued by the world economic powers, currently playing an important role in international trade,
that are present in large amounts in the national reserves and all world population savings. This role
can also be performed by the main commodities that are traded internationally, including here
precious metals and even oil. Past experience has shown that during crisis situations people tend to
increase demand for certain instruments in this category, and this could generate major benefits for
the issuing states, if they know how to manage in an appropriate issuance and withdrawal of
currencyon the market.
The ending part of the paper highlight how Switzerland managed such a situation, while the
increasing demand of swiss francs on international markets during the summer of 2011. Attention is
focused more on the managementof this particular case, as the monetary decisions coming from the
National Bank Switzerland may act as a double-edged sword that could turn against the holder at
any time.
The article builds up the way for a mechanism that is intended to be embodied in an
econometric model that will show in quantitative terms which is the last milestone that can be
reached by a central bank performing such a currency manipulation act.
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Volume 12, Issue 2(16), 2012
THE POWER RESERVE CURRENCY ISSUE
It is well known that during a global crisis, a vast majority of the world poputation’s
savings and even the national reserves of states tend to head for safe assets. These assets may
include precious metals, or currencies which have less powerful states suffer from recession.
Since 2008 that coincided with the installation financial crisis in most of the countries of
the world gold and silver registered a continuous increase, even spectacular in some periods. The
charts below illustrate the progress achieved by these two precious metals in the past. It is japoneje
candle charts, with intervals of one month for each candle. These are personal processings based on
a marketmaker’s trading platform that I believe provides the most comprehensive range of traded
products on the Romanian market, including here from precious metals, currency pairs, indices,
other goods (commodities) and even stocks traded in several exchanges of the world[5]. These
provided instruments are traded as CFD (Contract for Difference), the trader obtaining profit or loss
recorded only on the difference between the buying and selling levels that concluded the
transaction.
It should be noted that the market prices provided by the Market Maker are the real ones
used worldwide, but they can oscillate with a maximum of 2-5 pips to other serious trading
platforms, be they Romanian or foreign. Drawn with white candles are representations for price
increase, and black candles for decrease.
Figure nr. 1. Gold price evolution during 2006-2011
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Volume 12, Issue 2(16), 2012
Figure nr. 2. Silver price evolution during 2006-2011
From the graphs above, it can be seen that from the beginning of the study is represented
by the vertical bar corresponding to October 2008 the two precious metals prices started climbing.
Thus, the candle for October 2008 has been the last that registered a consistent decline,
dropping gold price from opening $ 871.57 / oz to the lowest level reached by that time, which is $
681.58 / oz visible in the "Data window", the window representing the key levels for the selected
candle. It should be noted that this minimum level is the normal price candle registered before the
first shock waves released during September 2008, this being represinted on the graphic in the form
of climbing candles that are more substantial than in previous periods.
But at this point, marked by the last significant lowering of global gold price, onward, a
trend can be observed, marked by the higher highs and higher lows, with a small period of
congestion in the year 2009, which but that was easily overcome.
It is of extreme importance to note that most of the candles in the period after the global
financial crisis began, are much longer than the preceding key moment. This indicates an increase
in trading volume (such forex platforms, being decentralized, the volume indicator is irrelevant
unlike centralized stock exchanges markets) and thus an increase in worldwide investors appetite
for this financial instrument. Note that in the period the gold price rose from $ 681.58 / ounce to $
1,855.67 / oz, even reaching a peak somewhere around 1920 USD / ounce, yet unsupported value.
However, the candle at September 2011 is not yet closed, the takeover took place in the month
between 9-14. It shows almost a tripling of the price of saving in a period of only 3 years.
The silver situation, presented in chart nr 2 is not much different, it recorded a first shock in
September 2007 and the upword trend trigger is still in October 2008. In this case, the price rose
from $ 8.48 to $ 41.59 at the time of data acquisition, but passing through the point of 48 USD,
which indicates a price increase of about 6 times until the maximum and 5 times at the data
acquisition.
We can also approach the Japanese yen as a reserve currency this time, as it became the
main reserve currency worldwide during the time of financial crisis, but only to mid 2010, when
even Japan was put into difficulty due to large amounts granted as credit to the deeply affected U.S,
a different currency has become the star of international exchange market, the Swiss franc.
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Volume 12, Issue 2(16), 2012
Figure nr. 3. USD/JPY evolution in 2006-2011
As can be seen from the graph above, the decline trigger point in the dollar yen happened
in mid 2007 when, after a June which brought new strengths in the USD/JPY, August brought a
dramatic decrease, with a long descent equal to the sum last three months of growth. It may be
noted that the following candles are longer than the time before panic took over the housing market.
In fact, panic is one of the strongest factors influencing the forex market, resulting in abrupt
movements.
Thus, in a period of only a few months, the USD/JPY pair has fallen around 20%, from 123
Japanese yen per dollar, even up to 95 yen for one U.S. dollar, exceeding the minimum levels
dating from the period before 2000, and easily breaking the natural support, that previous kept the
market. There was a natural withdrawal from a technical point of view, Fibonacci stopped around
50%, then followed new decreases in price kneeling to the new patterns. It should be noted that the
next wave down was triggered by the announcement that the Lehman Brothers was declared
bankrupt, being thus the start of the global financial crisis.
But with the great Asian currency, during the current crisis, a decisive role, and yet very
intriguing to play was given to a different currency from the five major world currencies. It is the
Swiss franc, which especially after last months of 2010 managed to break the previous historical
highs and became highly sought, especially wanted as reserve currency.
Thus, from the following graphs can be observed the greater candle length starting with
2007 compared with previous periods, when a monthly candles had on average about 200 pips,
while during the crisis year, their length increased considerably, an average candle reaching
approximately 600 pips, except for 2009, three times more.
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Volume 12, Issue 2(16), 2012
Figure nr. 4. EUR/CHF evolution in 2004-2011
Figure nr. 5. GBP/CHF evolution in 2005-2011
Of charts and analysis presented above we have seen that in times of crisis, humanity tends
to choose certain instruments to transfer their savings and reserves including here precious metals
and power currencies.
Before this analysis we were talking that some states holding such currencies can provide
substantial income from carrying on activities in financial markets, which involve its own newly
issued money. How can this happen is the question that we’ll try to find the answer to in the next
section.
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Volume 12, Issue 2(16), 2012
PRACTICAL STUDY OF A POWER CURRENCY USE FOR THE PURPOSE OF
OBTAINING INCOME – THE CASE OF SWITZERLAND
As stated in prevoius paragraphs, the states which have the advantage of issuing strong
currency can achieve significant benefits by manipulating the amount of currency issued
incirculation. Thus, in periods of strong currency appreciation, they can easily put in circulation
amounts raised in the international circuit.
As presented in the previous subsection, the Swiss franc situation during the current crisis
was a prime. While other currencies like U.S. dollar, euro or sterling pound were depreciating on
the international level, the franc formed and maintained a very stable and comfortable trend. Thus,
huge amounts of other international currencies tended to be converted to the new currency with
pivotal role in the world circuit.
It is notable the appreciation did not have a strictly fundamental character, comeing as a
result of the never before seen ascension of Switzerland but was rather due to the populations
reduced trust, on the global level, in the other coins which until the moment the crisis broke were
the main reserve conins.
If we add to the issue the situation of the countries outside the euro zone in regards to the
sovereign debts which have even weakened the trust in the existence of euro in the following
period , the populations economy issue becomes more clear.
As a result ,the request of precious metals has risen, the prices rising up to three times for
gold and up to 5 times for silver in the last 3 – 4 years along with the japaneese coin which has
risen with up to 30 – 40 % compared with the American dollar, euro, sterling pound or swiss franc,
which at least for the last two years has become the star of currency exachanges, having the larges
request and managing to break tops after tops.
While appreciating due to the strong demand, the Swiss franc continued to enjoy an
increase in demand, which could be explained using the snowball system. Bullish factors coming
from the technical analysis never ceased to appear, and in moments of lucidity, the demand carriers,
especially speculators obviously started to ask "how far?", new elements of analysis underlying the
states that were facing issues appeared, giving new speculative impulses to the rising of the franc.
According to the theory that I express, these are ideal situation in which states are in the
privileged position and can provide themselves with major advantages of using appropriate
strategies of supplying the global market with liquidity. There is not a ethically exuberant method,
but it is possible to apply such a method and historical experience has shown that including the
United States have pursued a similar strategy in the post Bretton Woods, but in another context both
historically and economically.
In such circumstances, monetary issue is easy, as all amounts circulate easily, finding their
place in a market in search of that currency. Therefore the central bank can inject new liquidity in
the market by buying government securities, othe currencies or securities, or open market
operations, but buying currencies on international market using the currency that is intended to be
released it would be much more effective in such situations. This way, the central bank in general
the issuing economy drops some appreciation rate, but blocks some of the advantages of having
such currencies[4].
It is important to take account of how these injections occur with newly created money in
the market, especially given that, on the foreign exchange these conclude in a major psychological
factor. Thus, a distraction from the issuing bank that ensure a halt to currency appreciation can lead
to a blocking period of profits from international speculators, which would make a significant
correction. These action levels can be calculated with greater accuracy in such situations, especially
on such a market, where technical analysis prevails.
It is known that on the financial markets, candlestick formations encountered on larger
timeframe graphics are combinations of formations present in the lower timeframe graphs. Thus, a
wave part of a trend consists of a pulse and a correction on a Timeframe say on the weekly is
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nothing but a succession of two opposing trends that effect the lower timeframes candlesticks
graphs.
Figure nr. 6. Down trend on the USD/CHF 1 week candle chart
The representation above shows a trend format on the USD/CHF pair on the weekly
timeframe from June 2010 to July 2011. It is interesting to watch how the descent forms even a
trend channel with the upper trend line as standard, accompanied by a parallel line joining low
points at the format pattern.
The idea of the central bank intervention wanting on the one hand to offer the world wide
required quantities of currency, and on the other hand obtaining gains in this processof providing
sufficient liquidity to lower the speedof the down trend’s, but carefully enough not to invert the
trend earlier than necessary. Thus, the lack of attention may have major consequences and the
correction could become more important with the momentum. This could send the market
signals[2] that selling pressure is greater than the franc buying pressure, which in terms of
speculation could lead to increased sales of francs against dollars or purchasing currency the
USD/CHF pair, which would tend to increase more than the franc apreciation against the dollar,
with the possibility of reversing the trend.
But in present conditions, this report could have been observed so that the bank of
Switzerland, could provide the markets with newly issued francs, corresponding quantities of
foreign currencies against the international movement. A very important aspect is that during the
entire period of time, the franc was the same relationship with in all major currency pairs, which
could provide a wide range of options that could be juggled by the issuing bank.
Of course the effects of currency appreciation on external balance can be devastating. It is
advisable that the central bank to know when and how to stop. I think that the Swiss bank issue was
under control the entire analyzed period. So geting out of this situation was appropriate.
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The appreciation of swiss franc had the peak at 0.71 francs to the dollar in August 2011. On
August 10, Swiss National Bank decided to start fighting against the domestic currency apreciation.
As a psychological factor on the forex market intervention that had an immediate effect.
The graphical analysis shows how in only one day, the French lost about 400 pips against the
dollar, while in previous periods that same number could have been acquired in a period of one
entire month.
Thus, a sudden movement is visible, following an attempt to accelerate the rate of
appreciation of the Swiss franc against the dollar. This can be seen on the other currency pairs as
well, as it is not due to policies implemented by the Fed, but the CBS announcement. I used the
term announcement as the most significant impact in this move came from the psychological
impulse induced to the speculators by the central bank, making them block some of the profits they
had scored so far.
This evolution can be followed in the next representation.
Figure nr. 7. SCB intervention on the USD/CHF
From previous representation I wanted to highlight on the one hand the movement caused
by the announcement of starting to fight against franc appreciation, and on the second hand the
strict way the chart respected technical analysis elements. Thus, climbing started at 0.72 CHF/USD,
rising to the resistance formed by the convergence between the trend line, then the 0.82 CHF/USD
level which is a round number, that play a natural support and resistance role, while achieving the
Fibonacci resistance level of 78.6% from the previous impulse.
From a technical point of view, this move could be considered a typical withdrawal and
could begin another down wave. This is oftenly seen on the graph, after reaching level B, the dollar
starts to continue depreciation in favour of the franc. However, BCS comes at a key moment to
finally reverse the trend. Chooses the 38.2% level of retirement to make the following
announcement on market intervention.
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Volume 12, Issue 2(16), 2012
Figure nr. 8. The second SCB intervention representation on the USD/CHF
You can see how the Fibonacci 38.2% which coincided with the round number 0.89
CHF/USD, formed a period of indecision, the market waited for clues on the direction it will go
further. The hint came on September 6th, when the Swiss National Bank announced how it will
implement action to combat forced appreciation of the franc, namely the introduction of a system of
fixed rates established at 1.2 francs for one euro. The followig resolute reaction of the market It can
be seen with naked eye, the market moved in a single day 800 pips, which translated means a
depreciation in real terms by about 10% of the franc against the U.S. dollar. It is a clean break of the
trend line, with a candle without long and too obvious wicks, which gives even more credibility
from the technical perspective. The pair stabilized in a key area also, that of the 161.8% Fibonacci
extension level, which coincides with round number 0.89 CHF/USD and other support and
resistance levels earlier.
It can be observed from this analysis how the fundamentals are intertwined over the
technical analysis, with very interesting results. If this market is generally defined by a low
fundamental analysis influence that is subject to the much more relevant technical levels, some key
news, wearing the form of intervention from the monetary authorities[1], can have a major impact
in further development of a currency pair.
As a final report of developments in recent months, it is worth noting that the Swiss Central
Bank has the means to implement the developed and explained in this chapter theory at its disposal.
Thus, it could get on some significant gains by buying cheap currencies with its own newly issued
currency appreciation during its apreciation. Meanwhile, the world market could be flooded by the
newly created Swiss francs, which would lead to the moderation of the continuous appreciation of
its currency. From this perspective, it is interesting to analyze the net gain that could be achieved by
Switzerland as a nation at the expense of other states. A simple calculation would show us that a
depreciation of the Swiss with 20%, calculated simply by dividing the current value by the past
value of the franc parity with all other strong currencies would generate profits only from the
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official reserves of other countries in the world of about[6], 1 billion U.S. dollars. But the highest
value is the amount held by the public, where Switzerland could achieve more substantial benefits.
CONCLUDING REMARKS
Central banks have the ability to dramatically influence the domestic currency exchange
rate and in the situation of power reserve currencies, they may even provide an income for the
national economy through interventions such interventions. The concept of power reserve currency
deserves to be studied, and the benefits they provide for their issuing states can and deserves to be
investigated in future studies. Personally, I will continue to explore this area, with the final target of
achieving an econometric model to quantitatively demonstrate the way to have these advantages.
BIBLIOGRAPHY
1. Archer David, (2005), Foreign exchange market intervention: methods and tactics, Foreign
exchange market intervention in emerging markets: motives, techniques and implications,
Bank for International Settlements
2. Beine M., Laurent S., Christelle L., (2011), Official Central Bank Interventions and
Exchange Rate Volatility: Evidence from a Regime Switching Analysis, European
Economic Review
3. Beine M., Lahaye J., Laurent S., Neely C.J., Palm F.C., (2006), Central Bank Intervention
and Exchange Rate Volatility, Its Continuous and Jump Components, Federal Reserve Bank
of St. Louis Working Paper Series
4. Mohanty M S, Turner Philip, (2005), Intervention: what are the domestic consequinces,
Foreign exchange market intervention in emerging markets: motives, techniques and
implications, Bank for International Settlements
5. Sursa graficelor: XTB Romania, platforma de tranzacţionare MetaTrader 4.0
6. Currency Composition of Official Foreign Exchange Reserves (COFER), FMI, 2011
211
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE OPPORTUNITY OF FINANCING THE LOCAL
COLLECTIVITIES THROUGH PUBLIC-PRIVATE PARTNERSHIP
Ph.D. Student Marina ZAHARIOAIE
„Alexandru Ioan Cuza” University Iaşi, Romania
[email protected]
Abstract:
This paper’s purpose is to analyse the financial situation of the local authorities in the EU countries and to
consider alternative funding through public-private partnership. Both because of the economic and financial crises that
has affected the earned income but also because of the decentralization process that has enlarged the responsibilities,
local authorities are put into difficulty in providing public services at a higher quality level and starting new public
investments.
Empirical research on this track will reveal the public role that the public-private partnership can play at a
local level, but also various obstacles that inhibit its usage in some of the EU countries. In this article we also aim to
determine certain methods to overcome the obstacles that stand in the way of increasing public-private use at a local
level. Thus, we emphasize the context in which public-private partnership is a local solution and that is sustainable on a
long term. To achieve this objective we will make a foray into the literature and the specialty studies in the field and we
will analyse the factual situation that exists at the level of local communities in EU countries.
Key words: public-private partnership, local collectivities, economic crisis, budgetary constraints, public
investments, public services, European funds.
JEL classification: H 54, H 74, H 83
INTRODUCTION
In most countries local authorities provide much of the water supply, waste management,
healthcare or energy services and experience shows that they can hardly face the continuous
increasing demand for public services. These are just a small part of the necessary investments
because at a local level it is necessary to carry out partnerships between the public organizations
and private ones in order to ensure sustainable economic growth and the development of the
technological capacities (Bennet and James, 2000). Thus, public-private partnership is one of the
promising emerging forms for financing local public services, given that they have to deal with
budgetary constraints and having to approach urban challenges in a sustainable way. Using publicprivate partnership is also a challenge for local authorities since in their turn they have to take risks
and overcome obstacles. Thus, this article aims at high lightening the local economic situation in
EU countries and to analyse the opportunity of using the public-private partnership in local
collectivities funding.
THE POSITION OF THE LOCAL AUTHORITIES IN THE CURRENT GLOBAL
ECONOMIC CONTEXT
In many cases local communities and regions worldwide have been attributed too many
responsibilities on public services and the implementation of infrastructure works, but at the same
time ascertaining a growth of the population’s expectations for other services and infrastructure
works other than the traditional ones, such as social housing or the development of former industrial
sites (Ficher, 2010). Increased responsibilities and expectations of the local communities is
accompanied by unfavorable economic context which has strongly affected the world states,
including the local collectivities.
Financial and economic crisis were felt at the level of local collectivities on four levels: the
level of incomes that faced a sharp decrease, both in terms of its income and revenues transferred
by the state, the level of expenditures has increased due to the decrease of the economic activities
and the growth rates of unemployment and other social benefits, the level of financing capacity
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which is reduced because of current difficulties in attracting external loans and the level of external
investments that were reduced because of the cancellation and the postponement of many projects
(Paulais, 2009). In this context local collectivities have to seek new ways of financing, mostly
because the two great systems of financing, bond issues and the banking system have been severely
affected. The banking crisis has directly affected local collectivities by the following aspects
(Conseil d’Europe, 2010):
• Deducting dividends paid by banks partly owned by local authorities, such as Dexia and
Austrian Kommunalkredit. Flemmish communes lost thereby 52.7 million Euros.
• Losing a part of the reserves and depreciation of pension funds (14 Dutch communes lost 85
million Euros and this cost the local British collectivities almost a billion Euros)
• Difficulties in obtaining a loan for investments or their renewal (especially for foreign banks
located in another country such as the Austrian banks in Central and Eastern European
countries or the Scandinavian banks in Baltic States).
• An increase in the cost of debt denominated in euro in countries where the currency has
depreciated.
After the havoc that they caused on the banking and real estate market, the crisis had
disastrous effects on public budgets. Deficits in the EU member states increased from 2.3 % of
GDP in 2008 to 6.85% in 2009, reflecting the loss of revenues, expenditures on stimulus and bank
failures. Although EU states average budget deficit in 2009 was 6.85%, there were countries that
have experienced alarming figures such as Ireland with 14% in 2009 (it was even 31.3% in 2010),
Greece with 15.8% or Great Britain with 11.5%. In these circumstances local collectivities are
inevitably exposed to budget constraints due to lower revenues, the decreasing of the state subsidies
and to the increased cost of the public debt and the increasing of the social benefits for the persons
who have been affected by the crisis.
In what concerns the local public sector in the European Union , the last decade was marked
by the economic crisis, so that if in 2000-2007 the GDP, the public revenues and expenditures have
steadily increased , in the years 2008-2009 there was an increase in the indebtedness of the local
public sector and 2010 showed the largest decrease in public investments.
Table 1. Macroeconomic issues in local public sector in the EU27
Bil euro
% of GDP
% of public sector
The average
volume
2010
2000
2010
2000
2010
2000-2010
Public Expenditures
2069
15,1
16,9
33,4
33,5
+2,4%
At a local level....
1671
11,5
13,6
25,5
27
+3%
Ordinary income
1967
15,0
16,0
33,1
36,4
+2%
At a local level......
1591
11,5
13,0
25,3
29,5
+2,5%
Budget balance
-103
-0,1
-0,8
13,1
At a local level...
-91
-0,0
-0,7
10,3
Direct investments
211
1,6
1,7
69,9
65,3
+1,9%
At a local level...
201
1,5
1,6
65,0
62,1
+2,1%
Public debt
1486
9,6
12,1
15,6
15,1
+3,6%
At a local level...
826
5,6
6,7
9,6
8,4
+3,2%
Source: processing after Dexia, Finances publiques territoriales dans l’Union Europeenne, 2011, p. 1
evolution in
2009-2010
0,0%
-0,1%
-0,8%
-1,1%
-7,6%
-7,7%
+6,0
+5,9%
As it was shown in Table 1, for the local collectivities within the European Union, both
revenues and public expenditures have steadily evolved, with no large fluctuations in the analysed
period. However, we can see that the most affected, in 2009-2010, were direct investments which
have decreased by 7.6%, after a period of almost a decade of steady growth. The increasing of
investments in 2000-2009 was due to the decentralization process that led to the transfer to the local
level of competences, investing to align with the aquis communautaire (transport, waste, water),
easing the access to credits and attracting European funds which requires local financial
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participation for co-financing projects (Dexia Credit Local, 2011). For example, in France, the Law
of 14 August 2004 on decentralization widened the local authorities competences, making them
responsible for the provision of road infrastructure (national roads and departments), as well as port
and airport infrastructure (Marty and others, 2006). During the economic crisis was found that,
paradoxically, the investment spending have been extended at the level of local collectivities in the
European Union, but this was caused by the anti-cyclical policies adopted by the governments to
stimulate local investments through grants, by reducing the procedures on public purchases and by
relaxing the constraints on the debt and public deficit.
Table 2. Direct investments in the local public sector in the European Union
Country
Bil euro
Euro/rez
% from GDP
%from
expenses
Germany
20,2
247
0,8
10,2
Austria
1,2
148
0,4
5,3
Belgium
2,7
245
0,8
10,6
Bulgaria
0,5
69
1,4
21,0
Cyprus
0,1
147
0,7
30,4
Dennmark
3,1
561
1,3
3,5
Spain
29,7
644
2,8
11,6
Estonia
0,2
116
1,1
10,8
Finland
3,3
616
1,8
8,2
France
44,7
689
2,3
19,5
Greece
1,4
122
0,6
21,5
Hungary
2,1
213
2,2
17,3
Ireland
3,8
845
2,4
35,4
Italy
23,5
389
1,5
9,6
Latvia
0,5
231
2,9
25,4
Lithuania
0,6
195
2,3
20,6
Luxembourg
0,7
1296
1,6
30,6
Malta
0,0
22
0,1
22,5
Holland
13,8
828
2,3
13,6
Poland
11,6
305
3,3
21,9
Portugal
2,9
275
1,7
23,6
Czech
3,5
334
2,3
19,7
Romania
2,7
126
2,2
22,6
Great Britain
20,8
335
1,2
8,7
Slovakia
1,0
192
1,6
21,7
Slovenia
0,9
423
2,4
24,0
Sweden
5,8
616
1,7
6,5
Total EU
214,6
428
1,8
10,3
Source: processing after Dexia, L’Europe locale et régionale. Chiffres clé 2010, p.9
% from public
investments
57,7
41,7
46,8
30,4
17,9
61,7
72,0
45,4
69,5
73,2
21,0
65,4
64,8
72,8
65,7
51,5
39,2
6,6
65,9
58,1
45,5
71,5
37,8
49,6
62,0
56,5
50,9
65,8
As it can be seen from table no. 2 among the states in which the local public investments
remained at high levels include Finland, Germany and Holland, and in many countries structural
and cohesion funds had a lever effect such as Romania, Slovenia, Poland and Lithuania (Martry and
others, 2006).The decrease of the local investments in numerous states also had a negative impact
on public-private partnership projects. Numerous projects have been suspended or cancelled, the
most affected sectors being that of energy and of telecommunications (Paulais, 2009).Projects were
most affected in municipalities in areas such as that of the drinking water , sanitation and transport
which have decreased in volume and as number of projects with about 40-50% (Leigland and
Russell, 2009). Is not only the local collectivities from the European Union that have been affected
in this period, but also those from the United States Of America. In the U.S. the main form of
financing the local collectivities is represented by local bonds, and because of the negative financial
evaluation these are in great financial difficulty.
Because of income diminution and an unstable public spending, the local public deficit in the E U
countries has slightly increased from 0.7% of GDP in 2009 to 0.8% of GDP in 2010, in the amount
of 103 billion euro and 13.1% of local public deficit (Dexia Credit Local, 2011). The motivation
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behind the diminishing level of the local public deficit is due to the economic recovery period and
to the control of expenditures at a local level, but also to the devices of financial supervision of the
local budgets that are currently in programmes of fiscal consolidation in countries like Spain, Italy,
France, Austria, Germany and Belgium (Dexia Credit Local, 2011). As for the public debt at a local
level it has seen a decrease in 2010 compared to 2009, but it still remains at a high level of 6%. The
size of public debt was influenced by an attractive level of interest rates and credit monitoring
procedures still favourable in 2010.
However, governments have tried to mitigate the repercussions of the crisis, and one action
was the increase in capital expenditures, as an anti-cyclical measure to protect employment
especially in the construction field that has been strongly affected and to stimulate consumption in
general. Consequently, public authorities have made available for the local collectivities additional
funds for local investments projects as follows:
• Austria has adopted a package of measures of 3 billion euro for local infrastructure financed
by loan, and federal and regional administrations cover 75% of the cost of the debt service;
• France repays in advance VAT amortizations from the constructions expenditures realized
by the local collectivities
• The German Federal Budget has allocated 10 billion euro for investments at a regional and
local level (of which 25% are co-financed by the beneficiaries)
• Greece has implemented a local investment fund worth 2.3 billion Euros provided jointly by
the Government, the European Union and the local collectivities.
• Norway used 4 billion crowns for small local investment projects in 2009
• Comparable funds were established in Portugal, Spain (8 billion Euros), Sweden, Ukraine
(funding of 371 projects on schools, hospitals and streets rehabilitation).
OPPORTUNITIES IN USING THE PUBLIC-PRIVATE PARTNERSHIP AT A
LOCAL LEVEL
The economic crisis affected not only the local collectivities , in terms of reducing revenues
and increasing public expenditures, but also the private sector, which is affected both by the
decreased consumption and the weighting of the access to credits. As a result of the crisis it is
expected that the local collectivities should become more interested in realizing investments by
involving in the private sector, especially in the context of the increasing demand for infrastructure.
This interest is due to the fact that money for investments are brought by the private partner, which
will absorb the investment in a longer period of time, either from the user’s taxes (for concessions)
or from the money transfer from public authorities (Private Financial Initiative model). The main
attraction is represented by the fact that in public-private partnership the funding is private as it is
realized by the private party so that it cannot be seen any increase in the public loans. On the other
side, the private partner, although operating in an uncertain economic context, will receive a
guaranteed flux of incomes over a long period of time (Hall, 2009).
Although private-public partnership has been considered a tool that can blur the effects of
crisis and its usage has been promoted, the figures of Chart 1 show that the value of the private
investment attracted through public-private partnership has declined significantly in 2009 compared
to the previous years, but increased in 2010 due to the advanced number of small value projects in
the public-private partnership (The World Bank, 2010).
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Volume 12, Issue 2(16), 2012
Chart no.1 Value of the public-private partnership projects between 2002-2010
Source: processing after EPEC, Market Update Review of the European PPP Market in 2010; EIB, Publicprivate partnership in Europe – Before and during the recent financial crisis, p. 7
Local collectivities must understand the importance of attracting European funds in the
achievement of the public-private partnership projects, as they provide an accessible tool which can
encourage the participation of the private partners but also of the public ones .In this respect, there
are certain financial instruments for the development of the public-private partnership projects in
energy, transport and the development of the urban areas.
Marguerita Fund, or as it is known, the 2020 European fund for Energy, Climate Change
and Infrastructure, was founded in 2008 and will run for 20 years focusing on medium and large
investment projects, the main targeted sectors being the transport infrastructure, the energy
infrastructure and on renewable energy, thus involving a strong co-operation between the public
and the private sectors.
Jessica Fund (Joint European Support for Sustainable Investment in City Areas) initiated by
the European Commission and Bank of Investment promotes sustainable investments and jobs
growth in urban areas, the collaboration between the public and private sectors being also targeted
in this case, not only in terms of attracted financial resources, but also of the know-how and of the
competences that the latter has. Using the Jessica Fund requires a new approach of the local
authorities in the Community countries that must use efficient public-private partnership projects,
have a strategy and a long term vision.
The Elena Fund (European Local Energy Assistance) is an European instrument which aims
to support authorities in accelerating their investment programmes in the energetic efficiency field
and renewable energy sources. The Elena Fund does not concentrate specifically on the privatepublic partnership, but it recognizes the public-private partnership as a possible method of
acquisition. Also, in addition to this funds, the European Investment Bank is an important pillar of
support for the public-private partnership and all these are for the private environment an important
source of fund attraction which cannot be appealed to for any other situations. However, although
the investors are taking the biggest financial risks, they receive in turn the biggest part of the profit
if all goes according to the plan.
CHALLENGES IN USING PUBLIC-PRIVATE PARTERSHIP AT A LOCAL
LEVEL
Local public authorities around the world have to face new challenges in the 21st century in
what concerns the provision of services, finance, labour and citizen involvement in public life.
While privatization was a major innovation in the last decades of the 20th century, the lack of cost
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reduction and the loss of public values when provided by the market has led to a rearrangement of
the state role in economy. In the 20th century local public authorities must concentrate exclusively
on rebuilding the capacity of the local administrations to finance critical infrastructure, attracting
and retaining a skilled labour and involving citizens in designing innovative solutions in
approaching public problems. There is a possibility that, because of the desire for innovation in
providing public services, public authorities might look out for other models without neglecting the
importance of the public-private partnership which balances the responsibility, the equity and the
efficiency (Warner, 2010).
The economic and financial crisis with effects on a global level determined the banks to
grant the loans much more difficult, and as a result, for companies this means that it would be
practically impossible to borrow money in order to finance the projects from the public-private
partnership. Currently, public-private partnership projects are being affected by the inability to
refinance existing debt and the ongoing projects are affected because of the lower demand (Burger
and others, 2009).
Another crisis connotation is played by the exchange rate fluctuations. If the private partner
had to cover a high external debt, the exchange rate fluctuations have had repercussions over the
project. This situation appears especially when the private partner underestimated the exchange rate
risks or it is under construction and needs to import goods whose acquisition leads to an
unestimated increasing of expenditures. The financial crisis made its presence felt by an increase of
the interest rate, this affecting particularly the public-private partnership projects there were still in
process and made the private investors to stay in expectation for future investments. Also, due to
the financial crisis the volume of cash loans diminished, this affecting not only the credit price but
also the available amount to be offered by the credit institutions (Burger and others, 2009).
The issue of the public-private partnership should concentrate more and more at a local
level, as the talkings and strategies developed at a national level tend to have a general character
(Bennett and others, 2000) and are unable to consider the issues and the characteristics of each local
community. The legal framework for the public-private partnership should be established at a
central level but the negotiations on the project to be managed locally, this making the commitment
stronger. The most important partners in developing public-private partnerships are local
governments which are in the position of finding innovative answers in the management of public
services, especially since their powers have been increased by the decentralization process. While a
high level political commitment is essential for facing legal and political bottlenecks, the
consolidation of the capacity should concentrate on a local level.
An issue that may become critical in the use of public-private partnership relates to the
human resources involved in impletementing such projects. The human resources from the public
administrations don’t have currently the necessary expertise for realizing projects in public-private
partnership, this thing being considered a barrier in increasing the level of using public-private
partnerships (Zhang, 2002).
The challenge in what concerns the usage of the European funds in realizing public-private
partnerships lies in the fact that a combination between the European funds and the public-private
partnership is still difficult to achieve. The first aspect is given by the fact that in many EU
countries the national legislation is not being adapted for such schemes which may combine both
structural funds and the public and private ones. Also, there are still just a few best practices in the
domain, being registered only a low number of projects also for EU12, among them being Great
Britain, France or Germany, countries with a strong tradition in realizing public-private partnership
projects. This is because in these countries the state involvement in this type of complex projects is
limited, both at a central and regional and municipal level, due to the increasing restriction of the
active involvement of State (European PPP Expertise Centre, 2011).
In addition to using funds from the European Union for promoting the use of public-private
partnership there are also the funds from the European Investment Bank. This is a strong promoter
of partnership, in 2008, allocating for this 57 billion Euros and this amount is going to increase by
30% in the coming years (DLA Piper, 2009).
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The public sector must respond as well as it can to the expectations of the private investors
who believe that there are significant barriers to the market entry in certain countries in what
concerns the competences and the capital, the instability of the legal framework and the lack of
transparency in negotiating at the level of local and municipal authorities (Noel and Brzeski, 2005).
The private investors will be reluctant in entering into public-private partnership projects as long as
the problems that are considered to be an obstacle in entering on the market of a certain country will
not be solved.
The importance of using and considering the public-private partnership a tool available to
local collectivities for achieving the objectives of local economic development is mainly due to the
radical socio-economic changes worldwide and the traditional approach of the local development
has changed radically because of poverty, international competition, unemployment and the stress
of the local tax burden (Argiolas and others, 2009). Reducing national economic support,
restructuring the economy and reaffirming the local policies based on local dimensions combined
with other problems or opportunities have led to the need for a regional development policy. In this
context, public entities are increasingly aware of the added efficiency that the involvement of
private actors can bring. Combining different abilities, competences, resources and capabilities
could bring added value to the local systems. Thus, the partnership model was adopted in order to
solve a great number of issues that affected the local development.
CONCLUSIONS
An increase in the degree of the public-private partnership usage for the future is
conditioned by the way in which this will adapt to existing needs at a central and local level in each
country but also by the way of responding to the challenges that it faces. How EU funds will be
used to finance the public-private partnership it is an issue that can influence positively the appeal
increase for a public-private partnership. However, a clear legal framework is necessary, to enable
such a mixture, it requires the human resource who should have the necessary expertise to carry out
such projects but also procedures to simplify access to these funds. All these aspects need to be
satisfied because the public-private partnership is a complicated and complex scheme and a greater
increase in the complexity of the paperwork related to attracting and managing financial resources
from European funds is not desirable.
Local collectivities should take advantage not only by the financial instruments provided by
the European Union, but also by those of the European Investment Bank which wants to be a
promoter in using the public-private partnership for the economic and social development at a local
level.
Although there are certain financial instruments provided by the European Union and the
European Investment Bank to promote the usage of the public-private partnership, the effective use
of these instruments is directly dependent on the initiative of the public administration. Agents of
the public administrations must find the best way to capitalize on the advantages offered by the
public-private partnership in providing public services and to manage the risks that these projects
take.
ACKNOWLEDGEMENTS
"This work was supported by the European Social Fund in Romania, under the responsibility of the
Managing Authority for the Sectorial Operational Programme for Human Resources Development
2007-2013 [grant POSDRU/CPP 107/DMI 1.5/S/78342]"
REFERENCES
1. Argiolas, G., Cabras, S., Desii, C., Floris, M. (2009), Building innovative models of territorial
governance, Journal of Place Management and Development, Vol. 2, Issu: 3
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2. Bennet, E., James, S., Grohmann, P. (2000), Joint Venture Public Partnerships for Urban
Environmental Services, Report on UNDP/PPPUE's Project Development Facility 1995-1999, New
York: UNDP & Yale University
3. Burger, P., Tysont, J., Karpowicz, I., Coelho, M.D. (2009), The Effects of the Financial Crisis
on Public-Private Partnerships, IMF Working Paper WP/09/144
4. Conseil de l’Europe (2010), Les répercussions de la crise économique sur les collectivités
locales en Europe, 2010
5. Dexia Credit Local (2011), Finances publiques territoriales dans l’Union Europeenne
6. Dexia Credit Local (2010), L’Europe locale et régionale. Chiffres clé
7. DLA Piper (2010), European PPP Report 2009
8. EIB (2010), PPPs financed by the European Investment Bank since 2010, disponibil pe
http://www.eib.org/epec/ resources/ppps-financed-by-eib-2000-2010.pdf
9. EPEC (2011), Market Update Review of the European PPP Market in 2010; EIB, Publicprivate partnership in Europe – Before and during the recent financial crisis
10. European PPP Expertise Center (2011), Using EU Funds in PPP’s
11. Fischer, K. (2010), ACT4PPP- A transnational initiative to promote public-private cooperation
in urban development, European Public Private Partnership Law Review, Iss: 2
12. Hall, D. (2009), A crisis for public-private partnership?, Public Services International Unit
13. Le centre de ressources du développment territorial (2003), Parteneriat public-privé: levier du
développement territorial
14. Leigland, J., Russell, H. (2009), Another lost decade? Effects of the financial crisis on project
finance in infrastructure, Grid Lines, No. 48
15. Noel, M., Brzeski, J. (2005), Mobilizing Private Finance for Local Infrastructure in Europe and
Central Asia, Working Paper No. 46
16. OECD (2007), Financing Local Development, Policy Brief
17. Paulais, T. (2009), Les collectivites locales et la crise financiere:une mise en perspective, Cities
Alliances
18. Regmi, R.R. (2008), Public-Private Partnership in Local Development, diponibil pe
http://www.fncci.org/ ppp/localdev_rrregmi.pdf,
19. The World Bank (2010), Impact of the financial crisis on PPI
20. Warner, M. (2010), The future of local government: twenty first century challenges, Public
Administration Review, Vol. 70, Issue: 1
21. Zhang, X. (2002), Paving the Way for Public-Private Partnerships in Infrastructure
Development, Journal of Construction Engineering and Management, Vol. 131. Issu: 1
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SECTION 4
STATISTICS, ECONOMIC INFORMATICS
AND MATHEMATICS
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ISSUES REGARDING SECURITY PRINCIPLES IN CLOUD
COMPUTING
Mircea GEORGESCU
Ph. D. Professor „Al. I. Cuza” University of Iasi, Romania
[email protected]
Natalia SUICIMEZOV
Ph. D. Student „Al. I. Cuza” University of Iasi, Romania
[email protected]
Abstract:
The introduction of Cloud Computing creates a wave of reluctance for specialists representing the information
security field. This reluctance comes from end users as well, who think data stored on an internal infrastructure are
much safer than those held on the servers of potential providers, and also from governments that apply different
policies at the national level regarding the security of personal data. Non-acceptance and reluctance of cloud
technologies also come from the impact of changing perceptions about infrastructure architectures, development and
application delivery models that the emergence of these technologies had led to. Many of the technologies used for
traditional security issues are no longer effective in the cloud. Meanwhile, other solutions were developed to put more
focus on Governance in the Cloud. To successfully manage and ensure the efficiency and effectiveness of information
technologies as a corporate resource, organizations have turned to what is IT governance. Rapid transition to cloud
technologies fuel a critical issue regarding the success of information systems, communication and information
security. As a consequence, the paper aims to identify, evaluate and clarify information security in the Cloud using
three principles of security (Confidentiality, Integrity and Availability) and to emphasize the importance of Governance
in Cloud Computing at the business level.
Key words: Information Technology, Cloud Computing, Governance, Confidentiality, Integrity, Availability.
JEL classification: L86, M15
INTRODUCTION
The history of information technology has known many attempts to give up the hardware
equipments. This concept is especially pursued by the cloud technologies which involve in their
utilization a minimum amount of hardware equipment and allow the organizations to focus more on
the core business by providing optimized solutions within a known and simple framework. Cloud
computing relies on an innovative architecture as an information system, being considered the
information technology of the future.
Even if the emergence of cloud computing is quite recent, perspectives in the critical aspects
of security may be drawn from experiences reported by those that adopted in a timely manner these
technologies as well as from the analyses of researchers and their experiments with the available
associated platforms and technologies of Cloud providers. In the next sections we shall deal with
the confidentiality and security issues, which are believed to have a long-term significance in the
Cloud technologies and, whenever this is possible, we shall try to exemplify through already given
examples in order to illustrate existing problems. The examples are not exhaustive and cover only
an aspect of a general issue. The specialists’ orientation is towards problem-solving, but sometimes
many of them persist and expand, having the potential to re-occur under other forms, according to
the model and typology of the Cloud service.
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Figure 1. National Institute of Standards and Technology visual model of cloud computing
definition
Since cloud computing has grown from an amalgam of technologies, including serviceoriented architectures, virtualization, Web 2.0 and Utility Computing, many of the confidentiality
and security issues can be seen as known problems but in a new context. In spite of this, their
combined effect within this framework should not be updated.
IT GOVERNANCE AND CLOUD COMPUTING
The information technologies have become in the last decade a main principle of an
organization’s infrastructure, creating value (Gupta, Y., 1991; McAfee, A., 2008). In order to
manage and successfully ensure the IT efficiency and effectiveness, as a corporate resource,
organizations have turned to what is IT Governance.
Governance integrates IT in the corporate governmental processes (Ross, 2004). This
integration also lines up the information technologies with the business processes, ensuring and
providing IT effectiveness and efficiency (Schwartz, 2003).
Figure 2. Main elements of a cloud system – a non exhaustive view (Schubert, 2010)
According to its “preachers”, the successful IT governance will ensure the increase in
competitive advantages and of organizations’ financial outcomes (Weill, 2004; Van Grembergen,
2004). In other words, when weighing the pros and cons of information technologies, the IT
Governance is worth it (Carr, 2003).
The previous research in the IT Governance field has suffered due to the authors
Sumbamurthy and Zmud, who referred to it as an over-simplified and a too normative beginning.
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This study focused on the marketing ideas and the IT Governance architecture, instead of
understanding the daily practices of the IT Governance and its construction.
Nowadays, the IT Governance represents a key activity in the activities of strategic
management of Information Systems in large organizations (IS is the term addressing the IT
functions in an organization) (Schwartz, Hischheim, 2003).
The availability of cloud computing services implies major risks through the lack of
organization controls of the employees who use such services. Even if Cloud Computing simplifies
the acquisition process of IT platforms, it does not diminish the need for governance; on the
contrary, it amplifies it.
An advantage of Cloud Computing is represented by the capacity to reduce the capital
investments and at the same time, to satisfy the computing needs by means of operation costs.
Cloud computing may reduce the initial running cost of new services and shorten the necessary time
to obtain a real investment benefit (for example, the acceleration of transforming time into value),
thus better aligning the used expenses. In spite of this, the standard processes and the procedures of
an organization use them to get computing resources of capital expenses, slightly avoided by a
department or a person and hidden as daily operation costs.
When such actions are not regulated by an organization, the security and control policies
and procedures could be overcome and might represent a danger for the organization. For instance,
the vulnerable systems might be dislocated, the legal regulations might be ignored, fees might
rapidly accumulate to unacceptable levels or other undesired effects might occur.
SECURITY CONCEPTS IN CLOUD
The three main concepts related to security are: Data Confidentiality, Integrity and
Availability. Each vendor of these solutions attempts to propose its own security solutions but their
degree of development differs according to the size of the companies.
Table 1. Cloud vendors and their attributes and ranking (by online traffic)
Confidentiality strictly refers to the authorized parties or the systems with access skills to
the protected data. The threats in cloud increase with the increase in the number of components,
applications and equipments involved, leading to an increased number of access points. The
delegation of data control by the cloud leads on the other hand to the increase in the risk of data
breach because they become accessible to a high number of participants. A significant number of
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attacks occur due to the multiple locations from where data could be accessed as well as due to the
application security and data preservation.
Another expression met in the characteristics of Cloud technologies is that of
“multitenancy”, which refers to resource sharing. Numerous aspects of Information Security are
shared among memory, applications, networks and data. Cloud computing is based on a business
model where resources are shared (multiple users share the same resource) at the level of network,
host and applications. If the users are isolated at virtual level, the hardware components are not
separated. Having a multitenant architecture, a software application is composed to virtually split
data and configurations, so that each client organization should work with a customized virtual
application. The multitenancy concept is similar with that of multitasking in the operating systems.
Multitasking, in the computational environment, is a method by means of which multiple activities,
known as processes, share common processing resources, namely the processor.
The multitenancy, viewed as multitasking, presents a multitude of confidentiality threats.
Data confidentiality in the cloud is correlated with the users’ authentication. The protection of a
user account against data theft represents a much higher problem in the access control of items such
as memory, equipments and applications while electronic authentication establishes the
confidentiality of users’ identity in the information system.
The application confidentiality is important in light of the system data security and refers to
the confidence that specific processes or applications will maintain and manage users’ personal data
in a safely manner.
In the Cloud environment it is extremely important that all the clients delegate confidence to
the application provided by the owner of the infrastructure, organization which should be certified
in order to eliminate confidentiality and privacy risks. The cloud provider should be also
responsible to provide secured instances that would ensure confidentiality and privacy to the users.
The unauthorized access may be possible by exploring the vulnerability of applications or the lack
of strong identification procedures, known as being great issues of confidentiality and privacy.
The cloud providers, such as other organizations operating with personal data, should meet
the legal conditions imposed by state regulations, by ensuring the necessary confidentiality
protection. Data are stored in multiple locations, fact which enhances the risk of confidentiality loss
and the cloud has to deal with several legal challenges. If originally the employees’ (users) data
were stored on the company’s servers, the passage to the cloud implies data storage on the service
providers’ servers that can be in America, Asia or in any other place. For example, in Europe, this
might infringe the legal norms which require that the organization knows where the personal data
are and that these should be at any time available for the organization.
Integrity
The second concept and aspect of Information Technologies is integrity that implies that the
change of assets should be performed only in an authorized manner or by authorized parties,
covering data, applications and equipments. In this respect data are protected through the nonauthorization of creation, change or deletion.
The management of rights on certain resources of the organization guarantees the integrity
of valuable data and services of the company and eliminates the risk of their loss, abuse or
inappropriate use. This type of mechanisms also offers an enhanced visibility and transparency,
being able to control and see who or what has led to the alteration of the information system or
which could be seen as a potential risk of harming the integrity.
We have previously brought into discussion a mechanism enabling the level of specific
access of authenticated users to secured resources of the system. The authorization is essential in
ensuring that only authorized entities may interact with data in the Cloud environment, which
implies an increased number of entities and access points.
The cloud computing providers must ensure the data integrity and accuracy while the cloud
models present certain threats including sophisticated domestic attacks on these data attributes. The
creation, modification or data deletion can be intentional or unintentional (Zissis, Lekkas, 2012).
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A dissatisfied user can intentionally change a program and can make it work inadequately in
a certain instance or at a certain hour. Providers try to fight these attacks by implementing a set of
application interfaces already familiar to the users by means of which they easily access the cloud
services. Moreover, the security of cloud services depends on the security of these interfaces, and if
unauthorized users get control over them, the danger of data change or deletion of users’ data is
100% guaranteed. The responsibility for the protection of application integrity in the cloud is
transferred to the administrator or the application beneficiary. The integrity of networks or
hardware equipments are issues added and addressed by the cloud provider.
Availability
The third security concept is availability and it refers to the property of a system to be
accessible and usable upon the request of authorized entities. The system availability includes the
system ability to operate even when the conditions of authorized access are not met. Data,
application and equipment availability is requested; therefore these should be available to the
authorized users upon request. The users’ demands to access the physical infrastructure generate a
strong overload on the network availability and make it difficult to process and recover data. The
cloud owner must guarantee that information is available to the clients upon request.
The system availability refers to the capacity of a system to run applications even when
there are infringements of access rights. The system must be able to run even under the
circumstances of a security breach. The cloud computing services have a strong dependence on the
infrastructure resources and network availability, 24 hours per day. The understanding and
documentation of specific requests of all the users is necessary in designing an IT solution which
should “ensure” the accomplishment of these needs. One of the most complex design elements in
the information security is the identity check-up, meeting the same common security requests and
determining the specific needs for data protection. This distributed work environment, with several
users, creates unique security opportunities, dependent on the access level, applications, virtualized
or installed on the physical platform.
CONCLUSIONS
We consider that the cloud computing technologies support and will continue to support a
surplus of information systems, since the benefits and strong points are greater and more obvious
than the weak points and vulnerabilities, in comparison with other systems. The implementation
architectures of Cloud technologies have the capacity to approach the traditional vulnerabilities met
in Information Security, while having dynamic features able to discourage the effectiveness of
measures taken in the traditional information technology environments. The present paper identifies
and deals with the generic design principles of the cloud environment, which resumes the need to
verify and control relevant threats and vulnerabilities. Thus, the essential objectives of security in
the cloud systems are the following:
- To ensure the availability of the information communicated among or held by the
participating systems;
- To maintain the integrity of the information communicated among or held by the
participating systems (for example to prevent the loss or change of information during an
unauthorized access, breakdown of a component or other error);
- To maintain the integrity of services provided (for example confidentiality and correct
operations);
- To provide control over the access to services or service components;
- To authenticate the identity of partners involved in communication and where it is
necessary, to ensure the non-rejection of data;
- To provide interconnection between closed systems;
- To ensure the confidentiality of the information held by the participating systems;
- To ensure a clear separation of data and processes at the virtual level of cloud technologies,
offering the guarantee there will be no data leaks among various applications;
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-
To maintain the same security level while data are added or deleted at the physical level.
We tend to believe that the issue of cloud technology security will be much debated in the
future and ways to recover it will be sought after; still, the main and most efficient solution remains
the Cloud Governance. The Governance will create the premises for certain security advanced
policies and procedures imposed both to end users, in the access and work with the Cloud
applications and to the Cloud providers. This remains to be observed, with the evolution and
extensive use of these technologies.
ACKNOWLEDGMENT
Development of Human Resources Operational Programme 2007-2013, contract no.
POSDRU/89/1.5/S/61755).
REFERENCES:
1. Carr, N.,(2003), IT Doesn’t matter, Harvard Business Review, mai 2003, pp 18-34;
2. Chakraborty, R. et al, (2010), The Information Assurance Practices of Cloud Computing
Vendors, IT Professional Magazine, july 2010, IEEE Computer Society, pp 29-37
3. Cloud Security Alliance, (2009), Security Guidance for Critical Areas in Cloud Computing
v2.1, p 14;
4. Cloud Security Alliance, (2010), Top threats to cloud computing, Cloud Security Alliance, june
2010;
5. Gartner, (2008), Assessing the security risks of cloud computing, Gartner Group, 2008.
6. Gupta, Y.P., (1991), The chief executive officer and the chief information officer: the strategic
partnership, Journal of Information Technology, 1991
7. McAfee, A., Bryjolfsson, E., (2008), Investing in the IT that makes a difference, Harvard
Business Review, 2008;
8. Ross, J.W., Weill, P., (2004), IT Gouvernance: how top performers manage IT decision rights
for superior results, Watertown, MA., Harvard Business Review, 2004
9. Schubert, L., (2010), The future of Cloud Computing, Report for the European Commision,
http://cordis.europa.eu/fp7/ict/ssai/docs/cloud-report-final.pdf;
10. Schwartz, A., Hlrschheim, R., (2003), An extended platform logic perspective of IT
gouvernance, Journal of strategic Information Systems, 2003, pp. 129-166;
11. Sherman, R., (1992), Distributed systems security, Computers & Security 11 (1), 1992;
12. Van Grembergen, W., De Haes, S., (2009), Enterprise Governance of Information Technology,
Springer, USA, 2009;
13. Weill, P., (1992), The relationship between investment and information technology and firm
performance: a study of the valve manufacturing sector, Information system research, 1992;
14. Zissis, D., and Lekkas, D., (2012), Addressing cloud computing security issues, Future
Generation Computer Systems 28 (2012), p. 583.
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MERGER REVIEWS AND POST-MERGER EVALUATION WITH
DEA
Constantin BELU (1)
Dept. of Money and Banking
The Bucharest University of Economics, Romania
[email protected]
Abstract:
Merger reviews is a core business for competition authorities (CA). In this paper I employ linear programming
methods to evaluate potential efficiency gains following a merger, against the background of market-side effects (e.g.
price increases), which are usually relevant in a CA’s merger assessment. Furthermore, I use an additive model to
show that there are circumstances where a merger cannot induce technical efficiency gains, thus limiting the scope for
potential welfare gains. I argue that when there is no potential for technical efficiency gains, the CA should consider an
outright ban of the proposed merger, because there will be little room for positive effects on market competition and
respectively, on consumer welfare.
Key words: merger review, DEA, competition, market-side effects
JEL classification: C61, D24, D40
INTRODUCTION
The literature accounts for a plethora of reasons behind the occurrence of horizontal mergers (2),
but it is generally agreed that mergers have the potential to lessen competition, thus providing
opportunities for price increases. Price increases are more likely to occur in particular instances e.g.
1) the merging entities have a substantial share of the market; 2) they are close competitors 3) the
consumers’ options for switching are limited 4) competitors are unable to increase the supply in the
event of a price increase.
What is more concerning, however, is that empirical studies (3) concerned with the evaluation of
the effectiveness of mergers find that most mergers fail to fulfill the expectations of the
shareholders. In fact, most mergers seem to seriously affect the economic and the financial
performance of the resulting undertakings.
It has been argued that competition authorities should not be concerned with the wellbeing of
enterprises, but the consequences of a failed merger could affect both the market structure and the
consumer welfare. In this regard, and considering the fact that only 0,05% of the mergers reviewed
by the DG Competition were in fact forbidden, I argue that the evaluation of potential efficiency
gains should become an essential step in mergers reviews and the burden of proof should not be left
entirely with the notifying parties.
The EUMR (4) accepts efficiency gains as a valid argument in favor of a merger, only when three
cumulative conditions are met:
i. Efficiencies should benefit consumers i.e. should be transferred into lower prices, steaming
from cost reductions, new or improved products or services.
ii.
Efficiencies should be merger specific i.e. there should be no other less anti-competitive
alternatives to achieve such efficiency gains.
iii.
Efficiencies should be verifiable, such that the Commission should be reasonably certain
that such efficiencies would materialize.
In order to establish the link of the above three conditions with the efficiencies which are related to
the technology, we undertake to analyze them in turn. First, we argue that the concept of technology
is fully justified when analyzing anticompetitive effects of mergers. In competition policy, the
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analysis is usually centered on the relevant market. In most situations, the anticompetitive effects of
a merger are analyzed on a single market or, occasionally, on several markets where the activities of
the merging entities overlap. In either situation it is reasonable to consider the concept of
technological frontier, which incorporates the best practices in the production of a particular good
(akin to the production function).
The first requirement of cost reductions would entail to a movement of the post-merger enterprise
towards the efficiency frontier. It is not clear, however, how the passing of these costs savings into
lower product prices should be assessed. It appears that this requirement can only be verified in a
post-merger assessment. Not even a merger simulation strategy can reveal the possibility or the
certitude of such a passing, since this decision rests with the management of the post-merger
enterprise. This evaluation can only be performed in a post-merger evaluation.
The second requirement implies that, if there is to be an efficiency gain, it should be related to the
coming into existence of the new enterprise, the result of the proposed merger. In turn, this clearly
implies that the source of efficiencies should not steam from sources outside the proposed merger.
It also implies that, considering our reference to the technological frontier, one should be able to
identify potential for a movement towards the frontier i.e. there should be scope for technical
improvements, following the merger (5).
The third requirement is concerned with the possibility of verifying the potential efficiency gains. It
is a good argument in favor of representing the best practice technology in the industry associated
with the relevant market, such that the potential for efficiency gains could be assessed at an early
stage in the merger assessment.
The market developments following a merger have potential anticompetitive effects, but these
effects could be countervailed by cost efficiencies and other synergies leading to increases in
efficiency, which in turn could be reflected in lower prices, to the benefit of consumers. Although
efficiency is recognized as one of the main goals of the competition policy, very seldom the
regulators employ tools aimed at evaluating pre and post-merger efficiency gains in an industry.
Data Envelopment Analysis (DEA) is suitable for evaluating the economic efficiency of different
production units (or decision making units - DMUs -) like companies, banks, bank branches,
hospitals etc. DEA is particularly prone to conduct pre- and post-merger evaluations with regard to
the distribution of efficiencies in the market on focus. At the same time, this tool allows for the
simulation of a potential merger’s effect and powerful visual tools have been developed to assist the
decision-maker (Bogetoft and Lars, 2010).
A standard DEA requires information about factors of production (inputs) and about the quantities
produced (outputs). Several other types of analyses can be conducted, when factor and output prices
are available. Although vertical mergers can be subject to a DEA, horizontal mergers are
particularly prone to a data envelopment analysis.
DEA basically constructs a sector-wise technological frontier, which represents the best-practice
technology in an industry, and then it calculates the distance from the frontier to each individual
DMU. By doing so, DEA provides a measure for the efficiency of individual units, as well as an
overall sector measure of efficiency. Both indicators are relevant for evaluating the potential gains
in efficiency following a merger. The DEA measures are relative, meaning that they are depended
on the sample available to analyze, but if the sample covers the scrutinized market to a considerable
extent, they provide a satisfactory image of the resulting market outcome, following a merger.
When conducting merger reviews, competition authorities have or can obtain data from the
companies directly involved in a merger, but usually there little data available on other market
participants. In order to assess the technological frontier for the relevant industry i.e. the industry
related to the market analyzed, data from most market participants is required. While most CA do
not have legal ground for asking data from other companies in the affected market/s, oftentimes
databases covering the whole industry or sector can be found to exist.
DEA can also assist in decomposing efficiency gains in scale, scope (harmony) and even the
potential for synergies, which are those efficiency gains pertaining to the “intimate integration of
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the parties’ unique, hard-to-trade assets” (Farrel and Shapiro, 2001). The actual evaluation of
synergy effect could only take place in a post-merger evaluation.
DEA has already been used in merger analysis. Ferrier and Valdmanis (2004) analyzed hospital
mergers in the USA, including the construction of pseudo-hospitals (the outcome of potential
mergers). Sherman and Rupert (2006) apply DEA to bank mergers, in an analysis involving bankbranches as well. Bogetoft and Wang (2005) discuss in great detail the decomposition of efficiency
gains following a merger into technical, scale and scope (harmony), and provide an empirical
example on Danish offices for agricultural advisory services.
Figure 1 below (Bogetoft and Lars, 2010) shows in a stylized manner the potential for efficiency
improvement following a merger involving two technically efficient companies (located on the
production frontier). One can see that the potential for improvement lies to the north-east of a
hypothetical company, which is simply the result of combining the inputs/outputs used before the
pre-merger enterprises. In a post-merger assessment, the competition authority should be concerned
if the actual enterprise arising from the merger lies outside the PI area.
Several concerns (outliers, sample size etc.) have been raised in connection with a data
envelopment analysis, and remedies (e.g. bootstrapping) have been proposed to deal with these
issues. In mergers, data requirement might be of particular concern, because it is desirable to
analyze data from most players on a particular market, and this data might not be available in some
cases.
Input
Potential
improvement
y1 + y
y1
PI
2
A
A+B
B
y2
x1 x2 E(x1 +x2) x1 + x 2
Output
Figure 1
DEA has already been used in merger analysis. Ferrier and Valdmanis (2004) analyzed hospital
mergers in the USA, including the construction of pseudo-hospitals (the outcome of potential
mergers). Sherman and Rupert (2006) apply DEA to bank mergers, in an analysis involving bankbranches as well. Bogetoft and Wang (2005) discuss in great detail the decomposition of efficiency
gains following a merger into technical, scale and scope (harmony), and provide an empirical
example on Danish offices for agricultural advisory services.
When reviewing a merger, the competition authority is interested to identify those efficiencies that
can be achieved with a merger, but they cannot be reasonable obtained, absent the proposed merger.
This means that in a pre-merger assessment, the companies to-be-merged are located on the
efficiency frontier, or even if only one company is located on the efficiency frontier, that it is a
reasonable assumption that higher efficiency can be obtained through a potential merger, within the
same input-output mix.
The competition regulator is interested in two broad classes of effects: unilateral effects, concerned
with the ability of the newly emerged entity to raise the product’s price, and coordinated effects,
concerned with the ability of the post-merger firms in the market to coordinate their actions, given
that the number of competitors is reduced.
There is a vast amount of literature concerned with the measurement of efficiency of productive
units, but the issue of efficiency distribution following a merger is less studied, although there are a
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few notable studies concerned with this issue. For an extended review of literature, see Bogetoft and
Wang (2005).
From a purely technological point of view, a merger is subjected to the following effects:
- Economies of scale
-
Economies of scope
-
Pure technical efficiency gains
Economies of scale describe the technology under which the merger takes place and they need to be
increasing or constant for the merger to increase the performance of the newly established unit.
Economies of scope concerned the mix of inputs used or the outputs produced by the merging
companies, and the associated efficiency derived from the optimization of this mix, with respect to
the factors’ market prices.
Let us start with the much touted BCC (Banker et. al,1984) model, assuming at this stage the VRS
framework.
(1.1)
PB = {( x, y ) | x ≥ X λ , y ≤ Y λ , eλ = 1, λ ≥ 0}
Using notations as in Cooper et al. (2000), the input oriented version of the BCC will write as
follows:
min θ B
subject to
θ B x0 − X λ ≥ 0
(1.2)
Y λ ≥ y0
eλ = 1
λ ≥0
where θB is a scalar value.
The following proposition can be proven:
Proposition (Tone, 1999): When two locally (in the BCC set-up) efficient DMUs merge to form a
new DMU whose inputs and outputs equal the sum of inputs and respectively outputs of the two
original DMUs, the new DMU is neither locally (BCC), nor globally (CCR) efficient when
increasing returns-to-scale prevails at all three DMUs.
A conclusion that can be drawn from the above proposition is that a first line of analysis when
analyzing the merger is to evaluate the properties of the technological frontier around the merging
firms, and if both or all the merging firms are located on IRTS, the no technical efficiency is
possible. The only solution for the merger to create potential for efficiency and respectively welfare
gains is to resort to some reduction with respect to their inputs i.e. divestiture of some assets.
Carlton (2009) argues that evaluating the appropriateness of merger policy requires more data than
the pre and post-merger market developments (price levels, entry/exits etc.). The reason for this
requirement is a potential selection bias arising from the fact that mergers that passed through the
“second-stage” of the CA’s merger evaluation procedure are only a subset of all potential mergers,
alongside both approved and rejected sets of mergers. He then proceeds to argue that it is useful to
analyze data describing the CA’s predictions related to the outcome of a potential merger.
In this regard, employing DEA in the manner described in the preceding sections provides the CA
with a handy, fast and easy-to-employ tool related to the distribution of efficiency in both the pre
and the post-merger environment, coupled with the simulated post-merger environment, resulting
from constructing the technological frontier supported by the unit resulted from the simple
aggregation of the inputs/outputs of the undertakings proposed for merging.
230
Volume 12, Issue 2(16), 2012
2. Employing DEA when information about prices and costs are available
In the evaluation of a merger, it is fairly common to have access to product prices on the relevant
markets as well as input prices. Although input prices are not normally included in the CA’s request
for merger notification these are fairly easy to gather and can, in any circumstance, be satisfactorily
approximated (labor and capital costs, financing costs and various raw materials’ prices).
When this type of information is available, one can proceed to evaluate whether there has been any
improvement in the allocative efficiency of the resulting undertaking following the merger.
We will start with the model proposed in Färe, Grosskopf and Lovell (1985):
s
m
r =1
i =1
max ∑ pr yr − ∑ ci xi
sjt.to
n
yro = ∑ yrj λ j − sr+ , r = 1,.., s
j =1
n
xio = ∑ xij λ j + si− , i = 1,.., m
(1.3)
j =1
where
yrj are outputs (products), assumed all positive
x ij are inputs (factors), assumed all positive
pr > 0, unit prices
ci < 0, unit costs
and
n
y r = ∑ yrj λ j , r = 1,.., s
j =1
n
xi = ∑ xij λ j , i = 1,.., m
(1.4)
j =1
It can be shown (Cooper et al., 2000) that this model is equivalent with:
s
m
r =1
i =1
max ∑ pr sr+ + ∑ ci si−
subject to
n
yro = ∑ yrj λ j − sr+ , r = 1,.., s
(1.5)
i =1
n
xio = ∑ xij λ j + si− , i = 1,.., m
j =1
λ j ≥ 0, sr+ , si− ≥ 0∀i, j , r
with
sr+ = yr − yro , r = 1,.., s
si− = xio − xi , i = 1,..m
231
(1.6)
Volume 12, Issue 2(16), 2012
The optimal solution to this programme is obtained when:
s
∑ps
r =1
+*
r r
m
+ ∑ ci si− * = 0
(1.7)
i =1
The above condition implies that all slacks are zero.
Employing the additive model underlined above allows one to distinguish between technical and
allocative efficiency, as illustrated in the section below (Cooper et al., 2000, pp 223-224):
x2
D
c1x1+c2x2
R
Q
D
C
x1
We can represent technical efficiency by the ratio of the distance measures from O to R and from O
to P, as follows:
0 ≤ θ o* =
d (O , R )
≤1
d (O , P )
The θo* represents total efficiency and it can be decomposed into technical and allocative
efficiency, as follows:
d (O , R ) d (O , R ) d ( O , Q )
=
⋅
d (O , P ) d (O , Q ) d (O , P )
allocative
efficiency
technical
efficiency
It is reasonable to assume that, following an approved merger, in the post-merger evaluation, a
significant increase should noted in the allocative efficiency of the newly formed undertaking, as
compared with the best of the pre-merger entities. Should this not be the case, it is a sign that the
merger has not had positive effects in the reallocation of resources. This leads naturally to the
conclusion that it is very unlikely that and price reduction will be passed on to consumers, and that
the merger should not have been cleared by the CA.
CONCLUSIONS
Merger reviews is a core business of Competition Authorities (CAs). While the focus is on marketside effects, such as the ability of the newly formed company to raise prices or the lessening of
competition due to the decrease in the number of market players, the issue of assessing efficiency
gains in the presence of a merger has been less considered in the merger reviews. In this paper I use
an additive model to show that there are circumstances where a merger cannot induce technical
efficiency gains, thus limiting the scope for potential welfare gains. I argue that in the presence of
such a scenario, the CA should strongly consider banning the proposed merger.
In order to properly asses the efficiency gains brought about by a proposed merger, a reference to
the best practice in the field has to be performed. DEA is a versatile tool, and has been used
extensively in assessing technical efficiencies, both at the individual firm level and sector wise. To
date, several attempts have been made to model the potential efficiency gains following a merger.
The European Union Merger Regulation and the Horizontal Merger Guidelines make a clear
reference to the existence of efficiency gains as an argument in favor a merger, as long as these
232
Volume 12, Issue 2(16), 2012
gains can offset potential anticompetitive effects of the merger. There seems to be a gap between
the types of efficiencies that the CAs aim to identify in merger reviews and the evaluation of
efficiency gains from the management literature and this paper is an attempt to bridge that gap.
Acknowledgement
The author acknowledges financial support from the European Social Fund through Sectoral
Operational Programme Human Resources Development 2007-2013, project number
POSDRU/1.5/S/59184 “Performance and excellence in postdoctoral research in Romanian
economics science domain”.
ENDNOTES:
(1) The views expressed in this paper are author’s own and do not necessarily represent the views of his
employer(s).
(2) In this paper, I use the term “merger” to refer to all types of corporate transactions which are referred to as
“concentrations” under the EU competition regulations.
(3) Amihud et al. (2002) on cross-border bank mergers; Agrawal and Jaffe (2001) provide a comprehensive
review on the literature concerned with the long-run financial performance following mergers and acquisitions.
(4) Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings [2004] OJ L
24/1
(5) Basically, this means that at least one of the merging parties should not be located on the efficiency frontier. It
is true that, in the unlikely scenario that all the merging parties are fully efficient, once can consider the
possibility of a frontier shift (technical progress) associated with the merger.
REFERENCES:
1. Agrawal, A., and Jaffe, J. F. (2001). “The post-merger performance puzzle”. Advances in
Mergers and Acquisitions, Stamford, CT: JAI Press, 2000
2. Amihud, Y., G. De Long and A. Saunders (2002), The effects of cross-border bank mergers on
bank risk and value, Journal of International Money and Finance 21, 6, pp. 857-877
3. Carlton D., (2009) "Why We Need to Measure the Effect of Merger Policy and How to Do It,"
CPI Journal, Competition Policy International, vol. 5.
4. Cooper, W. W., L. M. Seiford and K. Tone, (2000) Data Envelopment Analysis, Kluwer, USA
5. Banker, R.D., A. Charnes, W.W. Cooper, (1984) “Some models for estimating technical and
scale inefficiencies in data envelopment analysis,” Management Science, 30, 1078-1092.
6. Bogetoft P. and Otto L. (2010) “Benchmarking with DEA, SFA and R”, Springer-Verlag, New
York Inc.
7. Bogetoft, P. and D. Wang (2005) “Estimating the potential gains from mergers”, Journal of
Productivity Analysis 23:2, 145-71
8. Farrel, J. and C. Shapiro (2001) “Scale economies and synergies in horizontal merger analysis”,
Antitrust Law Journal, 68:685-710
9. Färe R., Grosskopf S. and C.A.K. Lovell (1985) The measurement of the efficiency of
production, Boston: Kluwer-Nijhoff Publishing Co.
10. Ferrier, G.D. and V.G. Valdmanis (2004), “Do mergers improve hospital productivity”?,
Journal of the Operational Research Society 55:1071-80
11. Padilla, A. J.(2005), Efficiencies in Horizontal Mergers: Williamson Revisited. Issues In
Competition Law And Policy, Wayne Dale Collins, ed., American Bar Association Press.
12. Sherman, H. D. and T.J. Rupert (2006), “Do bank mergers have hidden or foregone value?
Realized and unrealized operating synergies in one bank merger”, European Journal of Operational
Research, 168:253-68
233
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE USE OF ARIMA MODELS FOR FORECASTING
THE SUPPLY AND DEMAND INDICATORS FROM TOURISM
SECTOR
University Assistant Ph.D. Student Iulian CONDRATOV
"Stefan cel Mare" University of Suceava, Romania
[email protected]
University Assistant Ph.D. Student Pavel STANCIU
[email protected]
Abstract:
This paper presents the use of ARIMA models in making prognosis for the tourism industry. Within this
analysis were taken variables that capture both the supply and the demand for tourist services. These variable data are
related to the tourism sector from the County of Suceava – Romania and have been taken from TEMPO-Online data
base-time series, managed by the National Institute of Statistics. The analysis results were able to highlight, even under
the severe impact that the financial crisis had the last three years that the tourism sector of Suceava will continue to be
on an ascendant trend in terms of supply and demand indicators.
Key words: ARIMA, demand, supply, tourism sector
JEL classification: L83, C10
INTRODUCTION
The tourism sector in Suceava County has benefited from a remarkable development in
recent years. The analysis of the statistic data provided by Suceava County Department of Statistics
reveals that at least the last ten years ascendant trends in most indicators are found and they
quantify Suceava tourism market through two components: demand and supply.
In the analysis that we propose on tourism market in the Suceava County, we chose 3
features that capture both supply and demand for tourist services recorded within the profile market
of Suceava County, as follows:
• Overnight stays in tourist structures;
• Number of accommodated tourists;
• Accommodation capacity.
The above features are tracked chronologically, the recording being made annually.
Although tourism activity is an activity where a strong seasonal pattern can be found, by taking into
account the analysis of annual data has been removed the influence of the climatic factors (changes
of seasons) and also the influence it has on various tourist festivals throughout the year.
Thus, we will try to achieve an econometric model that includes the major economic factors
that influence the 3 variables analysed (Table no.1).
Table no. 1. Evolution of indicators of interest from 1990 to 2011
Year
1990
1991
1992
1993
1994
1995
1996
Overnight stays in tourist structures
-OSTS1050185
1046696
629000
628308
605590
592808
502705
Accommodated tourists
-AT390163
372710
308469
240719
235032
235507
206315
234
Accommodation capacity
-AC6841
6478
6511
6300
6235
5654
4979
Overnight stays in tourist structures Accommodated tourists
-OSTS-AT1997
407446
163398
1998
409859
149395
1999
424337
153416
2000
480298
153515
2001
461095
151370
2002
406651
162423
2003
423208
162473
2004
432448
187412
2005
435199
192120
2006
500302
211003
2007
535078
226277
2008
530110
229068
2009
479402
209725
2010
460637
194365
2011
556249
229519
Source: (The National Institute of Statistics) www.insse.ro
Year
Volume 12, Issue 2(16), 2012
-AC5455
5277
5416
5269
5034
5192
5577
5755
6526
7012
6831
7029
7554
8033
8843
1. DETERMINATION OF ARIMA MODELS FOR PROGNOSIS
Box & Jenkins (1970) have proposed a methodology to forecast a variable using as a database only
its past and present. These models are very popular due to:
• The quality of the generated forecasts;
• The flexibility of the models;
• The rigor of the mathematical base of the model;
• The fact that this is an appropriate method for predicting variables with an irregular
trend, too.
An autoregressive-moving average ARMA (p,q) model has an autoregressive type component or an
average moving type component:
Yt = a 0 + a1Yt − 1 + a 2Yt − 2 + .... + apYt − p − b1εt − 1 − b 2εt − 2 − ... − bqεt − q + εt
(1)
is a white
Where p is the order of the autoregressive part, q is the moving average order and
noise type process (a sequence of independent and identically distributed random variables with
zero mean).
To elaborate such models the following reasons are advised:
• The evolution of the economic phenomena is fuelled by the existing resources, the
already created capacities, the experience and the tradition. Variables in economy have
an inertial character, a strong autoregressive component being presented (mainly in
macroeconomic indicators);
• Moving average type component is the effect of unpredictable events on the variable,
effects gradually assimilated in time. This component is justified by the intervention of
sudden unexpected changes among the external factors correlated to the variable. For
example, strikes effect in Greece during the last two years led to the deterioration of the
tourism activity indicators of the country. The moving average part captures the gradual
assimilation of shocks (accidental deviations) from outside the system.
The ARMA models are suitable for stationary series. These were generalized for non-stationary
series that become stationary by differentiation; the resulting models are called autoregressiveintegrated-moving average ARIMA (p,d,q) where d is the order of differentiation required for
stationary series.
Stages (the methodology) to develop an ARIMA (p,d,q) model are:
• Identifying the model → specifying the appropriate values for p, d or q;
• Estimation of model parameters → estimating the coefficients ai, bi;
235
•
•
Volume 12, Issue 2(16), 2012
Testing the validity of the model. If the model is not valid then the model is once
more specified (other plausible values for p,d,q) and the previous stages are repeated;
Using the model to generate predictions (after it passed the validation tests).
The analysis was performed using SPSS v.17 statistical analysis software.
There was an attempt for retrieving an ARIMA (p,d,q) model to forecast the values for the future
periods for the 3 variables (overnight stays in tourist structures, accommodated tourists,
accommodation capacity).
While processing time series through Box-Jenkins strategy, the identification of the 3 parameters
represents one of the important stages of the approach. Relevant information to determine p and q
parameters are obtained by calculating the autocorrelation function values - ACF and partial
autocorrelation function - PACF, and by drawing the corresponding graphs of the two functions.
The first step in building the model is to make graphics for data series.
Figure no.1. The evolution
of overnight stays in tourist
structures indicator
during 1990- 2011
Figure no.2. The evolution of
the number of accommodated
tourists indicator
during 1990-2011
Figure no.3. The evolution
of accommodated capacity
indicator (no. of places)
during 1990-2011
The features ‘graphics cannot present a seasonal manifestation.
The decline of Suceava tourism sector that followed after 1990 is obvious, the most severe
reduction of the overnight stays in tourist structures variable was during 1991-1997 – due to the
reduction in the number of tourists and the capacity of accommodation.
Signs of revival can be found starting from 2001-2002, but, apart from accommodation
capacity, the recorded levels at the end of 2011 for the other two features (overnight stays in tourist
structures, number of accommodated tourists) are still far from those recorded at the end of 1990.
In the first part of the analysis we will attempt to retrieve candidate models suitable for
considered forecasts.
The trend component can be observed in all 3 graphics, indicating the necessity for
differentiate the data series. For clearer evidence of the stationary feature and of the auto-regressive
component of data series it is essential to do the analysis for both the autocorrelation and the partial
autocorrelation of the values of each series.
Figure no.4.
Figure no.6. Partial
Figure no.5. Partial
Partial autocorrelation function
autocorrelation function
autocorrelation function chart
chart for the overnight stays in
chart
for the accommodation
for the number of
tourism structures variable
accommodated tourists variable capacity variable (no. of places)
236
Volume 12, Issue 2(16), 2012
One can easily see within the associated graphics that all 3 variables indicate a nonstationary state of the values as for a lag of order 1 the partial autocorrelation function achieves
breakthroughs of the statistical significance. Thus, a differentiation of order 1 could resolve the
non-stationary state problem.
The differentiation of order 1 leads to the following results regarding partial autocorrelation graphs:
Figure no.7.
Partial autocorrelation
function chart for the
overnight stays in tourism
structures variable –
differentiation of order 1
Figure no.8.
function chart for the number
of accommodated tourists
variable – differentiation of
order 1
Figure no.9.
function chart for the
accommodation capacity
variable – differentiation of
order 1
There is no partial autocorrelation coefficient above the critical level of significance; that
indicates the absence of non-stationary data series and the necessity of change, implying the
differentiation of order 1 for these variables when applying a regression analysis.
However, there is no fixed algorithm in establishing an accurate ARIMA (p,d,q) model
optimally; it is necessary to complete an iterative process through which the 3 parameters will take
different values, then will be applied a criterion for candidate models found .
Thus, by refining different models using the stationary R2 criterion we chose the following
adjustment models for data series related to the 3 variables:
Figure no.10. The ARIMA model chart for the
overnight stays in tourist structures variable
237
For the overnight stays in tourist structures
variable the ARIMA (0,1,0) model was
found. Diagnosing an ARIMA candidate
model is a crucial stage of the construction
process of the final model that involves the
verification of random distribution of
residues.
First, by analysing the stationary R2
indicator (see Table no.2) we observe that
the built model explains 57% of the
variation in the series. Also, the Ljung-Box
test is not statistically significant, so the
model can be considered viable.
Volume 12, Issue 2(16), 2012
Table no.2. Diagnosing the ARIMA model for the overnight stays in tourist structures
variable
Model
Overnight stays in tourist
structures-Model_1
Model Fit statistics
Ljung-Box Q(18)
Number of
Predictors
Stationary R-squared
Statistics
DF
Sig.
Number of
Outliers
0
.571
22.664
18
.204
2
For the number of accommodated tourists
variable the best was the ARIMA (1,0,1)
model. Analysing the stationary R2 indicator
we find that the built model explains 74% of
the variation in the series. Also, the LjungBox test is not statistically significant, so the
model can be considered viable.
Figure no.11. The ARIMA model for the
number of accommodated tourists variable
Table no.3. Diagnosing the ARIMA model for the number of accommodated tourists’ variable
Ljung-Box Q(18)
Model
Number of
Predictors
Statistics
DF
Sig.
Number of
Outliers
Number of accommodated
tourists-Model_1
0
.740
9.090
16
.910
0
For the accommodation capacity variable
the best was the ARIMA (0,2,0) model.
Regarding the accommodation capacity
variable the model explains 48% of the
variation in the series.
Even if the Box-Ljung test is not
statistically significant confirming the fact
that residues are randomly distributed, at
the same time it provides evidence of
building an accurate model.
Figure no.12. The ARIMA model for the
accommodation capacity variable
Table no.4. Diagnosing the ARIMA model for the accommodation capacity variable
Model
Accommodation capacity no. of places-Model_1
Number of
Predictors
0
Ljung-Box Q(18)
Statistics
DF
Sig.
.483
13.968
18
.731
238
Number of
Outliers
1
Volume 12, Issue 2(16), 2012
2. INTRODUCTION TO THE PREDICTIVE MODELS OF THE INDEPENDENT
VARIABLES
Although, as we determined, the retrieved models succeeded to explain in a relatively large
proportion the variation found in the observed data series, their ability to predict could be improved
by introducing into the econometric model, of independent variables correlated with the dependant
variables of interest.
Therefore, we chose to enter the following variables:
• Civilian employees in the tourism sector;
• Share of the turnover of companies in the tourism sector of total small and medium
enterprises;
• Gross domestic product;
• Net investments in tourism sector;
• Real earnings.
Given the need for the calculation of values expressed in comparable prices, we chose the variables:
GDP, net investments in tourism sector and real earnings, using the calculated indices with
comparable values.
Table no.5. Chosen indicators as independent variables to increase the prediction power of
ARIMA models
Year
Civilian employees
– hotels and
restaurants –
thousands of
people
Share of the turnover of
companies of active small
and medium enterprises in
the tourism sector/total
1990
186
1991
213
1992
175
65.3
1993
131
69.1
1994
136
77
1995
123
79.9
1996
116
73.3
1997
130
69.9
1998
98
71.9
1999
100
73.4
2000
93
74.7
2001
79
74
2002
95
76.1
2003
105
79.1
2004
133
77.8
2005
133
78.8
2006
136
79.3
2007
142
81.5
2008
162
83.8
2009
125
84.6
2010
133
84.3
Source: (The National Institute of Statistics) www.insse.ro
Indices of
real
earnings –
1990=100%
100
81.5
70.8
58.9
59.1
66.5
72.7
56.2
58.4
57
59.4
62.4
63.9
70.8
78.3
89.5
97.4
111.8
130.3
128.3
123.6
Indices of
net
investment
s–
1990=100
%
100
114.7
196.1
140.2
172.7
308.8
221.4
170.9
207.3
237.8
153.9
162.5
162
197.8
265.4
300.7
359.6
416.1
598.2
362.2
403.4
Indices of
GDP –
1990=100%
100
74.1
68.7
54.4
43.5
59.2
81.3
67.9
61.6
96.6
94.2
95.1
102.3
104.4
111
120.4
128.3
136.4
146.4
136
134.9
The study of the correlation matrix of variables (Appendix no. 1) indicates statistically
significant correlations between them. The share of turnover achieved by active small and medium
enterprises/total, Indices of the real earnings - 1990=100%, Indices of net investments in the tourist
sector - 1990=100% and Indices of GDP - 1990=100%. Thus, to avoid the phenomenon of
multicollinearity, of the 5 proposed variables were retained only Civilian employees -in the tourism
sector – and Indices of GDP - 1990=100%.
239
Volume 12, Issue 2(16), 2012
The further analysis builds on the results of univariate ARIMA models found in the previous
stage. Even though we have these landmarks, the iterative process of finding the parameters (p,d,q)
will continue to capture the optimal prediction model.
The model for - Overnight stays in tourist structures variable was ARIMA (4,2,1), in
which, after the iterative process of modifying the parameters, we kept only the independent
variable Civilian employees - the tourism sector. This variable manages to estimate a proportion of
81.7% of variation recorded during 1990-2011 by the dependent variable.
Table no.6. Diagnosing the ARIMA model for the overnight stays in tourist structures
variable
Model
Number of
Predictors
Overnight stays in tourist
structures-Model_1
Ljung-Box Q(18)
Stationary R-squared Statistics
1
.817
13.447
DF
Sig.
Number of
Outliers
13
.414
1
Table no.7. Description of the ARIMA model for the
overnight stays in tourist structures variable
Estimated
Overnight
stays in
tourist
structures
t
Sig.
41729.370
71891.100
.580
.572
Lag 1
.554
.731
.758
.463
Lag 2
-.907
.356
-2.546
.026
Lag 3
.244
.538
.453
.659
Lag 4
-.082
.371
-.222
.828
Constant
AR
SE
Difference
2
Lag 1
.984
8,175
.120
.906
Numer Lag 0
Civilians
employed - ator
the tourist
sector
-299.000
610.842
-.489
.633
MA
Figure no.13. Autocorrelation function
chart and partial autocorrelation
for the overnight stays in tourist
structures variable
In diagnosing the model we notice the absence of autocorrelation of residues.
Although because of the reduced volume of the analysed sample the estimations of the
parameters for econometric models lose their significance, we are able to specify, through the only
statistically representative parameter that a one unit increase in the value of the difference between
the number of nights spent in tourist structures two years ago, will reduce the current value of this
feature by 0.907 units.
Unfortunately for - The number of accommodated tourists variable, the new introduced
variables failed to improve the model, so the initial model named ARIMA (1,0,1) will be kept with
no predictors.
If the first 2 variables targeted the demand for tourist services, the latter introduced in the
analysis concerns the supply in tourist services, namely the evolution of the accommodation
capacity.
In order to maximize the stationary R2 criterion, we chose the ARIMA (4,0,5) model and we
introduced in the econometric modelling only the independent variable Civilian employees – in
tourist sector.
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Volume 12, Issue 2(16), 2012
Table 8 – Diagnosing the ARIMA model for the accommodation capacity variable
Model
Number of
Predictors
Accommodation capacity –
no. of places-Model_1
1
Ljung-Box Q(18)
Stationary R-squared Statistics
.920
14.375
DF
Sig.
Number of
Outliers
9
.110
0
Table no.9. Description of the ARIMA model for
the accommodation capacity variable
Estimate
SE
t
Sig.
Accommo- Constant
dation
AR
Lag 1
capacity
Lag 2
(no. of
places)
Lag 3
7483.698
1230.696
6.081 .000
1.229
050
24.595 .000
.237
.004
53.577 .000
-.327
.021 -15.881 .000
Lag 4
-.208
.006 -32.850 .000
Lag 1
.572
4.417
.130 .899
Lag 2
.280
2.455
.114 .911
Lag 3
.580
3.229
.180 .861
Lag 4
.238
2.432
.098 .924
Lag 5
-.825
4.132
-.200 .845
Predictor 1 Numerat Lag 0
or
-3.195
5.054
-.632 .540
MA
Figure no.14. Autocorrelation function
chart and partial autocorrelation for the
accommodation capacity variable
The model explains 92% of the total variation of the accommodation capacity during the analysed
period. Through the parameters statistically representative, we can specify the following:
• If they could cancel the influence of other factors, the value of the dependent variable
would be 7484 accommodation places;
• A one unit up of the value of the difference of accommodation capacity 1 year ago
would increase the current value of the feature by 1.229 units. To increase by one unit
the next years, the current value of the feature would follow a descendant trend (from
0.237 to -0.208).
Consequently, for two of the analysed variables, one characterizing the market demand, the other
characterizing the existing offer, they managed to improve the model by introducing an independent
variable.
Before making forecasts on variables of interest, it is recommended to compare the univariate
ARIMA models found in the first part of the study and the predictor models identified above to
choose the final model and after that to forecast the values of the variables of interest for the next 2
years.
Figure no.15. The chart of ARIMA models built for
the overnight stays in tourist structures variable
241
Figure no.16. The chart of ARIMA
models built for the accommodation
capacity variable
Volume 12, Issue 2(16), 2012
It can be seen clearly the fact that the predictor models are better in estimating the recorded
variation in data series during the analysed period. Moreover, if we analyse the models’ behaviour
over the last three years, when the effects of the economic crisis occurred, we find that the predictor
models perform better, the unvariate model related to the overnight stays in tourist structures
indicates an inaccurate evolution.
Thus, to determine the expected values of the 3 analysed variables, the following models will be
used:
• For the variable Overnight stays in tourist structures -the ARIMA (4,2,1) model with
the predictor civilian employees in tourist sector;
• For the variable Number of accommodated tourists - the univariate ARIMA(1,0,1)
model;
• For the variable Accommodation capacity - the ARIMA (4,0,5) model with the predictor
civilian employees in tourist sector.
After applying these models, the predicted values for the 3 variables of interest, during 2012-2013,
are as follows:
Table no.10. Predicted values for the next 2 years for the 3 analysed variables
Overnight stays in tourist structures
Number of accommodated tourists
(no. of places)
2012
642752.74
767277.65
518227.83
253331.54
301133.32
205529.75
8828.14
9576.31
8079.97
Forecast
UCL
LCL
Forecast
UCL
LCL
Forecast
UCL
LCL
2013
637531.55
869867.21
399195.89
254686.50
302981.81
166383.18
8941.22
9856.84
8025.60
CONCLUSIONS
All 3 indicators of demand and supply in tourism services present increased predicted values
and we assume that the development of Suceava tourist sector will continue during the next years.
According to the values determined through the analysis, an increase with 86504 of the number of
overnight stays in tourist structures is estimated with a probability of 95%, for 2012, compared to
2011. Regarding the accommodated tourists, their number will increase in 2012 compared to 2011
with 23813 tourists.
If the first two variables are expected to increase significantly in 2012, for the variable
accommodation capacity (no. of places) stagnation is estimated in 2012, an increase with
approximately 100 accommodation places is expected to be registered in 2013. It is necessary however, that this trend be supported by a proper market strategy, by
increasing the quality of tourism services and, perhaps, most importantly, by developing the road
infrastructure which will allow an increased number of tourists, given that the most used means of
transportation for people that arrive in Bucovina zone is the automobile.
REFERENCES
1. Andrei, T.S. (2003), Statistică. Teorie şi aplicaţii (ed. Ediţia a II-a), Bucureşti, Editura
Economică.
2. Alleyne, D. (2006), Can Seasonal Unit Root Testing Improve the Forecasting Accuracy of
Tourist Arrivals? Tourism Economics, 12, pp.45-64.
242
Volume 12, Issue 2(16), 2012
3. Brannas, K., Hellstrom, J., Nordstrom, J. (2002), A new approach to modelling and forecasting
monthly guest nights in hotels. International Journal of Forecasting, Vol. 18, pp.19-30.
4. Divisekera, S. (2003), A Model of Demand for International Tourism. Annals of Tourism
Research, 30, pp.31-49.
5. du Preez J., Witt, S.F. (2003), Univariate versus multivariate time series forecasting: an
application to international tourism demand. International Journal of Forecasting, Vol. 19, pp.435451.
6. Hapenciuc, C.V. (2003), Cercetare statistică în turism – Studiul fenomenului turistic în judeţul
Suceava, Bucureşti, Editura Didactică şi Pedagogică.
7. Hapenciuc, C.V. (2004), Elemente de analiză şi prognoză în turism, Studiu de caz – judeţul
Suceava. Iaşi, Editura Junimea.
8. Kulendran, N., Witt S.F. (2003), Forecasting the demand for international business tourism,
Journal of Travel Research, 41, pp.265–271.
9. Lee, C.C., Chang, C.P. (2008), Tourism Development and Economic Growth: A Closer Look at
Panels, Tourism Management 29, pp.180-192.
10. Louca, C. (2006), Income and Expenditure in the Tourism Industry: Time Series Evidence from
Cyprus, Tourism Economics 12, pp.603-617.
11. Li, G., Song H. Witt S.F. (2005), Recent developments in econometric modelling and
forecasting, Journal of Travel Research, 44, pp.82-99.
12. Oh, C., Morzuch B.J. (2005), Evaluating Time-Series Models to Forecast the Demand for
Tourism in Singapore. Journal of Travel Research, 43, pp.404-413.
13. Popescu, T. (2000), Serii de timp. Aplicaţii în analiza sistemelor. Bucureşti: Editura Tehnică.
14. Proença, S., Soukiazis, E. (2005), Tourism as an Alternative Source of Regional Growth in
Portugal: A Panel Data Analysis at NUTS II and III Levels, Portuguese Economic Journal, 6,
pp.121-135.
15. Wong, K.K.F., Song, H., Witt, S.F., Wu, D.C. (2007), Tourism Forecasting: To Combine or Not
to Combine? Tourism Management, 28, pp.1068-1078.
16. *** Institutul National de Statistică, TEMPO-Online - serii de timp, 2012,
https://statistici.insse.ro/shop/.
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Volume 12, Issue 2(16), 2012
APPENDIX 1
Table The Matrix of Correlations
Share of the
Civilian
Indices of net
turnover of
Indices of real
employees – companies of active
investments in
earnings tourist
tourist sectorsmall and medium
1990=100%
sector
1990=100%
enterprises in the
tourism sector/total
Civilian employees – Pearson
Correlation
tourist sector
1
Sig. (2tailed)
N
Share of the
turnover of
companies of active
small and medium
enterprises in the
tourism sector/total
Pearson
Correlation
Indices of real
earnings 1990=100%
Sig. (2tailed)
N
.413
.067
.019
.895
.063
.772
.935
21
21
21
21
1
**
**
.733**
.000
.000
.000
-.031
.895
.747
.739
21
21
21
21
Pearson
Correlation
.413
.747**
1
.759**
.816**
Sig. (2tailed)
.063
.000
.000
.000
21
21
21
21
21
Pearson
Correlation
.067
.739**
.759**
1
.714**
Sig. (2tailed)
.772
.000
.000
21
21
21
21
21
Pearson
Correlation
.019
**
**
**
1
Sig. (2tailed)
.935
N
Indices of gross
domestic product 1990=100%
-.031
21
N
Indices of net
investments in
tourist sector 1990=100%
21
Indices of
GDP 1990=100%
.733
N
21
** - Correlation is significant at the 0.01 level (2-tailed)
244
.816
.000
.714
.000
.000
.000
21
21
21
21
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
COMBINING FORECASTS BASED ON ECONOMETRIC MODELS
FOR SHORT RUN MACROECONOMIC PREDICTIONS WITH
HIGH DEGREE OF ACCURACY
Mihaela BRATU (SIMIONESCU)
Academy of Economic Studies, Faculty of Cybernetics, Statistics and Economic Informatics
Bucharest, Romania
[email protected] .
Abstract:
For a certain macroeconomic variable more predictions based on different methods could be made. The
essential problem is to establish the most accurate forecast, using different indicators. The econometric modeling is one
of the most used forecasting method. A strategy to improve the accuracy of the predictions based on econometric model
is to make combined forecasts. In this paper, for inflation rate, unemployment rate and interest rate were made
predictions based on ARMA procedures, VAR(2) models and models with lagged variables. For all the analyzed
variables in Romania, ARMA models generate more accurate forecasts than VAR(2) models or models with lags. For
inflation and interest rate optimal combination and equal-weights-scheme determined the most accurate predictions,
while for unemployment rate ARMA models remain the best forecasting method in terms of accuracy.
Key words: forecasts, accuracy, ARMA models, inflation rate, unemployment rate, interest rate, combined
forecasts
JEL Classification: E21, E27,C51, C53
I. INTRODUCTION
In establishing the monetary policy, the deciders must take into account the possible future
evolution of some important macroeconomic variables as inflation rate, unemployment rate or
interest rate. This fact implies the knowledge of the predictions of these indicators. In econometrics
we can build forecasts starting from a valid model. The real problem appears when we have some
alternative models and we must choose the one with the higher degree of accuracy.
In this article, we modeled the three selected variables and we made predictions for them.
Using indicators of accuracy we demonstrated that ARMA models generate the best forecasts in
Romania for unemployment rate, while combined forecasts of ARMA and VAR(2) models are the
best choice for inflation and interest rate.
II. THE FORECASTS ACCURACY EVALUATION IN LITERATURE
To assess the forecast accuracy, as well as their ordering, statisticians have developed
several measures of accuracy. For comparisons between the MSE indicators of forecasts, Granger
and Newbold proposed a statistic. Another statistic is presented by Diebold and Mariano (1995) for
comparison of other quantitative measures of errors. Diebold and Mariano test proposed in 1995 a
test to compare the accuracy of two forecasts under the null hypothesis that assumes no differences
in accuracy. The test proposed by them was later improved by Ashley and Harvey, who developed a
new statistic based on a bootstrap inference. Subsequently, Diebold and Christoffersen have
developed a new way of measuring the accuracy while preserving the cointegrating relation
between variables.
Armstrong and Fildes (1995) showed that the purpose of measuring an error of prediction is
to provide information about the distribution of errors form and they proposed to assess the
prediction error using a loss function. They showed that it is not sufficient to use a single measure
of accuracy.
Since the normal distribution is a poor approximation of the distribution of a low-volume
data series, Harvey, Leybourne, and Newbold improved the properties of small length data series,
applying some corrections: the change of DM statistics to eliminate the bias and the comparison of
245
Volume 12, Issue 2(16), 2012
this statistics not with normal distribution, but with the T-Student one. Clark evaluated the power of
equality forecast accuracy tests , such as modified versions of the DM test or those used by or
Newey and West, based on Bartlett core and a determined length of data series.
In literature, there are several traditional ways of measurement, which can be ranked
according to the dependence or independence of measurement scale. A complete classification is
made by Hyndman and Koehler (2005) in their reference study in the field, “Another Look at
Measures of Forecast Accuracy “:
- Scale-dependent measures
- Scale-independent errors:
-> Measures based on percentage errors
-> Measures based on relative errors
->Relative measures
- Free-scale error metrics (resulted from dividing each error at average error).
∧
If we consider, X t (k ) the predicted value after k periods from the origin time t, then the
error at future time (t+k) is: et (t + k ) . In practice, the most used measures of forecast error are:
•
Root Mean Squared Error (RMSE): RMSE =
•
Mean error (ME): ME =
1 n 2
∑ e X (T0 + j, k )
n j =1
1 n
∑ e X (T0 + j, k )
n j =1
The sign of indicator value provides important information: if it has a positive value, then
the current value of the variable was underestimated, which means expected average values too
small. A negative value of the indicator shows expected values too high on average.
•
Mean absolute error (MAE)
1 n
∑ e X (T0 + j, k )
n j =1
U Theil’s statistic is calculated in two variants by the Australian Tresorery in order to
evaluate the forecasts accuracy.
The following notations are used:
a- the registered results
p- the predicted results
t- reference time
e- the error (e=a-p)
n- number of time periods
MAE =
n
∑ (a
U1 =
t
− pt )
t =1
n
∑
t =1
a t2 +
n
∑f
t
2
t =1
246
Volume 12, Issue 2(16), 2012
The more closer of one is U1 , the forecasts accuracy is higher.
n −1
U2 =
∑(
t =1
n −1
f t +1 − a t +1 2
)
at
∑(
t =1
a t +1 − a t 2
)
at
If U 2 =1=> there are not differences in terms of accuracy between the two forecasts to
compare
If U 2 <1=> the forecast to compare has a higher degree of accuracy than the naive one
If U 2 >1=> the forecast to compare has a lower degree of accuracy than the naive one
III. THE MODELS USED TO MAKE MACROECONOMIC FORECASTS
The variables used in models are: the inflation rate calculated starting from the harmonized
index of consumer prices, unemployment rate in BIM approach and interest rate on short term. The
last indicator is calculated as average of daily values of interest rates on the market. The data series
for the Romanian economy are monthly ones and they are taken from Eurostat website for the
period from february 1999 to october 2011. The indicators are expressed in comparable prices, the
reference base being the values from january 1999.
After applying the ADF test (Augmented Dickey-Fuller test) for 1, 2 and 4 lags, we got that
interest rate series is stationary, while the inflation rate (denoted rin) and the unemployment rate
(denoted rsn) series have one single unit root each of them. In order to stationarize the data we
differenced the series, rezulting stationary data series:
rit = rin t − rin t −1
rs t = rsn t − rsnt −1
Taking into account that our objective is the achievement of one-month-ahead forecasts for
August, September and October 2011, we considered necessary to update the models. We used two
types of models: a VAR(2) model, an ARMA one and a model in which inflation and interest rate
are explained using variables with lag. The models for each analyzed period are shown in the table
below. We developed one-month-ahead forecasts starting from these models (see Appendix A),
then we evaluated their accuracy.
Table 1. Models used for one-month-ahead forecasts
Reference
period of data
series
VAR(2)
February
1999-July
2011
RI =
- 0.332549643*RI(-1) - 0.09857499949*RI(-2) + 0.6959845127*RD(-1)
0.3327243579*RD(-2) - 1.149402259*RS(-1) - 6.645103743*RS(-2) + 0.1609208367
-
RD = 0.03639407301*RI(-1) + 0.01505176501*RI(-2) + 0.7472206176*RD(-1)
0.08865293152*RD(-2) + 1.645267366*RS(-1) + 0.08076722019*RS(-2) + 0.01458050352
+
RS = 0.0001340429611*RI(-1) + 0.0009177472885*RI(-2) - 0.001883934895*RD(-1) +
0.002434943796*RD(-2) + 0.009381493101*RS(-1) + 0.1624923521*RS(-2) - 0.0002147805616
February
RI = - 0.3123344702*RI(-1) - 0.0790328783*RI(-2) - 1.201638141*RS(-1) - 6.690049339*RS(-2)
247
1999-August
2011
Volume 12, Issue 2(16), 2012
+ 0.6969093653*RD(-1) - 0.3324227192*RD(-2) + 0.1522329367
RS = 0.0001159284236*RI(-1) + 0.0009002358633*RI(-2) + 0.009428300954*RS(-1) +
0.1625326272*RS(-2) - 0.001884763643*RD(-1) + 0.002434673502*RD(-2) - 0.0002069954542
RD = 0.03566791295*RI(-1) + 0.01434978199*RI(-2) + 1.647143759*RS(-1)
0.08238173503*RS(-2) + 0.7471873955*RD(-1) + 0.08864209619*RD(-2) + 0.01489258624
February
1999September
2011
+
RI = - 0.2950275431*RI(-1) - 0.06113106597*RI(-2) - 1.235890563*RS(-1) - 6.707442706*RS(2) + 0.6833790828*RD(-1) - 0.319815167*RD(-2) + 0.1449318154
RS = - 3.100273337e-05*RI(-1) + 0.0007482542901*RI(-2) + 0.009719094807*RS(-1) +
0.1626802922*RS(-2) - 0.001769895183*RD(-1) + 0.002327638774*RD(-2) - 0.0001450108972
RD = 0.03589036766*RI(-1) + 0.01457988307*RI(-2) + 1.646703495*RS(-1)
0.08215816926*RS(-2) + 0.7470134839*RD(-1) + 0.08880414745*RD(-2) + 0.01479874122
Reference period
of data series
ARMA
February 1999July 2011
rit = 0,159 − 0,223 ⋅ ε t −1 + ε t
rs t = 0,747 ⋅ rs t −1 − 0,691 ⋅ ε t −1 + ε t
rd t = 0,941 ⋅ rd t −1 + ε t
February 1999August 2011
rit = 0,157 − 0,222 ⋅ rit −1 + ε 1t
rs t = 0,748 ⋅ rs t −1 − 0,691 ⋅ ε 2t −1 + ε 2t
rd t = 0,941 ⋅ rd t −1 + ε 3t
February 1999September 2011
rit = 0,99 ⋅ rit −1 − 0,98 ⋅ ε t −1 + ε t
rs t = 0,74 ⋅ rs t −1 − 0,69 ⋅ ε t −1 + ε t
rd t = 0,94 ⋅ rd t −1 + ε t
Reference period of
data series
Models having variables with lags
February
2011
rit = 0,115 + 0,215 ⋅ rd t −1 + ε t
1999-July
rd t = 0,098 + 0,257 ⋅ rit − 2 + 0,264 ⋅ rit −1 + ε t
February 1999-August
2011
rd t = 0,098 + 0,258 ⋅ ri t − 2 + 0,264 ⋅ ri t −1 + ε t
February
1999September 2011
rd t = 0,098 + 0,257 ⋅ rit − 2 + 0,264 ⋅ ri t −1 + ε t
rit = 0,113 + 0,221 ⋅ rd t −1 + ε t
rit = 0,11 + 0,226 ⋅ rd t −1 + ε t
Source: own calculations using EViews.
248
+
Volume 12, Issue 2(16), 2012
In building the VAR models we check that the lag is 2 for stationarized variables, three of
the criteria indicating this fact (see Appendix B).
The forecasts based on these models are presented in Annex A and these are made for
August, Septembre and October 2011 in the version of one-step-ahead forecasts.
IV. THE ASSESSMENT OF SHORT-RUN FORECASTS ACCURACY IN
ROMANIA
A generalization of Diebold-Mariano test (DM) is used to determine whether the MSFE
matrix trace of the model with aggregation variables is significantly lower than that of the model in
which the aggregation of forecasts is done. If the MSFE determinant is used, according
Athanasopoulos and Vahid (2005), the DM test can not be used in this version, because the
difference between the two models MSFE determinants can not be written as an average. In this
case, a test that uses a bootstrap method is recommended.
DM t =
T ⋅ [tr ( MSFE ARMA mod el ) h − tr ( MSFEVAR ( 2) mod el ) h ]
1
1
⋅ T ⋅[
s
T
s
T
∑ (em
2
1,1,t
=
+ em 22,1,t + em32,1,t − er12,1,t − er22,1,t − er32,1,t )]
t =1
The DM statistic is calculated as:
T-number of months for which forecasts are developed
emi ,h,t −
eri ,h,t −
the h-steps-ahead forecast error of variable i at time t for the ARMA model
the h-steps-ahead forecast error of variable i at time t for the VAR(2)
s- the square root of a consistent estimator of the limiting variance of the numerator
The null hypothesis of the test refers to the same accuracy of forecasts. Under this
assumption and taking into account the usual conditions of central limit theorem for weakly
correlated processes, DM statistic follows a standard normal asymptotic distribution. For the
variance the Newey-West estimator with the corresponding lag-truncation parameter set to h − 1 is
used.
On 3 months we compared in terms of accuracy the predictions for all the three variables,
predictions made starting from VAR(2) models and ARMA models. The value of DM statistics
(34,48) is greater than the critical one, fact that shows there are significant differences between the
two predictions. The accuracy of forecasts based on ARMA models is higher than that based on
VAR models.
Table 2. Indicators of forecasts accuracy for the inflation rate
Inflation rate
Indicators of accuracy
VAR(2)
Models used to build the forecasts
ARMA
Models with lag
RMSE
4,482473
0,430998
1,262643
ME
1,385
0,234863
-1,06267
MAE
3,577667
0,415137
1,062667
MPE
4,854135
0,823079
-3,72371
MAPE
12,57103
1,45622
3,723707
U1
0,021042
0,00854
0,017756
U2
41,27034
3,968221
11,62521
Source: own calculations using Excel.
249
Volume 12, Issue 2(16), 2012
VAR(2) and ARMA models have the tendency to underestimate the forecasted values of
inflation rate unlike the models with lag, fact that can be seen analyzing the ME values (Table 2).
The predictions of inflation based on ARMA models have the higher accuracy, the value close to
zero for U1 confirming this observation as the other accuracy indicators that registered the lowest
values. As the U2 Theil’s statistic has values higher than one for al one-step-ahead forecasts, the
naïve predictions are better than those based on VAR(2) models, ARMA models or models with lag
for inflation rate.
Table 3. Indicators of forecasts accuracy for the unemployment rate
Unemployment rate
VAR(2)
ARMA
RMSE
0,022821
0,008324
ME
0,0019
0,0076
MAE
0,0219
0,0076
MPE
5,049578
15,40997
MAPE
44,41572
15,40997
U1
0,429091
0,966619
U2
0,0008
0,000292
For the unemployment rate the VAR(2) models underestimate the forecasted values. The
values registered by the indicators are contradictory, because some of the indicators of accuracy
indicate a higher precision for predictions based on VAR(2) models (ME,MPE,U1), and the others
consider that ARMA models should be used in forecasting the unemployment rate (RMSE,
MAE,MAPE). Relative RMSE indicator is 2,74, fact that suggests a higher accuracy for predictions
based on ARMA models. The unemployment rate forecasts based on both models are better than
those obtained using the naïve model (Table 3).
Table 4. Indicators of forecasts accuracy for the interest rate
Interest rate
VAR(2)
ARMA
Models with lag
RMSE
0,027382
0,002357
0,023588
ME
0,026633
0,001283
0,022933
MAE
0,026633
0,00215
0,022933
MPE
36,17233
1,715201
31,05321
MAPE
36,17233
2,902297
31,05321
U1
1,346936
0,245252
1,215116
U2
0,000961
0,00008278
0,000828
250
Volume 12, Issue 2(16), 2012
The best forecasts for the interest rate are those based on ARMA models, all the indicators
of accuracy having registered the lowest values. For all the presented models we observed the
underestimation tendency for the predicted values. Only ARMA models have a good accuracy, the
value cloose of zero for the U2 statistics (0,245) validating this conclusion, unlike VAR models or
those with lag for which U1 registered values greater than one. The forecasts based on proposed
models have a higher acccuracy than those based on naive models (Table 4).
The most used combination approaches are: the optimal combination (OPT), with weak
results according Timmermann (2006), the equal-weights-scheme (EW) and the inverse MSE
weighting scheme (INV).
Bates and Granger (1969) considered two predictions p1;t and p2;t, for the
same variable Xt, derived h periods ago. If the forecasts are unbiased, the error is calculated as:
ei, t = X i,t − pi,t (1)
The errors follow a normal distribution of parameters 0 and σ i2 . If ρ is the correlation between the
errors, then their covariance is σ = ρ ⋅σ ⋅σ . The linear combination of the two predictions is a
12
1 2
weighted average:
ct = m⋅ p1t + (1− m)⋅ p 2t (2)
The error of the combined forecast is:
ec,t = m⋅e1t + (1− m)⋅e2t (3)
The mean of the combined forecast is zero and the variance is:
σ 2 = m 2 ⋅σ 2 + (1 − m) 2 ⋅σ 2 + 2 ⋅ m ⋅ (1 − m) ⋅σ
c
1
2t
(4)
12
By minimizing the error variance, the optimal value for m is determined ( mopt ):
mopt =
σ 22 −σ 12
(5)
2
2
σ 1 +σ 2 − 2⋅σ 12
The prediction error variance of the optimally combined forecast is:
σ 12 ⋅σ 22 ⋅(1− ρ 2 )
2
σ opt =
(6)
σ 12 +σ 22 − 2⋅ ρ ⋅σ 1 ⋅σ 2
Stock and Watson (2004) were interested in the variances of the forecast errors. The individual
forecasts are inversely weighted to their relative mean squared forecast error (MSE) resulting INV.
In this case, the inverse weight ( minv ) is:
σ 22
minv =
(7)
2
2
σ 1 +σ 2
The prediction error variance of the inversely combined forecast is:
σ 2 ⋅σ 2 ⋅(σ 2 +σ 22 + 2⋅ ρ ⋅σ 1 ⋅σ 2 )
(8)
σ2 = 1 2 1
inv
2
2
2
(σ 1 +σ 2 )
251
Volume 12, Issue 2(16), 2012
Equally weighted combined forecasts (EW) are gotten when the same weights are given to all
models, disregarding all information of the covariance matrix of the prediction errors and taking the
average.
The forecast error variance of EW is:
2 = 1 ⋅σ 2 + 1 ⋅σ 2 + 1 ⋅σ ⋅σ ⋅ ρ
σ eq
(9)
4 1 4 2 2 1 2 12
The combined forecasts based on the three approaches are presented in Appendix C and the
forecasts accuracy is evaluated and compared with the accuracy of ARMA predictions.
Table 5. Indicators of forecasts accuracy for the inflation rate
Inflation rate
Indicators
accuracy
Approach for combined forecasts
of OPT
INV
RMSE
0,26899134
ME
-0,31784
MAE
0,31784
MPE
-0,01114
U1
0,006325
U2
2,871405
EQ
0,4140799
-0,24257
0,391567
-0,0085
0,007298
3,316775
0,4225052
-0,23933
0,403333
-0,00839
0,007446
3,383922
For the inflation rate the best combined forecasts are those based on OPT scheme, according
to RMSE, MAE and U1 indicators and those based on EQ scheme according to ME and MPE. To
compare the forecast we use U1 indicator that shows a great improvement of accuracy in combining
procedure (Table 5).
.
Table 6. Indicators of forecasts accuracy for the interest rate
Interest rate
Indicators
accuracy
Approach for combined forecasts
of OPT
INV
RMSE
0,00255941
ME
-0,00143
MAE
0,003475
MPE
-0,01896
U1
0,025031
U2
2,259169
0,0031179
-0,00235
0,002647
-0,0317
0,021502
1,934593
252
EQ
0,0027151
-0,00185
0,00238
-0,02481
0,01866
1,683695
Volume 12, Issue 2(16), 2012
For combined forecasts of interest rate again OPT scheme and EQ one are the best
according to RMSE, ME and MPE for the first one and according to MAE and U1 for the second. A
very high improvement of accuracy could be observed when we combine VAR predictions with
ARMA ones (Table 6).
Table 7. Indicators of forecasts accuracy for the unemployment rate
Unemployment rate Approach for combined forecasts
Indicators
of OPT
INV
accuracy
RMSE
0,00906841
ME
-0,008
MAE
0,007996
MPE
-0,16132
U1
0,098045
U2
0,845276
0,0082695
-0,00753
0,007531
-0,15285
0,09161
0,829859
EQ
0,0082959
-0,00757
0,007566
-0,15349
0,091944
0,830098
For unemployment rate combined forecasts, the INV is the recommended scheme according
to all accuracy indicators. All the predictions based on combining scheme are better than the naïve
forecasts on the forecasting horizon. However, the predictions based on ARMA models are better
than combined ones, according to U2 values less than 1 (Table 7).
V. CONCLUSIONS
Analyzing the results of this research, we recommend the use of ARMA models in making
predictions about macroeconomic variables as inflation rate, unemployment rate or interest rate in
Romania on a short horizon. We got the highest accuracy for these forecasts, that proved to be
better even the VAR(2) models or models with lagged variables. Actually, some observations are
lost when the model uses lagged variables. The superiority of ARMA models over VAR ones was
demonstrated also for the economy of Pakistan by Bokhari and Feridun (2005).
Combined forecasts are a good strategy to improve the forecasts accuracy for inflation and
interest rate, the optimal and equally weighted combined forecasts being the best choice. For
unemployment rate inverse MSE weighting scheme generated rather accurate monthly forecasts,
but the ARMA procedure remained the best.
REFERENCES
1. Armstrong, J. S. , Collopy F. (2000), “ Another Error Measure for Selection of the Best
Forecasting Method: The Unbiased Absolute Percentage Error,” International Journal of
Forecasting, 8, p. 69-80.
2. Armstrong, J. S. , Fildes R. (1995), “On the selection of Error Measures for Comparisons
Among Forecasting Methods”, Journal of Forecasting, 14, p. 67-71
3. Athanasopoulos, G., and Vahid, F., 2005. A Complete VARMA Modelling Methodology
Based on Scalar Components, working paper, Monash University, Department of Econometrics and
Business Statistics
4. Bates, J., and C. W. J. Granger (1969), The Combination of Forecasts, Operations Research
Quarterly, 20(4), 451-468.
253
Volume 12, Issue 2(16), 2012
5. Bokhari SM. H., Feridun M. (2005), Forecasting Inflation through Econometrics models : An
Empirical Study on Pakistani Data, The Information Technologist Vol.2(1), p. 15-21
6. Diebold, F.X. and Mariano, R. (1995),“Comparing Predictive Accuracy,” Journal of Business
and Economic Statistics, 13, p. 253-265
7. Fildes R., Steckler H. (2000), “The State of Macroeconomic Forecasting”, Lancaster
University EC3/99, George Washington University, Center for Economic Research, Discussion
Paper No. 99-04
8. Hyndman R. J., Koehler A.B. (2005), “Another Look at Measures of Forecast Accuracy”,
Working Paper 13/05, disponibil la http://www.buseco.monash.edu.au/depts/ebs/pubs/wpapers/
9. Timmermann, A. (2006), Forecast Combinations, chap. 4, pp. 135-196, Handbook of
Economic Forecasting. G. Elliott, C. Granger, and A. Timmermann, Elsevier.
10. EUROSTAT,
2011.
Data
base.
[online]
Available
at:
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes [Accessed on November 2011].
APPENDIX A
The one-month-ahead forecasts based on different models
One-month-ahead forecasts using VAR(2) models
august
Inflation rate
Interest rate
Unemployment rate
september
21,45
0,038
0,028
octomber
31,7
0,0497
0,032
28,17
0,0534
0,0808
One-month-ahead forecasts using ARMA models
august
Inflation rate
Interest rate
Unemployment rate
september
28,7404
0,07135
0,0375
octomber
27,99
0,0715
0,0427
28,04
0,0743
0,0435
One-month-ahead forecasts for interest rate and unemployment rate using the inflation rate from
previous periods
august
Interest rate
Unemployment rate
september
0,0497
28,93
octomber
0,0455
29,123
0,057
30,61
APPENDIX B
The selection of VAR lag
VAR Lag Order Selection Criteria
Endogenous variables: RI RD RS
Exogenous variables: C
Date: 12/01/11 Time: 17:05
Sample: 1999:02 2011:07
254
Volume 12, Issue 2(16), 2012
Included observations: 142
Lag
LogL
LR
FPE
AIC
SC
0
259.5526
NA
5.41E-06 -3.613417 -3.550970
1
1006.452
1451.719
1.66E-10 -14.00636 -13.75657*
2
1021.749
29.08714
1.52E-10* -14.09506* -13.65793
3
1030.278
15.85707
1.53E-10 -14.08843 -13.46396
4
1036.375
11.07658
1.59E-10 -14.04753 -13.23572
5
1048.669
21.81737* 1.52E-10 -14.09393 -13.09477
6
1051.139
4.279695
1.67E-10 -14.00196 -12.81547
7
1060.328
15.53007
1.67E-10 -14.00462 -12.63078
8
1068.504
13.47339
1.70E-10 -13.99301 -12.43184
* indicates lag order selected by the criterion
LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion
HQ
-3.588041
-13.90486
-13.91743*
-13.83467
-13.71765
-13.68791
-13.51982
-13.44635
-13.35861
Source: EViews output.
APPENDIX C
Combined forecasts for inflation, interest rate and unemployment rate
Inflation rate forecasts using combining approaches based on VAR and ARMA models
Approach
OPT
INV
EQ
August
September
28,21445
28,69351
28,71696
October
28,25765
28,01386
28,00193
28,04938
28,04084
28,04042
Interest rate forecasts using combining approaches based on VAR and ARMA models
Approach
OPT
INV
EQ
August
September
0,076068
0,069985
0,070667
October
0,074584
0,070607
0,071054
0,077257
0,073444
0,073872
Unemployment rate forecasts using combining approaches based on VAR and ARMA models
Approach
OPT
INV
EQ
August
September
0,03816
0,037385
0,037442
October
0,043444
0,04257
0,042635
255
0,040907
0,043953
0,043726
Volume 12, Issue 2(16), 2012
SECTION 5
LAW AND PUBLIC ADMINISTRATION 256
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
THE IMPORTANCE OF USING INDICATORS TO MEASURE THE
PERFORMANCE OF THE PUBLIC WATER AND SEWERAGE
SERVICE
Assistant Professor Ph.D. Irina BILOUSEAC
,,Stefan cel Mare” University of Suceava, Romania
[email protected]
Abstract:
The article deals with the problem of reforming the public water and sewerage service, in the context of
applying the decentralization and deconcentration, as principles of organization and functioning of the public
administration.
A priority of public administration is the reform of public services. In order to measure the efficiency of a
public service and the extent to which public services fulfill the strategic objectives it is necessary to exist some
performance indicators.
The purpose of the analysis made in this article is to investigate the current status of the public water and
sewerage service, starting from a first aspect analyzed, namely the share of the population served by the public water
supply system, in the developing regions. We consider appropriate the emphasizing of the decentralization status
regarding the water and sewerage service existing in Romania, as well as of the potential indicators that could be used
to measure this service.
Key words: public administration management, centralization, decentralization, local autonomy, local public
administration, local communities
JEL classification: H83
INTRODUCTION
Any public service must meet a series of strategic objectives, such as the adaptability to the
customer requirements, the continuity over time of the service, both from qualitative and
quantitative point of view, equal accessibility of all the customers to public services, etc. [1]
By 1990, Romania had one of the most centralized forms of administrative organization, the
decisions aiming the local communities were the appanage of the central government. [2] After four
decades of centralized administration, Romania decided to return to the decentralized organization
of local public administration, by transferring the responsibilities and the administrative, financial
and material competences from the central level to the local level, a principle reflected otherwise in
the Romanian Constitution, revised in 2003. Law no. 215/2001 on local public administration,
republished in 2008, refers to the obligation of public administrations to effectively and properly
organize their functioning for the provision of public services. For the normal functioning of any
community, public administration pursues to satisfy the public interest, the public utility, in a
disinterested manner by making public services, such as water supply, heat transport, gas
distribution, sewerage, sanitation etc.
In the analysis I’ve done, I stopped primarily on the decentralized water and sewerage
services, because these services have a direct impact upon the degree of development and health of
the population.
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Volume 12, Issue 2(16), 2012
THE STATE OF THE DECENTRALIZATION OF WATER SUPPLY SERVICES IN
ROMANIA
The decentralized water and sewerage services are activities of public utility and of general
economic interest, under the authority of local public administration which have the purpose to
provide water and sewerage services for all users within the localities [3].
The decentralization of public services must respect the principles of coherence and the
unity of implementing public politics for the benefit of all citizens, of coordination and territorial
solidarity.
The possible degree of decentralization of public water and sewerage service depends on a
series of factors, such as: territorial structure, local collectivity dimension, nature, territorial
importance and dimension of the service, the effective capacity of local and regional authorities to
assume the appropriate tasks.
Like any public service, public water and sewerage service must meet certain essential
requirements: universality, equality of treatment, continuity, safety of persons and service,
adaptability and long-term management, transparency and supportability.
Before 1990, there were companies in the districts that provided all the activities considered
local household activities, namely: the centralized home heating system, the centralized water
supply and sewerage system, the sanitation and the management of residential areas that were not
privately owned but in the state property. Owner of goods related to these activities were the county
companies that were state companies. The managers of these companies were appointed by political
decision makers. Prices had components for operation and maintenance. The investments were
made only with funds received from the state.
After a period of centralized management, Romania decided to return to the principle of
autonomy through decentralization and transfer of responsibilities to local communities [4]. After
1990, these services have started to operate in a decentralized manner, and the major changes from
the Romania society and the tendency of alignment to the organization of Western society left their
mark on the management of these major issues. According to the existing legislation, the
infrastructure for public water supply service belongs to the public domain whose owner is the local
public authority [5].
POSSIBLE INDICATORS FOR MEASURING THE PERFORMANCE OF PUBLIC
WATER AND SEWERAGE SERVICE
The decentralization and deconcentration of any public service should consider the creation
of a new system of evaluation and monitoring of its quality and performances, a system that should
be based on the use of performance indicators. Thus, in order to be able to measure the efficiency of
a public service and the extent to which public services meet the strategic objectives it is necessary
to have performance indicators that can be defined as the cipher interpretation of a given measure.
The indicators for the regular assessment of public services performance, under the terms of
their decentralization or deconcentration, offers some information necessary to formulate
appropriate strategies on the services provided. The analysis of these indicators should answer
several questions such as:
What are the priorities of the strategy of decentralization/deconcentration of public
services and the efficient modality of allocating available resources?
What kind of services should be offered on the market and what quantity?
Are the services provided sufficiently diversified?
There is the material basis necessary to provide services to the customers’
expectation?
To what extent the provided services meet the customers’ expectation? etc.
The possible indicators proposed below have been determined on the basis of several sources,
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Volume 12, Issue 2(16), 2012
among the most relevant being: Law 195/2006 on decentralization, published in the Official Gazette
no. 453 from 25 May 2006, Government Decision no. 139/2008 on approving the Methodological
Norms for applying the Law of decentralization, the Manual for monitoring the decentralization
process of public administration in Romania, issued by the Ministry of Interior and Administrative
Reform in October 2007, the indicators included in the Framework Law on public utilities services
and in the laws specific for each public service (water supply, sewerage, public lighting, local
public transport, social services, cultural institutions of local interest, health, education etc.).
We consider relevant the application of the following indicators:
- the existence of a strategy for water and sewerage service performed by the local public
authority that manages the service;
- the existence at the institution level of a regulation concerning the organization and
operation of water and sewerage service;
- the number of people served by public water and sewerage service;
- the tariff for water and sewerage service;
- the efficiency of public water and sewerage services;
- the existence of staff professional training, which is an indicator that measures the
performance of decentralized public services of water and sewerage;
- the number of information events about the decentralization process of water and sewerage
service
- the ratio between the own revenues of a financial unit and the revenues received from the
state budget for the efficient operation of public services, etc.
Next, we want to consider one of these indicators, namely the population served by public
water supply system. We believe that, higher the accessibility of a service is, greater the
performance of that service becomes, the number of consumers being influenced inversely
proportional to the cost of the service. On the other hand, the provision of this water and sewerage
service to the entire population is a principle of organization and functioning of the public service,
but also an obligation assumed by Romania at the international level, a public service must ensure
egalitarian access for all users.
In 2011, the population served by public water supply system was of 12.089.562 persons,
representing 56.5% of the population in Romania (a slight increase compared to the previous years
54.9% in 2009, 55.7% in 2010).
In the table below we present the share of population served by public water supply
system, in the developing regions, in 2011.
Table no.1 The share of population served by public water supply system, in the developing
regions, in 2011
Regiunea CENTRU
61,7 %
Regiunea NORD VEST
60,1 %
Regiunea VEST
64,9 %
Regiunea SUD-VEST OLTENIA
44,5 %
Regiunea SUD MUNTENIA
52,5 %
Regiunea SUD-EST
60,3 %
Regiunea NORD-EST
39,7 %
Regiunea BUCURESTI - ILFOV
79,3 %
Source: National Institute of Statistics, Press Release No. 228 of 28th September 2012, Water distribution in 2012, p.13, accessed on October 10th , 2012
259
Volume 12, Issue 2(16), 2012
61,70%
79,30%
60,10%
39,70%
60,30%
64,90%
52,50%
44,50%
Regiunea CENTRU
Regiunea NORD VEST
Regiunea VEST
Regiunea SUD-VEST OLTENIA
Regiunea SUD MUNTENIA
Regiunea SUD-EST
Regiunea NORD-EST
Regiunea BUCURESTI - ILFOV
Figure no. 1 Share of population served by public water supply systems in the developing
regions in 2012
From the data presented above we remark the fact that at the end of 2011 the share of the
population that has drinking water supply networks in the North - Eastern Region, which includes
our County, Suceava, occupies the last place with a share of only 39,7% to 56.5% the national
average, but also compared to the other regions. The highest percentages of population served by
public water supply system are recorded in the region Bucharest - Ilfov, with a percentage of
79.3%, followed by the West region with 64.9%.
In this context, it has to be improved the public access, especially in the North – Eastern
Region, to the water infrastructure, by providing water supply, sewerage and wastewater treatment
services of the required quality and quantity, in accordance with the European standards. It is
necessary to modify, amend and supplement the existing legal framework on water supply and
sewerage services, which aims to improve the way of organization and functioning, so that each
citizen to have the access to these services in an efficient and non-discriminatory manner
CONCLUSIONS
The measurement of performance in public institutions and services, in order to optimize
them, is a step towards public administration reform, which brings with it an extra rigor and
transparency to the activity of public service providers [6]. In this sense, if the authorities of public
administration manage to provide services with lower costs and generating the highest possible
satisfaction index, it will get to meet general interest of the beneficiaries.
Administration authorities should start to develop the strategies, policies and methodological
norms at national or local level for all types of public services, whether decentralized or devolved,
then to correlate them with each other and, most importantly, to take appropriate measures to their
implementation because providing a higher quality of these leads to increased consumer satisfaction
and quality of life. It should be always considered what is the most effective way to follow:
continuing the decentralization to the lowest structures or, on the contrary, applying a policy of
regional development. Both of them, properly applied, strengthen the role and the responsibilities of
local government, with the diminishing of the governmental institutions involvement in such
matters [7].
ENDNOTES
[1] Munteanu V. A., (2003), Management public local, Editura TipoMoldova, Iaşi, p. 214
260
Volume 12, Issue 2(16), 2012
[2] Zaharia P., From centralization to crisis decentralization in public administration management - an
epistemological approach, The USV Annals of Economics and Public Administration, volume 12 , ISSUE 1
(15) /2012, ISSN 2066-575X, p.273
[3] Water supply and sewerage service is regulated by Law no. 241/2006, published in Official Gazette no.
563 of 29/06/2006.
[4] Guide on regionalization of water supply and sewerage services, (2008), Bucharest,
fondurieuropene.newschannel.ro/.../ghidul-aplicantului-privind-regionalizarea-serviciilor-de-alimentarecu-apa-si-de-canaliz... - pdf , accessed on October 10th 2012
[5] The strategy of decentralization for water supply, 2005, Pilot project: the county of Suceava, www.mie.ro,
accessed on October 24th 2012
[6] The performance measurement of the county capital cities of Romania in providing local public services
during the period 2003 - 2005, Bucharest, June 2007, www.ipp.ro, accessed on October 10th 2012
[7] Scutariu A.L., Aspects regarding the interconnection of regional science with regional development, The
USV Annals of Economics and Public Administration, volume 12 , ISSUE 1 (15) /2012, ISSN 2066-575X,
p.88
REFERENCES
1. Bedrule, Grigoruţă, M. V., (2008), The Management of Public Services, Tehnopress
Publishing House, Iaşi,
2. Filip, Gheorghe, Onofrei, M., (2004), Elements of Administration Science, Junimea
Publishing, Iaşi
3. Frège X., (1991), La décentralisation, Éditons La Découverte, Paris, translated from
French by Sabac, L., Petrescu, A., Humanitas Publishing House, Bucharest
4. Hinţea, C. E., Ghiolţan, C., (2000), Public Management, Cluj-Napoca
5. Iorgovan, A., (2005), Administrative Law Treatise, vol I, II, ediţia 4, Editura All Beck,
Bucharest
6. Kotler, P., (2000), The Marketing Management, Teora Publishing House, Bucharest, p.
576.
7. Manda, C., (2008), Dreptul colectivităţilor locale, Editura Lumina Lex, Bucharest
8. Munteanu V. A., (2003), Management public local, Editura TipoMoldova, Iaşi
9. Parlagi, A. P., Iftimoaie, C., (2001), Local Public Services, Economic Publishing House,
Bucharest
10. Petrescu, I., Muscalu, E., (2003), Public Management Treatise, The Publishing House of
Lucian Blaga University, Sibiu
11. Petrescu, R. N., (1994), Administrative Law, Vol. I, Cordial Lex Publishing House, ClujNapoca
12. Prisăcaru, V. I, (2002), Administrative Law Treatise, ediţia 3, Editura Lumina Lex,
Bucharest
13. Plumb, I., (2000), The Management of Public Services, ESA Publishing House,
Bucharest
14. Preda, M., (2007), Administrative Law. The General Part, Lumina Lex Publishing
House, Bucharest
15. Scutariu A.L., Aspects regarding the interconnection of regional science with regional
development, The USV Annals of Economics and Public Administration, volume 12, ISSUE 1 (15)
/2012, ISSN 2066-575X
16. Zaharia P., From centralization to crisis decentralization in public administration
management - an epistemological approach, The USV Annals of Economics and Public
Administration, volume 12 , ISSUE 1 (15) /2012, ISSN 2066-575X
17. The strategy of decentralization for water supply, 2005, Pilot project: the county of
Suceava, www.mie.ro, accessed on October 24th 2012
18. The performance measurement of the county capital cities of Romania in providing local
public services during the period 2003 - 2005, Bucharest, June 2007, www.ipp.ro,
accessed on October 10th 2012
261
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of Economics and
Volume 12,
Issue 2(16),
2012
SOVEREIGN STATE – THE CLASSIC BASIC SUBJECT OF PUBLIC
INTERNATIONAL LAW
Lecturer Ph.D. student Dumitriţa FLOREA
[email protected]
Lecturer Ph.D. Narcisa GALEŞ
[email protected]
Abstract:
The problem of subjects holds a central place in national and international law and is one central to the
general theory of law nationally and internationally, respectively. The whole motivation of the existence of law is
focused on determining the recipients of the rules it contains. It is essential to know to whom the rules, the norms and
the principles of international law are applied.
Contemporary international law is a system of principles and rules governing the relations between sovereign
states and other derivatives and secondary subjects in relation to states, rules that represent the will of states, and
respect for which if necessary it can be supplied or imposed by the use of coercion applied in individual or collective
basis.
International relations and international law have a coordinating nature, and not a subordinating one, as is
the situation in national law, given the fact that there is no organized political power on the subjects.
The notion of subject of law is common to any juridical, domestic or international order. It designates entities
that have the capacity to participate in legal relations governed by specific rules of a legal order and to be entitled to
the rights and obligations within it.
Being a central problem to the theory and practice of law and international relations, this subject is
permanently in the attention of researchers. The dynamics of life and international relations is likely to impose a
scientific reaction, doctrinal changes that occur in the contemporary world, their awareness, the scientific
consolidation.
Key words: public international law, international relations, subject of international law, sovereign state
JEL classification: K 33.
INTRODUCTION
The notion of subject of law is common to any legal order, be it domestic or international. It
designates entities that have the capacity to participate in legal relationships governed by the
specific rules of that legal order and to be entitled to the rights and obligations within it [1].
In the international law the notion of subject of law presents essential features in comparison
with the national law. These features , which refer to the nature, legal basis, content and scope,
determine the main differences between the concepts of subject of international law and subject of
national law.
The subject of national law is the holder of rights and obligations, whose capacity to
participate in legal relationships is required by law. Thus, in the national law, the law establishes the
subjects of law, governs their ability to enter into legal relations, determines the extent of the rights
that they can exercise and the obligations undertaken in the framework of these reports. According
to the law, subject of national law are the individuals and the legal entities.
The international law presents, under this aspect, features determined by the peculiarities of
the international relations that are subject to the legal regulation. The fact that, the international
relations are carried out with the direct participation of the states as sovereign and independent
entities, equal in rights, excludes the existence in this area of a "suprastatal body” or of a
"government" to determine, to regulate or to concede the quality of subject of international law.
This quality belongs to, above all, the state by virtue of its sovereignty. It can also be part of
other entities (peoples who are fighting for liberation, governmental and nongovernmental
262
Volume 12, Issue 2(16), 2012
international organizations, transnational companies, etc.) to the extent and within the limits
determined by the member states of the international community.
The quality of subject of international law defines, first of all, the legal situation of an entity
as the holder of international rights and obligations [2]. This is not just a trend, an abstract legal
capacity and it cannot be defined outside the reality of the international law within which it
manifests and exercises itself. On the contrary, it exists for states or other entities through the direct
participation as subjects of reports in which they exercise their rights and fulfil their obligations.
CHARACTERISTICS OF THE INTERNATIONAL PERSONALITY OF THE
STATE
Throughout history, states have been formed as a result of wars and the conquest of
territories, through inheritance, through marriages between monarchical families[3]. New states
have appeared with the formation and consolidation of the bourgeoisie, as a result of the struggle
for national independence. In this way arose the national unified states Italy, Germany or
independent states which were formed through the breakup of Empires (the Ottoman Empire, the
Habsburg monarchy). There were also formed many states through the separation of the colonies
from the metropole or dismemberment of Federated States (the USSR, Yugoslavia,
Czechoslovakia).
The state is a historical, political and legal phenomenon. Being a highly complex social
category, the notion of state can be analysed in several ways. In the definition of the state there are
several opinions influenced by different doctrines and ideologies. C. Dissescu (in the paper
Constitutional Law, Bucharest, 1915, p. 237) appreciates that in the classical theories, the state was
studied in an abstract way, being created a concept based more on what we want it to be than on
what it really is. Thus, the state is defined as a human collectivity, permanently settled down in a
given territory and having a structure of bodies of power that enjoys sovereignty. The state, once
organized, has a specific purpose and well determined functions. Of course, the main purpose of the
state lies in defending the general interest (common good). In this sense, Hegel was perfectly right
when he said: "if citizens do not go well, if their subjective purpose is not satisfied, if they do not
find that the intercession of this satisfaction represents the state itself as such, then the state sits on
weak legs" [4].
From this point of view, by state we must understand an organizational system that achieves
political leadership of a society, holding, with this purpose, the monopoly of creating and applying
the law.
According to David Scăunaş, the state, as a rule, is characterized as:
a. a political organization of society through which one achieves social leadership;
b. an organization, which holds the monopoly on the creation and application of law;
c. an organization that exerts power on an established territory of a human community;
d. a political organization of state power holders who exclusively can compel execution of
the general will, applying, in the case of necessity, coercion force [5].
Based on these characteristics, it was carried out an analysis of the idea of the state as a
subject of international law. The creation of an independent state should be based on the principle
of equality of peoples and of their right to dispose of themselves. Violation of this right and failure
to comply with the principle of non-interference in the internal affairs of states are illicit acts and
can be disputed and punished according to the international law.
The new states enjoy the quality of subject of international law from the moment of their
occurrence, the other states being forced to comply with their sovereign rights. The consideration of
state, as subject of international law, is expressed by the totality of the rights and obligations
resulting from membership to the international community and voluntary obligation to respect
them.
Unlike other subjects of international law, only the states possess the totality of rights and
obligations with international character. States are not only subjects of international law, but also
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the creators of this law. The quality of international legal personality of the state is characterized by
its intrinsic elements: through its sovereignty over its territory and the people that are on this
territory. In order to qualify a particular entity as a state having international legal personality
certain criteria must be taken into account.
International practice refers generally to "conventional" criteria developed by constitutional
law, having regard to the three fundamental elements of the existence of the state: two of
sociological order – population and territory –, and the third – a legal element – the existence of a
government. Being an independent, sovereign and organized community, situated on a certain
space, it has the quality of subject of law both in relation to the internal order and the international
one.
It is precisely the sovereignty of its power that gives it this double quality. On the basis of
this power, the state has the right to govern the society inside and establish relations with other
states, in conditions of full equality. If the internal side of sovereignty of the state regards its power
of command inside, embodied in the development of general rules and in the pursuit of their
application in social practice (achieving the rule of law), the external side of state is concerned with
its behaviour in the international society, its relations with other states.
Thus, sovereignty is the legal and political basis of the quality of state as a subject of
international law and it establishes the manifestation of this quality. The most complete definition
of the concept of state was given by the Montevideo Convention [6], which is accepted as
reflecting, in general terms, the conditions of statehood in customary international law.
According to this Convention, "the State as international personality must meet the following
conditions:
¾ established territory;
¾ permanent population;
¾ government;
¾ ability to enter in relations with other states”[7].
THE TERRITORY
The main element of the state is the territory, through which we understand the space in
which is established a certain human collectivity. Thus, the state territory represents the
geographic space made up of terrestrial, aquatic and marine areas, the soil, subsoil and aerial
space over which the state exercises its absolute and exclusive sovereignty [8]. Together with the
population and with the system of bodies of state power, the territory is one of the natural material
prerequisites for the existence and the stability of the state as the original subject of international
law. The territory defines the spacial limits of the existence and sovereignty thus establishing a
politico-legal notion.
We should mention that, without this item, a number of human beings, no matter how many,
would not be able to constitute a state. In other words, the territorial delimitation, determining the
exact geographical area over which the power of the state is exercised (its sovereignty) appears as a
key feature of the state.
Over the territory, the state exercises a power similar to that exercised on the population, i.e.
an authority of public order which does not overlap with the private relations. This confusion has
occurred in certain periods, for example, in the feudal system when the monarch considers himself
the owner of the Earth. After the dismemberment of feudalism and the formation of national States
it is elaborated the idea of territorial supremacy, one of the state's power over the territory, which
represents an aspect of sovereignty.
The territorial sovereignty of the state is characterized, on the one hand, through
exclusivity, meaning that over a territory one can only exercise the authority of a single state. Only
the state, through its own bodies may exercise legislative, the executive and judicial power.
Exercising the sovereignty of more states over the same territory would contradict the very concept
of sovereignty. On the other hand, territorial sovereignty is characterized by the plenitude of its
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exercise in the sense that the state is the only one able to determine the extent and nature of its
powers that it exercises within the territory of the state [9].
The state needs a territory in order to accomplish its goals of political-state organization.
Internally, because of the territory, the state has at its disposal a means to supervise and constrain
the individuals, to expel or prohibit them the stay or the departure. Externally, the territory
materializes the existence of the state in space and it gives it a base for protection, its resistance
being determined by the mastery of the territory.
Specialists in the field consider that, in order to determine the legal nature of the territory in
international law, it is necessary to start from the fact that the territory is:
○ a space of exercising exclusive sovereign power of the state;
○ a performance space of the right of the people to self-determination;
○ a subject of permanent sovereignty over national resources and wealth.
A nation, a people cannot exist without territory. This appears as the material expression of
the supremacy, the independence and the inviolability of the state and the people that lives there.
The state’s territory has two well-defined features:
¾ first of all, it is stable in the sense that the population that lives on it is placed in a
permanent, sedentary way (homo vagens, i.e. settling down in order to live there the whole
life);
¾ the territory has a delimited character, precise and fixed boundaries, within which is
exercised government activity, and the border marks the point from where local jurisdiction
ceases.
According to the international law, it does not mean that a state by expressing its will freely,
cannot grant to other states, through international conventions, certain rights to use its territory,
within well defined limits and usually on the basis of reciprocity. We refer, in particular, to the right
of transit (rail, road, air, etc.). Cooperation with other states or international organizations, which
can engage states to refrain, in their territory, from certain activities, such as non-proliferation of
nuclear or chemical weapons, to adopt and implement regulations relating to, for example, fighting
pollution or the uniform criminalization of certain offences, cannot be considered as limitations on
its sovereignty, but the consequences of the manifestasions of will of the state which opts for a
specific legal system in a given domain.
State borders are those real or imagined lines drawn between different points that divide the
territory of a state from that of an other state or, as appropriate, of the high seas, extending in
height up to the lower limit of extra-atmospheric space and in depth within the Earth up to the
reachable limits of modern technology [10].
In conclusion, the state territory was and is an essential element in the formation and the
existence of peoples (nations), in the development of national states in accordance with the
principles of self-determination. Moreover, analyzing the question of territory as a constituent part
of the state it is necessary to mention that the territorial integrity and inviolability of state borders
are not simple rules of international law. Starting from the importance of territory for the existence
of the state, therefore from that of subject of international law too, the very states have given to
these rules an imperative character enshrined in international law documents as fundamental
principles of contemporary public international law. The principle of territorial integrity is to be
strictly respected also in the process of self-determination which cannot and should not be confused
with separatist movements.
THE POPULATION
The human dimension is one of the constituent elements of the state and it is a criterion for
the definition of this concept. As a component element of the state, the population is made up of all
of the inhabitants of a territory, forming a comparably strong and organised community by the
internal laws of the state, in order to be able to subsist, through its own resources, and to form the
rationale and the substance of a state. That is, before anything, the state is a human community and
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it cannot exist without population, as there can be no territory or no government. Hypothetically,
the total disappearance of the population of a state – through emigration or other reasons – leads to
the disappearance of that State.
In linguistic terms, the population of a state is defined as all the inhabitants of that state
[11]. If we accept the general meaning of this definition, we understand that the population of a
country includes all the individuals who live on its territory [12]. But, in legal terms, this definition
presents a double inconvenience:
9 on the one hand, it is too broad because it includes also the foreigners who have residence in
one state, but who have not given up their national origin and who cannot be considered as
"constituent elements" of the state;
9 on the other hand, it excludes its own citizens, setteled down in other countries, but who
continue to participate in the political life of the state of origin.
There must be a stable and permanent legal bond between individuals and tate expressed
through citizenship. Thus, as a constituent part of the state, the population consists of all individuals
bound by state citizenship [13]. It comprises the totality of the citizens of a state from which the
overwhelming majority reside in the territory of that state, but some of them are in other states. On
the territory of a state, together with its own citizens can also reside foreigners, either on a generally
permanent basis (citizens of other states but residing in the state of residence, persons without
citizenship and refugees), or temporarily (tourists, business people, etc.).
The population within the boundaries of a state, whether it is related to it permanently
(citizens) or only temporarily (foreigners), is subject to the domestic law of that state, on the basis
of its sovereignty. The legal status of each category of persons forming the population is established
by the internal laws of that state (as argues I.M. Abode) with the exception of certain categories,
over which the jurisdiction of the State is limited (for example, persons with diplomatic status) [14].
At the same time, some issues regarding the population are the subject of international
cooperation (human rights, diplomatic protection, the legal status of stateless persons and
bipatrizilor, the legal system of refugees etc.). Although exclusive and discretionary, the exercise of
its duties is carried out with consideration of two postulates:
9 the system of nationals must not make irreversible violations of fundamental human rights,
and
9 the system of foreigners must not damage their interests or that of their state of origin and it
must not be biased.
At the same time, any state seeks to ensure a system as proper as possible for its citizens
who live permanently or temporarily in the territory of other states.Of those mentioned, it follows
that any state, in terms of the exercise of its powers over the population, has a double quality: as
state of origin and as receiving state. From here arises the need for compatibility of the different
national systems regarding the population. Finally, we conclude that the population is the basic
element of the state. It cannot be subject to changes from the outside and it is independent in its
existence.
THE GOVERNMENT
The third element, which contributes to the existence of the state is the government. The
state, as a political-social body cannot be made up only of the population and territory, but there
must, on this territory, exist a political organisation that controls the territory and to which the
population that inhabits it should, effectively, be subject to.
In this sense, a state involves the bringing together of its constituents – territory and
population in the context of an organized society with a government able to provide external and
internal functions, as well as the establishment of a real judicial and material order. Thus, the third
element is represented by the existence of a governmental mechanism, of a system of bodies
exercising authority in that entity, organizing and representing it in international relations.
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The forms of the exercise of power, the separation between the legislative, the executive and
the judicial powers, the structure of their bodies and the definite means by which they show their
authority, differ from one state to another. There are no established conditions, in respect of the
nature or form of government, the population is the one that decides what form of government it
prefers to have: monarchy or republic.
For this item to be considered met, in international relations, the plan requires that the
exercise of this authority to be exclusive and effective:
- exclusive, meaning the lack of other authorities which should be subject to the same
population and the same territory;
- effective, meaning the real achievement of power over the other two elements.
It should be noted that the government is the element that gives the shape and the proper
character of the state, ensuring its territorial and political integrity at the same time being awarded
the function of accomplishing the implementation of the laws of the State [15].
The notion of executive power often merges with the enforcement of laws. The enforcement
of laws is the duty of all subjects of law, all authorities, whether or not possessing a public
character. However, when we look at the executive we must mention that in this phrase continues
the notion of power, which means the ability to enforce a behaviour. Thus, in the enforcement of
laws and the rules established in the state there must be a body invested with the power to enforce a
behaviour.
In order to enforce the laws one needs to organize their execution, the preparation of the
material-financial background, the organizational and the methodical one. To this end, the
government has the power of a function whose provisions are binding on all subjects of law.
THE SOVEREIGNTY
The meeting of the three elements: population, territory and government, constitute the
premise, but does not lead directly to the recognition as a State of a given entity, nor does it explain
this quality in the sense of the international law. These elements characterise the state politically
and socially, but the doctrine shows that the criterion of the existence of the state should be an
element of legal order – the sovereignty. Thus, sovereignty is the defining element of the state's
existence (an essential feature of state’s power) manifesting itself with the advent of it, being as old
as the state itself and inseparable from it. We will give more details on the concept of sovereignty in
international law in chapter II of the present work.
In the specific literature, sovereignty was defined as "the unique, thorough and indivisible
supremacy, of the state’s power within the limits of the territorial borders and its independence in
relation to any other power" [16].
Sovereignty is manifested in the independence of the state in all fields of political,
economic, social and cultural life etc. and it materializes in establishing and carrying out its own
internal and external independent policy. The two sides of the sovereignty constitute a whole,
giving the expression of the indissoluble link between the internal and the external policy of the
state.
Sovereignty has the following essential features:
▪ exclusivity,
▪ original and plenary character
▪ indivisibility
▪ inalienability
The exclusivity is manifested by the fact that the territory of a state can be subjected only to
a single sovereignty [17]. The original and plenary character is determined by the fact that
sovereignty belongs to the state and it is not assigned from outside, and the prerogatives of state’s
power cover all fields of activity: political, economic, social etc.
The inalienability represents the fact that sovereignty cannot be abandoned or given up to
other states or international organizations.
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The mutual respect of sovereignty and national independence in relations between states,
in the process of collaboration and cooperation between them, represents the sine qua non condition
of normal viable relations, a climate of peace and understanding between nations.
Aspects of the quality of subject of international law of states with complex structure
The State, as social phenomenon, has known ,in its historical development, various forms.
From the point of view of international law, states are classified according to their structure, as well
as according to the duties the bodies that represent them have in international relations [18].
According to their structure, states are classified in:
• unitary states, (prevalent in the organization of European states) and
• composite states (represent the association between two or more states).
The unitary state is a simple state unit, with a single public authority and full proficiency. It
is characterized by the existence of a single body system of the supreme power, of the
administration and justice. Even if a unitary state is divided into territorial units, or if they know a
higher or lower degree of local autonomy, they are not likely to produce changes in its structure.
The vast majority of world states are organized as unitary states (Romania, Bulgaria, Hungary,
Poland, etc.). In international relations, the state appears as unique subject of international law.
The composite states represent associations between two or more states. Throughout
history, the composite states have experienced a variety of forms of association, starting with
simple or traditional types: "personal unions" and "real unions" and continuing with federations and
confederations.
We should mention that, from the point of view of the international law, there are no
differences between states as subjects of this law, be they unitary or composite states. This is
because, regardless of their structure, the states are subjects of international law and are equal in
rights. However, in the case of a composite state one can raise problems concerning the
determination of the subject of international law and its legal capacity. So, it is necessary to
establish, if only the composite state has the quality of subject of international law or this quality
belongs also to the states that make up that state, as well as the limits of their capacity.
For a better understanding of the real concept of the notionof state, we consider necessary to
state the following forms of composite states, namely:
▪ the personal union
▪ the real union
▪ the confederation and
▪ the federation.
The personal union represents the association between two states having as head of state
or monarch the same person. This kind of union was an association between two sovereign states
which continued to remain completely autonomous, but which were ruled by a single monarch. The
personal union refers to the international situation of two countries that, although, in theory, were
distinct from each other, they happen to have, in fact, the same sovereign.
This union of states is characterized by "the union ensured by the monarch" and does not
involve "the structural union" of the component states. Outside of this element, we must mention
that states remain, legally, distinct subjects of international law. Such unions have been created in
the past, when the sovereign of a state became at the same time and the sovereign of another
country, by choice [19] or game of succession [20].
The personal union thus created does not become the subject of international law. Each
member state of the union keeps its international legal personality, keeping also its own legislation,
administration and justice, concluding treaties in its name, having diplomatic representations. The
union is precarious and it will dissolve as soon as the coincidence that created it disappears. In some
cases, the personal union can represent a precursory stage of creating a real union. The personal
union of states does not involve any fusion of the international activity of the associated states.
Accordingly, the legal relations that are established between the two states are international law
relations and can be covered by the treaty.
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The real union represents the association of two or more states, with the same monarch as
well as the joint body of representation in the sphere of international relations and in other areas of
general interest (economic, finance, etc.)[21]. In terms of the constitutional, the legislative and the
administrative, each of the member states of the union constitutes a distinct unit. Essentially, the
real union is characterized by the parallel political-legal organization of the two states. It is asserted,
especially in the foreign field, and this, practically, leads to a unified foreign policy. In such a
union, the international personality of both the union and the states, depends entirely on the internal
arrangements of the member states and third states ' attitude towards it. Even if the real union has
some common features with the personal union [22], its own features are defining it as a distinct
institution. The real union represents a desired and determined union, and not only a casual one.
Therefore it is the tightest and most sustainable of all.
The Confederation is an association of two or more states, in which the states retain their
independence and the quality of subject of international law, creating at the same time common
bodies with limited powers in areas of general interest. The member states of this association retain
their legislative and executive bodies. The Confederation of states is formed on the basis of a treaty
in which are mentioned the common prerogatives, usually in defence, finance and foreign policy.
Distribution of competences is done by this federal pact, which is usually uneven. Thus, the
essential skills remain at the component states, while the Confederation has competence limited to
the administration of interests, expressly declared common. In case of uncertainty, the competence
of the confederate states shall be presumed. The states that are associated in the Confederation shall
create a joint body, called diet or congress [23]. Diet is only one central mechanism, which takes
the form of a deliberative assembly of a diplomatic kind. Governments give to their representatives
some imperative instructions to vote. Each delegation has one vote or the same number of votes.
The federation represents a complex structure made up of several states that do not have
the quality of state, within the meaning of the international law, but only the federal state has the
quality of subject of international law [24].
Unlike the confederation, the federal state works on the basis of its own constitution as
internal act. The relations between the federal states are ratios of national law and not international
law reports, as in the case of the confederation. The federal state has federal state bodies, expressing
its own will and competence, which it imposes as authority that overlaps the component states.
The constitutional organization of federal state is submitted to some certainties in terms of
the structure of state bodies and the distribution of state powers. Thus, legislative and judicial
bodies have a predetermined character. The legislative body is bicameral, the lower House
represents the local population, and the superior House ensures an equal representation of the
states. In respect of the judicial review, it must be mentioned that in all the federal states, there is a
Supreme Court (Supreme Court) which solves any disputes between the federal state and the
member states or between member states themselves.
THEORETICAL AND PRACTICAL PROBLEMS OF THE QUALITY OF
SUBJECT OF INTERNATIONAL LAW – CASE STUDY – THE SITUATION OF
PALESTINE
1947: the United Kingdom shall notify the United Nations Organization (UNO) to withdraw
from the palestinian territory, which it administrates according to the system of mandates
established by The Society of Nations Treaty. By resolution No. 181 of November 29, 1947, the
United Nations Organization General Assembly has recommended division of the territory of
Palestine into two States – Arabian and Israeli – to compile an economic union. Whereas the
Palestinians Arabs refused this solution, on 14 May 1948, Israel has unilaterally proclaimed the
independence. Following the wars in 1949, the "ten-day war” in June 1967 and the Yom Kippur
war of October 1973, Israel occupies the Gaza Strip, the West, the West Bank and the Golan
Heights.
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1964: The Palestinian National Charter proclaims the right of Palestinian arab people on the
territory of Palestine, as was delimited under the British mandates, and the right to determine the
fate of the once they have obtained the liberation of their motherland, in accordance with the
aspirations and on the basis of their agreement.
1967: It is adopted the Resolution No. 242 of 22 November 1967, in accordance with which:
"the Security Council, Asserts its continuous concern over the seriousness of the situation in the
Middle East, Stressing the inadmissibility of acquiring territories by use of force and the need to
work for a fair and lasting peace, so that each state in the region can live in safety, Pointing out that
all the member statest, through the acceptance of the Charter of the United Nations have committed
themselves to act in accordance with article 2 of the Charter,
1. Asserts that complying with the principles of the Charter requires the establishment of a
just and lasting peace in the Middle East which must also take into account the application of the
following principles:
(i) the withdrawal of Israeli armed forces from the territories occupied in the recent conflict;
(ii) the waiving of any claim or proclamation of beligerence situation and the respect for the
sovereignty, the territorial integrity and the political independence of every state in the area, as well
as asserting their right to live in peace within internationally recognized and guaranteed borders,
outside of any threats or acts of violence".
1970: the United Nations Organization General Assembly adopted resolution No. 2625 – the
statement on the principles of international law concerning friendly relations and cooperation
between states, in which it stipulates that all peoples have the right to determine their political
status, in complete freedom and without any external interference.
November 15, 1988: The Declaration in Algiers, the Organisation for the Liberation of
Palestine (O.L.P) proclaims the establishment of the palestinian state, "despite of the historical
injustices imposed on the Arab Palestinian people that has deprived it from its right to selfdetermination after the adoption of Resolution No. 181/1947 of the General Assembly that
recommends dividing Palestine into two states, one Arab and one Jewish ... this resolution provides
international legality conditions, that guarantee the palestinian people's right to sovereignty and
independence."
1993: the Oslo-Washington agreements:
9 sepetembrie 1993-O.E.P. recognizes the state of Israel and its right to exist, and Israel
recognizes O.E.P as representative of the Palestinan people.
September 13, 1993- The Declaration of principles for interim autonomy agreements, at the
initiative of the United States of America and the Russian Federation. In article 1 of the Declaration
it is stated that "the objective of Israelo-Palestinian negotiations is the achievement of a permanent
arrangement on the basis of Resolution No. 242 and 338 of the United Nations Organization
Security Council.". The Declaration establishes a system of autonomy for the Palestinians from
Gaza and the West Bank for a period of 5 years, during which it will finalise the negotiations for the
establishment of a final status. The agreements authorize the creation of a Palestinian Authority, an
entity that has certain tasks that they perform on a restricted area.
1994: The Resolution No. 904 adopted on 18 March 1994 by the Security Council of the
United Nations Organizations: "the Security Council, deeply affected by the awful massacre
committed against Palestinian believers gathered for prayer in the mosque of Abraham in Hebron
on 25 February 1994, during the sacred month of Ramadamului, deeply concerned about the
situation of the Palestinian victims in the occupied Palestinian territory, as a consequence of this
massacre which highlights the need to provide protection and safety for the Palestinian people,
Determined to overcome the negative effects of this massacre on the peace process, Taking into
account with satisfaction the efforts made to guarantee the normal continuation of the peace process
and inviting all the concerned parties to continue their efforts in this regard, [...], Recalling its
relevant resolutions, which state that the Fourth Geneva Convention of 12 august 1949 is applicable
to the territories occupied by Israel in June 1967, including Jerusalem, as well as Israel's
responsibility in this regard,
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1. Strongly condemns the massacre in Hebron and its consequences[...]
2. Requests Israel, the occupying power, to continue to adopt and implement the measures in order
to prevent unlawful acts of violence from the Israeli colonies;
3.[…]
1.Challenges the initiators of the peace process, the United States of America and the
Russian Federation to continue thier efforts in order to strengthen this process and to provide the
necessary support in the implementation of the above-mentioned measures;
2. Reaffirms its support for the peace process in progress and requires the implementation
without delay of the Declaration of Principles signed by the Israeli Government and the Palestine
Liberation Organization in Washington on 13 September 1993.”
May 4, 1994: There is an agreement between the state of Israel and O.L.P., the "GazaJericho" agreement, on the arrangements for the exercise of Palestinian autonomy. The Palestinian
Authority has, in its field of activity, executive, legislative and judicial powers and responsibilities.
The authority has the right to address Palestinian national emblem in the territory of the
autonomous authority, to issue passports and postage stamps. It is also given skills in the field of
civil status, being allowed to issue ID or residence cards and passports, even if one cannot speak of
a Palestinian citizenship within the meaning of the international law, and in the occupied territories
the Israeli citizens enjoy immunity from the jurisdiction of the Palestinian authorities.
September 28, 1995: The Interim Agreement at Taba regarding all the measures in order to
implement the Palestinian autonomy stipulates that Israel will continue to assume the overall
responsibility of the Israelis to protect internal security and public order. O.L.P., as the
representative of the palestinian people, has the ability to negotiate and conclude agreements with
states and international organizations, but only in the economic and financial development. Israel
assumes responsibility for external security and borders control and reserves the right to block the
access to the occupied territories placed under Palestinian Authority.
2002: The Resolution No. 1397 adopted on 12 March 2002 by the Security Council of the
United Nations Organization: "the Security Council, [...], attached to the vision in which two states,
Israel and Palestine, to live side by side, within the known borders [...]"[25].
CONCLUSIONS
It is undeniable that the problem of the quality of subject of the current international
relations has a central place in the doctrine and practice of the international relations and of the
international law governing these relationships because the whole motivation of the existence of the
public international law is focused on determining the recipients of the principles, the norms and the
rules that it contains, in its quality of law of coordination. The notion of subject of law is common
to any legal order. It designates the entities that have the ability to participate in legal relationships
governed by the specific rules of that legal order and they are therefore entitled to the rights and
obligations within it. In the international law the notion of subject of law presents some
peculiarities. The subject of national law is the holder of rights and obligations, and its ability to
participate in legal relationships is required by law. In the national law it is precisely the law that
establishes the subjects of law, regulates their ability to enter into legal relations, determines the
extent of the rights that they can exercise and of the obligations undertaken in the framework of
these reports. According to the law, subject to the national law are the individuals and the legal
entities.
The international law presents, from this respect, features that are determined by the
peculiarities of international relations that are subject of legal regulation. The fact that the
international relations are carried out with the direct participation of states as independent and equal
entities in their rights excludes the existence, in this domain, of a "suprastatal" body, of a
"Government" that determines, regulates or gives the quality of subject of international law. This
quality belongs to, above all, of the state by virtue of its sovereignty. It can be also part of other
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entities (peoples who are fighting for liberation, international organizations, etc.) to the extent and
within the limits determined by the member states of the international community.
The relations involving states and other entities with international legal personality are
governed by the rules of the international law, and thus obtaining the character of some
international law reports, analyzed by classical legal concepts:subject, legal content (rights and
obligations) and object. The characteristics of these ratios are determined, however, by the legal
situation of the participanting subjects, by their position towards the international law. From this
point of view, the state, the main, elementary, original and fundamental subject, possesses this
capacity not under the international law or the legal regulation, but by virtue of its sovereignty,
under which it participates, by the agreement of will with other states, to the regulatory process, to
the creation of the international relations and to the determination of the legal situation of other
entities internationally.
REFERENCES:
[1] R. Miga-Beşteliu, Public International Law, C.H. Beck Publishing house, Bucharest, 2008, p. 82
[2] C. Edwin, Public International Law, Chemarea Publishing house, Iaşi, 2004, p. 112
[3] I.M. Anghel, Subjects of international law, Lumina-Lex Publishing house , Bucharest, 2001, p. 52
[4] G. Hegel, Philosophy of the principles of law, IRI Publishing house, Bucharest, 1996, p. 291
[5] Stelian Scăunaş, International public law, All Beck Publishing House, Bucharest, 2002, p. 83
[6] The Convention on the rights and duties of states. Signed at Montevideo on 26 December 1933, in force since
26.12.1934. Source: U.S., Department of State, Publication 1983, Peace and War: United States Foreign Policy, 19311941 (Washington, D.C.: U.S. Government Printing Office, 1943, pp. 198-203). www.academic.brooklyn.cuny.edu.
[7] Article. 1 of the Convention on the rights and duties of states. Signed at Montevideo on 26 December 1933
[8] D. Popescu, A. Năstase, Public International Law, Sansa Ltd Publishing house, Bucureşti, 2001, p. 275
[9] In terms of areas of manifestation, the local jurisdiction of the state is virtually unlimited. The state is able to decide
to regulate the most diverse fields, in the smallest details, from the constitutional organization to regulations on keeping
public order, from the field of economy or of defence, until that of granting citizenship, collection of statistical data, etc.
From the point of view of individuals, the state exercises jurisdiction over all persons who are within its territory, both
natural persons and legal entities.
[10] The Romanian Constitution of 1991, revised in 2003, art. 3.
[11] The Dictionary of the modern Romanian language. – Bucharest: Petit Larousse illustrated, 1986, p. 825
[12] I.M. Anghel, Subjects of international law, Lumina-Lex Publishing house, Bucharest, 2001, p. 71
[13] The Romanian Citizenship Law No. 21/1991, republished in 2000.
[14] Mihai Floroiu, Elements of private and public international law, UJ Publishing house, Bucharest, 2011, p. 104
[15] R. Miga-Beşteliu, Public International Law, vol. I, Edition 2, C.H. Beck Publishing house, 2010, p. 27
[16] Valentin Constantin, International Law, Legal Universe Publishing house, Bucharest, 2010, p. 225.
[17] The Permanent Court of International Justice in the decision given in the Lotus case (1927) noted: "the first and
most important ban imposed by the international law on a state is that, in the absence of a furlough contrary rule, it
should not exert power in any form in the territory of another state. In this sense, the jurisdiction is, of course, territorial
and may not be exercised by a state outside its territory, with the exception of a furlough rule arising from international
custom or from a Convention ".
[18] If, in the case of the federation, the foreign policy is the competence of the federal authorities, in the case of the
Confederation, the member states retain the quality of subject of the international legal relations.
[19] For example, personal unions between: Poland and Lithuania (1386-1569), in which the common sovereign was
chosen each time by the Polish diet, given the inheritance laws of Lithuania; The union between the Netherlands and
Luxembourg (1815-1890) was created on the basis of a decision of the Congress of Vienna in 1815. Also, the union
between Spain and Germany, when the King of Spain, Charles I, was also the King of Germany – 1519-1556.
[20] For example, the union of Aragon and Castile in 1474 by the marriage of Ferdinand V and Jezebel; the union of
Burgundy and the Netherlands with Austria in 1479 as a result of the marriage between Maria, daughter of Charles the
bold, with Maximilian of Habsburg.
[21] Dumitru Mazilu, Public International Law, 5th Edition-II, vol. I, Lumina Lex Publishing house, Bucharest, 2005,
p. 134
[22] For example, the physical identity of the head of state, the union of the two states etc.
[23] Dumitru Mazilu, Public International Law, 5th Edition-V-a, vol. I, Lumina Lex Publishing house, Bucharest,
2010, p. 135
[24] As an example of federal States we can mention: Argentina, Austria, Australia, Belgium, Brazil, Canada,
Germany, Switzerland, India, Malaysia, Mexico, the U.S.A., Russia, formerly USSR etc.
[25] Beatrice Onica-Jarka, Catrinel Brumar, Daniela-Anca Deteşteanu, International Public Law. Specification of
seminars, C.H. Beck Publishing house, Bucharest, 2006, p. 12
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BIBLIOGRAPHY:
1. Andronovici, C., Public International Law, Chemarea Publishing house, Iaşi, 2004
2. Anghel, I. M , Subjects of International Law, Lumina-Lex Publishing house, Bucharest,
2001
3. Bilouseac,
Irina,
Doctrinal
Concepts
of
Decentralization
and
its
Principles, Revista METALURGIA International, ISSN 1582-2214, no.10, vol.
XV, 2010, pp. 112-115
4. Constantin, Valentin, International Law, Legal Universe Publishing house‚ Bucharest
2010
5. Floroiu, M., Elements of public and private international law, UJ Publishing house,
Bucharest, 2011
6. Mazilu, D., Public International Law, vol. I, Lumina-Lex Publishing house, Bucharest,
2005
7. Mazilu, D., Public International Law, vol.I, 5th Edition, Lumina Lex Publishing house,
Bucharest-2010
8. Miga-Beşteliu, R., International Public Law, C.H.Beck Publishing house, Bucharest,
2010
9. Onica-Jarka, B., Brumar, C., Deteşteanu, D.-A., International Public Law, Specification
of seminars, ed. C.H. Beck Publishing house, Bucharest, 2006.
10. Popescu, Dumitra, Năstase, Adrian, Public International Law, Sansa ltd Publishing house,
Bucharest, 2001
11. Scăunaş, Stelian, International Public Law, All Beck Publishing house, Bucharest, 2002
Other sources:
The Romanian Constitution of 1991 – revised in 2003;
The dictionary of the modern Romanian language. – Bucharest: Petit Larousse illustrated,
1986
Romanian citizenship law No. 21\/1991.
273
The USV Annals
of Economics and
Volume 12,
Issue 2(16),
2012
DIRECT IMPLICATION OF EUROPEAN CITIZENS
IN NORMATIVE PROCESS WITHIN THE EUROPEAN UNION
Ph.D.Candidate Andrei MICU
Academic of Economic Studies, Romania
[email protected]
Abstract:
Direct participation, being understood as the possibility for non-institutional actors to take part in decisionmaking process, became the main legal mechanisms to ensure voice to citizens or persons affected in decision-making
procedures of the EU institutions and bodies. The European Citizens' Initiative (ECI), as introduced by the Lisbon
Treaty, allows citizens to request new EU legislation once a million signatures from seven member states have been
collected asking the European Commission to do so. Two basic principles have to be respected for a proposal to be
admissible. It must concern "a matter where a legal act of the Union can be adopted for the purpose of implementing
the Treaties" and it has to fall "within the framework of the powers of the Commission to make a proposal," according
to the regulation. In this context, further reflection should be made on what the added-value of the ECI is in general
and how could it be an added value in the perspective of the European Citizenship. The analysis of the regulation on
ECI reveals that one of the main it is to facilitate the collection of statements of support and organising a Europeanwide debate with the expectation that it will create enough political echoes for action. Also, more emphasis should be
put on the final stage of the procedure, by providing more guarantees for quickly receiving an affirmative answer from
the European Commission. Therefore, ECI represents a new democratic tool in order to decrease the democratic deficit
in the European Union.
Key words: citizens’ initiative, european citizenship, citizens’ rights participatory democracy, transparency
principle,
JEL classification: K 39
INTRODUCTION
"We warmly welcome the introduction of the ECI. It is the first transnational instrument of
participatory democracy in world history. With it, Europe enters a new territory of citizen
participation. It is the result of nearly a decade of work," said Carsten Berg, campaign director at
the ECI Campaign, a grassroots coalition of democracy advocates and NGOs dedicated to bringing
the scheme to light.
The growth of the political importance of Europe imposes to design a suitable and modern
European polity, closer to its citizens. We are witnessing a transformation from Europe of the
governments towards a Europe of the citizens, in which they take part in decision-making process.
Only a democratic Europe will survive in the long run; one in which citizens see themselves not
only as the object of the decisions made but also, especially, as their subject. [1]
Created by European civil society, accepted by the Convention for a future European
Constitution and stipulated by article 11, paragraph (4) of the revised Treaty on European Union
(TEU), and article 24 of the Treaty on the functioning of the European Union (TFEU), European
Citizens’ Initiative offers them the opportunity to get involved directly in EU politics for the first
time. Based on these provisions, in May 2009 European Parliament issued a resolution requesting
the European Commission to elaborate a proposal for the regulation on citizens’ initiative. [2]
Therefore, in November 2009, Commission issued Green Paper on a European Citizens’ Initiative
[3] and further in March 2010 drew up its Proposal for a regulation of the European Parliament and
of the Council on the citizens’ initiative.[4]
Now, we are in a decisive phase, being developed the legislative framework necessary to
implement the mechanism for the direct participation of citizens in European decision making,
namely citizens’ initiative.
The present article begins by analysing the normative background of European Citizens'
Initiative. This allows us to understand the potentialities and limitations of the procedure of the
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participation in EU law and governance, by underlying the conditions that it has to fulfill in order to
applying the procedure (section 2). It then examines the normative implications of elevating
participation to one of the bases of democracy in the Union and proposes an interpretation of the
legal consequences that may stem from Regulation (EU) no 211/2011 of the European Parliament
and of the Council on the Citizens’ Initiative (section 3).Finally, the article discusses the liability of
the main actors involved in the procedure. (section 4). It concludes that the normative framework
establishes limits the discretion of the institutions in shaping participation practices, (section 5).
LEGAL FRAMEWORK
At present it has been drawn out the necessary legal framework for the implementation of
ECI mechanism into european decisional process. Thus, para.4 of Article 11 of the Treaty on
European Union provides that not less than one million citizens who are nationals of a significant
number of Member States may take the initiative of inviting the European Commission, within the
framework of its powers, to submit any appropriate proposal on matters where citizens consider
that a legal act of the Union is required for the purpose of implementing the Treaties.[5]
Moreover, the procedures and conditions required for such a citizens' initiative shall be
determined in accordance with the first paragraph of Article 24 of the Treaty on the Functioning of
the European Union: The European Parliament and the Council, acting by means of regulations in
accordance with the ordinary legislative procedure, shall adopt the provisions for the procedures
and conditions required for a citizens' initiative within the meaning of Article 11 of the Treaty on
European Union, including the minimum number of Member States from which such citizens must
come.
In summary, from the text quoted above it might be detached three essential traits of ECI.
First, such a citizens' initiative has to be developed at European scale, which implies one million
signatures to be valid. Second, these signatures should come from a significant number of Member
States; and third, after both former requirements are met, the Commission is “invited” to put
forward a European legal act required for the purpose of implementing the Treaties.
As we can see, the european treaties have provided only at level of principle the right of
european legislative initiative accorded to european citizens; and it has been established that the
procedure of ECI is detailed by regulation.
Under these provisions two regulations were adopted: Regulation (EU) no 211/2011 of the
European Parliament and of the Council on the Citizens’ Initiative,[6] and Commission
Implementing Regulation (EU) no 1179/2011 laying down technical specifications for online
collection systems pursuant to Regulation (EU) no 211/2011 of the European Parliament and of the
Council on the citizens’ initiative.[7]
THE CONDITIONS REQUIRED FOR AN EUROPEAN CITIZENS’ INITIATIVE
As it is noted in legal doctrine, “the European Citizens’ Initiative (ECI) is the very first
concrete tool of participative democracy above the nationa-state level which is not based on an
invitation “from above”. The right of initiative vis-à-vis the EU Commission means that the citizens
themselves have the right to invite the institutions to consider their ideas and proposals. The ECI
also embodies and expresses a modern style of representative democracy – one which offers more
direct participation by citizens in decisions on important substantive issues, in addition to indirect
representation by elected representatives.”[8]
ECI is not static instrument, it has to be understood as process that stretches across
interdependent stages. This means that each stage has specific objectives and unfolding conditions.
In addition, ECI is developed within well-established institutional and political context which
decisively influence he outcomes of this “legislative process”.
The success of the participation of European citizens at the EU’s democratic life through
ECI largely depends on the extent to which the entire procedure is clear, simple, user-friendly and
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proportionate to the nature of the issue which need a legislative act. Also, the conditions for
supporting a citizens’ initiative by the citizens of the Union have to be similar, regardless of the
Member State from which they come; ensuring a judicious balance between rights and obligations.
In order to ensure that a citizens’ initiative is representative of interest, it should ensure as
uniform and spread over an area as large signatories, therefore in this democratic process must
attend a large number of citizens, from as many Member States. In this regard, regulation provides
the minimum number of signatories coming from each Member States,[9] and the minimum
number of states from which citizens must come set at one quarter of Member States.
It is particularly important that the participants in citizens’ initiative should have the
minimum age at which citizens are entitled to vote in elections to the European Parliament. They
have to be informed about the conditions in which they can exercise this right of initiative. In order
to support an citizens’ initiative the citizens of the Union have to complete a statement of support
form for that initiative and thus becoming “signatories”.[10]
In order to successfully carry through a citizens’ initiative, it is necessary to establish an
organized structure, taking the form of a committee, composed of citizens, as organizers, coming
from at least seven different Member States. The members of citizens’ committee are responsible
for preparing and presenting its initiative the Commission. Moreover, the organisers shall designate
one representative and one substitute, who shall be mandated to act on behalf of the citizens’
committee and to represent it in front of the institutions of the Union throughout the procedure.
In consideration of ensuring the coherence and transparency in relation to proposed citizens’
initiatives and in order to avoid a situation where signatures are being collected for a proposed
citizens’ initiative which does not comply with the conditions laid down in this Regulation, it
should be mandatory to register such initiatives on a website made available by the Commission
prior to collecting the necessary statements of support from citizens.
THE PROCEDURE OF CITIZENS’ INITIATIVE
First stage of ECI procedure is detailed in Article 4 of Regulation (EU) no.211/2011 and
consist in registration of a proposed citizens’ initiative in one of the official languages of the Union,
with an online register made available by the Commission.
To be considered by the Commission, any citizens’ initiative shall cumulatively fulfill the
following conditions:
- the citizens’ committee has been formed and the contact persons have been designated;
- the necessary information set out in Annex II, in particular on the subject matter and objectives of
the proposed citizens’ initiative has been provided;
- the proposed citizens’ initiative is within the framework of the Commission’s powers to submit a
proposal for a legal act of the Union for the purpose of implementing the Treaties;
- the proposed citizens’ initiative is not manifestly abusive, frivolous or vexatious; and it is not
manifestly contrary to the values of the Union as set out in Article 2 TEU.
If the above conditions are met, the Commission shall register the proposed citizens’
initiative under a unique registration number within two months from the receipt of the information
set out in Annex II of the regulation.[11] Also, the Commission shall establish a point of contact
which provides information and assistance.
If the above conditions are not fulfilled, the Commission shall refuse the registration of the
proposed citizens’ initiative and shall inform the organisers of the reasons for such refusal. At any
time before the submission of statements of support, the organisers may withdraw a proposed
citizens’ initiative that has been registered. In that case, an indication to that effect shall be entered
in the register.
The organisers shall launch the citizens’ initiative on own website and shall provide, for the
register and where appropriate on their website, regularly updated information on the sources of
support and funding for the proposed citizens’ initiative.
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Therefore, “this proposal makes the ECI extremely accessible: even individual persons can
launch an ECI”.[12]
The second stage of the procedure consist in collecting the statements of support from
signatories for a proposed citizens’ initiative, which, according to Regulation (EU) no.211/2011,
may be done of support in paper form or electronically.
In order to collect the statements of support in paper form, the organisers shall complete the
forms as indicated in Annex III and which are in one of the language versions included in the
register for that proposed citizens’ initiative. The information given in the forms shall correspond to
the information contained in the register.
Signatories may only support a given proposed citizens’ initiative once, and in this regard
they complete statement of support forms made available by the organizers with only the personal
data that are required for the purposes of verification by the Member States, as set out in Annex
III.[13]
In case that statements of support are collected online, these shall be electronically signed
using an advanced electronic signature and shall be treated in the same way as statements of support
in paper form.[14] The data obtained through the online collection system shall be stored in the
territory of a Member State, which certify that this system have adequate security and technical
features [15] in place in order to ensure that:
- the possibility of submission a statement of support form online for natural persons only;
- the data provided online are securely collected and stored, in order to ensure, inter alia, that they
may not be modified or used for any purpose other than their indicated support of the given
citizens’ initiative and to protect personal data against accidental or unlawful destruction or
accidental loss, alteration or unauthorised disclosure or access;
- the system can generate statements of support in a form complying with the models set out in
Annex III, in order to allow for the verification by the Member States in accordance with Article
8(2).
The organisers may use one online collection system for the purpose of collecting
statements of support in several or all Member States, thus the models for the statement of support
forms may be adapted for this purpose.
The organisers may only start collecting statements of support through the online collection
system once they have obtained the certificate, in accordance with the model set out in Annex IV.
Therefore, the organisers shall make a copy of that certificate publicly available on the website used
for the online collection system. Member States shall recognize the certificates issued by the
competent authorities of other Member States.
In order to be valid, the signatories of a citizens’ initiative shall come from at least one
quarter of Member States and they shall comprise at least the minimum number of citizens set out,
at the time of registration of the proposed citizens’ initiative, in Annex I.[16] Those minimum
numbers shall correspond to the number of the Members of the European Parliament elected in each
Member State, multiplied by 750. Signatories shall be considered as coming from the Member State
which is responsible for the verification of their statement of support in accordance with the second
subparagraph of Article 8(1).
As has been stressed, “even if one wants to preserve a strong trans-European touch of the
ECI, one quarter of the Member States seems to be a too high hurdle. It could be the case, that
certain cross-border territorial entities have a common trans-national problem to solve.(...) In other
case, even if the potential for one million signature would be given in the affected region, an ECI
would not be successful as the signatures would only come from two or three Member State instead
of the required seven.”[17]
The entire procedure of collecting the statements of support shall be completed within a
period not exceeding 12 months from the date of registration of the proposed citizens’ initiative. At
the end of that period, the register shall indicate that the period has expired and, where appropriate,
that the required number of statements of support was not collected.
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The third stage of ECI procedure is verification and certification of statements of support by
the competent authorities from relevant Member State. The Article 8, para.1 of Regulation establish
that relevant Member State is that state of residence or of nationality of the signatory [18], or the
state that issued the personal identification number or the personal identification document
indicated in the statement of support by a signatory.[19]
For the purpose of the implementation of ECI procedure, each Member State shall designate
one competent authority responsible for coordinating the process of verification of statements of
support and for delivering the certificates provided for therein, and shall forward the identification
features of the competent authorities to the Commission. The Commission shall make the list of
competent authorities publicly available.
The organisers shall submit collected statements of support to the competent authorities
from relevant Member State and shall separate those statements of support collected in paper form,
those which were electronically signed using an advanced electronic signature and those collected
through an online collection system, using the form set out in Annex V of Regulation.
Within a period not exceeding three months from receipt of the request, the competent
authorities shall verify the statements of support submitted on the basis of appropriate checks, in
accordance with national law and practice, as appropriate. After that, the competent authorities shall
deliver to the organizers, free of charge, a certificate in accordance with the model set out in Annex
VI, certifying the number of valid statements of support for the Member State concerned. For the
purpose of the verification of statements of support, the authentication of signatures shall not be
required.
The fourth and last stage of ECI procedure consist in submission the citizens’ initiative for
examination to the European Commission.
For this purpose, the organizers shall obtain the confirming certificates and shall comply
with all relevant procedures and conditions set out in this Regulation. They submit the citizens’
initiative to the Commission, accompanied by information regarding any support and funding
received for that initiative, which shall be published in the register.[20] Moreover, the organisers
shall make use of the form set out in Annex VII and shall submit the completed form together with
copies, in paper or electronic form, of the confirming certificates.
After the Commission received a citizens’ initiative and the related documentation, it shall
publish it without delay in the register. Also the Commission shall receive the organisers at an
appropriate level to allow them to explain in detail the matters raised by the citizens’ initiative.
Within three months, the Commission shall set out in a communication its legal and political
conclusions on the citizens’ initiative, the action it intends to take, if any, and its reasons for taking
or not taking that action. This communication shall be notified to the organisers as well as to the
European Parliament and the Council and shall be made public.
Where the conditions provided by Regulation are fulfilled, and within three months a public
hearing will be held during that the organisers shall be given the opportunity to present the citizens’
initiative in front of the European Parliament, together with such other institutions and bodies of the
Union as may wish to participate, including the Commission represented at an appropriate level.
In case that the ECI is rejected, the Commission should publish the reasons of this decision.
The scholars emphasized that “there should be provision for any decision by the Commission to
reject an ECI to be appealed before the Court of Justice.” [21]
LIABILITY ISSUES
From other point of view, we stress that the organisers shall be liable for any damage they
cause in the development of a citizens’ initiative in accordance with applicable national law. In this
regard, the Member States shall ensure that organisers are subject to appropriate penalties (meaning
shall be effective, proportionate and dissuasive) for infringements of this Regulation and in
particular for false declarations made by organizers and the fraudulent use of data.
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The organisers of a citizens’ initiative shall ensure that personal data collected for a given
procedure are not used for any purpose other than their indicated support for that initiative, and
shall destroy all statements of support received for that initiative and any copies thereof in within
the term provided by Article 9 of Regulation. Moreover, the competent authority shall use the
personal data it receives for a given citizens’ initiative only for the purpose of verifying the
statements of support, and shall destroy all statements of support and copies thereof at the latest one
month after issuing the confirming certificate.
Also, the organisers and the competent authorities from Member States shall implement
appropriate technical and organisational measures to protect personal data against accidental or
unlawful destruction or accidental loss, alteration, unauthorised disclosure or access, in particular
where the processing involves the transmission of data over a network, and against all other
unlawful forms of processing.
In processing personal data pursuant to this Regulation, the organisers of a citizens’
initiative and the competent authorities of the Member State shall comply with Directive 95/46/EC
and the national provisions adopted pursuant thereto, being considered as data controllers in
accordance with Article 2(d) of Directive.
CONCLUSIONS
European Citizens’ Initiative (ECI) represents an absolute novelty, being the first
democratic tool of transnational citizen participation in the world (G. Häfner, 2010). By developing
the citizens' initiative mechanism at European level, the European legislator plans to strengthen the
institution of European citizenship, improving democratic process within the EU.
Based on a careful analysis of the whole procedure, we can identify its key element, namely
the way in which the Commission will establish relationships with citizens, and the extent of it
intends to exercise the powers conferred in this regard. From this point of view we refer to a high
level of decision of the Commission in assessing the opportunity and admissibility of a citizens'
initiative.
The legal doctrine argues the necessity of an institutional mechanism to counterbalance the
powers conferred on the Commission in this procedure, to avoid turning it into a pseudo-direct and
pseudo-democratic tool. Thus was formulated the idea of developing a surveillance mechanism to
the Commission by the European Parliament which stops any arbitrary measures taken by it. Only
in this way European citizens can be brought closer to Europe, an idea formulated in the European
Constitutional Convention.
In this regard, as has been stressed in the literature, “the EP should perform an important
task of acting as the guardian of the procedure and supporter of the institute, interacting with the
ECI and possibly absorbing its suggestions and ideas where these are unable to get to the end of the
procedure. The use of Art. 225 TFEU would be essential for creating a dual channel towards
achieving a particularly well-accepted ECI within the EP. Also, the national parliaments, apart from
monitoring compliance with subsidiarity, could be stimulated to deal with the issues raised, look
further into and debate them.
Apart from achieving the objectives, the ECI should be conceived as an important occasion
for broadening debate, participation, quality of politics and create a common European home of
greater trust. All this will depend on the attitude of the EU institutions and the spirit that animates
the organising and implementing of this tool for popular initiative, the only survivor from the
referendum proposals and direct, participatory democracy promoted within the European
Convention on the future of Europe (2002-2003).Therefore, even if the ECI were only able to play a
complementary role in the democratisation of the EU, this would already be a good result. Trying
out this new democratic instrument, so that it is inclusive and stimulates European decision making
at all levels, is certainly useful and the ECI can form a bridge between citizens and the EU, a
channel for communication and exchange.” [22]
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ENDNOTES
[1] Gerald Häfner, A glimpse at legislation cookery, in Bruno Kaufmann (main author) “The European Citizens’
Initiative Handbook. Your Guide to the World’s First Transnational Direct Democratic Tool”, commissioned and
published by GEF and IRI Europe, Brussels, Belgium, November 2010, pp.6 and subsq.
[2] European Parliament Resolution of 7 May 2009 requesting the Commission to submit a proposal for a regulation of
the European Parliament and of the Council on the implementation of the citizens’ initiative- P6_TA (2009)0389.
[3] Green Paper on a European Citizens’ Initiative – COM (2009) 622 final: Brussels, 11.11.2009.
[4] Proposal for a regulation of the European Parliament and of the Council on the citizens’ initiative COM (2010) 199
final.
[5] Version of the Lisbon Treaty was published in the Official Journal of the European Union, C 115, Volume 51, on 9
May 2008.
[6] Published in the Official Journal of the European Union, L 65, on 11 March 2011.
[7] Published in the Official Journal of the European Union, L 301, on 18 November 2011.
[8] Diana Wallis, Jo Leinen, Carsten Berg, Paul Carline, Bruno Kaufmann, Introduction – The Future of European
Democracy has begun, in „The Initiative for Europe Handbook 2008”, by the Initiative & Referendum Institute Europe,
edited by Carsten Berg, Paul Carline, Diana Wallis, Jo Leine &, Bruno Kaufmann, Bruxelles, 2007, p.7.
[9] For the purpose of clarity, those minimum numbers should be set out for each Member State in an annex to this
Regulation. The minimum number of signatories required in each Member State should correspond to the number of
Members of the European Parliament elected in each Member State, multiplied by 750.
[10] Para, Article2 of Regulation (EU) no.211/2011.
[11] The Commission sends a confirmation of the registration of proposed citizens’ initiative to the organizers.
[12]Bruno de Witte, Alexander Trechsel, Draga Damjanovic, Elin Hellquist, Josef Hien, Paolo Ponzano, Legislating
after Lisbon, New opportunities for the European Parliament, European Union Democracy Observatory, Florence,
2010, p.7
[13] The Member State shall forward to the Commission any changes to the information set out in Annex III, and based
on these, the Commission may adopt amendments to Annex III, by means of delegated acts, in accordance with Article
17 and subject to the conditions of Articles 18 and 19.
[14] According to the Directive no.1999/93/EC of the European Parliament and of the Council on a Community
framework for electronic signatures, of 13 December 1999.
[15] Commission Implementing Regulation (EU) no 1179/2011 laying down technical specifications for online
collection systems pursuant to Regulation (EU) no 211/2011 of the European Parliament and of the Council on the
citizens’ initiative.
[16] In case that any modification in the composition of the European Parliament occur, the Commission shall adopt,
by means of delegated acts, in accordance with Article 17 and subject to the conditions of Articles 18 and 19,
appropriate adjustments to Annex I.
[17] Bruno de Witte, Alexander Trechsel, Draga Damjanovic, Elin Hellquist, Josef Hien, Paolo Ponzano, Legislating
after Lisbon, New opportunities for the European Parliament, European Union Democracy Observatory, Florence,
2010, p.14
[18] As specified in point 1 of Part C of Annex III.
[19] As specified in point 2 of Part C of Annex III.
[20]. The amount of support and funding received from any source in excess of which information is to be provided
shall be identical to that set out in Regulation (EC) No 2004/2003 of the European Parliament and of the Council of 4
November 2003 on the regulations governing political parties at European level and the rules regard.
[21] Carsten Berg, The European Citizen’s Initiative process, in „The Initiative for Europe Handbook 2008”, by the
Initiative & Referendum Institute Europe, edited by Carsten Berg, Paul Carline, Diana Wallis, Jo Leine &, Bruno
Kaufmann, Bruxelles, 2007, p.61.
[22] Salvatore Aloisio, Giorgio Grimaldi, Umberto Morelli, Antonio Padoa-Schioppa, The European Citizens’
Initiative:Challenges and Perspectives; in Democracy in the EU after the Lisbon Treaty, edited by Raffaello Matarazzo,
Istituto Affari Internazionali (IAI)Research Papers, pp.142-146
REFERENCES
1. de Figueiredo, J. M., Ji, C. H., Kousser, T. (2011), “Financing Direct Democracy: Revisiting the
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2. Häfner, G., (2010), “A glimpse at legislation cookery”, in Bruno Kaufmann (main author) The
European Citizens’ Initiative Handbook. Your Guide to the World’s First Transnational Direct
Democratic Tool, commissioned and published by GEF and IRI Europe, Brussels.
3. Ponzano, P., (2011),” A million citizens can request European legislation: a sui generis right of
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6. Thomson, J., (2011), "A Space inside Europe for the Public" before "A European Public Space"
www.involve.org.uk
7. de Witte, B., Trechsel, A.H., (directors), Damjanović, D., Hellquist, E., Hien, J., Ponzano, P..
(2010), Legislating after Lisbon New Opportunities for the European Parliament, European Union
Democracy Observatory (EUDO), Robert Schuman Centre for Advanced Studies, European
University Institute Florence, www.eudo.eu
8. The Lisbon Treaty, consolidated version published in the Official Journal of the European
Union, C 115, Volume 51, on 9 May 2008.
9. European Parliament Resolution of 7 May 2009 requesting the Commission to submit a
proposal for a regulation of the European Parliament and of the Council on the implementation of
the citizens’ initiative- P6_TA (2009)0389.
10. Green Paper on a European Citizens’ Initiative – COM (2009) 622 final: Brussels, 11.11.2009.
11. EU Regulation no.211/2011 on the Citizens' Initiative, from the Official Journal of the
European Union http://eur-lex.europa.eu/JOHtml.do?uri=OJ:L:2011:065:som:en:html
12. Commission Implementing Regulation (EU) no 1179/2011 laying down technical specifications
for online collection systems pursuant to Regulation (EU) no 211/2011 of the European Parliament
and of the Council on the citizens’ initiative.
13. Foundation for European Progressive Studies, (2010) ,European Citizens’ Initiative, Summary
of the Contributions, FEPS Jurists Network Meeting, www.feps-europe.eu
14. EurActiv,
(2010)
EU
commissiner
vows
to
block
”silly’
petitions,
http://www.euractiv.com/en/future-eu/eu-commissioner-vows-block-silly-petitions-news-493794
15. European Commission, (2010) European Citizens' Initiative: giving citizens new possibilities to
influence
EU
policy,
http://europa.eu/rapid/oressReleasesAction.do?reference=IP/10/397&format=HTML&aged=0&lan
guage=EN&guiLanguage=en,
16. European Commission, (2010) Speaking points for press conference on the "European Citizens'
Initiative",
(2010),
http://ec.europa.eu/commission_2010-2014/sefcovic/documents/
speech_138_10_03_31_citi_initiave_en.pdf
17. European Commission, (2010), Stakeholder Hearing on the European Citizens' Initiative,
http://ec.europa.eu/commission_2010-2014/sefcovic/documents/100222_citizen_initiave_en.pdf
18. Berg,C., Carline,P., Wallis,D., Leine,J. & Kaufmann,B (editors) The Initiative for Europe
Handbook 2008, the Initiative & Referendum Institute Europe, Bruxelles, 2007.
19. Matarazzo, R.,(editor) Democracy in the EU after the Lisbon Treaty, Instituto Affari
Internazionali (IAI)Research Papers, Edizioni Nuova Cultura, Roma, 2011.
281
Volume 12, Issue 2(16), 2012
INSTRUCŢIUNI UTILE PENTRU AUTORI /
AUTHOR GUIDELINES
RO
R
evista The USV Annals of Economics and Public Administration primeste articole, din toate
domeniile economice, pe cele 5 sectiuni:
Economie, comert, servicii
Management si administrarea afacerilor
Contabilitate-finante
Statistica, informatica si matematica economica
Drept si administratie publica
1. PREGĂTIREA ŞI FORMATAREA ARTICOLULUI
Este recomandabil ca lucrarile sa fie bine structurate astfel încât sa asigure claritatea continutului precum si esenta
temei tratate. Toate articolele trebuie sa prezinte cercetari originale care nu au mai fost publicate sau trimise spre
publicare în alta parte. Lucrarile prezentate la conferinte sunt acceptate cu conditia ca ele sa nu fi fost publicate în
întregime in volumul conferintei. Lucrarile vor fi redactate în întregime în limba engleza. Lucrarile vor fi recenzate in
sistem blind review.
Titlul lucrarii
Se va scrie cu Times New Roman, caracter 14, bold, centrat în partea de sus a paginii, si se va scrie cu majuscule.
Autorii lucrarii
Numele lor se va scrie la un rând după titlul lucrării, centrat, precizându-se: titlul stiintific, universitatea/instituţia,
localitatea, ţara si e-mailul. Se va folosi Times New Roman, caracter 10, cu litere mici. Numele si prenumele
autorului/autorilor va fi scris cu litere bold, iar numele de familie va fi scris cu litere mari (caps).
Rezumatul lucrarii
Rezumatul se va scrie după autori, lăsând un rând liber înainte; trebuie sa cuprinda informatii suficiente pentru ca cititorii
sa poata aprecia natura si semnificatia subiectului, caracterul adecvat al metodei de cercetare, rezultatele si concluziile
lucrarii. Rezumatul nu este o introducere, acesta prezinta în sinteza rezultatele esentiale ale cercetarii. Rezumatul se va
scrie cu Times New Roman, caracter 10, italic, justify. Este necesar ca el sa aiba un numar de 200-250 de cuvinte,
spatiate la un rând.
Cuvinte cheie
Selectati 5-6 cuvinte cheie (cuvinte sau expresii) care surprind esenta lucrarii. Enumerati acesti termeni în ordinea
descrescatoare a importantei lor. Acestia se vor scrie cu Times New Roman, caracter 10, la un rând liber după rezumat.
Clasificare JEL
Se va trece unul sau mai multe coduri JEL, in care lucrarea poate fi inclusa din perspectiva subiectului abordat. Lista cu
coduri o gasiti la adresa: http://www.aeaweb.org/jel/jel_class_system.php
Introducerea
Pentru introducere, formulati scopul lucrarii, motivatia temei alese si explicati pe scurt modul de abordare si argumentele
necesare. Înainte de introducere se lasă 2 rânduri libere.
Continutul lucrarii
Organizati corpul lucrarii utilizând titluri si subtitluri pentru a accentua atât continutul cât si claritatea acesteia. Titlurile şi
subtitlurile se vor scrie cu litere mari, 12, bold, aliniate la stânga. Se va lăsa un rând liber înainte şi unul după. Trebuie
avute în vedere urmatoarele:
•
terminologia recunoscuta a domeniului pentru a descrie orice subiecte sau proceduri experimentale folosite
pentru colectarea si analiza datelor;
•
includerea metodelor detaliate, astfel încât cititorii sa poata urmari prezentarea materialului;
•
formularea rezultatelor în mod clar si succint;
•
evidentierea rezultatelor cercetarii si impactul acestora, atât global cât si specific.
Textul lucrarii se va scrie cu Times New Roman, caracter 12, spatiat la un rând. Tabelele si figurile sa fie dimensionate
si plasate în corpul lucrarii asa cum doresc autorii sa apara în revista. Trebuie avut grija ca acestea sa se încadreze pe o
singura pagina. Continutul lor se va scrie cu Times New Roman, caracter 10, iar titlul coloanelor tabelelor se va scrie cu
Times New Roman, caracter 10, bold.
Titlul si numarul tabelelor vor fi pozitionate deasupra acestora, iar titlul si numarul figurilor, sub acestea. Atunci când
este cazul se va mentiona si sursa. Numarul tabelelor si figurilor va fi amplasat în corpul textului, într-o paranteza, acolo
unde se fac referiri la ele, de exemplu: (figure no. 1); (table no. 1).
Graficele trebuie sa fie clar executate astfel încât sa ofere copii alb-negru cât mai lizibile.
Numerotati toate ecuatiile si formulele folosite plasând numerele lor în paranteze, în dreapta acestora.
Explicati abrevierile si acronimele prima data când apar în corpul textului, chiar daca au fost definite în rezumat.
Nu se vor folosi note de subsol, dar se poate opta pentru unul din urmatoarele moduri de citare:
- sunt permise note la finalul lucrarii (endnotes), situate înaintea bibliografiei si introduse manual. Ele se vor scrie cu
Times New Roman, caracter 10, italic. Trimiterile bibliografice din textul lucrarii se pot numerota cu cifre arabe [1], [2] etc.
- trimiteri in text intr-o paranteza specificand numele autorului si anul aparitiei lucrarii: (Johnson, 2000), (Johnson and
Jackson, 2001) - lucare cu 2 autori, (Johnson et al., 2002) - acolo unde sunt mai multi autori, (Johnson, 2000; Peterson,
2001) - daca ideea se regaseste la mai multi autori, sau (Johnson, 2000a) si (Johnson, 2000b) - in cazul in care exista
doua lucrari diferite ale aceluiasi autor aparute in acelasi an (a si b indicand ordinea in care apar la bibliografie). Se
poate specifica si pagina in paranteza (Johnson, 2000, 250). Este obligatoriu ca autorii citati in text sa se regaseasca la
282
Volume 12, Issue 2(16), 2012
bibliografie.
Concluzii
Concluziile pot recapitula punctele principale ale lucrarii, dar nu trebuie sa reproduca rezumatul. Ele pot cuprinde
aspecte legate de importanta lucrarii sau pot oferi sugestii referitoare la aplicatii ale acesteia sau directii de extindere a
cercetarilor.
Bibliografie
Lista bibliografica, de la sfârsitul lucrarii, se va scrie în ordine alfabetica, dupa numele autorului, numerotându-se. Când
anumite studii, lucrari, articole sunt publicate în volum, atunci se va mentiona numarul acestuia si paginile.
Precizari importante
•
Articolele trebuie sa aiba 6-10 pagini, pe formatul A4, marginile stanga, dreapta, sus, jos: 2 cm.
•
Lucrarile trimise trebuie sa fie formatate în Word cu extensia doc.
•
Va rugam să nu numerotaţi paginile.
•
Articolele care nu respecta aceste instructiuni vor fi respinse inainte de a fi date la peer review.
Vă rugăm să trimiteţi şi varianta în limba română a articolului, necesară pentru controlul ştiinţific. In acelasi document,
veti pune mai intai articolul in engleza, iar apoi, in continuare, articolul in romana. Veţi primi un răspuns în urma
procesului de recenzare.
Vă rugăm manifestaţi foarte mare grijă pentru corectitudinea traducerii în limba engleză.
2. ÎNCĂRCAREA ARTICOLULUI
ATENTIE: Trebuie sa stergeti numele din articolul MS Word pe care il veti incarca. Numele va fi introdus doar in
formularul de inregistrare, iar articolului dvs ii va fi repartizat automat un numar de ordine.
AVETI LA DISPOZITIE PE SITE SI UN GHID PENTRU UTILIZAREA PLATFORMEI ON-LINE.
Pentru a putea incarca o lucrare, este necesar sa va creati un cont pe site-ul revistei : www.seap.usv.ro/annals.
După ce primiţi acceptul publicării articolului, este necesară completarea unui formular de copyright, prin care garantaţi
originalitatea articolului trimis.
Revista apare bianual (iunie si decembrie). Lucrarile se vor incarca on-line, astfel: pana pe 31 martie pt nr.1 si pana pe
30 septembrie pentru nr.2.
Pentru alte detalii sau noutăţi vă rugam urmăriţi site-ul revistei: www.seap.usv.ro/annals .
EN
T
he USV Annals of Economics and Public Administration welcomes theoretical and empirical
articles, from all economic fields, according to the 5 sections:
Economy, trade, services
Management and business administration
Accounting-finance
Statisitics, economic informatics and mathematics
Law and public administration
1. PREPARING AND FORMATTING THE ARTICLE
It is expected that manuscripts will be organized in such a manner that maximize both the substance and clarity of the
document. All articles should report original research that has not been published or submitted for publication elsewhere.
Papers presented at conferences are accepted, provided that they have not been published in full in Conference
Proceedings. The papers will be all written in English. The papers will be checked in blind review system.
Paper Title
Must be in 12-point bold type, Times New Roman, centered across the top of the page and will be writen in uppercase.
Paper Authors
Author’s names will be written under the paper title after a blank line, centered across the page, single spaced specifing:
title, university/institution affiliation, country and e-mail address. It must be written in 10 point type, Times New Roman in
lowercase. The first and last name of the authors(s) will be written with bold, and the last name will be written with caps
look.
Paper Abstract
It will be written after authors leaving a blank line before. The abstract must include sufficient information for readers to
judge the nature and significance of the topic, the adequacy of the investigative strategy, the nature of the results and the
conclusions. An abstract is not an introduction, it summarizes the substantive results of the work. The abstract will be
written in 10 point type italic, Times New Roman, justify. It must have 200 to 250 words, single spaced type.
Key words
Select 5 to 6 keywords (words or expresions) that capture the essence of your paper. List the words in decreasing order
of importance. All the key terms must be translated in English and attached to your abstract. It will be written in 10 point
type, Times New Roman, after abstract leaving a blank line before.
JEL Classification
Please put one or several JEL codes, according to the subject of your paper. The codes can be found here:
http://www.aeaweb.org/jel/jel_class_system.php
Introduction
For introduction, state the purpose of the work, the motivation of the chosen theme and, briefly explain your approach
and the necessary arguments.Before introduction please let 2 blank lines.
Paper Content
Organize the body of the paper using titles and subtitles to emphasize both content and clarity. The titles and subtitles
283
Volume 12, Issue 2(16), 2012
will be written in caps, 12, bold, left aligned. Please let a blank line before and one after. Consider the following:
• the accepted terminology of the field to describe any subjects or experimental procedures used to gather and
analyze data;
• include detailed methods, so readers could be able to follow the investigation;
• state the results clearly and succinctly;
• the implications of the findings and minutely discuss the impact of the results, both globally and specifically.
Typeface must be 12-point Times New Roman type single spaced. Tables and figures should be sized and placed in the
body of the paper just as the authors want them printed in the journal. Care should be taken so that tables and figures
could be on one page. The tables contents will be written in 10 point type, Times New Roman and the heading of the
tables will be in 10 point type bold, Times New Roman.
The titles and numbers will be positioned above the table and the title and number of the figures bellow. When it
is needed, the source will be mentioned. The number of the tables and figures are to be positioned in the body of the
text, in a paranthesis, wherever they are mentioned, for example: (figure no.1), (table no. 1).
The graphs must be executed clearly so as to give clear black and white copies. Number all the equations and formulas
used positioning the numbers in paranthesis on their right side.
Define abbreviations and acronyms the first time they are used in the text, even after they had already been defined in
the abstract.
Footnotes are not allowed, but you can choose one of the following citation ways:
- endnotes at the end of the paper, situated before bibliography and introduced manually. They will be written in Times
New Roman, size 10, italic. The bibliographic references in the text of the work will be numbered with [1], [2] etc.
- citations in text in a parenthesis specifying the author name and the year of the work apparition: (Johnson, 2000),
(Johnson and Jackson, 2001) – work with 2 authors, (Johnson et al., 2002) - work with several authors, (Johnson, 2000;
Peterson, 2001) – if the idea is found at many authors, or (Johnson, 2000a) and (Johnson, 2000b) - in the case where
there are 2 different works of the same author appeared in the same year (a and b indicating the order in which they
appear at bibliography). It can be also specified the page in the parenthesis (Johnson, 2000, 250). Authors cited in the
text must be found in the bibliography.
Conclusions
Conclusions may review the main points of the paper, do not replicate the abstract as the conclusion. A conclusion might
elaborate on the importance of the work or suggest applications and extensions and extensions of the research.
References
Related to in-text referencing cite the name of the author(s) and year of publication (James, 1984), (Collins and Fremont,
1977 – for two authors) and (Collins et al., 1988 – for three authors). Also, references in the articles will be numbered
with [1] and if there are more than one reference with, [1] – [2].
Sources should be in alphabetical order by author’s last name, the list being numbered. When certain studies, research,
articles are published in a volume, the volume numbers and pages will be specified.
Important Specifications
• Articles must be at least 6 to 10 pages long in the style A4 sheet, margins left, right, top, bottom: 2 cm.
• Submitted documents must be in PC-formatted Word (.doc) file.
• The articles that don't respect specified guidelines will be rejected before they are sent to peer review. Please do
not number the pages of your work.
• Please do not number the pages of your work.
2. UPLOADING THE ARTICLE
ATTENTION: You must delete your name from the MS Word article you upload. You will enter your name in a form and
will be assigned automatically a number to your article.
You will receive an answer after the scientific check of your article, after the paper review process.
A GUIDE ABOUT HOW TO USE THE ON-LINE PLATFORM IS AVAILABLE ON OUR SITE.
In order to upload a paper, you must create an account on the journal site www.seap.usv.ro/annals .
After you receive the acceptance of the article publication, you have to fill in a copyright form, in which you guarantee
the originality of the article you sent to us.
The journal appears twice a year (June and December). For the first number of the review, the manuscripts should be
submitted on-line until 31 March and for the second number, until 30 September.
For other details or news, please check our site: www.seap.usv.ro/annals .
PENTRU COMENZI VA RUGAM SA NE CONTACTATI PE ADRESA DE E-MAIL A REVISTEI MENTIONATA
ANTERIOR.
FOR COMMANDS, PLEASE CONTACT US BY E-MAIL AT THE JOURNAL ADDRESS MENTIONED BEFORE.
284

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