Interdisciplinary Management Research - IMR VII

THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK,
FACULTY OF ECONOMICS IN OSIJEK CROATIA

HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH VII
INTERDISZIPLINRE MANAGEMENTFORSCHUNG VII
Osijek 2011.
Published by:
Josip Juraj Strossmayer University in Osijek, Faculty of Economics in Osijek, Croatia Postgraduate
Studies Management
Hochschule Pforzheim University
For the Publisher:
Rudi Kurz, Ph.D., Dean, Germany
eljko Turkalj, Ph.D., Dean, Croatia
Editors:
Urban Bacher, Ph.D., Pforzheim University, Business School, Germany
Draen Barkovi, Ph.D., Faculty of Economics in Osijek, Croatia
Karl Heinz Dernoscheg, Ph.D., International Business School Styria, Austria
Maja Lamza - Maroni, Ph.D., Faculty of Economics in Osijek, Croatia
Branko Mati, Ph.D., Faculty of Economics in Osijek, Croatia
Norbert Pap, Ph.D., University of Pecs, Hungary
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany
Review Committee:
Luka Crnkovi, Ph.D., Faculty of Economics in Osijek, Croatia
Ivan Ferenak, Ph.D., Faculty of Economics in Osijek, Croatia
Nino Grau, Ph.D. University of Applied Sciences, Fachhochschule Giesen-Friedberg, Germany
Slavo Kuki, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Hartmut Loer, Ph.D., Pforzheim University, Business School, Germany
Brano Marki, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Frane Mitrovi, Ph.D., Faculty of Maritime Studies in Split, Croatia
Bela Orosdy, Ph.D., University of Pcs, Faculty of Business and Economics, Hungary
Ivan Pavlovi, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Slavica Singer, Ph.D., Faculty of Economics in Osijek, Croatia
Vladimir Srb, Ph.D., Faculty of Economics in Osijek, Croatia
Jusuf ehanovi, Ph.D., Juraj Dobrila University of Pula, Croatia
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editors:
Jerko Glava, Ph.D. candidate, Faculty of Economics in Osijek, Croatia
Hrvoje Serdarui, Ph.D. candidate, Faculty of Economics in Osijek, Croatia
Language Editing and Proofreading:
Ljerka Rado, Faculty of Economics in Osijek, Croatia
A CIP record is available from the electronic catalogue of the City and University Library Osijek
under number 130120055
The publication of this book was approved unanimously by the Senate of Josip Juraj Strossmayer
University in Osijek at the Senate meeting of 23 May 2011 under number 26/11
ISSN 1847-0408
ISBN 978-953-253-096-4
Indexed in: EBSCOhost, RePEc, EconPapers, Socionet
Program committee:
Mate Babi, Ph.D., University of Zagreb, Faculty of Economics in Zagreb, Croatia
Heinrich Badura, Ph.D., President, The European Academy for Life Research, Integration and
Civil Society, Austria
Firouz Gahvari, Ph.D., University of Illinois at Urbana-Campaign, Department of Economics,
USA
Gunther Gottlieb, Ph.D., University of Augsburg, Germany
Rupert Huth, Ph.D., Pforzheim University, Business School, Germany
Zoran Jai, Ph.D., Ambassador of the Republic of Croatia to the Republic of Austria
Zlatko Kramari, Ph.D., Ambassador of the Republic of Croatia to the Republic of Kosovo
Rudi Kurz, Ph.D., Pforzheim University, Business School, Germany
eljko Turkalj, Ph.D., Faculty of Economics in Osijek, Croatia
Mladen Vedri, Ph.D., University of Zagreb, Faculty of Law, Croatia
CONTENTS
VORWORT ......................................................................................................................... 11
FOREWORD ...................................................................................................................... 12
Management
Christian P. Runzheimer, Bodo Runzheimer
KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG
UND KONTROLLE INTEGRATIVER PRODUKTENTWICKLUNGEN .....................15
Mladen Jurii, Draen Barkovi, Ivan Plaak
METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS
FOR RESOURCE MANAGEMENT AND SELECTION OF
NEW LOCATIONS PURPOSE MAPS IN GIS ENVIRONMENT ...............................62
eljko Turkalj, Ivana Fosi, Marija Ham
CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS ETHICS
APPLICATION OF ECONOMIC ENTITIES IN THE REPUBLIC OF CROATIA...........76
Mane Medi, Igor Medi, Mladen Panci
MARKETING DETERMINANTS OF BRAND .................................................................86
Gerd Grau
ROADMAPPING AS A TOOL FOR NEW PRODUCT INTRODUCTION NPI
ILLUSTRATED BY THE EXAMPLE OF THE SEMICONDUCTOR INDUSTRY ........95
Sonja Keppler, Timo Keppler
HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL
TECHNOLOGY VENTURES? A PROCESS AND
ACTIVITY BASED APPROACH .......................................................................................107
Marijana Zeki-Suac, Slavko Vuli
PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS ................118
Maja Lamza-Maroni, Jerko Glava, Igor Mavrin
MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE
PROGRAMME....................................................................................................................130
Draen Kostelac
PROJECT PORTFOLIO MANAGEMENT IN
FAST-GROWING COMPANIES ........................................................................................140
Hrvoje Serdarui
FINANCIAL ANALYSIS AS AN INSTRUMENT OF
VALUATION OF CROATIAN COMPANIES ..................................................................149
Nino Grau
STANDARDS UND EXZELLENZ UNVERSHNLICHE GEGENSTZE? .............160
Nikola Papac, Marija utura, Anela olak
SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR
CORPORATE GOVERNANCE IN BOSNIA AND HERZEGOVINA .............................169
Meike Mogk
MIT ACTIVOTE ZUR HANDLUNGSKOMPETENZ NEUE
LEHRMETHODEN IM STUDIUM .................................................................................180
Bruno Dernaj
TIME MANAGEMENT QUALITY - MANAGERS OF
SLAVONIJA CITIES vs CROATIAN MANAGERS ............................................................194
Zvonimir Strnad
EFFECT OF PRINCIPAL-AGENT PROBLEM ON
THE BANKING CRISIS IN 2008 ......................................................................................206
Miodrag Streitenberger
THE ANALYSIS OF FINANCIAL RATIOS UTILITY IN PREDICTION
OF LOAN DEFAULTS USING T-TEST .............................................................................217
Nedeljko Kovai
MARKETING RESEARCH IN HEALTHCARE INDUSTRY ...........................................231
Martina Bri, Nino Bonjak, Jozo Krajina
APPLYING THE AHP METHOD IN THE PROCESS OF DECISION
MAKING WHEN SELECTING THE LOCATION OF A GEOTHERMAL WELL ........241
Miljenko Brekalo, Zvjezdana Penava Brekalo, Gordana Kurtovi
SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING ..........................254
Mario upan
IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS ON ERP
EVOLUTION......................................................................................................................261
Marko ostar
DECIDOPHOBIA AS A LIMITING FACTOR OF MANAGEMENT ...........................272
Branimir Kos
QUALITY MANAGEMENT IN THE SUGAR INDUSTRY .............................................283
Anita Kula, Sanja Kneevi
CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE
CONDITIONS OF RECESSION .......................................................................................293
Mirko Cobovi, Berislav Bolfek, Lena Sigurnjak
ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION
PROJECTS IN REPUBLIC OF CROATIA .........................................................................304
Ivica Zdrili, Milan Puvaa, Dinko Roso
HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS
INDUSTRIES BUSINESS CASES IN THE BANKING, TOURISM
AND SECURITY SERVICES ............................................................................................315
Slobodan Stojanovi, Ivan Penava
LIQUIDITY MANAGEMENT IN SMALL COMPANIES ................................................326
Mario Banoi
METHODS AND TECHNIQUES FOR CALCULATING A
PRICE - MARKETING MIX OF TOURISM PRODUCTS ...............................................337
Dinko Juki, Boica Dunkovi

A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND ...................347
Davor Dujak
STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT
- CONTEMPORARY MODELS OF SOURCING STRATEGIES .....................................359
Kata Ivi
CHANGE MANAGEMENT IN ACADEMIC INSTITUTIONS PROS
AND CONS OF THE BOLOGNA PROCESS ...................................................................371
General Economics
Zoran Jeremi, ankarlo Milokanovi
PERSPECTIVE OF THE TOURISM DEVELOPING IN ISTRIA
REGARDING GLOBAL TENDENCIES............................................................................383
Microeconomics, Macroeconomics and Monetary Economics
Octavian Jula
FECONOMIC SYSTEMS AND DEVELOPMENT .........................................................395
Flavius Rovinaru, Mihaela Rovinaru, Liviu-Daniel Deceanu
THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE. STUDY CASE:
ELECTORAL CYCLES IN ROMANIA ..............................................................................408
Ana Udovii
SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS AN
IMPORTANT COMPONENT FOR ECONOMIC GROWTH .....................................422
International Economics
Jasmin Hoo, Denan onlagi
IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS
TRANSNATIONAL COMPANIES IN THE WESTERN BALKANS ................................435
Thomas Bauer
THEORY AND EVIDENCE OF LABOR MIGRATION IN EUROPE ..........................449
Katarina Arnold Brati, Mirko Pei
OVEREIGN WEALTH FUNDS THE ACTIVITY AND ITS
CINTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY
IN TIME OF RECESSION .................................................................................................475
Financial Economics
Saa Vuji, Slobodan Vuji
A CRITICAL EVALUATION OF MICROCREDITING IN
BOSNIA AND HERZEGOVINA ......................................................................................489
Izabela Pruchnicka-Grabias
DILEMMAS OVER FINANCIAL INNOVATION DEVELOPMENT.
THE CASE OF CREDIT DERIVATIVES .........................................................................498
Cornelia Pop, Maria-Andrada Georgescu
ROMANIAN MUNICIPAL BOND MARKET ..................................................................512
Alexander Moheit, Dirk Wentzel

THE STABILITY PERFORMANCE OF EASTERN EUROPEAN EU MEMBERS
WHO CAN JOIN TO THE EURO AREA? .......................................................................545
Urban Bacher, Christopher Pohl
FR EIN NEBENEINANDER VON PRIVATEN UND
STAATLICHEN RATINGAGENTUREN .........................................................................570
Markus Hfele, Jan Helge Schmeisky
DIE BERCKSICHTIGUNG VON FRAUDRISIKEN IM RAHMEN DER
RISIKOORIENTIERTEN ABSCHLUSSPRFUNG .......................................................581
Branko Mati, Hrvoje Serdarui, Maja Vretenar
DMPACT OF FINANCIAL CRISIS ON CREDIT
LENDING OF CROATIAN BANKS .................................................................................598
Ivo Mijo, eljko Poega, Boris Crnkovi
CASH FLOW STATEMENT ACCORDING TO IASB
RECOMMENDATIONS AND CROATIAN ACCOUNTING STANDARDS .................608
Health, Education and Welfare
Jasmina Osmankovi, Amra Rizvi, Hatida Jahi
A STUDY OF MOTIVES, EXPECTATIONS AND ACADEMIC
PERFORMANCE OF STUDENTS AT SCHOOL OF ECONOMICS
AND BUSINESS, SARAJEVO .............................................................................................619
Jelena Legevi
CULTURE OF ORGANISATION AS A DRIVING FORCE FOR IMPROVING
MANAGEMENT RESULTS................................................................................................627
Antun undali
EDUCATION, MANAGEMENT AND MERITOCRACY ..............................................638
Mira Majstorovi, Marija Toki
GUARANTEE OF EDUCATION FOR EVERYBODY......................................................652
Sanela Ravli, Ivana Zelenko
IMPORTANCE OF HUMAN RESOURCES IN ENTREPRENEURIAL
SUPPORT INSTITUTIONS FOR ADAPTATION OF SMEs TO BUSINESS
ENVIRONMENT IN THE EU ...........................................................................................663
Ivana Ivani, Nada Bosanac, Sran Petri
VOCATIONAL EDUCATION AND TRAINING IN CROATIA:
A NEW CONCEPT FOR THE LABOUR MARKET REQUIREMENTS ......................672
Law and Economics
Pun Ciprian Adrian
THE CONTRIBUTION OF ROMANIAN LEGAL ELITES FROM THE 20TH
CENTURY TO THE DEVELOPMENT OF THE ECONOMIC AND
LEGAL SYSTEM .................................................................................................................685
Renata Peri, Emina Konji
FINANCIAL MEASURES TO MITIGATE THE NEGATIVE
CONSEQUENCES OF UNEMPLOYMENT ...................................................................695
Ivana Barkovi Bojani

APPLICATION OF THE GAME THEORY TO LAW: SELECTED EXAMPLES...........704
Katarina Maroevi, Josip Romi
GENDER DISCRIMINATION IN THE LABOR MARKET:
CROATIAN EXPERIENCE................................................................................................713
Vjekoslav Puljko
ROME II REGULATION....................................................................................................727
Industrial Organization
Ivan Kristek, Domagoj Karai, Draen ui
MEASURING COMPETITION IN CROATIAN BANKING INDUSTRY ..................... 743
Slavko Matanovi
CHALLENGES IN MANAGING INFORMATION SYSTEMS OF
GLOBAL COMPANIES ..................................................................................................... 753
Business Administration and Business Economics
Vesna Buevska, Jasmina Buevska
A LOGIT MODEL OF ELECTRONIC BANKING ADOPTION:
THE CASE OF KOMERCIJALNA BANKA AD SKOPJE ............................................... 765
Kasim Tati, Merima injarevi
CONSUMER ETHICS: ATTITUDES TOWARD COUNTERFEIT
LUXURY FASHION PRODUCTS..................................................................................... 775
Florin Duma, Drago Pun
COMPANY FINANCING THROUGH CAPITAL INCREASE
IN THE HOSPITALITY INDUSTRY............................................................................... 787
Gavriletea Marius
PRACTICAL ISSUES REGARDING
INSURANCE INTERMEDIARIES IN ROMANIA .......................................................... 797
Thomas Cle, Christoph Grimpe, Christian Rammer
LEAD MARKETS IN THE EUROPEAN TEXTILE INDUSTRY IMPLICATIONS
FOR EUROPEAN INNOVATION POLICY ................................................................... 807
Hans-Joachim Hof
GESETZTE ORDNUNG VS. SPONTANE ORDNUNG
EINIGE GEDANKEN ZUM THEMA SYSTEMTRANSFORMATION UND
INTERNATIONALER WETTBEWERB.......................................................................... 831
Boris Marjanovi, Barbara Marunik, Klaudio Tominovi
MODERN ORGANIZATIONAL MODELS BASED
ON A NEW PARADIGM ................................................................................................... 846
Hrvoje Budi
MEASURING CUSTOMER SATISFACTION USING
THE TEST METHOD ...................................................................................................... 855
Economic Development, Technological Change, and Growth

Guy Fournier, Matthew Stinson
THE FUTURE THINKS ELECTRIC DEVELOPING AN ELECTRIC MOBILITY
VALUE CHAIN AS A FOUNDATION FOR A NEW ENERGY PARADIGM ..............867
Mladen Vedri, Ruica imi
CROATIA AT THE DOOR OF THE EU:
CURRENT RISKS AND NEW POSSIBILITIES ...............................................................900
Marina Budimir, Irena Bosni
NEW WORLD ORDER INFLUENCED BY GLOBALIZATION AND
INFORMATION COMMUNICATION TECHNOLOGIES ........................................924
Vlasta ibali
PUBLISHING IN E-ENVIRONMENT.............................................................................933
Urban, Rural and Regional Economics
Mirjana Radman-Funari
IDENTIFICATION OF CRITICAL INDUSTRIAL ACTIVITIES
CONCENTRATION IN THE CROATIAN PANONIAN REGION ................................947
Vladimir Cini, Nataa Drvenkar
ANALYSIS OF REGIONAL NONCOMPETITIVENESS OF PANNONIAN
CROATIA ............................................................................................................................956
Kralik I., Markovi B., Tolui, Z.
MODELS FOR PREDICTING THE USAGE OF IPARD PROGRAM FUNDS
IN THE REPUBLIC OF CROATIA...................................................................................969
Anton Devcic
THE CHALLENGES OF REGIONAL DEVELOPMENT OF POZEGASLAVONIA
COUNTY BASED ON THE EUROPEAN UNION FUNDS ..........................................979
Dominika Crnjac Mili, Goran Martinovi
OPTIMIZATION OF THE NUMBER OF CLIENTS
IN INSURANCE COMPANIES ........................................................................................991
Vorwort
Es ist uns ein Vergngen, das Konferenzband Interdisziplinre Managementforschung
VII/ Interdisciplinary Management Research VII vorstellen zu knnen. Ein Buch aus
dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der Zusammenarbeit
zwischen der Wirtschaftsfakultt in Osijek, Kroatien und der Hochschule Pforzheim,
Deutschland, und insbesondere durch das Magisterstudium des Management. Die
Zusammenarbeit der zwei genannten Partnerinstitutionen ist unter anderem durch
jhrliche wissenschaftliche Symposien gekennzeichnet, auf welchen interessante
Themen aus verschiedenen Bereichen der Wirtschaft und des Managements
vorgestellt und folglich in einem Band verentlicht werden. Jedes Jahr ziehen die
wissenschaftlichen Symposien Akadamiker anderer kroatischer, sowie auslndischer
Universitten, einschlielich Ungarn, Polen, Rumnien, Slovenien, , Montenegro,
Bosnien und Herzegovina, Serbien, Indien, Irland, Czechien, Israel, Italien, Sdafrika,
Belgien an, die ihren wissenschaftlichen und profesionellen Beitrag zur Diskussion
ber zeitgenssische Fragen aus dem Bereich des Managements leisten. Die Aktualitt
der behandelten Fragen, der internationale Charakter im Hinblick auf Themen und
Autoren, die hchsten Standards der Forschungsmethodologie sowie die Kontinuitt
dieser Konferenzreihe wurden auch von der internationalen akademischen Gemeinde
erkannt, weswegen sie auch in internationalen Datenbanken, wie Thomson ISI,
RePEc, EconPapers und Socionet, zu nden ist.
Die neueste Ausgabe von Interdisziplinre Managementforschung VII/
Interdisciplinary Management Research VII umfasst 74 Arbeiten geschrieben von
134 Autoren. Der Erfolg frherer Ausgaben ging ber die Grenzen der Lnder
hinaus, deren Autoren schon traditionell Teil der Reihe waren und zog neue Autoren
aus USA, Slowakei, Dnemark, Mazedonien, Schweiz und Grobritannien an.
Jedes der Autoren leistete einen bedeutenden Beitrag zu diesem fachbergreifenden
Managementforum.
Als Herausgeber dieses Bandes hoen wir, dass diese Reihe auch weiterhin
Akademiker und Profesionelle dazu bewegen wird, in Forschung und Beruf die
hchsten Standards zu beanspruchen, und dass es weiterhin als Ansporn zu weiteren
Formen von Zusammenarbeit unter Teilnehmern dieses Projektes dienen wird.
Prof. Dr. Draen Barkovi

Prof. Dr. Bodo Runzheimer
Foreword
It is our pleasure to introduce the book Interdisziplinre Managementforschung

VII/ Interdisciplinary Management Research VII to you. The rst volume appeared
in 2005 as a result of co-operation between the Faculty of Economics in Osijek
(Croatia) and Pforzheim University (Germany), particularly through the postgraduate
programme Management. The co-operation between these partnering institutions
has been nurtured, amongst else, through annual scientic colloquiums at which
interesting topics in various elds of economics and management have been presented
and later published in the proceedings. Over the years, the scientic colloquiums have
drawn the attention of academic scholars from other Croatian universities, as well as
from other countries including Hungary, Poland, Romania, Slovenia, Montenegro,
Bosnia and Herzegovina, Serbia, India, Ireland, Czech Republic, Israel, Italy, South
Africa, Belgium, each making a contribution in academic and professional discussion
about contemporary management issues. Actuality and importance of the issues
discussed, the international character of the book in terms of authors and topics, the
highest standards of research methodology and continuity in publishing have been
recognized by the international academic community, resulting in the book now
being indexed in world-known data bases such as Thomson ISI, RePEc, EconPapers,
and Socionet.
The latest edition, i.e. Interdisziplinre Managementforschung VII/ Interdisciplinary
Management Research VII encompasses 74 papers written by 134 authors. The
success of former editions has echoed beyond the traditionally participative countries
and authors and now includes new authors from USA, Slovaky, Denmark, Macedonia,
Schweiz and the United Kingdom, each providing a valuable contribution to this
interdisciplinary management forum.
As editors we hope that this book will continue to encourage academic scholars
and professionals to pursue excellence in their work and research, and to provide an
incentive for developing various forms of co-operation among all involved in this
project.
Prof. Dr. Draen Barkovi

Prof. Dr. Bodo Runzheimer
MANAGEMENT
KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...
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KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG

VON PLANUNG UND KONTROLLE INTEGRATIVER
PRODUKTENTWICKLUNGEN
Dr. Christian P. Runzheimer
Professor Dr. Bodo Runzheimer
Abstract
The paper will investigate whether a planning and control concept in medium
and large industrial enterprises with batch and mass production can be used to
design a planning and control system for the development of complex technical
products and associated processes, and whether such a system could bring about
better solutions and/or require less eort and input. The paper refers to the result
as integrative product development. Particular emphasis on anticipatory control
at the expense of planning function allows one to expect noticeable improvements
in control as well as timely reactions to possible missing of targets. A step-by-step
procedure methodology for checking and improving planning and control concepts in product development proposes a solution in the form of a planning and
control concept for the integrative product development.
JEL classication: D24, L 29, M 11,
Keywords: product development planning and control system, meta-planning
and control of the integrative product development planning and control system, planning and control systematics and methodology in integrative product
development, organisation of the planning and control of the integrative product
development
Einleitung
Ein erster Teil-Schritt zur Verbesserung der Planungs- und Kontrollsystematik

dient der Festlegung der Grobstruktur des Planungs- und Kontrollsystems. Mit
der Durchfhrung weiterer Teil-Schritte werden zugleich Gestaltungsempfehlungen unterbreitet. Diese basieren sowohl auf den heuristischen Lsungsprinzipien,
Christian P. Runzheimer Bodo Runzheimer
16
die elementare Bestandteile eines bewhrten Verfahrens (vgl. Grnig, R., S. 186.)
darstellen, als auch auf logischen Schlssen, die sich aus den Prmissen ergeben.
Hierzu zhlt insbesondere die Erkenntnis, dass eine Anwendung der Neugefassten Managementkonzeption (vgl. Runzheimer, C., I, S. 56.) im Kontext der
Entwicklung von industriellen Serienprodukten die grten Vorteile bietet.
Um das Verstndnis der Planungs- und Kontrollkonzeption zu erleichtern, orientiert sich der Beitrag primr an den in der Grobstruktur identizierten Planungsund Kontrollsubsystemen. Die Durchfhrung der Verfahrensschritte auf der Ebene
der identizierten Planungs- und Kontrollsubsysteme und nicht auf der Ebene der
Planungs- und Kontrollkonzeption insgesamt zu dokumentieren, ist vorteilhaft, da
sich alle im Kontext der Planung und Kontrolle von Produktentwicklungen relevanten Schritte auf diese Planungs- und Kontrollsubsysteme beziehen (Abb. 1).
Detaillierungsgrad und Gewichtung der folgenden Ausfhrungen orientieren
sich an zwei grundstzlichen Empfehlungen von Grnig:
Betrachtet werden in den folgenden Ausfhrungen nur die am Ende eines
(Teil-) Planungsprozesses verabschiedeten Plne.
Die Planungs- und Kontrollsystematik sollte vergleichsweise detailliert festgelegt werden und hinsichtlich der Planungs- und Kontrollmethodik und
der Planungs- und Kontrollorganisation auf wesentliche Empfehlungen
beschrnkt werden (vgl. Grnig, R., S. 201).
Teilschritte zur Verbesserung der Planungs- und Kontrollkonzeption fr die Integrative Produktentwicklung
Verbesserung der Planungs- und Kontrollsystematik
1 Bestimmung der Grobstruktur des Planungs- und Kontrollsystems durch Festlegung
- der Planungs- und Kontrollhorizonte und Planungs- und Kontrollebenen
- der Verkettung der Planungs- und Kontrollebenen
- der vertikalen Entwicklungsfolge und
- der vertikalen und horizontalen Schnittstellen
2 Verfeinerung der Struktur des Planungs- und Kontrollsystems durch die Bestimmung der Planungsobjekte, der Planungsform,
der Plne, der horizontalen Entwicklungsfolge
3 Bestimmung der Planungsgrundlagen (Festlegung akzessorischer Informationsquellen der Planung und des Informationsaustauschs mit anderen Planungs- und Kontrollsubsystemen)
4 Festlegung der Kontrollart, der Kontrollobjekte und der Kontrollform
17
5 Bestimmung der Kontrollgrundlagen (Festlegung akzessorischer Informationsquellen der Kontrolle und des Informationsaustauschs mit anderen Planungs- und Kontrollsubsystemen)
6 Bestimmung des Anlasses
- der Planerstellung und Planrevision
- der Durchfhrung einer Kontrolle
Verbesserung der Planungs- und Kontrollmethodik
Verbesserung der Planungs- und Kontrollorganisation
Bestimmung der Planungs- und Kontrolltrger
Festlegung der Empfnger der Plne und Kontrollberichte
Insgesamt
Bestimmung der Ablauforganisation (Ablauf und Timing) der Planung und Kontrolle
Abb. 1: Konkretisierung der Vorgehensmethodik bei der Verbesserung der Planungs- und Kontrollkonzeption
Quelle: in Anlehnung an Grnig, R., S. 186 .
1 Bestimmung der Grobstruktur des Planungs- und Kontrollsystems
Zur Bestimmung der Grobstruktur des Planungs- und Kontrollsystems ist es

erforderlich, die Planungsebenen, ihre Planungshorizonte, ihre Verkettung und
ihre Entwicklungsfolge festzulegen (vgl. Grnig, R., S. 193 sowie 210f.). Bei der
Festlegung der Grobstruktur des Planungs- und Kontrollsystems ist zunchst zu
entscheiden, ob die Primrstruktur der Plne sich an der Struktur der Sachzielhierarchie, der zeitlichen Dimension (z. B. den Phasen des Produktlebenszyklusmodells) oder der Struktur der Formalzielhierarchie orientieren sollte. In letzterem Fall
erscheint in Anbetracht der Formalziele
eine Finanzplanung und -kontrolle, die Auswirkungen auf das Liquidittsziel
des Unternehmens aufzeigt,
eine auf das Gewinnziel gerichtete Erfolgsplanung und -kontrolle sowie
zumindest eine Kontrolle der Auswirkungen auf die Erfolgspotentiale des Unternehmens als unverzichtbar.
Eine geeignete Basis fr die Festlegung einer sachzielorientierten Primrstruktur des Planungs- und Kontrollsystems bildet die Strukturierung der Entscheidungstatbestnde der Produktentwicklung mit folgender Unterscheidung:
(1) Planungs- und Kontrollsubsystem des Entwicklungsprojektes
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(2) Planungs- und Kontrollsubsystem des innovativen Produktes sowie

(3) Planungs- und Kontrollsubsystem der (auf das innovative Produkt
bezogenen)
Kombinations- und Transformationsprozesse (einschlielich der
zugehrigen
Produktionsfaktoren).
Den Bezugspunkt der Entscheidungen, die Kombinations- und Transformationsprozesse (einschlielich zugehriger Produktionsfaktoren) betreen, bilden
die produktbezogenen Plne. Da sowohl die Entscheidungen der Produktentwicklung als auch der Prozessentwicklung wiederum durch Plne auf der Projektebene
koordiniert werden mssen, entspricht die genannte Reihenfolge auch der hierarchischen Anordnung der drei Planungs- und Kontrollsubsysteme.
Da die drei sachzielorientierten Planungs- und Kontrollsubsysteme die Formalziele beeinussen, sind ihre Auswirkungen durch die drei formalzielorientierten
Planungs- und Kontrollsubsysteme (Gewinn, Erfolgspotentiale und Liquiditt) zu
erfassen.
Durch eine berlagerung der Strukturierungsdimensionen entsteht die in Abb.
2 dargestellte Grobstruktur der Planungs- und Kontrollkonzeption fr die Integrative Produktentwicklung. Damit wird zugleich der Empfehlung nach einer
konsequenten Trennung von nanzieller und nicht-nanzieller Planung und
Kontrolle Rechnung getragen.
19
Metaplanung und -kontrolle des

Planungs- und Kontrollsystems
der Integrativen Produktentwicklung
Planung und Kontrolle des

Entwicklungsprojektes
Sachzielorientierte
Primrstruktur
Legende:
Systembildende
Koordination
(Metaplanung
und -kontolle)

innovativen Produktes
Planung und Kontrolle der
Kombinations- und
Transformationsprozesse
(einschlielich zugehriger
Produktionsfaktoren)
Formalzielorientierte
Sekundrstruktur
Abb. 2: Dimensionen der Grobstruktur der Planungs- und Kontrollkonzeption fr die Integrative Produktentwicklung
Quelle: Runzheimer, C., I, S. 286
Es wird empfohlen, Sachzwnge, die eine strukturelle Anpassung des Planungsund Kontrollsystems whrend des Produktentwicklungsprozesses erforderlich machen knnten, mglichst antizipativ durch systembildende Koordination zu
vermeiden. Diese den anderen Planungs- und Kontrollaufgaben der Produktentwicklung bergeordnete Aufgabe wird als Gegenstand des Subsystems der Metaplanung und -kontrolle des Planungs- und Kontrollsystems der Integrativen
Produktentwicklung gesehen. Aufgabe dieses Subsystems ist es, festzulegen,
wie im konkreten Fall geplant werden soll.
20
Die Vernderung der Produktlebenszyklen und die damit einhergehende zunehmende Bedeutung des Entsorgungszyklus lsst es zweckmig erscheinen, dass
die Planungshorizonte der Planungsebenen des innovativen Produktes sowie
der Kombinations- und Transformationsprozesse mindestens alle Phasen des
Produktlebenszyklus - also auch die Entsorgungsphase - einschlieen.
Als das Ende der Realisationsdauer des Planes des Entwicklungsprojektes wird
in der Literatur hug die Markteinfhrung des innovativen Produktes angesehen
(vgl. Runzheimer, C., I, S. 94.). Zwei Grnde sprechen jedoch dagegen, dass hier
auch der Planungshorizont der Planungsebene des Entwicklungsprojektes angesiedelt werden sollte:
(1) Zhlt zu den Aufgaben der Produktentwicklung auch die Entwicklung innovativer Prozesse, so kann das Realisationsende der Prozessentwicklung erst mit
der Einfhrung neuer Entsorgungsprozesse zu Beginn der Entsorgungsphase
erreicht sein.
(2) Auch nach dem Realisationsende treten relevante Zielwirkungen des Produktentwicklungsprojektes auf. Erwhnt sei die Auswirkung der Dauer der Produktentwicklung auf den Markterfolg des innovativen Produktes.
Es wird empfohlen, den Planungshorizont der Planungsebene des Produktentwicklungsprojektes - falls notwendig - so festzulegen, dass er nicht nur die Einfhrung des (materiellen) Produktes am Markt, sondern auch die Einfhrung
der zugehrigen innovativen Prozesse (z. B. Entsorgungsleistungen) erfasst.
Um die durch den gewhlten Planungshorizont verursachten Selektionsrisiken
(vgl. Runzheimer, C., I, S. 56.) zu begrenzen, sollte der Zeithorizont der Kontrollen jeweils ber den an der Realisationsdauer orientierten Zeithorizont der Plne hinausgehen und die Prognosereichweite einschlieen (vgl. Abb. 3).
21
Ebene
Zeithorizonte der Planung und Kontrolle
Metaplanung und -kontrolle

des Planungs- und Kontrollsystems der Integrativen
Produktentwicklung
Planung und Kontrolle
des Entwicklungsprojektes
des innovativen Produktes
der Kombinations- und
Legende:
Planungshorizont
Kontrollhorizont
Zeit
Ende des Entstehungszyklus des
(Markteinfhrung)
Beginn des Entsorgungszyklus

(sptestens jetzt:
Ende der Prozeeinfhrung)
Ende des Entsorgungszyklus
Prognosereichweite
Abb. 3: Zeithorizonte der Planungsebenen der Integrativen Produktentwicklung

Eine zentrale Eigenschaft des Planungs- und Kontrollsystems wird implizit mit
der Festlegung der vertikalen Entwicklungsfolge ebenfalls festgelegt: die Flexibilitt der Planung. Diese ist von besonderer Bedeutung, wenn
das Problemfeld sich im Zeitablauf verndern kann (Dynamik),
die Umweltentwicklung nicht sicher voraussagbar ist (Unsicherheit),
die Realisierbarkeit sowie der Erfolg von Plnen vom Eintritt bestimmter knftiger Zustnde (Planungsprmissen) abhngig sind (Bedingtheit) (vgl. Bleicher, K., Sp. 1125; Wild, J., S. 176).
Da diese Merkmale auf die Produktentwicklung zutreen, wird hier mit dem Gegenstromverfahren eine Kombination beider Ableitungsformen Schachtelung
und Gegenstromverfahren (vgl. Runzheimer, C., I, S. 69f.) empfohlen; dies sichert
die notwendige Anpassungsfhigkeit der Planung: Aus Plnen der bergeordneten
Planungsebenen werden vorluge Plne der unteren Planungsebene deduktiv
abgeleitet. Die endgltige Planfestlegung erfolgt erst durch eine Prfung der Realisierbarkeit durch die untere Ebene und die progressive Plankonrmierung (induktive Ableitung).
22
Da es sich bei der Planung und Kontrolle einer Produktentwicklung um ein

Subsystem der Unternehmensplanung handelt, ist diese Empfehlung fr die zu
entwickelnde Planungs- und Kontrollkonzeption auf drei Ebenen umzusetzen:
1) Es gilt, die Beziehung zu bergeordneten Plnen des Unternehmens zu
klren.
2) Es ist notwendig, die Verkettung und vertikale Entwicklungsfolge der Planungsund Kontrollsubsysteme innerhalb der Planungs- und Kontrollkonzeption
beziehungsweise des Planungs- und Kontrollsystems festzulegen.
3) Schlielich sind die nachgeordneten operativen Planungsebenen zu
beachten, in denen konkrete Handlungsziele formuliert werden.
Zu 1):
Die Impulse zum Beginn einer Integrativen Produktentwicklung knnen von
drei bergeordneten Plnen ausgehen:
Wegen der strategischen Bedeutung eines innovativen Serienproduktes ist
davon auszugehen, dass die Integrative Produktentwicklung Gegenstand eines
bergeordneten strategischen Plans ist (Schachtelung), aus dem wesentliche
Ziele der Produktentwicklung zunchst deduktiv abgeleitet werden. Wichtige
Resultate, die ber die Schnittstelle zur strategischen Planung top down
bernommen werden, betreen die Beitrge der Produktentwicklung zum
Gewinnziel und zur angestrebten Entwicklung externer und interner Erfolgspotentiale des Unternehmens.
Als Teilfunktion von Forschung & Entwicklung (F&E) ist die Integrative
Produktentwicklung Bestandteil eines bergeordneten F&E-Plans (deduktive
Ableitung und Schachtelung). Geben die Resultate der Vorentwicklung (innovative produkt- oder prozessbezogene Techniken) den entscheidenden Impuls zur Produktentwicklung, so handelt es sich um einen Technology push.
In diesem Fall wird durch induktive Schlussfolgerungen versucht, innovative
Techniken und Prototypen zu marktfhigen Produkten weiterzuentwickeln.
Unter der Annahme eines hohen Konkurrenzdrucks ist davon auszugehen, dass
der Absatzplan den primren Engpassplan darstellt, auf den hin die Planung
der Integrativen Produktentwicklung zu erfolgen hat (deduktive Ableitung
und Schachtelung). Zu den wesentlichen Input-Informationen (top down)
fr die Integrative Produktentwicklung zhlen insbesondere die zu realisierenden Kundenwnsche, die erwarteten Einsatzbedingungen des Produktes, die
23
vorgesehene Dauer des Produktlebenszyklus, die geplanten Stckerlse und

Absatzmengen ber die Zeit, der geplante Zeitpunkt der Markteinfhrung
und die Bedeutung von Zeitverzgerungen fr die Produkterlse.
Zu 2):
Da der bergeordnete Projektplan auch die zeitliche Abfolge der Produktplanung und der Prozessentwicklung regelt, kann fr die zeitliche Verkettung die
Schachtelung angewendet werden. Hinsichtlich der vertikalen Entwicklungsfolge
wird die Anwendung des Gegenstromverfahrens dergestalt przisiert, dass aus
der Projektaufgabe zunchst ein vorluger Produktplan und Produktsubplne (z.
B. fr Baugruppen) deduziert werden. Aus diesen Produkt(sub)plnen wiederum
werden Prozessplne (z. B. fr Fertigungs- und Montageprozesse) abgeleitet. Bottom up ndet eine Rckkopplung von Informationen ber die Realisierbarkeit
der geplanten Ziele (Zielkonrmierung), ber die Prozessplne, ber die Produktplne bis zu den Projektplnen statt.
Die auf das Liquidittsziel gerichtete Planungsebene der Integrativen Produktentwicklung bildet ein Subsystem des Finanzplanungs- und -kontrollsystems des
Unternehmens.
In dem Finanzplan des Unternehmens werden fr die Entwicklung des Produktes beispielsweise in Form eines Budgets nanzielle Mittel in einer bestimmten
Hhe und fr einen bestimmten Zeitraum vorgesehen (top down). Umgekehrt
(bottom up) liefert die nanzielle Planung und Kontrolle der Integrativen Produktentwicklung dem bergeordneten Finanzplan des Unternehmens wiederum Informationen ber die tatschlichen oder zu erwartenden Mittelzu- und -absse des
Produktentwicklungsprojektes (Gegenstromverfahren).
Zu 3):
Fr die bei der Integrativen Produktentwicklung vertikal untergeordneten
Plne bietet sich ebenfalls das Gegenstromverfahren an: Diese untergeordneten
und auf die unmittelbare Realisierung des innovativen Produktes gerichteten Plne
erhalten ihre Zielvorgaben aus den Resultaten der Integrativen Produktentwicklung
(top down) und liefern ihrerseits Informationen ber die Realisationsmglichkeiten
oder die tatschliche Realisation des innovativen Produktes und der zugehrigen innovativen Prozesse. Schlielich sind noch die horizontalen Schnittstellen des Planungs- und Kontrollsystems fr die Integrative Produktentwicklung zu denieren.
Die drei sachzielorientierten Ebenen der Integrativen Produktentwicklung lassen
24
mgliche unternehmensinterne Schnittstellen zu weiteren Entwicklungsprojekten,

weiteren Produkten sowie weiteren Kombinations- und Transformationsprozessen
des Unternehmens erwarten (vgl. Abb. 4).
Schnittstellen zu unternehmensexternen Planungsund Kontrollsystemen
Schnittstellen zu unternehmensinternen Planungsund Kontrollsystemen
Planung und Kontrolle von Subsystemen des Produktentwicklungsprojektes

Entwicklungsprojektes
Planung und Kontrolle von Subsystemen des innovativen Produktes

Planung und Kontrolle weiterer

Produkte des
Unternehmens
Planung und Kontrolle von Teilprozessen und zugehrigen Produktionsfaktoren

Kombinations- und

Kombinations- und
Planung und Kontrolle der unmittelbaren Realisierung

von Subsystemen
des innovativen
Produktes

unmittelbaren Realisierung
des innovativen Produktes
Beschaffung
Fertigung
u. Montage
Legende:

Entwicklungsprojekte
Laterale Schnittstelle
Verkauf, Wartung, EntsorDistribu- Service gung

tion, Installation
Horizontale Schnittstelle
Vertikale Schnittstelle
Abb. 4: Mgliche vertikale, horizontale und laterale Schnittstellen der sachzielorientierten Planung und Kontrolle einer Integrativen
Produktentwicklung
25
2 Metaplanung und -kontrolle des Planungs- und Kontrollsystems der Integrativen Produktentwicklung
2.1 Planungs- und Kontrollsystematik
Durch den spontanen und innovativen Charakter einer konkreten Integrativen

Produktentwicklung erscheint es notwendig, entweder ein neues Planungs- und
Kontrollsystem zu gestalten oder bereits existierende Planungs- und Kontrollsysteme der Integrativen Produktentwicklung in Kenntnis der situativen Kontextfaktoren einer kritischen
berprfung zu unterziehen und gegebenenfalls Anpassungen vorzunehmen.
Diese systembildende Koordinationsfunktion ist Aufgabe der Metaplanung
und -kontrolle der Integrativen Produktentwicklung.
Bei der kritischen berprfung von Anstzen zur Planung und Kontrolle von
Produktentwicklungen werden zwei zentrale Kritikpunkte und ein entsprechender
Verbesserungsbedarf identiziert:
die mangelnde Ezienz des (mehrstugen) Entscheidungsprozesses und
die (weitgehende) Vernachlssigung des Phnomens der Unsicherheit.
Originre Gestaltungsempfehlungen
Eine Verfeinerung des Planungs- und Kontrollsubsystems der Metaplanung

und -kontrolle der Integrativen Produktentwicklung wird durch die Festlegung
der Planungsobjekte, der Planungsform, der Plne und der horizontalen Entwicklungsfolge vorgenommen:
Planungsobjekt der Metaplanung ist das Planungs- und Kontrollsystem einer konkreten Integrativen Produktentwicklung. Gem Grobstruktur zhlen
hierzu die drei sachzielorientierten Planungs- und Kontrollsubsysteme
des Entwicklungsprojektes, des innovativen Produktes, der (auf das innovative Produkt bezogenen) Kombinations- und Transformationsprozesse (einschlielich der zugehrigen Produktionsfaktoren) sowie die der formalzielorientierten Planungs- und Kontrollsubsysteme (Gewinn, Erfolgspotentiale
und Liquiditt ). Die Metaplanung regelt jeweils die Art und Weise, wie
geplant und kontrolliert werden soll (vgl. Bleicher, K., Sp. 1121).
26
Die Beschreibung der Art und Weise wie geplant und kontrolliert werden soll,
legt eine ausschlielich qualitative Planungsform nahe.
Bei der Festlegung der einzelnen Plne sollte eine Kongruenz von Fhrungsund Planungsbereichen angestrebt werden, um einerseits Verantwortungen besser
denieren zu knnen und andererseits die Verstndlichkeit des Planungs- und
Kontrollsystems fr die Planungs- und Kontrolltrger zu erhhen.
Hinsichtlich der horizontalen Entwicklungsfolge wird empfohlen, zuerst die
Systematik, dann die Methodik und abschlieend die Organisation des Planungsund Kontrollsystems festzulegen. Auf derselben Hierachieebene sollten zuerst die
sachzielorientierten Planungs- und Kontrollsubsysteme und anschlieend die
zugehrigen formalzielorientierten Planungs- und Kontrollsubsysteme festgelegt
werden.
Metaplan des unternehmensinternen
Planungs- und Kontrollsystems
der Integrativen Produktentwicklung
Plan der sachzielorientierten Planung und Kontrolle
Plan der formalzielorientierten Planung und Kontrolle
Legende:
Empfohlene
Plne
Mgliche zustzliche Plne
Horizontale
Entwicklungsfolge
Abb. 5: Plne der Metaplanung

Als Planungsgrundlagen der Metaplanung kommen Basislsungen im Sinne

von in dem jeweiligen Unternehmen bereits bei Produktentwicklungen erfolgreich
eingesetzten Planungs- und Kontrollsystemen sowie konzeptionelle Vorschlge der
einschlgigen Fachliteratur in Frage.
Wichtige Hinweise auf den unter Risikoaspekten erforderlichen und den aus
Wirtschaftlichkeitsberlegungen vertretbaren Umfang der Planung und Kontrolle
der Produktentwicklung liefern die Planungsergebnisse der vertikal bergeordneten
Plne der Bereiche Absatz, F&E und Strategische Planung.
Die Planfortschrittskontrolle berprft mitlaufend Teilergebnisse; die Ergebniskontrolle die abschlieenden Ergebnisse der Planung und Kontrolle der Integrativ-
27
en Produktentwicklung durch einen Vergleich der tatschlichen mit der angestrebten Erreichung von Planungs- und Kontrollzielen (z. B. Risikoreduktion, Koordination). Als Kontrollobjekte der Ergebniskontrollen und der Planfortschrittskontrollen sind die Systematik, die Methodik und die Organisation des Planungs- und
Kontrollsystems fr die Integrative Produktentwicklung anzusehen.
Die Kontrollintervalle sind so anzusetzen, dass die Kontrollresultate als Grundlage der
Neuerstellung beziehungsweise der Revision der Planung zur Verfgung stehen
(vgl. Grnig, R., S. 194; Wild, J., S. 44).
Kontrollart der
Metakontrolle
Ergebniskontrolle
Planfortschrittskontrolle
Gemeinsame Kontrollobjekte
Spezische Kontrollobjekte
Systematik, Methodik und Organisation

des Planungs- und Kontrollsystems fr die
Integrative Produktentwicklung
Endergebnisse
Zwischenergebnisse (Meilensteine) der Metaplanung
Prmissenkontrolle
Prmissen der Metaplanung des Planungs- und

Die den Informationen und Informationsquellen
Kontrollsystems der Integrativen Produktentwicklung
der Metaplanung zugrunde liegenden normaund ihre Begrndungen (insbesondere Lageanalysen
tiven Aussagen, Erklrungen, Prognosen,
und Lageprognosen)
berwachung
faktische Aussagen und Begrie
Von Prmissenkontrollen wegen ihrer vermeintlichen

Irrelevanz nicht erfasste Kontrollobjekte
Tabelle 1: bersicht ber die Kontrollarten der Metakontrolle und die zugehrigen Kontrollobjekte
Ergnzende Gestaltungsempfehlungen zur Erhhung der Ezienz der

Entscheidungsprozesse
Auf der Basis entscheidungstheoretischer berlegungen lassen sich zwei ergnzende Verbesserungsvorschlge formulieren:
1) Ergnzung der Entscheidungsziele
Die Entscheidungsziele sollten so ergnzt werden, dass im Entscheidungsprozess
alle relevanten Unternehmensziele bercksichtigt werden. Auf jeden Fall sind
- von den Formalzielen das Gewinnziel, die Entwicklung von Erfolgspotentialen und das Liquidittsziel sowie
28
- die projektspezischen Sachziele

zu bercksichtigen.
Ergnzende Gestaltungsempfehlungen zur Behandlung des Phnomens der
Unsicherheit
Eine zentrale systembildende Koordinationsaufgabe der Metaplanung ist
auch in der Behandlung von Unsicherheit zu sehen, also:
einen Beitrag zur Risikoerkennung zu leisten,
eine Risikoanalyse und -bewertung zu untersttzen und
sicherzustellen, dass mgliche Sicherungsmanahmen bei der Planung und
Kontrolle Integrativer Produktentwicklungen bercksichtigt werden, d. h. als
Planungsobjekte in das zu gestaltende Planungs- und Kontrollsystem integriert werden (Risikohandhabung beziehungsweise -politik).
Einen wesentlichen Beitrag der Planungs- und Kontrollsystematik der Metaplanung und -kontrolle zur Risikoerkenntnis und -reduktion leisten die vorgenannten Gestaltungsempfehlungen. Die folgenden Ausfhrungen konzentrieren
sich auf ergnzende Manahmen. Der Begri Unsicherheit kennzeichnet Entscheidungssituationen, in denen der Entscheidungstrger nur ber unvollkommene Informationen verfgt.
Im Mittelpunkt der Risikoanalyse stehen hug die mehrwertigen Zustnde,
die von dem Entscheidungstrger nicht kontrolliert werden knnen (vgl. Runzheimer, B., Operations Research, S. 289.; Runzheimer, B., Bercksichtigung des
Risikos, S. 69.; Werners, B./Zimmermann, H.-J., Sp. 1743). Als Bestandteil der
Planungssystematik der Metaplanung und -kontrolle wird auch die Aufgabe gesehen, methodische Vorschlge zu unterbreiten, die eine Risikoerkennung in den zu
planenden Planungs- und Kontrollsystemen gewhrleisten.
Ein wichtiger Schritt ist in der Oenlegung der jeweiligen Planungsprmissen zu sehen.
Neben der Identikation der Risiken von einzelnen Entscheidungen zhlt zu
den Aufgaben der Risikoerkennung auch die Analyse der Gesamtrisikolage. Bei
der Analyse mehrerer unabhngiger Einzelrisiken ist im Kontext der Produktentwicklung auch die Risikoerkennung in mehrstugen Planungsprozessen von Inter-
29
esse. Bei mehrstugen Planungsprozessen werden Abweichungen der realisierten

(Zwischen-)Ergebnisse von den geplanten Ergebnissen - so genannte Strungen
(Chancen und Gefahren) - verursacht durch (vgl. Schneewei, C., S. 122f.):
Primrstrungen, die direkt - entweder durch exogene Gren oder durch
ungenaue Prognosen - verursacht werden, und/oder
Sekundrstrungen, die sich von Primrstrungen ausgehend vertikal und
horizontal im Planungssystem ausbreiten und Planvernderungen bedingen.
Der Risikoerkennung im Rahmen der Metaplanung und -kontrolle kommt daher die Aufgabe zu, mgliche Primrstrungen zu identizieren, in Modellen abzubilden und anhand von Kausalketten ihre Ausbreitung zu analysieren.
Fr diese komplexe Aufgabe knnen zwei substantielle Gestaltungsempfehlungen abgeleitet werden:
(1) Aus entscheidungstheoretischer Sicht ist eine vertikale Ausbreitung von
Sekundrstrungen nur in Sachzielhierarchien mglich, da lediglich hier empirischkausale Relationen in Form von Ziel-Mittel-Beziehungen bestehen. Formalzielhierachien beruhen hingegen lediglich auf denitionslogischen Beziehungen.
Wegen der (horizontalen) Abhngigkeit der Formalzielerreichung von den sachzielerreichenden Manahmen wird empfohlen, zunchst die Sachzielhierarchie
auf die Entstehung und Ausbreitung von Strungen hin zu untersuchen und erst
anschlieend die weitere Ausbreitung der primren und sekundren Strungen
der Sachzielhierarchie auf die Formalzielhierarchie zu analysieren.
(2) Ursache der Ausbreitung von Strungen sind Interdependenzen innerhalb der zu planenden Entscheidungen der Integrativen Produktentwicklung sowie zwischen der Integrativen Produktentwicklung einerseits und dem unternehmensinternen und -externen Umsystem andererseits. Ein Grundmodell (vgl.
Runzheimer, C., I, S. 184.) wird als Basis fr die Formulierung eines planungsund kontrollsystemspezischen Interdependenzmodells empfohlen.
Eine nur statische Analyse wird jedoch nicht der Tatsache gerecht, dass sich bei
der Analyse eines innovativen Produktes die mglichen Strungsquellen und die
Interdependenzen im Zeitablauf verndern (vgl. Wurl, H.-J., Betriebswirtschaftliche Projektanalysen, S. 366). Auch im Hinblick auf die Untersuchung der Ausbreitungsgeschwindigkeit von Strungen erscheint eine Ergnzung der auf die sachlichen Interdependenzen gerichteten konstitutiven Dimension um eine zeitliche
30
Dimension notwendig. Fr die Strukturierung der dynamischen Risikoerkennung

empehlt sich
fr die Erkennung von produktbezogenen Einzelrisiken der Einsatz des
Produktlebensphasen-Ansatzes und
fr die Aggregation dieser Einzelrisiken und die Erkennung der Gesamtrisikolage der Produktentwicklung und -realisierung der Einsatz des
Produktlebenszyklus-Ansatzes.
Die anschlieende Risikoanalyse und -bewertung erfolgt mit dem Ziel, Lage
(Erwartungswert) und Streuung (Varianz, Standardabweichung) der erkannten
Risiken zu analysieren und die Risiken zu bewerten. Eine Aufgabe der Planungssystematik der Metaplanung kann diesbezglich in der Denition geeigneter methodischer Vorgaben fr das zu planende Planungs- und Kontrollsystem gesehen
werden. Neben der Durchfhrung von Experimenten und der Auswertung von
Statistiken sind als potentielle Methoden beispielsweise spezielle Risikoanalysen
- z. B. Risikoanalyse nach Hertz, FMEA, Lckenmodelle zur Analyse mangelnder
Produktqualitt (vgl. Zeithaml, V. A./Parasuraman, A./Berry, L. L., S. 49.) -, Zustands- und Entscheidungsbaumtechniken, Simulationen sowie Sensitivittsanalysen zu nennen (vgl. Bamberg, G., Sp. 887.; Bauer, C., Sp. 1658.; Koch, H., Sp.
2063.; Runzheimer, B., Operations Research II, S. 13.; Runzheimer, B., Operations Research, S. 244.; Wurl, H.-J., Betriebswirtschaftliche Pojektanalysen, S.
363.).
Hinsichtlich der nachfolgenden Risikopolitik kommt der Metaplanung die
Aufgabe zu, sicher zu stellen, dass die Handhabung der relevanten Risiken und
die zugehrigen Entscheidungen ber alternative Sicherungsmanahmen als Planungsobjekte Eingang in das zu planende Planungs- und Kontrollsystem nden.
Bei der Betrachtung einer einzelnen Entscheidung oder Planungsstufe kommt
in erster Linie eine Verringerung der Unsicherheit durch die Beschaung zustzlicher Informationen ber die (unsicheren) Elemente der Entscheidungsmatrix in
Frage (vgl. Adam, D., S. 220; Mag, W., S. 13).
Durch eine Plangestaltung sollte die Metaplanung Vorsorge gegen unerwnschte Auswirkungen der Unsicherheit treen; dies knnte durch die Planung von
Manahmen des Risikoausgleichs untersttzt werden. Dabei knnen verschiedene
(Teil-)Plne beziehungsweise Manahmen analog wie ein Wertpapier-Portefeuille
31
so konguriert werden, dass sich die Risiken der einzelnen Elemente insgesamt
tendenziell neutralisieren (vgl. Wild, J., S. 141).
Weitere Stichworte hierzu: Bevorzugung exibler Manahmen und Ressourcen, Prventivmanahmen, Sanierungsmanahmen (vgl. Runzheimer, C.,
I, S. 309.).
Bei mehrstugen Planungsprozessen - und um solche handelt es sich bei der
Integrativen Produktentwicklung - bietet sich ergnzend zum Gegenstromverfahren die exible Planung als weitere Gestaltungsmglichkeit zur Risikoreduktion an (vgl. Dinkelbach, W., Sp. 508.; Runzheimer, C., I, S. 310.). Charakteristisch fr die exible Planung ist, dass der Zugang von Informationen whrend
des (mehrstugen) Planungsprozesses ex ante von vornherein als Mglichkeit in
Betracht gezogen wird und Planrevisionen in Form von Eventualentscheidungen
vorgesehen werden. Dabei geht es in erster Linie um die exible Gestaltung des
Planungsprozesses und in zweiter Linie um die Erstellung exibler Plne. Eine exible Planung ist bei mehrstugen Entscheidungen notwendig, wenn das endgltige Planergebnis von nachfolgenden Entscheidungen und (unsicheren) Umweltzustnden abhngt, die spteren Entscheidungsmglichkeiten aber wiederum von
den frher festgelegten Plnen beeinusst werden.
Tabelle 2 enthlt eine Zusammenfassung der zur Behandlung von Unsicherheit
vorgeschlagenen Kategorien von Planungsobjekten und die zugehrigen Gestaltungsanstze. Es wird empfohlen, im Rahmen der Metaplanung und -kontrolle alle
Gestaltungsanstze auf ihre Anwendbarkeit hin zu berprfen, da sie sich nicht
gegenseitig ausschlieen, sondern simultan eingesetzt werden knnen.
32
Kategorie
Elimination
oder
Evasion
Externalisierung
Gestaltungsanstze
Gestaltung des Entscheidungsfeldes
Ausweichen auf sichere Handlungsfelder (z. B. Wahl ausgereifter Techniken)
Immunisierung durch Risikoberwlzung (z. B. Fremdbezug stranflliger Leistungen, Abschluss

von Versicherungen)
Bei einer Entscheidung oder einer Planungsstufe:
1) Gestaltung des Planungsprozesses
Beschaung zustzlicher Informationen
Internalisierung
Zeitaufschiebung der Planverabschiedung
(Risikopolitik
2) Plangestaltung
durch GePlanung
Gefahrenausgleich durch Manahmenkombination
staltung der
Steigerung der Flexibilitt durch
Managementfunktionen):
- Prventivmanahmen (z. B. Sicherheitsreserven) zur Vermeidung von
Sekundrstrungen
- Geplante Sanierungsmanahmen zur Beseitigung oder Begrenzung der
Strungsfolgen
Zustzlich bei mehrstugen Entscheidungs- und Planungsprozessen:
Flexible Planung (rollende Planung)
Beginn mit robustem (Teil-)Plan
Kontrolle
Insbesondere Prmissenkontrolle, berwachung
Andere Manage- Bereitstellung von Flexibilittspotentialen z. B. durch:
mentfunktionen
Prsituative (Vor-)Steuerung von Informationsstrmen durch Bildung von
(Organisation,
interdisziplinren Projektteams und Einbindung von Promotoren
Fhrung,
Absenkung von Wahrnehmungsschwellen durch interdisziplinre Besetzung
Personaleinsatz) des Projektteams
Tabelle 2: Manahmen zur Behandlung von Unsicherheit und Risiko sowie ihrer Folgen
2.2 Methodik und Organisation der Metaplanung und -kontrolle

Originre Empfehlungen zur Methodik und Organisation
Die zentrale methodische und (ablauf-)organisatorische Grundlage fr die

Metaplanung eines Planungs- und Kontrollsystems bildet die in Tabelle 3 vorgeschlagene Vorgehensmethodik.
33
Empfohlene Schritte und Schrittfolge

1 Sammlung von Informationen ber
- die Planungs- und Kontrollkonzeption der Integrativen Produktentwicklung
- im Unternehmen bei Produktentwicklungen bereits verwendete Planungs- und Kontrollsysteme
2 Bildung eines Bezugsrahmens fr die berprfung bestehender Vorschlge und ihre Verbesserung zu einem Planungs- und Kontrollsystem fr die Produktentwicklung
3 Denition von Anforderungen an das Planungs- und Kontrollsystem
3.1 Anforderungen an die Planungs- und Kontrollsystematik
3.2 Anforderungen an die Planungs- und Kontrollmethodik
3.3 Anforderungen an die Planungs- und Kontrollorganisation
4 berprfung und Verbesserung der Planungs- und Kontrollsystematik, -methodik und -organisation der
4.1 Sachzielorientierten Planungs- und Kontrollsubsysteme
4.2 Formalzielorientierten Planungs- und Kontrollsubsysteme
5. Dokumentation der Unterlagen zum Planungs- und Kontrollsystem
Tabelle 3: Empfohlene Vorgehensmethodik zur Gestaltung eines Planungs- und Kontrollsystems fr die Integrative Produktentwicklung
Quelle: in Anlehnung an Grnig, R., S. 184 .
3 Planungs- und Kontrollsystematik der Integrativen Produktentwicklung
Die folgenden Ausfhrungen dienen der Konkretisierung eines konzeptionellen

Vorschlags fr die Planungs- und Kontrollsystematik der Integrativen Produktentwicklung. Mit Bezug auf die in Abb. 1 vorgestellte Vorgehensmethodik werden
fr die in der Grobstruktur abgegrenzten Planungs- und Kontrollsubsysteme
Verfahrensschritte durchgefhrt und die zugehrigen Gestaltungsdimensionen
festgelegt.
3.1 Planungs- und Kontrollsystematik auf der Ebene des innovativen Produktes
Gegenstand des Produktplans ist die Operationalisierung der an das Produkt

gestellten Anforderungen. Um zunchst ihre vollstndige Erfassung zu sichern und
beispielsweise eine selektive Bercksichtigung lediglich der vom Kunden bei der
Kaufentscheidung wahrgenommenen und gewnschten Produkteigenschaften zu
verhindern, sollte der Produktplan gem den Produktlebensphasen vorstrukturiert werden. Hierdurch wird gewhrleistet, dass alle Lebensphasen in die Planung
der Anforderungen an das Produkt einbezogen und beispielsweise fr die Kunden-
34
bindung wichtige Produkteigenschaften in der Wartungs- und Servicephase sowie

gesetzliche Auagen der Entsorgung nicht vernachlssigt werden.
Hinsichtlich der Planungsform kann jeweils sowohl von einer qualitativen als
auch quantitativen Planung ausgegangen werden.
Um Planalternativen hinsichtlich der Unternehmensziele bewerten und auswhlen zu knnen, ist ein Informationsaustausch mit der formalzielorientierten
Planung und Kontrolle notwendig (vgl. Runzheimer, C., I, S. 325.). Neben
den Ergebnissen der planbezogenen Kontrollen (Ergebnis-, Planfortschritts- und
Prmissenkontrolle) knnen auch die Ergebnisse der ungerichteten berwachung
- soweit sie fr den jeweiligen Plan relevant sind - zu den Planungsgrundlagen
gezhlt werden.
Die konkrete Festlegung des Anlasses der Erstellung eines Planes und der
Durchfhrung einer Kontrolle auf der Planungsebene des innovativen Produktes wird in zeitlicher Hinsicht durch den bergeordneten Projektplan deniert.
In einem hierarchischen System von Plnen muss der jeweils bergeordnete Plan
mindestens soweit operationalisiert sein, dass erste Planungsschritte auf der unteren
Ebene durchgefhrt werden knnen. Vergleichbare berlegungen gelten auch bei
der Kontrolle hinsichtlich der Vergleichsobjekte.
Planrevisionen sind immer dann vorzunehmen, wenn die jeweils situativ festgelegten Satisfaktionsziele nicht erfllt werden.
In Tabelle 4 sind die wichtigsten Gestaltungsmerkmale der Planungssystematik
des innovativen Produktes zusammengefasst.
35
Gestaltungsobjekte
Produktplan (nach den Produktlebensphasen strukturiert)

Plan der materiellen Produktbestandteile (nach DienstleistungProduktlebensphasen einer reprsentativen
splan (nach
Produkteinheit strukturiert)
Produktlebensphasen
einer reprsentativen Produkteinheit
strukturiert)
(zustzliche
Elemente und
Eigenschaften des
Produktplans)
auf Dienstleistungen - Aufteilung der

bezogene Teilziele
Produktziele in Ziele
des Produktkerns und
Dienstleistungsziele
- Koordination der
beiden Teilplne
Planungsobjekte
- von Produktkern zu erfllende Teilziele

- komplexe und elementare Gestaltungsmittel des materiellen Produktkerns einschlielich
Produktstruktur
Planungsform
horizontale
Entwicklungsfolge
nach Produktlebensphasen strukturiert

qualitativ/quantitativ
wird durch Projektplan determiniert und kann nur situativ in Kenntnis der konkreten Planungsprobleme festgelegt werden
Tendenzaussagen bezglich der horizontalen Entwicklungsfolge:
zeitlich: zunchst diejenigen Phasen planen, in denen das Produkt in Kontakt mit Kunden steht
(insbesondere Nutzungsphase)
Produktteilplne derselben Hierarchieebene: zunchst Plne der materiellen Produktbestandteile erstellen,
anschlieend Dienstleistungen planen
vertikal bergeordnete Plne (Strategischer Plan, Absatzplan, F&E-Plan, Plne der Ebene des
Entwicklungsprojektes)
(erste) Planungs- und Kontrollergebnisse vertikal untergeordneter Plne (Ebene der Kombinations- und Transformationsprozesse)
Formalzielplanung und -kontrolle
bei Teilplnen des Produktplans: soweit vorhanden ebenfalls vertikal ber- und untergeordnete
Plne, Plne derselben Ebene
akzessorische Informationsquellen
Planungsgrundlagen
Kontrollart
Kontrollobjekte, Kontrollform
Prmissenkontrolle
Planfortschrittskontrollen
Ergebnisse bergeordneter Plne
(Zwischen-)Ergebnisse der Teilplne (vgl. Planungsobjekte)
Prmissen der Plne
36
Kontrollgrund- Plangren:
lagen
bei Prmissenkontrolle: im Plan unterstellte Umweltzustnde, Ressourcen, Ergebniswirkungen
bei Planfortschrittskontrolle: Soll-Zwischenergebnisse
Vergleichsgren:
bei Prmissenkontrolle: Ist- oder Wird-Gren der Prmissen
bei Planfortschrittskontrolle: Ist-Zwischenergebnisse
akzessorische Informationsquellen:
Prognosen, Beobachtungen (z. B. Testergebnisse)
-- fr Ermittlung der Abweichungsursachen: Erklrungsmodelle
Anlsse der:
Anlass der Planerstellung und Durchfhrung von Kontrollen ist das Vorliegen bestimmter Pla- Planerstelnungsergebnisse; Startzeitpunkte werden durch bergeordneten Projektplan festgelegt und
lung/Plankoordiniert
Planrevisionen sind durchzufhren, wenn Satisfaktionsziele (Sach- oder Formalziele) nicht
revision
- Kontrollen
erfllt werden
Tabelle 4: Systematik der Planung und Kontrolle des innovativen Produktes

3.2 Systematik der Planung und Kontrolle der Kombinations- und

Bei der Planung der Kombinations- und Transformationsprozesse (einschlielich

der zugehrigen Produktionsfaktoren) handelt es sich um eine sachzielorientierte
Planung. Es gelten weitgehend analoge berlegungen wie bei der Produktplanung,
so dass sich die folgenden Ausfhrungen auf die wesentlichen Unterschiede zum
Produktplan beschrnken.
Da zunchst Lsungen fr produktspezische Kombinations- und Transformationsprozesse gefunden werden mssen, um anschlieend die zu ihrer Durchfhrung bentigten Produktionsfaktoren zu planen, werden zwei Planungs- und
Kontrollsubsysteme unterschieden: ein produktlebensphasenbezogener Leistungserstellungsplan und ein produktlebenszyklusbezogener Bedarfs- und Bereitstellungsplan (vgl. Tabelle 5).
Der produktlebensphasenbezogene Leistungserstellungsplan knpft an den
vertikal bergeordneten Produktplan an. Fr eine als reprsentativ angesehene
Produkteinheit und die im Produktplan fr die verschiedenen Produktlebensphasen denierten Soll-Leistungsergebnisse ist jeweils eine Make-or-Buy-Entscheidung zu treen: Diese fhrt im Fall des Buy zur Beschaung der entsprechenden
materiellen Produktkomponenten und/oder Dienstleistung. Im Fall des Make
37
ist eine Verfahrensplanung fr die zugehrigen Leistungserstellungsprozesse

durchzufhren.
Folgende Argumente sprechen dafr, in dem produktlebensphasenbezogenen
Leistungserstellungsplan neben den innovativen Prozessen - die originre Gestaltungsobjekte der Produktentwicklung sind - auch nicht-innovative, jedoch fr die Erstellung des Produktes notwendige Prozesse zu erfassen:
(1) Welche der produktbezogenen Prozesse innovativ (im Sinne von subjektiv
neu fr das Unternehmen) sind, kann nur in Kenntnis der bereits im Unternehmen
praktizierten oder bekannten Prozesse festgelegt werden.
(2) Durch die Erfassung nicht nur der innovativen, sondern aller fr die Erstellung des innovativen Produktes notwendigen Beschaungs- und Leistungserstellungsprozesse in einem gemeinsamen Plan, wird eine frhzeitige Integration der
ausfhrenden operativen Bereiche in den Planungsprozess gefrdert. Die analoge
Gliederung nach Produktlebensphasen wie bei dem Produktplan sichert einerseits, dass von der Beschaung ber die Fertigung und Montage bis zur Entsorgung
alle betrieblichen Funktionsbereiche in den Planungsprozess einbezogen werden.
Andererseits erleichtert die analoge Gliederung bei sich abzeichnenden Realisationsproblemen auf der operativen Ebene den Informationsuss zurck zur Produktplanung (vgl. Runzheimer, C., I, S. 328.).
Zu den Planungsobjekten des produktlebenszyklusbezogenen Bedarfs- und
Bereitstellungsplans zhlt die Bestimmung von Qualitt und Menge der zur Realisierung des innovativen Produktes bentigten Produktionsfaktoren (Potential-,
Zusatz- und Repetierfaktoren).
Die Planungsgrundlagen fr die Bedarfsermittlung bilden
die Planungs(teil)ergebnisse des produktlebensphasenbezogenen Leistungserstellungsplans, aus dessen Vorgaben sich Informationen ber Zeitpunkte,
Quantitt und Qualitt der bentigten Produktionsfaktoren je Produkteinheit gewinnen lassen;
die zeitliche Verteilung der von der Absatzfunktion geplanten Absatzmengen
des innovativen Produktes.
Auf Basis der Beziehung der Produktlebensphasen einer einzelnen Produkteinheit zum gesamten Produktlebenszyklus kann mit den genannten Informationen
einerseits die zeitliche Struktur des Produktlebenszyklus und andererseits der
38
Bedarf an Produktionsfaktoren fr den gesamten Produktlebenszyklus abgeleitet werden.

Bei Produktvarianten ist zunchst jeweils ein Variantenlebenszyklus zu ermitteln. Um bei Varianten explizit auf mgliche Unterlassungsalternativen hinzuweisen, kann zwischen Kann- und Mussvarianten unterschieden werden.
Die Strukturierung des Bedarfs- und Bereitstellungsplans nach Produktlebenszyklen erleichtert auf der einen Seite die am objektiven Informationsbedarf
orientierte Weiterleitung der Planungsergebnisse an die jeweils zustndigen Funktionalbereiche (z. B. der Planungsergebnisse bezglich des Entsorgungszyklus des
Produktes an den fr die Entsorgung zustndigen Funktionalbereich) des Unternehmens. Auf der anderen Seite frdert die ganzheitliche Betrachtung des gesamten
Produktlebenszyklus in einem gemeinsamen Plan die produktlebenszyklusbergreifende Koordination der Entscheidungen.
Bei den Planungsgrundlagen der Bedarfs- und Bereitstellungsplanung
spielen Informationen ber die verfgbare qualitative und quantitative Kapazitt
der Potentialfaktoren eine zentrale Rolle. Zur Beurteilung der quantitativen
Kapazitt sind Informationen ber die Dimensionen des Leistungsquerschnitts,
der mglichen Nutzungsdauer und der Nutzungsintensitt der Potentialfaktoren
notwendig. Die qualitative Kapazitt der im Unternehmen vorhandenen Potentialfaktoren uert sich im potentiellen Produktionsprogramm und beruht auf
einer Vielzahl von Eigenschaften der Potentialfaktoren, deren Relevanz nur situativ
ermittelt werden kann. Als wichtigste Informationsquellen ber die verfgbare
quantitative Kapazitt - die auch durch andere Produkte des Unternehmens beeinusst wird - sind die Plne der jeweiligen operativen Bereiche und die mittelbis langfristigen Absatzplne zu nennen. Tabelle 5 fasst die wichtigsten Aspekte
der Planungs- und Kontrollsystematik zusammen. Dabei ist zu beachten, dass der
produktlebensphasenbezogene Leistungserstellungsplan dem produktlebenszyklusbezogenen Bedarfs- und Bereitstellungsplan sachlogisch bergeordnet ist.
Gestaltungsobjekte
39
Plan der Kombinations- und Transformationsprozesse

Leistungserstellungsplan einer reBedarfs- und Bereitstellungsplan
prsentativen Produkteinheit (nach Produktleben- (nach Produktlebenszyklen und eventusphasen strukturiert)
ell auch nach Varianten strukturiert)
- Bedarf an Produktionsfaktoren (Menge

und Qualitt) whrend des Produktlebenszyklus ; bei Varianten: zustzlich
auch fr Variantenlebenszyklus
Planungs- qualitative und quantitative Kapazittsobjekte
gestaltung (Vorkombination) fr das
innovative Produkt
- Bereitstellung von Potential- und Verbrauchsfaktoren
nach Produktlebenszyklen strukturiert
Planungsnach Produktlebensphasen strukturiert
form
quantitativ/qualitativ
evt. Muss-/Kannvarianten unterscheiden
wird durch Projektplan determiniert und kann nur situativ in Kenntnis der konkreten Plahorizontale Entwick- nungsprobleme festgelegt werden
lungsfolge
wegen relativ krzestem Zeitraum fr Planaufstellung: tendenziell zuerst Kombinations- und
Transformationsprozesse des Fertigungs- und Beschaungszyklus
vertikal bergeordnete Plne (Strategischer Plan, Absatzplan [insb. zeitliche Verteilung der
Absatzmengen], F&E-Plan, Plne der Ebene des Entwicklungsprojektes; Plne der Ebene des
innovativen Produktes; bei Bedarfs- und Bereitstellungsplan: zustzlich auch Leistungserstellungsplan und Finanzplan)
vertikal untergeordnete Plne (operative Ebene)
Formalzielplanung und -kontrolle
Planungsgrundlagen
bei Teilplnen des Leistungserstellungsplans (soweit vorhanden): ebenfalls vertikal ber- und
untergeordnete Plne (Verfahren - Teilverfahren - Aktivitten), Plne derselben Ebene (z. B.
Plne anderer Teilverfahren)
bei Bedarfs- und Bereitstellungsplan: quantitative und qualitative Kapazitt der vorhandenen
Potentialfaktoren; Bedarfs- und Bereitstellungsplne fr andere Produkte des Unternehmens
Prmissenkontrolle
Kontrollart
Kontrollobjekte,
Kontrollform
Prmissen der Plne
- Make-or-Buy von materiellen Produktbestandteilen oder einzelnen
Dienstleistungen
- bei Make: (fr jede Produktlebensphase)
Konkretisierung der Teilverfahren und des Ablaufs
aller Verfahren der Leistungserstellung des innovativen Produktes
40
Plangren:
bei Prmissenkontrolle: unterstellte Zustnde, Ressourcen, Ergebniswirkungen
Vergleichsgren:
Kontrollgrundlagen
akzessorische Informationsquelle:
Anlsse der:
- Planerstellung/
Plan-revision
- Kontrollen
Prognosen, Beobachtungen (z. B. Testergebnisse)

fr Ermittlung der Abweichungsursachen: Erklrungsmodelle
Anlass der Planerstellung und Durchfhrung von Kontrollen ist das Vorliegen bestimmter
Planungsergebnisse; Startzeitpunkte werden durch den bergeordneten Projektplan festgelegt und koordiniert
erfllt werden
Tabelle 5: Systematik der Planung und Kontrolle der Kombinations- und Transformationsprozesse
3.3 Planungs- und Kontrollsystematik auf der Ebene des Projektes der Integrativen Produktentwicklung
Hinsichtlich der vertikalen Entwicklungsfolge innerhalb der Planung und

Kontrolle Integrativer Produktentwicklungen bilden die sachzielorientierten
Plne den Ausgangspunkt des Planungsprozesses. Hier wiederum beginnt die Planung auf der Ebene des Entwicklungsprojektes: Zunchst werden die Projektziele
und -teilziele deniert und zugehrige Aufgaben abgeleitet. Diese in einem Projektstrukturplan zusammengefassten Ergebnisse bilden die Basis fr einen Projektablaufplan, der die Aufgabenerfllung zeitlich strukturiert und den zu erfllenden
Aufgaben die notwendigen Kapazitten zuordnet (vgl. Tabelle 6).
Der zunchst zu erstellende Projektstrukturplan - in der Literatur zu Forschung & Entwicklung zutreend auch als der Plan aller Plne bezeichnet (vgl.
z.B. Brockho, K., S. 283; Platz, J., S. 142) - umfasst auch die Aufgabe der Aufstellung der Plne der Ebenen des innovativen Produktes, der Kombinations- und
Transformationsprozesse sowie die Durchfhrung der Kontrollen. Drei mgliche
Dimensionen zur Strukturierung der Gesamtaufgabe des Entwicklungsprojektes
sind:
1) bei einer inhaltlichen Strukturierung kann zwischen Aufgaben
41
der formalzielorientierten Planung und Kontrolle und der

sachzielorientierten Planung und Kontrolle unterschieden werden. Letztere
lassen sich weiter dierenzieren in die
- Produktplanung und -kontrolle,
- Planung und Kontrolle der Kombinations- und Transformationsprozesse.
2) Funktional kann unterschieden werden zwischen
Planungsaufgaben,
planbezogenen Kontrollaufgaben
Prmissenkontrollen),
(Ergebnis-,
Planfortschritts-
und
berwachungsaufgabe.
3) Hinsichtlich ihres zeitlichen Bezugs knnen die Aufgaben nach Lebensphasen oder Lebenszyklen geordnet werden (vgl. Runzheimer, C., I, S. 334.).
Abb. 6 zeigt die Grundstruktur der Planungs- und Kontrollaktivitten der Integrativen Produktentwicklung.
(ungerichtete) berwachung
Planung und
Kontrolle der
materiellen
Produktbestandteile
Formalzielorientierte
Planung
und
Kontrolle
Planung und
Kontrolle
der Dienstleistungen

Leistungserstellung

des innovativen
Produktes

der Kombinationsund Transformationsprozesse (einschlielich
zugehriger Produktionsfaktoren)
Bedarfs- und Bereitstellungsplanung und -kontrolle
Abb. 6: Grundstruktur der Planungs- und Kontrollaktivitten der Integrativen Produktentwicklung

42
Zu den Planungsgrundlagen zhlen neben dem Produktstrukturplan auch der

Finanzplan und der F&E-Plan.
Wichtige Planungsgrundlagen bilden insbesondere der im Absatzplan
vorgesehene Zeitpunkt der Markteinfhrung des innovativen Produktes, Informationen ber die (Kalender-)Termine der periodischen Planungs- und Kontrollaktivitten des Unternehmens (so genannter Planungskalender) sowie Erfahrungen
aus bereits abgeschlossenen Projekten.
Gestaltungsobjekte
Planungsobjekte
Planungsform
horizontale
Entwicklungsfolge
Planungsgrundlagen
(gemeinsame
Planungsgrundlagen)
Kontrollart
Systematik der Planung und Kontrolle des Entwicklungsprojektes

Projektstrukturplan
Bedarfs- und
Projektablaufplan
Bereitstellungsplan
- aus den Projektzielen
- Kapazittsbedarf
- Dauer/Termine der
abgeleitete Teilziele und Arbe- der Arbeitspakete und
Arbeitspakete und des
itspakete und deren Struktur Entwicklungstiefe
Projektes insgesamt
- Kapazittsbereitstellung - (zeitliche) Abstimmung
mit Umsystem
qualitativ
zur Grundstruktur vgl. Abb. 6
Projektstrukturplan ist logisch bergeordnet; die Frage der horizontalen Entwicklungsfolge beschrnkt sich daher auf Bedarfs- und Bereitstellungsplan und Projektablaufplan,
kann jedoch nur situativ beantwortet werden
Projektstrukturplan
Produktkonzept
Projektstrukturplan
Erfahrungswissen
Finanzplan
verfgbare Kapazitten
des F&E-Bereichs
vertikal bergeordnete Plne (Strategischer Plan, Absatzplan, F&E-Plan)
(erste) Planungs- und Kontrollergebnisse vertikal untergeordneter Plne (Ebene des
innovativen Produktes, Ebene der Kombinations- und Transformationsprozesse sowie
Ebene der Formalzielplanung und -kontrolle)
Prmissenkontrolle
Prmissen der Plne
Kontrollgrundlagen
Anlsse der:
- Planerstellung/
Planrevision
- Kontrollen
43
Plangren:
bei Prmissenkontrolle: im Plan unterstellte Umweltzustnde, Ressourcen, Ergebniswirkungen (vgl. auch Systematik der Planung und Kontrolle auf den Ebenen des
innovativen Produktes und der Kombinations- und Transformationsprozesse in Tabelle 4
und Tabelle 5)
Vergleichsgren:
akzessorische Informationsquellen:
- Prognosen, Beobachtungen
Entschluss zur Realisierung eines innovativen Produktkonzeptes
Planrevisionen sind durchzufhren, wenn Satisfaktionsziele (Sach- oder Formalziele)
nicht erfllt werden
Tabelle 6: Systematik der Planung und Kontrolle des Projektes der Integrativen Produktentwicklung
3.4 Systematik der formalzielorientierten Planung und Kontrolle
Der formalzielorientierten Planung und Kontrolle der Integrativen Produktentwicklung kommt die Aufgabe zu, die Auswirkungen der Produktentwicklung
auf die Formalziele des Unternehmens zu planen und zu kontrollieren. Auf den
praktisch-normativen Zielen von Industrieunternehmen aufbauend, kann eine
Przisierung erfolgen und als Aufgabe die Planung und Kontrolle der Auswirkungen auf
das Gewinnziel des Unternehmens
die Entwicklung seiner Erfolgspotentiale und
sein Liquidittsziel
deniert werden (vgl. Runzheimer, C., I, S. 338.).
Es ist zweckmig, in der formalzielorientierten Planungs- und Kontrollsystematik einen Gewinnplan und einen Plan fr die Entwicklung der Erfolgspotentiale - kurz: einen Erfolgspotentialplan - vorzusehen (vgl. Tabelle 7). Wegen ihrer
vergleichbaren Ausrichtung und interdependenten Beziehungen wird empfohlen,
44
beide Plne in einem bergeordneten Erfolgsplan zusammenzufassen und durch

diesen zu koordinieren.
Liquiditt wird im Sinne einer dynamischen Liquiditt deniert: Zu sichern
ist daher die Fhigkeit des Unternehmens innerhalb des Planungszeitraums jederzeit alle flligen, (nicht abweisbaren) Zahlungsverpichtungen termingerecht
begleichen zu knnen. Dies bedeutet, dass auf Unternehmensebene alle Ausgaben
durch Einnahmen oder Liquidittsreserven gedeckt sein mssen (vgl. Wurl, H.-J.,
Liquidittskontrolle, S. 37.). Die Lsung der hiermit verbundenen Koordinationsprobleme ist Aufgabe eines zentralen Finanzplans.
Zur Gewinnung von Informationen ber formalzielorientierte Soll-Vorgaben
kommen neben vertikal bergeordneten Plnen (Finanzplan, Gewinnplan, strategischer Plan) als akzessorische Informationsquellen auch Dokumente mit Informationen zur Unternehmenspolitik (z. B. Jahresabschlsse) in Frage.
Wegen der Abhngigkeit der Formalzielerreichung von der Sachzielerreichung
bilden die erwarteten oder realisierten Teil-, Zwischen- und Endergebnisse der
Planungs- und Kontrollaktivitten der sachzielorientierten Planungsebenen die
Planungsgrundlage fr die formalzielorientierten Plne.
Fr jeden sachzielorientierten Plan ist jeweils eine Prmissen- und Planfortschrittskontrolle vorzusehen. Da die formalzielorientierten Plne auf den sachzielorientierten Plnen aufbauen, stellen die sachzielorientierten Kontrollergebnisse eine der Grundlagen der formalzielorientierten Kontrollen dar.
Gestaltungsobjekte:
Systematik der formalzielorientierten Planung und Kontrolle

Finanzplan
Erfolgsplan
Gewinnplan
Erfolgspotentialplan
Kostenplan
Leistungsplan
Planungsobjekte
- Einnahmen
- Ausgaben
Planungsform
nach Produktlebenszyklen strukturiert

quantitativ
(primr) quantitativ
horizontale Entwicklungsfolge
tendenziell: zunchst Finanzplan

horizontalen Entwicklungsfolge kann endgltig jedoch nur situativ festgelegt werden
Planungsgrundlagen
Vorgaben des
Finanzplans
- Kosten
- Leistungen
Vorgaben des Gewinnplans

des Unternehmens
- externe Erfolgspotentiale
- interne Erfolgspotentiale
qualitativ
Langfristige Gewinnvorstellungen (strategischer Plan)
45
(gemeinsame
Planungsgrundlagen)
Bewertungsobjekte: erwartete oder realisierte Teil-, Zwischen- und Endergebnisse der

sachzielorientierten Planungs- und Kontrollaktivitten
Kontrollart
Prmissenkontrolle
bei Finanzplan: zustzlich Ergebniskontrolle

Prmissen der Plne
Kontrollgrundlagen
Plangren:
bei Prmissenkontrolle: im Plan unterstellte Umweltzustnde, Ressourcen,
Ergebniswirkungen
Vergleichsgren:
Akzessorische Informationsquellen:
Ergebnisse der sachzielorientierten Prmissen- und Planfortschrittskontrollen
- Prognosen, Beobachtungen
Anlsse der:
- Planerstellung/Planrevision
- Kontrollen
Entschluss zur Realisierung eines innovativen Produktkonzeptes

erfllt werden
Tabelle 7: Systematik der formalzielorientierten Planung und Kontrolle

46
4 Planungs- und Kontrollmethodik der Integrativen Produktentwicklung
Die folgenden Ausfhrungen verfolgen das Ziel,

methodische Vorschlge fr eine geschlossene, widerspruchsfreie und rationelle Methodik fr die fomalzielorientierte Planung und Kontrolle zu
entwickeln und
den Schwerpunkt dabei insbesondere auf die nanzielle Planung und Kontrolle der Integrativen Produktentwicklung zu legen.
Bei der Untersuchung der Auswirkungen der Produktentwicklung auf die Formalzielerreichung des Unternehmens ist zu beachten, dass die zu bewertenden sachzielorientierten Plne der Produktentwicklung insgesamt nur einen Teil des gesamten Entscheidungsfeldes des Unternehmens (Totalmodell) abdecken - es handelt
sich also um ein Partialmodell (vgl. Abb. 7):
- in zeitlicher Hinsicht erfasst es mit dem Produktlebenszyklus des innovativen
Produktes (von Beginn des Entstehungszyklus bis Ende des Entsorgungszyklus) nur einen Teil der Totalperiode des Unternehmens,
- inhaltlich werden von allen Handlungsmglichkeiten des Unternehmens nur
diejenigen betrachtet, die im Zusammenhang mit der Entwicklung des innovativen Produktes stehen.
Formalziele des Unternehmens
(1)
(2a)
"Totalmodell" des
Unternehmens
"Rest" des
Entscheidungsfeldes
Inhaltl. Extension
der Produktentw.
Inhaltliche Extension des

Unternehmens
(3)
"Partialmodell"
der Produktentwicklung
(2b)
Zeit t
t=0
Planende
subjektiver
Planungshorizont
(Prognosereichweite)
Ende der
Totalperiode
Abb. 7: Zielwirkungen der Entscheidungen im Partialmodell Produktentwicklung

Quelle: in Anlehnung an Mahlert, A., S. 31
47
Neben einer unmittelbaren Beeinussung der Formalziele des Unternehmens

durch Entscheidungen im Partialmodell (1) kann daher auch eine mittelbare Beeinussung der Formalziele (3) auftreten, die durch Entscheidungsinterdependenzen zwischen Partial- und Totalmodell verursacht wird: durch Entscheidungen im
Partialmodell werden Handlungsmglichkeiten im Rest des Entscheidungsfeldes
verndert (Pfeile (2a) und (2b)). Obwohl die Vernderung (2a) innerhalb der Planperiode liegt, wird sie wegen der eingeschrnkten inhaltlichen Extension des Partialmodells der Produktentwicklung nicht bercksichtigt. Pfeil (2b) symbolisiert
alle diejenigen Vernderungen der Handlungsmglichkeiten im Rest des Entscheidungsfeldes, die aufgrund der begrenzten zeitlichen Reichweite des Partialmodells nicht erfasst werden.
Hinsichtlich der Erfassung der Auswirkungen der Produktentwicklung auf das
Liquidittsziel des Unternehmens knnen folgende Schlussfolgerungen gezogen
werden:
In der Regel kann unterstellt werden, dass die zeitliche Reichweite der quantitativen Finanzplanung des Unternehmens deutlich geringer ist als die Dauer des gesamten Produktlebenszyklus, und dass quantitative Informationen
daher lediglich ber die Auswirkungen vor dem Planende einer Integrativen
Produktentwicklung bereitzustellen sind. Die mittelbaren Zielwirkungen (2b)
mssen daher nicht, die Zielwirkungen (1), (2a) nur in dem fr die Erstellung
des Finanzplans des Unternehmens notwendigen zeitlichen Rahmen quantiziert werden.
Wegen der langfristigen Komplementaritt von Liquiditts- und Gewinnziel des Unternehmens kann in zeitlicher Hinsicht (2b) davon ausgegangen
werden, dass eine Bercksichtigung der mittelbaren Beeinussung des Liquidittsziels jenseits des Planungshorizontes (2b) durch die Bercksichtigung der
mittelbaren Auswirkungen auf das Gewinnziel beziehungsweise die Entwicklung von Erfolgspotentialen mit abgedeckt wird.
Dem entscheidungsspezischen Informationsbedarf soll konzeptionell durch
eine allgemeine und exible Methodik begegnet werden, welche die Entscheidungstrger in die Lage versetzt, in Kenntnis der situativen Determinanten den
Informationsbedarf zu analysieren und die jeweils entscheidungsrelevanten Informationen zu generieren.
48
In einem Totalmodell lsst sich am Ende der Totalperiode der Totalerfolg des
Unternehmens durch eine Ermittlung des aus Einnahmen und Ausgaben resultierenden Kassenbestandes ermitteln.
Folgende drei Schritte der Vorgehensmethodik werden vorgeschlagen:
1) Planung und Kontrolle der Auswirkungen auf die Wettbewerbsposition des

Unternehmens
Die Auswirkungen der sachzielorientierten Entscheidungen im Rahmen der
Produktentwicklung auf fnf fundamentale Wettbewerbskrfte sind zu erfassen
(vgl. Runzheimer, C., I, S. 346.).
Hinsichtlich der zu erwartenden unmittelbaren und mittelbaren Ausgaben
steht - neben der Analyse des Faktors Arbeit - die Untersuchung der Beziehung
zu Lieferanten im Mittelpunkt. Eine Beeinussung der Verhandlungsmacht der
Lieferanten ist dabei von den Bedarfs- und Bereitstellungsplnen auf der Ebene der
Kombinations- und Transformationsprozesse sowie des Entwicklungsprojektes zu
erwarten.
Einen wesentlichen Einuss auf die zu erwartenden unmittelbaren und mittelbaren Einnahmen geht von dem Preisdruck aus, den aktuelle und potentielle Konkurrenten auf das Unternehmen ausben. Zur Abschreckung kann das Unternehmen versuchen, so genannte Markteintrittsbarrieren aufzubauen (z.B. kann das
Unternehmen zu diesem Zweck den Projektstrukturplan um zustzliche Aufgaben
erweitern, die den Schutz von Markennamen und Gebrauchsmustern oder die Beantragung von Patenten zum Gegenstand haben). Von zentraler Bedeutung fr die
unmittelbaren und mittelbaren Einnahmen ist die Beziehung zu den (potentiellen)
Abnehmern. Wettbewerbsvorteile sind zu erwarten, wenn die Kunden das PreisLeistungsverhltnis als berlegen wahrnehmen. Zum Beispiel kann durch einen
frhen (vor den Konkurrenten) Markteintritt (Projektablaufplan) eine (temporre)
Monopolstellung aufgebaut oder durch produktspezische Werbemanahmen vor
der Markteinfhrung (Produktstrukturplan) die Wahrnehmung spezieller Produkteigenschaften durch die Kunden beeinusst werden. Von zentraler Bedeutung ist
jedoch die Gestaltung des Produktplans. berdurchschnittliche Preise kann ein
Unternehmen beispielsweise dann erzielen, wenn der Wechsel der Abnehmer zu
Konkurrenzprodukten nicht mglich oder mit hohen Kosten verbunden ist. Der
Produktplan ist auch kritisch dahingehend zu untersuchen, welche Gefahren von
Substitutionsprodukten fr die unmittelbaren Einnahmen ausgehen. Auch hier
49
kann versucht werden, der Substitutionsgefahr durch die Einbindung des innovativen Produktes in ein Leistungssystem entgegenzuwirken.
Planungs- und
Kontrollebene
Kombinationsund Transformationsprozesse
(einschlielich
zugehriger Produktionsfaktoren)
Sachzielorientierte
Plne
Leistungserstellungsplan
Fundamentale Wettbewerbskrfte
Bedarfsund Bereitstellungsplan
Bedarfs- und
Bereitstellungsplan
Projekt der
Integrativen
Produktentwicklung
Projektablaufplan
Projektstrukturplan
Innovatives
Produkt
Produktplan
Formalzielwirkungen
1) Beziehung
zu Lieferanten
Unmittelbare
und mittelbare
Ausgaben
Verhltnis zu:
2) (aktuellen)
Konkurrenten
und
3) potentiellen
Konkurrenten
Unmittelbare
und mittelbare
Einnahmen
4) Beziehung
zu Abnehmern
Plan der materiellen

Produktbestandteile
Dienstleistungsplan
5) Bedrohung
durch Substitutionsprodukte
Abb. 8: Auswirkungen der Entscheidungen im Rahmen der Integrativen Produktentwicklung auf die Wettbewerbsposition des Unternehmens und die zu erwartenden Zielwirkungen
2) Methodische Vorschlge
Produktentwicklung
zur
Finanzplanung
der
Integrativen
Innerhalb der Formalziele kommt dem Liquidittsziel eine Sonderstellung zu:

da es sich um ein Satisfaktionsziel handelt, ist aus Grnden der Ezienz des Entscheidungsprozesses zunchst seine Erfllung zu prfen (vgl. Coenenberg, A. G./
Rael, A., S. 80). Zur Erfassung der Auswirkungen der Integrativen Produktentwicklung auf das Liquidittsziel des Unternehmens mssen innerhalb der zeitlichen Reichweite der quantitativen Finanzplanung des Unternehmens alle durch
Entscheidungen im Rahmen der Integrativen Produktentwicklung verursachten
50
Einnahmen und Ausgaben hinsichtlich des Zeitpunktes ihres Eintretens und ihrer
Hhe (quantitativ) erfasst werden. Um den Finanzierungsbedarf der Produktentwicklung erkennen und gestalten zu knnen, sind zustzlich die Einnahmen zu
planen. Die erwarteten Umsatzerlse stehen also im Vordergrund; eine Integration der Absatzfunktion ist mithin zweckmig: die geplanten Absatzmengen und
-preise (zeitbezogen) bilden die Basis der Einnahmenplanung.
3) Methodik der Erfolgsplanung der Integrativen Produktentwicklung
Fr die formalzielorientierte Bewertung der Integrativen Produktentwicklung
knnen zwei Konsequenzen gezogen werden:
(1) wegen der ex ante nur nherungsweise erfassbaren mittelbaren Zielwirkungen
ist die Bewertung stets mit Unsicherheit behaftet;
(2) neben quantizierbaren sind auch qualitativ prognostizierbare Erfolgswirkungen bei der Beurteilung konzeptionell zu bercksichtigen. Dieser Gedanke
korrespondiert mit Ergebnissen der deskriptiven Zielforschung und der hieraus
abgeleiteten Empfehlung neben einem (quantitativen) Gewinnplan auch einen
(qualitativen) Erfolgspotentialplan zu erstellen und beide in einem Erfolgsplan zusammenzufassen.
Die quantitative Gre Gewinn berechnet sich als Dierenz von Leistungen
und Kosten.
Bei der Ermittlung der mit der Realisierung der sachzielorientierten Plne der
Produktentwicklung zu erwartenden Zielwirkungen in Form von Leistungen erscheint es zweckmig,
zwischen Absatzleistungen, die sich direkt in Einnahmen - unmittelbaren Zielwirkungen - manifestieren, und
innerbetrieblichen Leistungen, die nur indirekt Einnahmen zur Folge haben mittelbare Zielwirkungen durch Wiedereinsatzgter (vgl. Coenenberg, A. G./
Rael, A., S. 80) -,
zu unterscheiden (vgl. Wurl, H.-J., Originre Leistungsrechnungen, S. 186.).
Die entscheidungsrelevanten Erfolgswirkungen werden quantitativ in Form von
Leistungen und Kosten erfasst (vgl. Abb. 9):
Die Absatzleistungen lassen sich aus den Informationen der Finanzplanung der
Integrativen Produktentwicklung (unmittelbare Einnahmen) und die innerbe-
51
trieblichen Leistungen aus den Finanzplnen anderer Unternehmensbereiche

(mittelbare Einnahmen) ermitteln.
Analog stellen die bei der Erstellung des Finanzplans der Integrativen Produktentwicklung erfassten unmittelbaren Ausgaben und bei der Finanzplanung
anderer Unternehmensbereiche berechneten mittelbaren Ausgaben die Basis fr
die Ableitung der jeweils entscheidungsrelevanten pagatorischen Kosten dar.
Entsprechende berlegungen gelten fr die Bestimmung der
Opportunittskosten.
Beziehung zu Lieferanten
Verhltnis zu Konkurrenten
Verhltnis zu potentiellen Konkurrenten
Nicht
quantifizierbar
Quantifizierbar
Beziehung zu Abnehmern
Bedrohung durch Substitutionsprodukte
Erfolgspotentiale
Leistungen
Mittelbare
Einnahmen
Unmittelbare
Einnahmen
Mittelbare
Ausgaben
Unmittelbare
Ausgaben
Mittelbare
Zielwirkungen
Unmittelbare
Zielwirkungen
Prognosereichweite
Ende des Produktlebenszyklus
Gewinn
Kosten
Zeit
Planende der
finanziellen Planung
0
Entscheidungsrelevante
Wirkungen auf Erfolgsziel
Legende:
Vor Planende der finanziellen Planung
ist bernahme der Einnahmen und
Ausgaben aus
1) den betreffenden Finanzplnen
des Unternehmens
2) dem Finanzplan der integrativen
Produktentwicklung
mglich.
Abb. 9: Methodik der Erfassung der entscheidungsrelevanten Wirkungen auf die Ziele Gewinn und Entwicklung von Erfolgspotentialen
52
In Form von Leistungen und Kosten werden nach dem Planende der Finanzplne bis zum Ende des Produktlebenszyklus die quantizierbaren unmittelbaren und mittelbaren Zielwirkungen erfasst. Da Entscheidungen im Rahmen der
Produktentwicklung nach dem Ende des Produktlebenszyklus nur noch mittelbar
den Erfolg des Unternehmens beeinussen, knnen im Zeitraum zwischen dem
Ende des Produktlebenszyklus und der Prognosereichweite nur noch mittelbare Zielwirkungen durch Leistungen und Kosten erfasst werden. Fr die abschlieende Bewertung und Auswahl der Alternativen sind die Gewinnwirkungen
einerseits und die Auswirkungen auf die Erfolgspotentiale andererseits in der bergeordneten qualitativen Nutzenkategorie Erfolg zusammenzufassen. Als Zielkriterien (vgl. Abb. 8) dienen neben dem Gewinn die Auswirkungen auf die fnf
fundamentalen Wettbewerbskrfte (vgl. Runzheimer, C., I, S. 354.).
Folgende zentrale Wesensmerkmale der vorgeschlagenen Methodik lassen sich
identizieren:
der entwickelte Modellansatz ermglicht eine gemeinsame Analyse sowohl der
Liquiditts- als auch der Erfolgswirkungen auf derselben Informationsbasis (fundamentale Wettbewerbskrfte, unmittelbare und mittelbare Einnahmen
und Ausgaben). Hierdurch knnen nicht nur die Auswirkungen zwischen den
sachzielorientierten Entscheidungen und den Formalzielen, sondern auch die
Zielinterdependenzen zwischen Liquiditts- und Erfolgsziel aufgezeigt werden.
Neben der Konsistenz der Bewertung sprechen fr diese Vorgehensweise auch
Ezienzberlegungen, da Informationen ber die Gewinnwirkungen aus der
Finanzplanung abgeleitet werden knnen.
Die Bercksichtigung der Auswirkungen auf die Erfolgspotentiale stellt sicher,
dass auch die qualitativ erfassbaren Erfolgswirkungen bei der Bewertung bercksichtigt werden, und eine Analyse der Erfolgswirkungen bereits im Stadium der Grobplanung methodisch untersttzt werden kann. Einer Doppelerfassung beziehungsweise Vernachlssigung von Erfolgswirkungen sowohl in
quantitativer als auch in qualitativer Form wird durch die gemeinsame Informationsbasis entgegengewirkt.
Der Modellansatz erfasst alle sachzielorientierten Plne auf den Ebenen des
innovativen Produktes, der zugehrigen Kombinations- und Transformationsprozesse und des Entwicklungsprojektes. Hierdurch wird eine explizite Bercksichtigung der Zielwirkungen des Produktentwicklungsprojektes selbst und
der Interdependenzen der sachzielorientierten Plne in Bezug auf die Formal-
53
ziele gefrdert: der den gesamten Produktlebenszyklus umfassende Zeithorizont

ermglicht auch die Analyse zeitlicher Interdependenzen (z. B. die Auswirkungen der Verwendung preiswerter Materialien im Fertigungszyklus auf die
Ausgaben im Wartungs- und Servicezyklus oder im Entsorgungszyklus).
Eine Koordination mit unternehmensexternen Interaktionspartnern (Lieferanten und Kunden) ist auf der Basis unmittelbar beobachtbarer Gren - also
Einnahmen und Ausgaben - durchzufhren. Die Herleitung der fr die innerbetriebliche Koordination notwendigen Kosten und Leistungen aus Einnahmen
und Ausgaben ermglicht eine konsistente Verknpfung einer unternehmensinternen mit einer unternehmensexternen Analyseperspektive: Beispielsweise stellt die vorgeschlagene Methodik bei Make-or-Buy-Entscheidungen
sicher, dass nicht nur die Vernderungen der unmittelbaren Ausgaben, sondern
auch die daraus resultierenden Auswirkungen auf andere Unternehmensbereiche sowie die Erfolgspotentiale des Unternehmens (z. B. Abhngigkeit von
Zulieferer) bei der Bewertung bercksichtigt werden (vgl. Betz, S., S. 399.).
Die Bercksichtigung mittelbarer und unmittelbarer Einnahmen fhrt
zu einer Integration der Absatzfunktion in den formalzielorientierten
Planungsprozess.
Einen Vorteil fr die Kontrolle bietet nicht nur die Ausrichtung der Methodik an beobachtbaren Gren (Einnahmen und Ausgaben). Wegen des langen
Zeithorizontes des Partialmodells und der dynamischen Sichtweise knnen insbesondere Planfortschritts- und Realisationskontrollen ber den gesamten
Produktlebenszyklus hinweg mit Kontrollinformationen ber Zeitpunkt und
Ausma der - beispielsweise mit Hilfe des Erfahrungskurveneektes (vgl. Runzheimer, C., I, S. 356) - prognostizierten Zielwirkungen versorgt werden.
5 Organisation der Planung und Kontrolle der Integrativen
Produktentwicklung
Im Kontext arbeitsteiliger Prozesse wie der Entwicklung komplexer technischer

Serienprodukte ist ein Planungs- und Kontrollsystem ohne
die Zuweisung der Planungs- und Kontrollaufgaben zu ihren Trgern sowie
Regelungen zum Ablauf des Planungs- und Kontrollprozesses
nicht funktionsfhig (vgl. Grnig, R., S. 217f.; Runzheimer, C., I, S. 73.).
54
5.1 Aufbauorganisatorische Empfehlungen
Hinsichtlich der Festlegung der Planungs- und Kontrolltrger wird zur Gewhrleistung kurzer Reaktionszeiten vorgeschlagen, die Verantwortung fr Beginn, Revision und Abbruch von Planungs- und Kontrollaktivitten einer Stelle
(Projektleiter) und nicht einem Gremium (Entwicklungsteam) zu bertragen.
Weiterhin sollte einer Selbstkontrolle gegenber einer Fremdkontrolle der Vorzug gegeben werden: fr die Selbstkontrolle sprechen motivationale Aspekte und
die berlegung, dass Kontrollresultate eine zentrale Grundlage fr die Revision
eines Planes darstellen. Die unmittelbare Rckkopplung drfte sich auch positiv
auf den Zeitbedarf fr die Produktentwicklung auswirken. In den Prozess der Erstellung beziehungsweise Revision der sachzielorientierten Plne sollten jeweils die
Leiter der von dem Plan betroenen organisatorischen Einheit einbezogen werden (vgl. Grnig, R., S. 220f.).
Di
e pauschale Empfehlung mehrerer Autoren Lieferanten und Abnehmer in das

Produktentwicklungsteam zu integrieren, ist umstritten; sie wird hier mit dem
Hinweis weitergegeben, dass diese Empfehlung situativ kritisch reektiert werden muss. Open Innovation nennen Experten den Prozess, wenn Kunden,
Lieferanten sowie externe Experten mit eingebunden werden, damit mehr Ideen generiert werden, die helfen, Probleme schneller zu lsen. Den radikalsten
Schritt machte Procter & Gamble (P&G). Frher arbeiteten fast ausschlielich
unternehmenseigene Forscher an neuen Produkten. Dann nete sich der Konzern fr Innovationen von auen und begann, Kunden, Lieferanten sowie externe Experten mit einzubinden. Heute kommen bei P&G mehr als die Hlfte
aller Innovationen von auen. (WirtschaftsWoche Nr. 41, 2010, S. 114).
Hinsichtlich der Festlegung der Empfnger eines Planes und der zugehrigen
Kontrollberichte wird empfohlen:
sowohl den Verantwortlichen fr Beginn, Revision und Abbruch von Planungsund Kontrollaktivitten (Mitglieder des Top-Managements beziehungsweise
Projektleiter)
als auch den an der Planumsetzung beteiligten Stellen
die entsprechenden Informationen zukommen zu lassen.
55
5.2 Ablauforganisatorische Empfehlungen
Die ablauforganisatorischen Empfehlungen beziehen sich auf die Bestimmung

von
Bearbeitungsreihenfolge und Timing der Planungs- und Kontrollaufgaben
im Rahmen der Integrativen Produktentwicklung. Es empehlt sich, lediglich den
frhestmglichen Zeitpunkt des Beginns und die spteste, noch zulssige Beendigung einer Teilaufgabe festzulegen. Um Flexibilitt zu gewhrleisten, sollte dem
Verantwortlichen (hier: dem Projektleiter) fr Beginn, Revision und Abbruch von
Planungs- und Kontrollaktivitten die zeitliche Fixierung der Teilaufgaben berlassen werden.
Die Reihenfolge der Bearbeitung wird in vertikaler Hinsicht durch sachlogische
Verknpfungen zwischen den Aufgaben und Teilaufgaben der Produktentwicklung
(z. B. Produkt - Baugruppe - Einzelteile) determiniert.
Das Timing der Integrativen Produktentwicklung ist von essentieller Bedeutung und mit der Absatzfunktion abzustimmen, da Beginn, Dauer und Ende der
Produktentwicklung den Handlungsspielraum der Absatzfunktion bei der Festlegung des Zeitpunkts des Markteintritts begrenzt.
Zur Koordination der Dauer, Anfangs- und Endzeitpunkte des Gesamtprojektes und seiner Teilaufgaben sowie der Kapazittsplanung und Kostenplanung stehen mit den Netzplantechniken leicht handhabbare und praktisch bewhrte Planungs- und Kontrollmethoden zur Verfgung (vgl. Cordes, H.-P., S. 143; Domsch,
M./Gerpott, T. J., S. 89; Runzheimer, B., Operations Research, S. 241f.; Runzheimer, B./Cle, T./Schfer, W., 143.). Um Netzplantechniken fr die Zeitplanung
einsetzen zu knnen, werden jedoch neben den Angaben des Projektstrukturplans
und des Bedarfs- und Bereitstellungsplans des Entwicklungsprojektes zustzliche
Informationen ber zeitliche Restriktionen der Teilprojekte und des Projektes
insgesamt bentigt (vgl. Runzheimer, B./Barkovic, D., S. 265.).
Um die Ergebnisse der aperiodischen Produktentwicklung in die periodischen Planungs- und Kontrollprozesse des Unternehmens einieen zu lassen,
mssen die Teilergebnisse der Produktentwicklung zu bestimmten Zeitpunkten
den Trgern periodischer Planungs- und Kontrollaufgaben als Planungsgrundlagen
zur Verfgung gestellt werden.
Sachlogisch ist die Entscheidung ber den Zeitpunkt des Markteintritts und
den Beginn beziehungsweise die Dauer der Produktentwicklung insgesamt (Ti-
56
me-to-Market) der zeitlichen Fixierung der Teilprojekte bergeordnet; sie stellt

daher die zentrale Fragestellung fr das Timing dar.
Auf der Basis von Forschungsergebnissen muss die Hypothese, dass ein frherer
Markteintritt generell zu hheren Gewinnen fhrt, als widerlegt - oder zumindest
als sehr fraglich - angesehen werden (vgl. Runzheimer, C., I, S. 362.): die Vorteilhaftigkeit eines frhen Markteintritts als Pionier beziehungsweise eines spten
Markteintritts als Folger hngt sehr stark von situativen Ausprgungen mehrerer
Einussfaktoren ab (vgl. Abb. 10).
Merkmalsausprgung bei
idealtypischer Situation A
Situationsmerkmale
Merkmalsausprgung bei
idealtypischer Situation B
Marktentwicklung
niedrig
schnell
niedrig
stark
kurz
hoch
kontinuierlich/
sichere Industriestandards
alt/bekannt
Marktwachstum
Diffusionsverlauf
Marktffnungskosten
Preisverfall
Vermarktungsdauer
Technologiebedingte Eintrittsbarrieren
Technologischer Entwicklungsverlauf
Kundengruppen
hoch
langsam
hoch
schwach
lang
niedrig
diskontinuierlich/
unsichere Industriestandards
neu/unbekannt
Wettbewerbsposition
hoch
stark
stark
hoch
Wettbewerbsintensitt
Relative Technologieposition
Realtive Wettbewerbsposition
Bedeutung Produkttechnologie
im Wettbewerb
niedrig
schwach
schwach
niedrig
Produktcharakteristika
hoch
hoch
niedrig
eng
Produktkomplexitt
Dienstleistungsanteil
Produktwechselkosten fr Kunden
Beziehung Produktinnovation
zu vorhandenen Produkten
Maximale Erfolgswahrscheinlichkeit
bei Markteintritt als Pionier
hohe Innovationsgeschwindigkeit
niedrig
niedrig
hoch
locker
Maximale Erfolgswahrscheinlichkeit
bei Markteintritt als Folger
geringe Innovationsgeschwindigkeit
Abb. 10: Empirisch festgestellte, idealtypische Situationsmerkmale fr die Ableitung eines optimalen Markteintrittszeitpunktes
Quelle: in Anlehnung an Gerpott, T. J., S. 62
57
Bei dieser Sachlage erscheint es nicht mglich, konkrete und zugleich allgemeingltige Empfehlungen zum Timing des Produktentwicklungsprojektes insgesamt zu unterbreiten. Die zeitliche Fixierung des Projektablaufs ist von den
Unternehmen projektspezisch in Kenntnis der konkreten Ausprgungen der
Situationsmerkmale einerseits und des eigenen Erfahrungswissens ber gnstige
Markteintrittszeitpunkte (z. B. Termine einschlgiger Messen, Saisonbeginn, Aktivitten der Konkurrenten) andererseits festzulegen. Die Zusammensetzung der
Situationsmerkmale legt zugleich nahe, in diesen Entscheidungsprozess neben dem
Projektleiter auch Fachpromotoren aus den Bereichen Strategische Planung, Forschung & Entwicklung sowie Absatz zu integrieren.
6 Zusammenfassung
Ziel des Beitrags ist die Fragestellung, ob die Entwicklung einer Planungs-und
Kontrollkonzeption mittelgroe und groe Industrieunternehmen mit Serienund Massenfertigung bei der Gestaltung eines Planungs- und Kontrollsystems fr
die Entwicklung komplexer technischer Produkte und der zugehrigen Prozesse
untersttzt und zu einer besseren Lsung und/oder einem geringeren Lsungsaufwand fhrt als die Problemlsung ohne diese Untersttzung. Das Resultat wird
in diesem Beitrag als Integrative Produktentwicklung bezeichnet. Die hiermit
verbundene starke Gewichtung einer antizipativ ausgerichteten Kontrolle zu Lasten der Planungsfunktion lsst deutliche Verbesserungen bei der Kontrolle und
der frhzeitigen Vermeidung von Zielabweichungen erwarten.
Zur Festlegung der Grobstruktur des Planungs- und Kontrollsystems ist es
notwendig, die Planungsebenen, ihre Planungshorizonte, ihre Verkettung und ihre
Entwicklungsfolge festzulegen. Den Bezugspunkt der Entscheidungen, die Kombinations- und Transformationsprozesse betreen, bilden produktbezogene Plne. Dimensionen der Grobstruktur der Planungs- und Kontrollkonzeption fr die
Integrative Produktentwicklung sind die sachzielorientierte Primrstruktur und
die formalzielorientierte Sekundrstruktur.
Die systembildende Koordinationsfunktion mit Gestaltungsempfehlungen ist
Aufgabe der Metaplanung und kontrolle der Integrativen Produktentwicklung.
Eine zentrale systembildende Koordinierungsaufgabe der Metaplanung ist auch die
Behandlung von Unsicherheit.
Die Konkretisierung der Planungs- und Kontrollsystematik der Integrativen Produktentwicklung und des Kombinations- und Kontrollprozesses erfolgt
58
ber Subsysteme, und zwar auf der Ebene des innovativen Produktes und der
Ebene des Projektes der Integrativen Produktentwicklung. Die Systematik der
formalzielorientierten Planung und Kontrolle zeigt die Auswirkungen auf das Gewinnziel, auf die Entwicklung der Erfolgspotentiale und das Liquidittsziel des
Unternehmens.
Ebenso sind die Auswirkungen der Entscheidungen im Rahmen der Integrativen Produktentwicklung auf die Wettbewerbssituation des Unternehmens zu
analysieren und in der Planungs- und Kontrollmethodik zu erfassen.
Die Errterungen zu Organisation der Planung und Kontrolle der Integrativen
Produktentwicklung beinhalten aufbauorganisatorische und ablauforganisatorische Empfehlungen.
Mit der Darstellung empirisch festgestellter, idealtypischer Situationsmerkmale
fr die Ableitung eines optimalen Markteintrittszeitpuntes schliet der Beitrag.
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62
Mladen Jurii Draen Barkovi Ivan Plaak
METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS

FOR RESOURCE MANAGEMENT AND SELECTION OF NEW
LOCATIONS PURPOSE MAPS IN GIS ENVIRONMENT
Mladen Jurii1, Draen Barkovi2, Ivan Plaak1
1
Faculty of Agriculture in Osijek Mechanization Institute, Department for Agrotechnics and Precision Agriculture, University of J.J. Strossmayer in Osijek, Trg Sv. Trojstva 3, 31000 Osijek Croatia;
[email protected]
2
University of J. J. Strossmayer, Faculty of Economics, Trg Sv. Trojstva 3, 31000 Osijek Croatia;
[email protected]
ABSTRACT
The purpose of this research was to determine the methodology of land capability evaluation with regard to an array of objective limiting factors when growing,
for example, perennial crops.
The methodology of relief parameterization was used in the method for calculating geomorphological parameters, and pedometric mapping methods were used to
calculate pedological variables. Inventory of the actual condition of land cover was
made based on sketches and maps that were gathered during eld research. These
sketches were then geo-referenced and overlapped with LANDSAT satellite images
to determine the actual situation.
The best locations for a particular type of perennial plantation were selected
by using logic and spatial queries. Best locations (in this example for vineyards)
were identied as an area overlap (areas with, according to the spatial plan, either
valuable, especially valuable or other arable soils, southern relief exposition with
the total annual incident light >1,208 KWh m2, and the location where the relief
slope is not higher than 12% and lower than 2%, or where elevation exceeds 110
m and soil acidity does not exceed 5.6 pH). The query resulted in a simple map.
The map shows areas which are either suitable for viticulture (1) or not suitable for
viticulture (0). Similar approach could be used also for thematic maps of dierent
purposes, for example, urbanization maps, or mapping valuable sources of water,
gas, thermal wells and other resources of special importance for the country.
METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS FOR RESOURCE ...
63
According to the results obtained in our example of nding the methodology

for development of thematic maps in GIS environment, the total of 17,782 ha in
the County area is suitable for viticulture.
The best way of developing spatial plans for particular crops would be to develop maps of negative scores for all crops, and then to standardize these values to
nd the best possible crop for each location. Thematic GIS layers can be used as
the foundation for loans, advice on what crop to choose, making decisions on land
re-allocation and land use, reconstruction i.e. modied land use.
JEL classication: D83, O13
Keywords: Geo-Information Systems (GIS), Methodology, Thematic maps,
Resource management, Spatial plan, Purpose map; EU pre-accession funds;
INTRODUCTION
To improve eciency and competitiveness of an industry, i.e. eciency of resource management in a country, governments of these countries (especially EU
member states) adopt the so-called operative programmes to stimulate loans to
such industries. The goal of such programmes is to increase eciency of dierent
aspects of management. For example, it is of great importance for the Republic
of Croatia to make an inventory of resources, that is, to improve their use and
eciency. Through various projects (supported by the EU and its programmes
related to the use of pre-accession funds), the Croatian Government stimulates an
increasing number of small and large entrepreneurs, even family farms, to increase
their plantations and to become serious producers with a higher share in the market
economy.
To allocate funds from such sources in the best possible way, the following is
required: to educate economic operators (land owners and company owners, especially those related to resource management) on the possibilities and to carefully
choose among the received loan applications. Among other, it is necessary to have
a good knowledge of production potentials of a particular location (land owned by
the requesting party) so that as much funds as possible is invested into areas with
the highest production potential related to targeted production.
Accelerated development of geo-information technologies has taken place also
in our country (application in various elds, especially in natural resource management). Inventory of large areas can be made very quickly either by using satellite
64
images or by positioning by means of GPS device or digital aero-photogrammetry

[Jurii et al., 1999 and Jurii, 2005; Husnjak and Bogunovi, 2002].
Thematic maps of dierent purposes in Croatian agriculture have been already
in the process of making, although not to a sucient extent. Among organized
systems of implemented geo-information technologies, a digital land registry, LPIS
(part of the AIACS systems), better known as ARKOD, should be mentioned here.
For example, Croatian Institute of Viticulture and Enology has started to develop
a detailed Vineyard Register, which should provide a general statistical overview of
all vineyard areas on a single production area as well as potential areas.
The only issues here are what methodology should be used in the process and
what funds and human resources are required. These issues are addressed in this
paper. The methodology of carrying out the land capability evaluation while considering an array of limiting factors of production for strategic types of perennial
plantations is presented on the example of Osijek-Baranja County.
WORK METHODOLOGY
GIS has been in use in Croatia for the purpose of planning at the regional level
for some ten years. The methodology used in this example and used for the purpose
of planning in the eld of management of resource use is specic in the part that
parameters for land evaluation are clearly and precisely dened geomorphological, pedological and actual condition of land cover. The methodology of parameterization of relief is used for calculation of geomorphological parameters [Hengl et
al., 2003], and pedometric mapping methods are used for calculation of pedological variables [Hengl, 2003]. Inventory of the actual condition of land cover is made
by using sketches and plans obtained during eld data gathering. These sketches are
then geo-referenced and overlapped with LANDSAT satellite images to determine
the actual situation.
Methodology of raster GIS modelling was used throughout the study, which
means that the basic decision making unit was pixel or cell grid square (see the image). The methodology of preparing thematic layers is presented in the following
subchapter.
65
Figure 1. Raster based GIS: each thematic layer consists of the smallest unit of pixel or grid square which is
determined by the eld resolution.
Field data collection
To evaluate (locate) the current situation in the eld in the best possible way, the
eld was recorded during the visit to the main economic operators.
Shorter surveys can be carried out in the process with economic operators (technologists). In addition to obtaining important technical data, this also provides an
insight into the main issues in production. Also, each organization is required to
submit a map showing the current situation and the location. These mostly include
sketches or old plans that were either copied by hand or photocopied and diminished from the original cadastral maps.
Maps very often include a legend on the plot boundaries showing the sorts
grown, and each plot has its own identication number.
Preparation of the thematic GIS layers
In the process of preparing GIS layers several raster resolutions should be used: (a)
basic resolution for calculation of suitability - 100 m; (b) LANDSAT image at 30 and
15 m resolution; (c) a detailed topographic map 1:100K, also at 15 m resolution.
Boundaries of the area are set to Xmin= 6490027; Ymin= 5005476; Xmax=
6587527; Ymax= 5088076 (Gauss-Krueger system, zone 6), which means that the total area is 9783 km. Panchromatic image is at 15 m resolution (55086501 pixels).
According to this methodology the following thematic layers are made:
66
Topographic map 1:100K [topo100K] Sheets of 1:100K topographic map,

scanned and geo-referenced to the coordinate system (zone 6), are used as GIS
foundation. In our example the total of 19 sheets of topographic map of the Republic of Croatia were geo-referenced and joined together.
Scanned sketches [tables] They present the current condition of perennial
plantations. In our example sketches and maps of four economic operators were
gathered for the purpose of this study. After geo-referencing all scanned sketches
were transferred into the vector format.
Figure 2 and 3. Importing and assessment of old sketches and maps into GIS. Left: An example of an old plan;
Right: The map of plots can be represented in a satellite image after geo-referencing.
Digital relief model and relief parameters [DMR, slope, light] digital relief
model (DMR) is produced based on the combination of SRTM DMR [NASA,
2005a] and DMR which was developed based on digitalized contour lines from
1:100K topographic maps.
In this case the DMR based on topographic maps has greater absolute accuracy,
while SRTM DMR shows greater local detail (changes in the mezzo relief ). SRTM
DMR was not used in areas with rich vegetation, because SRTM DMR usually
shows also the surface of such objects, and not the real elevation of the terrain. Two
geo-morphological factors were calculated based on DMR: slope (%) and the total
annual amount of incident light.
67
The slope was calculated by means of ILWIS GIS software, and incident light
(KWh/m2) by SaGa GIS software [http://geosun1.uni-geog.gwdg.de/saga/]. Even
these two parameters (slope and exposition) are suciently important for nding
the best locations for some production (viticulture).
Northern exposition
Relief slope
Figure 4. Geomorphological parameters calculated on the basis of digital model of the relief of the County
Planned purpose of the land [Purpose] The planned purpose of the land was
taken over based on the spatial plan developed by the Institute for Spatial Planning of Osijek-Baranja County [Institute for Spatial Planning of Osijek-Baranja
County, 2002]. This is a 1:100K scale map which was scanned, geo-referenced in
ILWIS and then digitized and polygonized. The total area statistics was calculated
after that, with special emphasis on agricultural land in the County.
The map of the planned purpose of the land is important to limit selection of
the best locations for fruit/vine growing on the locations where valuable and especially valuable soils are found.
Pedological parameters [soil_type, soil_pH, soil_carb] In addition to soil type
(deep, fertile, gravel or dry), when selecting the soil in the process of vineyard planting it is of utmost importance to know the content of lime in the land envisaged for
68
planting, for the depths 0 30 cm and 30 60 cm. Maps of soil acidity and carbonate content wee made by interpolation of a limited number of pedological proles.
The database of soil types in Croatia was used [Martinovi and Vrankovi, 1997];
the total of 124 proles from this database can be found in the County area.
The data were interpolated so that a map of soil types was made in the beginning (Alluvial, Chernozems, District Brown Soil, Eutric Brown Soil, Colluvial Soil,
Loess Soil, Meadow Soil, Wetland Gley Soil, Pseudo-gleyed Soil, Rendzina, Wetland Black Soil, Semi-gley) by classifying geomorphological parameters, and then
the mean value of pedological parameter was calculated for each soil type (pH,
carbonates).
Satellite image [Panchromatic] LANDSAT panchromatic satellite image was
used at 15 m resolution. The image was made in September 1999, but it is still relevant for development of the basic studies. LANDSAT images (185185 km scene)
can be ordered and downloaded on-line via NASA server [http://edcimswww.
cr.usgs.gov/pub/imswelcome/]. Such an image is especially suitable for this kind
of projects because it can be compared to the photo mosaic, which would be more
expensive. Boundaries between the plots of agricultural land are clearly visible in
the image as well as larger furrows within vineyards. To provide easier recognizing
of orchards and vineyards, aero or Ikonos images should be used in future.
Figure 5. An example of Ikonos image, 1m resolution, that can be used to make fast inventory of plots (Erdut
vineyards).
69
Map importing, geo-referencing and integration were carried out by using the
unique methodology as described below:
Maps are scanned at 150 DPI resolution and more;
Scanned maps are imported into a GIS software ILWIS and geo-referenced to
the local coordinate system, 1:100K scale;
Parts of maps are joined and modied according to the desired basic resolution
and detail level;
Dierent thematic layers are used for simple (for example, slope maps) and
more complex calculations (for example, annual amount of direct solar
radiation);
Ultimately calculated thematic maps are used for decision making by using
the so-called spatial queries; these queries are carried out in ILWIS directly via
command line;
Figure 6. Integration of GIS layers after importing for the purpose of group representations by using transparency in ILWIS: Erdutsko brdo as an example vineyards owned by the wine-making company Erdutski
vinogradi
Selection of best locations
Selection of the best location for a particular type of perennial plantation can
be carried out by using logical and spatial queries. Locations for vineyards will be
dened as overlapping areas between locations:
70
Locations where, according to the spatial plan, either valuable or especially

valuable soils and other arable land can be found, and
Southern exposition of the relief with the total annual amount of light incidence > 1208 KWh/m2, and
Locations where the slope is not higher than 12% and lower than 2%, and
Where elevation above the sea level is not lower than 110 m and soil acidity
does not exceed 5.6 pH units.
This means that locations will be found that satisfy several important criteria in
the same area (good exposition and good slope, and good elevation...). Such spatial
enquiry can be expressed by means of the following ILWIS commands (so-called
ILWIS sytnax):
SUITABLE_VINEYARDS {dom=Bool} = i( ((purpose=ESPECIALLY
VALUABLE SOIL ) or (purpose=VALUABLE SOIL ) or (purpose=OTHER
ARABLE SOILS )) and (light>1220) and (slope<12) and (DMR>110) and (soil_
pH>5.6), 1, 0)
Table 1. List of GIS layers used in the development of the study.

GIS layer
Unit
Description and characteristics

Scanned and geo-referenced topographic map
1:100K. Raster map in real colours. Map size
55086501 pixel.
topo100K
table
DMR
slope
Application
Basic foundation for preparation of all
other GIS layers.
Scanned, geo-referenced and vectorized plot

Showing the current situation and
boundaries. Vector map; total around 200 tables/ locations of perennial plantations (PP)
plots.
in the County area.
It can be used for calculation of
Digital relief model is a raster map showing the
geomorphological and hydroeld elevation for each point in the space. Map
logical parameters, but also for 3D
size - 827976 pixels.
representations.
A very important agro-environmental
Raster map developed on the basis of DMR,
parameter because it is related to
showing eld inclination. Also in this case 100 m
agricultural production (>12% is not
grid was used.
suitable for mechanization application).
light
purpose
soil_type
soil_pH
tlo_karb
Panchrom.
71
It can be used to locate the areas suitKWh/ Raster map calculated on DMR basis and knowlable for vineyards. Southern exposition
m2 edge of the solar radiation model.
shows the highest values.
Spatial planning of agricultural producPolygon map showing land purpose classes
class
tion should be limited to the locations
according to the spatial plan.
where agricultural land is found.
Based on the soil type, a conclusion on
Raster map showing soil types from alluvial to
class
other soil characteristics can easily be
chernozem and renzina soils in mountains.
made.
Raster map produced by interpolation of obAcidity is usually the key limiting factor
0-15 served values. In this case average was made
for agricultural production.
according to soil type map.
Vineyards require more carbonate
Raster map produced by interpolation of ob% served values. In this case average was made
soils. Acid soils may result in underaccording to soil type map.
performance.
Raster image. The smallest detail 15 m. Map
Useful for recognizing the boundaries
0-256
size55086501 pixels.
between agricultural land plots.
This is the so-called Boolean operation, because the result of the query will
be a simple map showing areas which are either suitable for viticulture (1) or not
suitable for viticulture (0). If the user wishes to increase the selection criteria, he/
she can simply change any of the parameters directly in ILWIS command (for example, slope <10% instead of <12%). Of course, the more strict criteria will result
in smaller area of suitable locations.
Alternative to this Boolean procedure would be the use of limitations scores. In
that case every parameter, limiting agro-environmental eect, is translated into a
limitation score according to a mathematical or empirical formula. Use of limitation (negative) scores in this case is considerably more complex, because relations
among the negative scores and limiting parameters are unknown. In addition, the
number of agro-environmental factors can be pretty large, which means considerably larger calculations in GIS.
RESULTS AND DISCUSSION
A map of the best locations for vineyards was developed based on a formula. This
map is the ultimate result of work (Figure 3.). According to an estimate, around
17,782 ha in the County are suitable for viticulture. If this is compared to data on
72
actual situation (1,612 ha), it can be observed that the current utilization rate of
resources in viticulture is around 10%.
Locations in Baranja that are unsuitable for vineyards are all locations situated
on the sea level below 120 m, on the localities oriented toward north, north-eastern
and eastern sites, unprotected against penetration of cold air; in Erdutsko brdo
area), all locations where water is stagnant and frost can occur (depressions, furrows, micro-coves). Areas unsuitable for vine grape growing can also be found in
akovo and Naice region all locations where slopes exceed 12% and soil is acid
or very acid (pH<5.0). In terms of slope and suitability for use of mechanization,
only the area around have issues due to the above described micro-relief.
EXISTING VINEYARDS
POTENTIAL NEW
LOCATIONS
Figure 7. The existing and potential areas under vineyards in 2004. Vineyards are currently planted on 1.612 ha
out of the potential area of 17.782 ha.
These scales can be used to nd the best locations for planting new vineyards.
However, the areas that are not coloured green in the gure 7 show areas which
could not be recommended as suitable for viticulture, i.e. loans or incentives for
them should not be provided by the County or Government.
Analysis and processing of climate and edaphic parameters points to a very favourable climate and land conditions for vineyards as well as existence of great
73
resources and the possibility for intensifying as well as rationalization of future production. A conclusion can be made as the end result of this research that utilization
rate of natural resources in viticulture is around 10% and that the most suitable
locations for planting vineyards is the area of Erdutsko brdo and numerous locations between akovo and Naice.
Figure 8. Best purpose map for viticulture (the current situation red and possibilities the green colour) in
Osijek-Baranja County.
CONCLUSION
This scientic research is mostly of methodological character, i.e. the goal is to

bring the methodology of detailed spatial planning in GIS closer to the employees
of the County Department for Agriculture and Forestry and other stakeholders.
74
Unlike the methodology used by the Croatian Institute for Viticulture and
Enology, this research was conducted in the geo-information system. Relief data
and satellite images were also used to verify the situation. Integration and combination of orto-photo images and Wine register with relief and satellite images would
provide even better results than the results presented in this paper. If aero images
are too expensive solution for development of the County GIS, use of Ikonos images should also be considered.
Nowadays there is a large number of potential users and applications which are
based on updated geo-information, i.e. digital purpose maps. Decisions about the
land use and its change are still not made based on objective queries and criteria.
Unfortunately, in our country there are no updated and detailed maps of areas
which would show the actual situation in land use, the real potential of natural
resources (soil, water, relief ). All of the basic foundations of geodesy as the cadastre, aero photos and topographic maps also have not been transformed into digital
form and made available to these services. Tools for relatively urgent and objective
monitoring of changes in land use (satellite images), changes of the boundaries
between agricultural units (aero-photos), positioning (GPS) and general condition
of natural and human resources are not used.
Problems with the cadastre, land restitution, allocation and undened ownership structure of land in the state ownership are a limiting factor in the process of
determining the status and future purpose of these areas. Raising new perennial
plantations and stimulation of potential producers (legal and physical entities) requires an extremely fast engagement at both national and county level in an extremely short period of time (a few years EU accession).
In this example of development of a thematic map showing land suitability
for growth of grape vine, the main microclimate factors limiting successfulness of
production in the entire County area are: (a) local frost areas; (b) slope, over 15%;
(c) insucient carbonate content in the soil, i.e. excessive soil acidity. Ideal soil for
grape vine production is mildly sloped (2-12%), of southern, south-western and
western exposition, calcareous or mildly calcareous, with humus content around
3%, and of light texture (powdery/sandy loam).
Further steps shall include development of the full multidisciplinary GIZIS
(Geographic and Cadastral Information System) of regions with agricultural production, and education of all key users, primarily employees of the County Development Department on how to use these tools.
75
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server ftp://edcsgs9.cr.usgs.gov/pub/data/
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upanije: koritenje i namjena prostora, upanijski glasnik br.1/2002.
eljko Turkalj Ivana Fosi Marija Ham
76
CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS

ETHICS APPLICATION OF ECONOMIC ENTITIES IN THE
REPUBLIC OF CROATIA
eljko Turkalj, Professor
Ivana Fosi, Assistant
Marija Ham, Assistant
Faculty of Economics in Osijek
Abstract:
Social responsibility and its component business ethics are imposed as an unavoidable and dominant area of activity in the globalization of economic entities
operating conditions. Each economic entity seeks long-term sustainable business,
but with the condition to be recognized and positively evaluated in the environment to which they positively contribute with their activities. Realization of these
goals is possible, inter alia, by knowing ethical principles and codes of conduct,
but more importantly, their implementation. Economic entities should be aware of
the fact that the more ethical organizations - organizations serving economic communities, consumers and the environment, are also more successful organizations.
The paper is intended to clarify the meaning of social responsibility and ethics of
economic entities, and highlight the benets of such a concept of business. We also
want to show the presence of corporate social responsibility and ethical behavior of
economic entities in the Republic of Croatia.
JEL classication: M14
Key words: social responsibility, ethical business, socially responsible marketing, promotion, economic entity
1. CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility is today a widely adopted business practice in developed countries. Modern business systems are now called upon to exercise more than
what they are required by the owners. They must comply with the demands placed
upon them by society. Philip Kotler in his new book Corporate Social responsibil-
CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS ETHICS APPLICATION OF ...
77
ity, states that the global idea of corporate social responsibility grew into a worldwide
movement. However, society and the business world have gone a long way to the establishment and general acceptance of this new social and managerial paradigms.
1.1. The concept and meaning of corporate social responsibility
In the broadest sense of the denition, corporate social responsibility means that
the company takes responsibility for its actions in a social context, and is driven not
only by their own prots but also by its inuence on the environment, community,
employees, human rights, supply chain and market in general. (Metrovi; 2009 a,
p. 46) It is a very broad concept whose precise understanding and denition often
depends on the particular context. Krka (Krka, 2007, p. 224) pointed out that
sometimes the terms business ethics and social responsibility are used synonymously, and sometimes radically dierent. In other case business ethics relates to
the decisions of individuals or working groups whose decisions are assessed as being morally correct or incorrect, while the social responsibility refers to the broader
context, within which the totality of business in relation to the totality of society is
being assessed as morally correct or not. The analysis of dierent denitions leads to
the following constituent elements that reect the social responsibility of business:
(1) continuous and voluntary commitment of a company, (2) business practices
beyond the legal and ethical norms, and (3) the companys eorts to balance the
eects of business activities and interests of dierent stakeholder groups of society
in three dimensions, economic, environmental and social. (Ivankovi, 2010, p. 26)
Whether the concept of corporate social responsibility is observed in practice or in
theory, we can conclude that it is an interdisciplinary eld, which is within the economic entity cared by experts of various kinds, as well as being the point of interest
for researchers from dierent scientic disciplines. Since it is a strategic guideline
of operation, it is necessary to ensure involvement, dedication and competence of
high and senior management, with a special highlight to the importance of individual functions or departments, such as human resource management, supply chain
management, quality management, and marketing and its various components.
1.2. Socially responsible marketing as a prerequisite for corporate social
responsibility
The opinion is that CSR and marketing should be considered causally related,
because without social responsible marketing (as the dominant process, function,
policy and business philosophy), a company can not be considered socially responsible. In the extreme case, it would mean that company does not control all of its
78
eects (in this case, the eects of marketing activity) on the society and the environment. Furthermore, it is believed that socially responsible marketing strategies
should be the starting point of corporate social responsibility. (Ivankovi; 2010, p.
72) Many authors point out the connection of marketing and corporate social responsibility primarily due to the scope of marketing eects (marketing strategies are
directed not only to consumers but also to all other stakeholder groups) and longterm marketing orientation in terms of meeting the long-term socially positively
graded needs. It is believed that the concept of socially responsible marketing refers
to the commitment of the company to take care and strive to achieve a balance between meeting the interests of consumers, society as a whole (including the natural
environment) and the company, or a balance between economic, environmental
and social eects through marketing (philosophy and process). (Ivankovi, 2010,
p. 76) Corporate social responsible marketing has the necessary tools, models and
expertise to achieve the objectives of corporate social responsibility and promote
social responsibility within the company (internal marketing) and / or within the
value chain in which the company operates (supply chain management). Also important is the role of marketing in communicating (to the consumers and the general public) the achievements and contribution of the company to the sustainable
development and welfare of the community. Because of its integrative function, we
can say that it is a prerequisite for CSR.
2. ETHICS AN ECONOMIC ENTITY
Man wants his work to be appreciated and that through his work he is appreciated and respected. If we carefully study the ethics and codes of conduct and
consistently apply them, we can with certainty say that this will be achieved. Just as
there are general rules of conduct, the business world has its own rules of conduct
which should be followed. Business etiquette or the art of behavior is the smallest
possible investment which each employee of the organization can invest, primarily for himself because he himself becomes one of the decisive factors in achieving
successful business of the organization. Ethics is imposed as an unavoidable and
dominant area of activity within the organization. In order to perceive ethics as
science, and later on business ethics, we will rst clarify the meaning of the terms
themselves. Ethics is (greek Ethos = custom, habits, temperament), the science of
morality, its task is to familiarize us with the morality, its basic components, but also
take a critical position towards the existing moral practice. (Bebek & Kolumbi;
1983,p. 395.) Ethics is a philosophical discipline, related to morality, dealing
79
with the moral will and goals, and explores the origins and foundations of morality. (Bebek & Kolumbi; 1983,p.3.) Today, the ethics and morale are often used
synonymously, but these terms are dierent. Morality is one of the fundamental
ways of the human relationship to the world. Ethics on the other hand is the theory
or philosophical reection on this relationship. (ehok; 1997, p. 27.) Business
ethics is dened as a way of designing, assembling, communicating and conducting
simultaneous operations in accordance with the spiritual, social, biological and natural laws of man and environment or, more simply, business ethics can be explained
as a natural business management and business in harmony with nature. (ehok;
1997, str. 27.) Ethics have an increasing role in successful business operations of
the organization, not only in managerial positions in the organization, but at all
levels of sta hierarchy. The biggest problem of business ethics is the implementation of ethical principles in practice. Ethical / unethical behavior is the result of
multiple inuences. Ethical / unethical behavior the employee forms using his own
system of values, so its not only the organizations responsibility. Potential impacts
of the organization are reected in the code of ethics, culture of the organization,
role models, perceptions of pressure to achieve certain results and reward system or
otherwise, system of punishing employees. The behavior of employees is aected by
a number of cultural factors that an individual gained through family, education,
religion and the media, but also through political, legal and economic impacts. All
these inuences ultimately create ethical or unethical behavior of individuals. Why
is there unethical behavior in an organization? We will not get a a unique answer
to this question. There are many factors that encourage unethical behavior in the
organization. The most common factors to encourage such behavior include: (Fox;
2001, p. 117.) preference for short-term benets over long-term goals, the absence
of a written code of ethics, solving ethical problem quickly and supercially; unwillingness taking ethical attitude if it means additional costs, understanding of
ethics as a purely legal question, or part of public relations, lack of clear procedures
for resolving ethical problems ; compliance with the requirements of shareholders
at the expense of other stakeholders (consumers, employees, community).
2.1. Institutionalizing ethics
The institutionalization of ethics seeks to create a positive organizational environment that will encourage ethical decision-making of individuals and organizations
in general. By institutionalizing ethics we consider the development and application
of ethical codes and the establishment of ethical committees and teaching of ethics. Code of Ethics - Code is to establish basic guidelines for ethical behavior, set
80
up certain criteria, its own ethical principles or codes in order to achieve better and
more ecient operations. Rules relating to the area of ethics must be claried and
presented to all employees and accepted to become an integral part of work and
business. There are strongly placed so called rules of conduct and presented to each
employee to encourage ethical behavior within the organization. Code of Ethics
is trying to determine general principles (the principle of responsibility, honesty,
eciency, transparency, etc.), relations between business entities, the internal relations within the organization and the way of dealing with violations of the Code
(methods of sanctioning). These guidelines are intended for all employees and their
understanding is of the utmost importance for every individual, but also for the
collective as a whole, because the respect of ethical rules is aimed at achieving harmonious interpersonal relations and a maximum of employee satisfaction and the
organization as a whole. The Code of Ethics determines the attitude of the organization towards the following individual categories: basic fairness, compliance to the
regulations, workplace safety, conicts of interest, relations to employees, nancial
reporting, relations of the organization towards suppliers, pricing policy, contractual
relationships, handling of information, myth, political activities, caring for the environment. (Fox; 2001, p. 116.) Code of the organization related to ethics is based on
the following principles: (Fox, 2001, p. 116) principle of justice: every decision must
be based on truth, objectivity and consistency, the principle of individual rights: the
foundation of every decision must be to protect human rights; principle of utilitarianism: the decision must lead to promoting the greatest good for the greatest number of people. The Croatian Chamber of Commerce advises its members to accept
the rules of the Code: (www.hgk.hr) acceptance of the importance of responsible
and ethical behavior of business entities as necessary prerequisites for the ecient
functioning of markets and integration of the Croatian economy in the international ows, promoting the development of quality relationships and fair competition
among business partners and the business environment in which businesses operate, respecting the particularities of individual businesses and activities, emphasizing
the need for open public dialogue that will determine the basic ethical guidelines
as well as to encourage business people to make decisions for the benet of their
businesses and society as a whole, promoting the proper care for the environment.
Ethics Committee - in practice, much less frequent are ethics committees appointed
in organizations. Ethics Committee consists of internal and external directors, and
the basic functions are: (1) hold regular meetings to discuss ethical issues, (2) dealing with gray areas, (3) transmitting the Code to all members of the organization,
(4) verication of possible violations of the Code, (5) ensuring the implementation
81
of the Code, (6) rewarding implementation and punishing violations of rules, (7)
reviewing and updating the Code, and (8) reporting to the Board on the activities of
the Ethics Committee. (Weihrich & Koontz; 1994., p. 74.) Teaching ethics - nowadays unfortunately very rarely used. Factors that raise ethical standards - in addition
to institutionalizing ethics, the literature states several factors that raise ethical standards. Two factors that raise the highest ethical standards are: (1) public exposure
and publicity and (2) increased interest in well-informed public. Following them are
government regulations and education, to increase the professionalism of business
managers. (Weihrich & Koontz; 1994. str. 74.)
2.2. The application of ethics in economic entities of Croatia
Ethical business practice must come to life in practice in order to maintain on

the market and provide the basis of entrepreneurial freedom and competitiveness in
the post-industrial, global conditions. There are more and more companies in the
world which should serve as an example to domestic companies. The fact is that in
Western countries the ethics is increasingly taken into account by applying ethical
codes, organizing courses and employment of counselors. The introduction of ethics
in business is becoming more common in the European Union. The fear of immorality, corruption and fraud initiated the employers to protect the legacy of capitalism and free markets. Public opinion, which means consumers and shareholders,
starts strongly penalizing companies for frauds by the management, fraudulent data,
aws in environmental policy or non-compliance to social standards. (http://www.
manager.hr/defaul.asp?ru=111&gl=200511010000003&sid=&jezik=)
Today there is a stock valuation of ethical principles by which management is
conducted in the politics of corporate governance, protection of the environment
and social standards. Namely, the Dow Jones World Index introduced the Sustainability called DJSI World Index, which comprises three hundredths of companies,
a kind of leaders in ethical business. European DJSI Stoxx Index nowadays includes
about one hundred and sixty-seven such companies. The Croatian Chamber of
Economy has published the Code of Business Ethics and thereby encouraged all
economic entities on the Croatian territory by signing a statement of acceptance of
the Code accept its guidelines. All major economic entities in Croatia have codes
of ethics, which they follow and strive to improve. Taking care of business ethics is
a task of the government and the economy as a whole. Unfortunately, according
to international criteria, on the list comprising 159 countries, Croatia is in 70th
place. Business Ethics tackles all those involved in business operations, so we all need
82
to work on improving ethics in business. (http://laks.hr/index.php?option=com_

content&task=view&id= 25&Itemid=72) The Code of ethics in business in the Republic of Croatia was to the end of 2010. signed by 670 economic entities, and
the Community for Corporate Social Responsibility CCC brings together about a
hundred businesses. But it is important to note that the biggest problem of business ethics in the Republic of Croatia is implementing ethical principles in practice.
For ethical business are responsible all those involved in business activities, from
individuals, the economy in general and the state itself. Croatian Committee for
Business Ethics states: If a company is not ethical, it can not be responsible; therefore, ethics is a necessary prerequisite for the construction of a socially responsible
business environment.( http://laks.hr/index.php?option=com_content&task=vie
w&id=25&Itemid=36)
3. CORPORATE SOCIAL RESPONSIBILITY IN CROATIA
Recognizable CSR in the business community in Croatia corresponds with the

process of European integration, which began in 2001. with the signing of the
Stabilization and Association Agreement. A key event in Croatia - the rst national
conference on CSR (Agenda 2005.) held in December 2004. thus enabling the formulation of common priorities for the development of CSR in Croatia. (UNDP;
2007, p. 13) The purpose of the conference was to create the basis for the Croatian
campaign to promote socially responsible business - Agenda 2005. which will have
the following objectives: 1 Increase understanding of the importance of CSR in
the context of Croatian inclusion in the EU and raising competitiveness of the
Croatian economy; 2. Create an enabling environment for CSR, 3. Expanding the
scope of CSR in the following areas: working environment, supply chain and consumer protection, economy for environmental sustainability, community relations
and corporate management; 4. Increase the scope of knowledge on CSR. (http://
www.poslovniforum.hr/agenda/prijedlog_inicijativa.asp) When it comes to legislative and political framework for corporate social responsibility in Croatia it can
be said that some progress is visible in the past two decades. But also it should be
noted that this improvement mainly refers to the removal of barriers that previously
made it dicult for / or unmotivated the implementation of social responsibility in
business. With regard to direct measures to encourage socially responsible business,
we can conclude that they are still insucient. Also there is still a gap between the
declared strategy and existing laws. Extensive research of development and application of CSR in Croatia was conducted in 2007. within the project Accelerating
83
CSR practices in new EU member states and candidate countries as means for
harmonization, competitiveness and social cohesion in the EU, which was funded
by the European Union. The ndings of this research (shown in the gure 1) indicate that a systematic and structured approach to CSR is only at the beginning.
Companies with good CSR management practices are exceptions, but even they
do not have a uniformly high quality in all dimensions. CSR reporting practices
are carried out by one third of companies, with a big dierence in systematic and
coverage thoroughness. While the interest in the application of international standards for sustainability reporting is increasing, Croatian companies still do not
have a mechanism of verication of reports by independent professional authorities
and therefore it is not surprising that the verication dimension was bottom rated.
The development of management structures for CSR and the related quality of
performance were rated as very low, which is the main indicator that the shift from
spontaneous to a systematic approach to CSR has not yet occurred in the group of
the most successful Croatian companies. (UNDP; 2007, p. 37.)
Figure 1 The development of CSR in Croatia
Source: United Nations Development Programme (2007), Accelerating CSR practices in new EU member states and candidate
countries as means for harmonization, competitiveness and social cohesion in the EU, Report for Croatia, p. 37.
In December 2008. the market research agency Hendal conducted a survey

which polled 403 businesses. In the results of this study in particular the attention
84
is attracted to data that shows that even 44.2% of surveyed managers never heard of
the concept of socially responsible business enterprise. (Metrovi; 2009 b, p. 45.)
The results of this study indicate a relatively low level of theoretical knowledge of
Croatian managers on the concept of social responsibility. It can be assumed that
this is a consequence of the weakness of the educational system and a relatively
weak representation in the media. The lack of knowledge is evident from the high
percentage of responses do not know to the question on intent of involvement
in CSR and to the question on impact of CSR to the company image. The study
conducted in 2003. in Croatia established the 5 main benets of CSR from the
perspective of Croatian companies, which are: (Bagi et al., 2004, p. 27.) 1. Reputation management and risk management; 2.Operational eciency - reducing costs
while improving quality control methods and products themselves, 3.Recruitment
of new sta, motivating and retaining the workforce; 4.Access to Capital and Investor Relations, 5.Competitiveness and market positioning.
4. CONCLUSION
Economic entities should become more aware that the reputation of the organization is achieved by fair and long-term work with great sacrices and considerable
eort, and can be lost in just a moment by making hasty decisions. We conclude
that due to the still under-representation of corporate social responsibility and ethical conduct of Croatias economic entities, there is a need for substantial investment in the promotion of the same. Therefore, it is primarily necessary to provide
more intensive work with the media, in order to achieve the level of knowledge and
raising awareness on social responsibility and ethical economic entities. Corporate
Social Responsibility in Croatia is undoubtedly recognized by business leaders and
we conclude that the necessary conditions and a favorable climate for its wider application is slowly created. However a signicant gap between a few leaders (usually a
large export-oriented enterprises and enterprises with foreign ownership), and other
companies that make up the majority, is still evident. This gap is primarily caused by
dierences in available resources, but also the motivation for implementing and reporting on CSR. Also evident is the lack of systematic eorts by the state, especially
in the eld of concrete and transparent sanctions for malpractice, which are just as
necessary as incentives and rewards for positive steps forward. The role of marketing
is important in communicating (towards consumers and the general public) and due
to its integrative function, we can say that it is a prerequisite for CSR.
85
5. Literature
Bagi, A. et al. (2004.), Pregled drutvene odgovornosti poduzea u Hrvatskoj,

AED - Academy for Educational Development, Zagreb.
Bebek, B., Kolumbi, A. (2000). Poslovna etika, Sinergija d.o.o., Zagreb, ISBN
953-97944-2-0
ehok, I. (1997). Etika, kolska knjiga, Zagreb
Fox, R. (2001). Poslovna komunikacija, Hrvatska sveuilina naklada, Zagreb
Ivankovi, J. (2010). Drutveno odgovorna strategija marketinga i konkurentnost poduzea prehrambene industrije Republike Hrvatske, doktorska disertacija,
Sveuilite u Rijeci, Ekonomski fakultet, Rijeka.
Klai, B. (1983).: Rjenik stranih rijei, Nakladni zavod Matice hrvatske, Zagreb
Krka, K. (2007). Napomena: paradoks interesnog dionika i europska poslovna
etika, u: Uvod u poslovnu etiku i korporacijsku drutvenu odgovornost, Krka, K.
(ur.), Mate d.o.o/ZEM, ISBN 978 Zagreb.
Metrovi A. (2009) a, to je drutveno odgovorno poslovanje?, Poslovni savjetnik,
Tema broja - sijeanj: Drutveno odgovorno poslovanje.
Metrovi, A. (2009) b, Koliko su hrvatski manageri drutveno odgovorni?, Poslovni savjetnik, Tema broja - sijeanj: Drutveno odgovorno poslovanje.
United Nations Development Programme (2007), Ubrzanje praksi drutveno
odgovornog poslovanja u novim zemljama lanicama EU i zemljama kandidatkinjama kao sredstvo usklaivanja, konkurentnosti i drutvene kohezije u EU, Izvjetaj
za Hrvatsku.
Weihrich, H. & Koontz, H. (1994). Menedment, Mate, Zagreb
www. hgk.hr Access:(12-01-2011)
http://www.manager.hr/defaul.asp?ru=111&gl=200511010000003&sid=&jezi
k=1 Access: (15- 12- 2010)
http://laks.hr/index.php?option=com_content&task=view&id=25&Itemid=36
Access: (17- 12-2010.)
http://laks.hr/index.php?option=com_content&task=view&id=25&Itemid=72
Access: (10-1-2011.)
http://www.poslovniforum.hr/agenda/prijedlog_inicijativa.asp
2010.)
Pristup:
(10-4-
86
Mane Medi Igor Medi Mladen Panci
MARKETING DETERMINANTS OF BRAND

Prof.dr.sc. Mane Medi
Faculty of Economy in Osijek
31000 Osijek, Gajev trg 7, Hrvatska
Phone: +385 91 2244-047 Fax: +385 31 224-408
E-mail address:[email protected]
Mr.sc. Igor Medi
GPP d.o.o. Osijek, Faculty of Economy in Osijek
Phone: +385 99 206-4252 Fax: +385 31 224-408
Mladen Panci, dipl.oec.
Faculty of Economy in Osijek
Phone: +385 91 2244-092 Fax: +385 31 224-408
Abstract
Stemming from the new marketing paradigm, i.e. placing the emphasis in the
marketing campaign on the customer preference, the customers comprehension of
products and services which satisfy their needs is placed foremost.
Therefore, the notions of product, trademark, mark and brand are considered
and contrasted in the paper, i.e. the most common meanings of the aforementioned notions in the domestic and foreign literature are given.
Up until today, marketing has mainly been based on the product quality, trademark development and brand creation. The contemporary marketing starts more
frequently from brand creation, which is then added the characteristics of trademark, mark and product.
This paper is based on the conventional marketing theory postulates, those being the consumers needs and desires that must be satised, as well as stimulated by
87
the experiential and emotional aspect of the consumer-brand relationship viewed

through tendencies, lifestyle and motives governing the contemporary society.
Theoreticians marketing denitions review leads us to the conclusion that all
mainly abide, with minor modications, by the American Marketing Association
denition from the beginning of the 1960s in which the mark treatment is too
static and represented as the mere recognition device, whereas the contemporary
life talks of strategists aspiration in mark specicity, superiority and value creation,
as well as consumer identity and relationship creation.
Today, brands are owned by their manufacturers, whereas in the future they
will more frequently be owned by the consumers. The aforementioned statement
reminds us of the Walter Landor quote: Products are created in the factory, but brands
are created in the mind.
The majority of marketing theoreticians conclude their research with the mark;
something the authors of this paper are not satised with, but rather point to the
brand features as the foundations in dening marketing activity of contemporary
conceived companies.
JEL classication: M31, M37
Key words: new marketing paradigm, mark, trademark, brand, branding
Introduction
Stemming from the new marketing paradigm, i.e. placing the emphasis in the
marketing campaign on the customer preference, the customers comprehension of
products and services which satisfy their needs is placed foremost.
Therefore, the notions of product, mark and brand are considered and contrasted in the paper, i.e. the most common meanings of the aforementioned notions in
the domestic and foreign literature are given.
In the general atmosphere of Anglicisation not only of the marketing but other
areas as well, the term brand is used more frequent as a synonym of the term mark,
which, being the baseline of this paper, we cannot agree with.
Up until today, marketing has mainly been based on the product quality, trade
mark development and brand creation. The contemporary marketing starts more
frequently from brand creation, which is then added the characteristics of trademark, mark and product.
88
This paper is based on the conventional marketing theory postulates, those being the consumers needs and desires that must be satised, as well as stimulated by
the experiential and emotional aspect of the consumer-brand relationship viewed
through tendencies, lifestyle and motives governing the contemporary society.
Term denitions and controversies
Kotler and Keller believe that marks exist for centuries as means of individual
producers goods diversication. The earliest signs of mark creation in Europe appear in the Middle Ages when the guilds demanded that the artisans mark their
products with trademarks in order to protect themselves and the customers form
the lower quality products (Kotler & Keller; 2008, 274).
Consequently, the authors believe that the brands also represent a certain
quality levels which simplify the satised customers repeated purchase (Erdem;
1998, 131-157). Mark loyalty provides the company with anticipated demand
security and creates obstacles inhibiting other companies in entering the market
(Kotler & Keller; 2008, 275). Consequently, it may be inferred that the mark is
the element which creates a loyal customer faithful to certain marks.
Pavleks historical view of the marks role is that in the past, the mark was
considered rst and foremost, a product or service identication means which
guaranteed the promised performance or, so called, functional quality by the
manufacturer or the owner (Pavlek; 2008, 89).
We will begin the mark denitions review with Meler (2005, 278), whose
mark denition has foundations in Kotlers mark denition. By stating that the
mark serves the purpose of product identication, it places it with other advertising and promotion components, such as the economic agent title, trade mark
and mascot, faade colour and style.
Kesi (2003, 116) accepts the Aaker, D. A., Mayers mark denition stating
that mark is exclusive name and/or symbol (like logo, trademark or package
design) intended to identify products and services of an individual seller and
dierentiate them from competition.
Previi et.al. (2001, 297) dene mark similar to the aforementioned authors
and state that a mark is a name, sign, symbol, form or their combination enabling
the diversication of a single product (producer, country) from many others.
89
Rui et al. (2002, 118) identify the denitions of mark and brand and state
that brand is a name, term, sign, symbol, design or combination of all of the
above, the purpose of which is to identify product and/or service of an individual
manufacturer or seller towards other participants in the market.
Theoreticians marketing denitions review leads us to the conclusion that all
mainly abide, with minor modications, by the American Marketing Association
denition from the beginning of the 1960s in which the mark treatment is too
static and represented as the mere recognition device, whereas the contemporary
life talks of strategists aspiration in mark specicity, superiority and value creation,
as well as consumer identity and relationship creation. (Pavlek, 2005, 100)
Subsequent to the previously stated in relation to mark denition through contemporary references, we consider it important to emphasize that the only two
authors who do not refer to the modied AMA denition are Vraneevi in his
book Mark Management (Upravljanje markama) and Pavlek in his book Branding
how to construct the best mark (Branding - kako izgraditi najbolju marku). Although Vraneevi continues to use the term mark in his paper, he does not refer to
the 1960s term at all but rather to the contemporary mark. Under the term mark,
Vraneevi understands the title, symbols and all sensory perceptible stimuli related
to product and service features, as well as their functional or psychological utility
(Vraneevi, 2007, 10), also providing the denition stating that the mark is the
sum of all mental association people have as response to surroundings stimuli or in
short term, their attitude towards the product (Vraneevi, 2007, 11). The above
denitions tell us that for proper denition of a complex term such as the mark,
one must consider tangible and intangible values.
While Pavlek successfully irts throughout his book with terms mark, brand
and branding, where the aforementioned terms are sometimes used synonymously
and in other instances a great distinction is made, however unargumentatively,
unclearly, without providing a clear distinction between the terms mark, contemporary mark, trademark, brand and branding.
The proposed denitions of mark streaming from the AMA mark denition do
not reect contemporary consumer-mark and company-mark relations (Pavlek,
2008, 120). The above features are actually trademark, whereas the sign R represents a registered trademark.
A new connection is required because contemporary marketing demands a
new category of a mark that no longer satises the consumer needs and desires,
90
but rather creates emotional links to the consumer streaming from contemporary
mark-consumer relationship.
The Contemporary mark includes a signicantly broader number of values
than it is the case with the classical mark, trademark or product. The contemporary mark is signicantly more than that which can be registered and makes up
the system of elements and activity aecting the diversication, aection, loyalty,
connectedness, adornment of product on the part of the client. The clients are prepared to pay a larger price for such a mark rather than for an identical unbranded
(unmarked) product; or they are more likely to purchase a branded rather than
unbranded product (Vraneevi, 2007, 15). The manner in which the consumer
senses a mark becomes the key element of its diversity and subsequently a valuable
intangible company asset.
Mark treatment and creation has been in synced with the time and trends. At
that period, the mark was considered a feature of diversication, while the relationship towards the mark today has become ever so dynamic that even many authors
dealing with marketing cannot follow up (Pavlek, 2008, 120).
Today, mark has its own equity which is more related to psychological than it is
to functional added value. If we are to honestly answer the following questions: Is
a Rolex more accurate than a Citizen? Is the structure of a Mercedes of a superior
quality if compared to that of a Toyota? Is Pasta Barilla better than any other pasta?,
we come to a conclusion that as far as the technical, palpable, objective and other
similar features are concerned, there are not as many dierences as consumers and
customers want to see. The basic distinction is primarily on the level of perception,
the level of additional features oered by the product we are emotionally attached
to, we believe in, we trust to and we live with. Such an attitude towards the products
demands also an the individual product-consumer relationship that is no longer
satised by the classical understanding of a mark as a basic means of distinction but
the contemporary mark concept based on a belief, emotions and perception of the
very mark dependant on our experience, impressions and attitudes. The contemporary approach to the mark denition the term brand is used more frequently in
order to express the dynamic of the consumer relations, and trademark is associated
with the classical approach of feature identication (Pavlek, 2006).
Brand is not represented by a distinction mark. Rather, it is a cluster of values
that need to be displayed. Should that not be the case, then a brand is nothing more
but a name of some well promoted product and one that is bound to fail at the
reaching its nal destination the consumer (Predovi, 2007., 13).
91
Brand represents a group of tangible and intangible product or service features.

Tangible features include a logo, specic colour, package shape (Kirin; 2006) and
all other elements making up the advertising constants of a certain mark. When
we talk about intangible elements, we primarily refer to the sum of the consumers
irrational attitudes; emotions, associations and certain values developed by the consumer towards a brand that become evident through consumer-brand interaction.
It is the intangible part that is special and unique because one can feel indierence
towards a brand, one may fall in love with a brand, envy it, despise it, laugh at it,
admire it, depend on it, copy it, identify with it, be bored by it, be afraid of it, avoid
it, be proud of it, adore it... (Kirin; 2006); this includes many other features making up a very clear distinction between a mark, unable to do any of the above, and
a brand that is capable for all of the above.
Everything can be a brand and everyone wants to become a brand. A brand
can be soap, a brick, salt, coee, a newspaper, a beach, shoes, a person, a band, a
city, the government, a state; because all of the aforementioned have their own socalled functional qualities (structure, equipment, characteristics, purpose, appearance, duration), but may entail emotional connectedness (our attitudes, habits,
rst impressions, the manner of conduct) that make them a dierent and a unique
brand. Also, according to Shaun Smith, a brand represents a promise that must
be fullled in every part of the process beginning with asserted product quality,
which is then upgraded by good service and is nally acknowledged through the
consumers experience and attitudes created towards a product (http://www.suvremena.hr/10557.aspx).
In a contemporary environment, a brand becomes the highest equity of a company. However, unfortunately, our written discourse, practice and profession are
still far from the contemporary events occurring in the eld globally.1 By following
the contemporary trends in brand development, the managers of many multinational companies are trying to create and maintain a strong brand which is especially well thought through.
The consumers attitudes towards brand is best described and depicted by
Arnold:2 if you were to ask a consumer about a branded product, they will not
1
Pavlek, Z.: Suvremeni brand management (1),

12.02.2007.)
http://www.suvremena.hr/528.aspx (accessed
Pavlek, Z.: Suvremeni brand management (1), http://www.suvremena.hr/528.aspx (accessed

12.02.2007.)
92
mark it with a symbol, design and similar terms, but will rather use adjectives describing the brand quality. Brand is recognized and understood on an emotional
level and in such a way that many of its founders would be amazed. Davis3 adds
that: in general, the consumers do not have a relationship to a product or a service;
they want to have a relationship to a brand. For them, brand is a set of promises.
That includes trust, consistency and a set of expectations.
From all of the above it may be inferred that brand, as well as branding, is a
comprehensive process that does not only include labelling, titles or even quality per se, but rather a complete experience that a certain product stimulates in
the consumers consciousness. We are dealing here with an emotional relationship
based on quality, appearance and total identity of a product, which is nally formed
only in the human consciousness...4
Various brand value research indicates the superiority of the brand to the
mark, i.e. trademark; that is, its higher level because there is not a single mark
(name, design) that can measure the emotions and beliefs oered by the
brand. Similarly, Kotler claims that the brand equity measure represents the
level up to which the client is willing to pay more for a brand. That is substantiated by the research results according to which 72% of clients would pay 20%
higher price for their chosen brand (Kotler; 2006, 556). The higher price of
an ordinary generic product based on a brand is justied through rational and
emotional added value felt by the company employees and clients towards the
brand.
In place of conclusion
Presently, brands are owned by their manufacturers, while in the future they
will mainly be owned by the consumers. During the 1990s, brands achieved great
signicance which resulted in brand based sales. Brand achieved greater importance
than the physical dimensions of a product. Brand names started to appear on linen
and toothbrushes, on wallpapers and cosmetic products. Not counting the books
and movies, the consumer has become attached more to the brand than to the story
(Lindstrom; 2009, 13).
Pavlek, Z.: Suvremeni brand management (1), http://www.suvremena.hr/528.aspx (accessed

12.02.2007.)
4
http://www.suvremena.hr/10341.aspx (accessed 15.10.2009.)
93
The aforementioned is best acknowledged by Walter Landor The products are

made in factories, but brands are created in minds (Lindstrom; 2009, 13).
In the last couple of years, the domestic marketing experts seem to diverge in
claiming whether the terms mark and brand are synonymous or whether they
signify dierent notions. While some claim that the term marka represents a
translation of the English word brand, because despite the diversity of the Croatian language, it does contain a large number of foreign words. The term branding (Cro. brandiranje) corroborates this statement, because there is no adequate
translation; one possibility being stvaranje marke (mark creation). One of the
more precise denitions has been given by Pavlek in his book Branding, where
he claims: branding is a complex process of identity creation, diversity and mark
idea feature, its relevance for the consumers and signal management which communicates the idea to the consumers in order to make them feel, experience and
accept (Pavlek, 2008, 121). However, recently we are witnesses to the practice of
superimposing the term brand to the term marka, with what the authors of this
paper agree to an extent at the same time emphasizing the superiority of brand in
relation to mark through all its fundamental features; the basic one being belief.
Bibliography
Aaker, D. A. & Mayers, J.G. (1990.) Advertising management, Englewood Clis,

NY, Prentice Hall, Inc.
Erdem, T. (1998.) Brand Equity as a Signalling Phenomenon, Journal of Consumer Psychology, No. 2: 131-157.
http://www.landor.com/index.cfm?do=thinking.blog&post_id=24204&bhcp=1
(accessed 14th of February 2010)
http://www.suvremena.hr/10341.aspx (accessed 15th of October 2009)
http://www.suvremena.hr/10557.aspx (accessed 15th of October 2009)
Kesi, T. (2003) Integrirana marketinka komunikacija, Opinio, Zagreb
Kirin, A.: Brand mora biti oboavan, dostupno na http://www.nacional.hr/
clanak/28616/brand-mora-biti-obozavan (accessed 13 th of May 2009)
Kotler, Ph. & Keller, K.L. (2008) Upravljanje marketingom, Mate, Zagreb.
Kotler, Ph. (2006.) Osnove marketinga, Mate, Zagreb.
94
Lindstrom, M. (2009.): Brand Sense, M.E.P., Zagreb.

Pavlek, Z. (2008.) Branding Kako izgraditi najbolju marku, M.E.P. Consult,
Zagreb.
Pavlek, Z.: Suvremeni brand management (1), dostupno na
http://www.suvremena.hr/528.aspx (accessed 12th of February 2007)
Pavlek, Z. (2005.) Upravljanje proizvodom i markom i imbenici uspjeha na tritu,
dissertation, Faculty of Economy in Osijek, Osijek
Predovi, D. (2007.): Vrednovanje marke, Mate, Zagreb.
Previic, J. & Bratko, S. (2001.) Marketing, Sinergija, Zagreb.
Rui, D. &Tomi, Z. &Turkalj, . (2002.) Razmjenski odnosi u marketingu,
Faculty of Economy in Osijek, Osijek.
Vraneevi, T. (2007.) Upravljanje markama, Accent, Zagreb.
Wood, L. (2000) Brands and brand equity: denition and management, Management Decision, Volume 38., Number 9., p. 662-669.
ROADMAPPING AS A TOOL FOR NEW PRODUCT INTRODUCTION NPI ILLUSTRATED ...
95
ROADMAPPING AS A TOOL FOR NEW PRODUCT

INTRODUCTION NPI ILLUSTRATED BY THE EXAMPLE OF
THE SEMICONDUCTOR INDUSTRY
Gerd Grau
Master student, Department of Engineering, University of Cambridge, Trumpington Street, Cambridge CB2 1PZ, UK. From fall 2011 PhD student, Department of Electrical Engineering and Computer
Science, University of California, Berkeley, Berkeley, CA 94720, USA.
Email: [email protected]
Abstract
When considering New Product Introduction (NPI), one has to analyse very
dierent activities ranging from strategic decisions down to the implementation
on the project and work package level. This makes it such a challenging and complex process. This article summarises some of the techniques that can be used in
NPI projects highlighting diculties such as the fact that customers often cannot
anticipate a truly innovative product that does not exist yet. Roadmapping is one
technique for strategic NPI. This is analysed in detail taking the semiconductor
industry as an example. The International Technology Roadmap for Semiconductors (ITRS) has been instrumental in sustaining the growth of the semiconductor
industry over the last decades according to Moores Law. Competitors come together to formulate the aims of the whole industry since they all benet from the
health of the industry and standardised equipment. However, one could also see
the ITRS more critically as a gate-keeper for established companies. With classical CMOS reaching its limits More-than-Moore (MtM) could become the new
paradigm in addition to More Moore. Whether a similar Roadmapping success
will be possible is discussed using ve criteria, which are not only interesting for the
semiconductor industry but for any other industry that considers such a roadmapping exercise.
JEL Classication: M51, L21
Keywords: semiconductor industry, roadmapping, product introduction
96
Gerd Grau
1 INTRODUCTION
New Product Introduction (NPI) is a very challenging and complex process. It

consists of a large number of individual activities or steps that need to be mastered.
However, these activities also need to be coordinated and the work of dierent experts needs to be brought together to create a technically and economically successful product. Two main levels can be dierentiated: Strategic planning and practical
implementation of these strategic goals. The rst step has to be the identication of
possible future technologies and markets and a strategic decision about which technology paths to pursue. The resulting engineering, manufacturing, marketing, sales
and service work needs to be managed to meet cost, time, quality or other goals.
This process is often iterative, even though engineers would often like to think in
more linear terms. This report will describe the main challenges and techniques
used to control these two levels. In some cases individual companies research strategies also depend on the industry they operate in. The semiconductor industry
is taken to explore a very successful example of industry wide roadmapping. The
International Technology Roadmap for Semiconductors (ITRS) was crucial in following Moores Law for the past decades. However, fundamental limits are being
reached at the moment and there are plans to integrate non-digital devices with
standard CMOS circuits. This makes it a very interesting and challenging case of
technology management at the moment.
2 ISSUES AND METHODS FOR NPI
2.1 Strategic Planning
The question that has to be asked at the beginning of any NPI process is: What
kind of product will be introduced? This immediately relates to questions such as
Is there a market for a certain product?, What kind of technology shall we use?,
Do we have the capability to pursue this technology or how can we acquire it?.
There is a myriad of variables that will determine the answers to these and other
questions. Decisions will be dierent in large corporations and in small start-ups,
in mature and in emerging markets or for investment intensive technologies and
for technologies that require less initial investment. It is therefore very dicult to
have any generic answers. The other main problem with strategic planning is the
fact that predictions of the future are required. This is naturally a process with a
large degree of uncertainty. There are some general methods to help managers with
these dicult decisions.
97
Fig 1 S-curves for dierent lithography technologies in semiconductor processing (Bowden 2004)
The performance evolution of many technologies follows an s-curve trend. They
initially take some time to take o during which performance improves only slowly.
Once a certain critical mass is reached some rapid progress can be made. This
slows down as a product matures and technical or fundamental physical limits are
reached. At this point another technology might take over. Fig 1 shows a set of
s-curves for dierent lithography technologies for semiconductor fabrication. It is
very important for managers to know that this general trend exists. The main challenge is to know which part of the s-curve a technology is on. Switching to a new
technology makes most sense shortly before the take-o of the new technology and
when the old technology is suciently matured. In investment intensive industries
companies will try to extend the lifetime of a technology for as long as possible to
reduce the need for reinvestment. It is thus crucial to know whether a technology
has really reached its fundamental limits or whether the limit reached is merely of
an engineering nature that can be overcome.
One way of anticipating the evolution of a technology is roadmapping. Experts
on a technology come together to predict how this technology will change in the
future. They consider dierent possibilities and try to identify the most likely outcomes. They determine the necessary technological advances that need to be made
to reach a certain goal. Ideally this should map out the technological path a com-
98
Gerd Grau
pany is going to take in the future. There is of course still considerable uncertainty
in this process. Breakthroughs in fundamental research can always occur that prove
a previously insurmountable technological barrier to be a mere engineering challenge. Equally likely previously unknown physical limits can halt progress. These
uncertainties can only be minimised by trying to get the best expertise possible.
Roadmapping has been employed in a wide variety of sectors ranging from semiconductors (ITRS 2009) to construction (PATH 2003).
Besides the uncertainty associated with technology and the underlying science
there is considerable uncertainty associated with the market. It is crucial for a company to not only create an innovative product but also to make a prot from it.
If there is no market for a product, the producing company will have a severe
problem. How well the market for a new product can be predicted depends to a
large extent on the degree of innovation. For only incremental innovations market
trends can be extrapolated from the past. This cannot be done with radically new
products where there is no previous experience to build on. Market experts can still
be asked for their evaluation of the new market, but it gets less reliable the more innovative the new product. The classical solution is market research simply asking
the potential customers about a future product. However, customers cannot always
anticipate a product that does not exist yet. In such cases managers have to rely on
all the information they have got and ultimately their judgement. This will separate
mediocre from truly great, visionary companies. A case where major corporations
such as GE, IBM, Kodak and RCA failed at this was the photocopier. They could
not imagine that this technology, which was in its infancy, would be able to replace
carbon copying (Gehani 1998, p.92).
However, even if a potential market has been identied and if the technology seems to be in reach, there are still plenty of strategic decisions to be made.
An important question is whether a company wants to lead the market or rather
follow the innovator. This decision mainly depends on the potential benets for
innovators and the associated risks. Threshold and network eects can mean that
it will be much easier for the innovator to increase its market share than for followers. Intellectual property can also give the innovator a crucial advantage. However,
these benets can be outweighed by a high degree of risk, in which case it can be
sensible to wait and learn from the innovators mistakes. The larger and nancially
stronger a company, the easier it will be to catch up with a smaller start-up. Such
large corporations can adopt a more conservative approach. For example Texas Instruments and Hewlett Packard were able to push into the pocket calculator market
99
that had just been started by the small specialist company Bowmar/ALI Inc (Teece
1986, p.286).
2.2. Practical Implementation
Fig 2 Triangle of conicting project aims: Cost, quality, time (Lock 2007, p.21)
In addition to the dicult strategic decisions on whether, how and when to
pursue a new technology the implementation of these decisions is also crucial. In
the UK only 23% of all new products in 1993 were introduced on time (The 1993
Manufacturing attitude survey). This shows how dicult it is to perform a NPI
project to specication. The other main project performance criteria are quality and
cost. Unfortunately these three targets are conicting and a compromise needs to
be found (see Fig 2). In order to optimise the project outcome there are a number
of well established project management practices. The project work is rst broken
down into tasks, work packages and activities (Caupin et al. 2006, p.56). Network
diagrams (e.g. PERT diagram) are then used to evaluate the dependencies between
work packages and to create a preliminary schedule (Richman 2006, p.89 .). Real
time and resource constraints then need to be taken into account. A responsibility
matrix can be used to assign work packages to people or positions in the organisation (Motzel 2006, p.215). This is a very simplied description of the real project
management process. The real process usually isnt linear but iterative.
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Gerd Grau
NPI projects utilise the above methods just as any other project. However, there
are also more specic problems and solutions. One challenge in NPI projects is that
a variety of dierent departments are involved ranging from marketing over basic research and development to sales and service. Good communication between
these dierent experts is crucial. Everyone needs to be aware of the consequences
of his decisions for the work of the others. It is important to have good communication not only when the product moves from one sub team to the next but also
throughout the project until after launch. Cross-functional, co-located teams serve
this purpose. This is ideally embraced by top management and the culture of the
organisation. Project managers should have knowledge of as many of the projects
aspects as possible. Ideally they should have had training in both engineering and
business aspects.
Another problem of NPI is the associated uncertainty. Projects often start with
a number of dierent ideas that need to be narrowed down and concretised as the
project goes along. The stage-gate process can be utilised to ensure this. The project is divided into several dierent phases. At the end of each phase it is checked
whether the project team has completed the phase as planned. This check needs to
be performed by outsiders who are not members of the project, ideally members
of the top management. It has to be ensured that this process is not merely seen as
a compulsory exercise without any real benet for the project (Tennant & Roberts
2001). There are other techniques for the NPI project such as control of the fuzzy
front end or having a process improvement team (PIT) that cannot be explored in
detail here due to space constraints. Energex is an example of a company with a
working NPI process utilising these dierent concepts including cross-functional
teams and stage gates (Mahadevan 2010, p.204 f.).
3 EXAMPLE FOR INDUSTRY WIDE ROADMAPPING: SEMICONDUCTOR IN
DUSTRY
The semiconductor industry is one of the most successful industries at the above
described technology forecasting and research planning not only on a company
but also on an industry wide level. They have managed to follow Moores Law for
the last decades. This is a remarkable achievement. In 1965 Gordon Moore predicted that the number of components per integrated function would increase
exponentially for digital applications (Moore 1965). This Law was initially only
an extrapolation of an empirical trend. The reasons for the persistence of this trend
and the potential future of it are explored here drawing mainly from two sources
101
the latest International Technology Roadmap for Semiconductors (ITRS 2009)

and the More-than-Moore White Paper (Arden et al. n.d.).
3.1 Successes in the Past
One of the key factors in maintaining Moores Law for such a long period is the
ITRS. It goes back to the rst US National Technology Roadmap for Semiconductors (NTRS) in 1992. Nowadays it is sponsored by the leading chip manufacturers
of the world via their regional organisations. This is coordinated by the International Roadmap Committee (IRC). As semiconductor performance increased exponentially so did the required investment and technical complexity. In terms of
s-curves this could have resulted in an eventual levelling o. The NTRS and later
the ITRS were a successful attempt to prevent this. The necessary research goals
and technological steps to continue Moores Law were laid out. The character of
this was that of a challenge for the involved engineers to nd the necessary solutions. It helped focus the research funds of industry, government agencies and universities on the most important problems. It contained dierent condence levels
for the viability of dierent potential solutions to any problem. However, overall
condence in the success of the industry was immense. Moores Law thus became
a self-fullling prophecy. It led to the ITRS, which in turn led to the continuation
of Moores Law.
A remarkable feature of the ITRS is its industry wide scope. Competitors come
together to formulate the aims of the whole industry. Companies realised that they
prot individually from the health of the ecosystem that they operate in. There is
still plenty of competition between individual companies on how their integrated
circuits are used and on detailed technological solutions. The ITRS considers a
timeframe of 15 years. This gives everyone in the industry including suppliers of
manufacturing equipment planning security for their R&D investments.
A more critical view of the ITRS would see gate-keeping as one of its main functions. Disruptive technologies are not embraced to protect the current main stream
technology (Walsh 2004). This is always the case for any standard. Those setting
the standard will try to limit it to their own solution. This is only natural and the
outcome has been very benecial for the whole semiconductor industry. However,
now that limits of traditional scaling are being reached, more disruptive solutions
are also considered.
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Gerd Grau
3.2 Emerging Challenges
Traditional Moores Law scaling was a rather one-dimensional process. The goal
of every technology node was the miniaturisation of a critical dimension such as
the transistor gate length. This increases density and speed and saves power. Unfortunately pure geometrical scaling becomes increasingly dicult. Fundamental
limits are being reached. For example silicon dioxide as the gate dielectric becomes
too thin to prevent electrons from tunnelling through it into the channel. These
problems can be solved to a certain extent by so-called equivalent scaling. Geometry and material changes can have the same eect in terms of performance increase
as classical scaling without the decrease in a critical dimension. The most recent
versions of the ITRS have thus abandoned the concept of a technology node. There
are now more parameters than just a critical dimension to describe a new technology generation. Future generations of digital circuits might also change more
radically replacing classical complementary metaloxidesemiconductor (CMOS)
technology with concepts such as spin as the new state variable. This paragraph
shows how dicult it is to discuss technology management without a fundamental
understanding of the technology, because technical issues are always one of the key
drivers and it can get very technical very quickly. A good introduction to the topic
can be found in (Streetman & Banerjee 2005).
These technological changes dont only change the focus of the roadmap but
also create interesting business questions. A number of dierent CMOS generations exist nowadays. Migrating from one to the next involves considerable investment. This is done as soon as possible for high performance products such as
computer processors. However, the increased cost might not be justied for less
demanding products. For an individual company this is just a question of return on
investment as with any other investment. However, this has consequences for suppliers and equipment manufacturers as well. They need to support technology at
the leading and the trailing edge and anywhere in between. A similar problem is the
migration to a larger size of wafers. Companies are currently considering the move
from 300mm to 450mm wafers. This is necessary to reduce production cost and
cycle time signicantly. However, the required investments are reaching staggering
dimensions. For the last transition to 300mm wafers only investments of around
$4 billion resulted in fabrication plants large enough to create the anticipated productivity gains. The next transition will require even larger investments. Another
problem is the long lead time needed between the decision to start work on a next
generation of wafer size and the start of production. This took seven years for the
103
last transition. Increasing coordination between dierent chip manufacturers and

equipment suppliers is required to ensure that the transition occurs at the right moment in time for all companies involved. The last transition saw the introduction
of industry wide standards for some equipment. It will be interesting to see what
kind of new technology management solutions will be found by the industry for
the 450mm migration.
3.3 Generalisation of Roadmap to a New Paradigm: More-than-Moore
Because of the increasing diculties with traditional More Moore and advances in other elds a new paradigm is being investigated by the semiconductor community: More-than-Moore (MtM). This encompasses the integration of
not only digital circuits, which are the focus of More Moore, on semiconductor
chips but also other applications such as analogue circuits, biochips or microelectromechanical systems (MEMS). These dierent devices dont compete but rather
complement each other. CMOS acts as the brain of the chip whilst the MtM
components provide interfaces to the outside world or other functions not possible
with pure CMOS. There is also considerable interest in micron scale technologies
that utilize fabrication techniques very dierent from standard silicon processing
and that have a very dierent cost structure such as printed electronics. The most
interesting question regarding MtM apart from the technical viability is whether a similar roadmapping success will be possible as for CMOS. The IRC Morethan-Moore White Paper (Arden et al. n.d.) identies ve criteria for a successful
industry wide roadmap. This is not only interesting for the semiconductor industry
but for any other industry that considers such a roadmapping exercise:
- The rst criterion is the existence of a clear gure of merit. The whole
roadmap is aimed at optimising some gure of merit. For digital circuits feature
size was accepted by everyone in the industry as the key driver for higher transistor
densities, lower power consumption and lower cost. Dierent MtM devices with
dierent functionalities will have dierent gures of merit. The industry rst needs
to agree on the specications for these dierent gures of merit before any roadmapping process can begin.
- The second criterion is the industry wide agreement on a law of expected
progress. Moores Law is the widely accepted trend that everyone in the semiconductor has condence in. Such a general overarching trend is more dicult to nd
if dierent applications require dierent trends. For example dierent sensor appli-
104
Gerd Grau
cation could emphasise either sensitivity or speed. Digital circuits are also used in
very dierent applications, but Moores Law covers the requirements of all of these
dierent applications.
- A wide applicability of the technology is the third criterion. The eort
of the roadmapping process is only justiable for big enough markets. The key to
creating an industry of comparable size to the traditional semiconductor industry
is the identication of functionalities that are shared between dierent markets and
applications so that the same device can be re-used and considerable eort can be
put into optimising it. This has been a major factor in making the global semiconductor industry a $226 billion sales industry in 2009 (Semiconductor Industry
Association 2010).
- Fourthly there needs to be a willingness to share information. Companies
have to believe that the benets will outweigh the lost advantage of secret information. There still has to be room for competition apart from the common ground
agreed on in the roadmap. The ITRS achieves this balance by agreeing on the
common goal of miniaturisation and rough paths to achieve it. Detailed processes,
however, are well kept trade secrets. Companies also build integrated circuits for
very dierent applications and have dierent business models. For instance ARM
and Intel both sell processors, but for dierent ends of the cost, performance and
mobility spectrum. Intel invests huge sums into its fabrication plants whilst ARM
is a fabless semiconductor company outsourcing production.
- The last requirement is an existing community. There needs to be an awareness of the other players in the area to initiate the roadmapping process. This can
be a problem especially if a diverse set of markets is targeted by dierent companies
that still provide a similar functionality. Personal contacts and trust are very helpful
in establishing any form of cooperation between competing companies.
These ve criteria now need to be applied to potential devices and functionalities to evaluate where a roadmapping exercise makes sense. The latest ITRS already
contains a section on Radio Frequency and Analogue-Mixed Signal Technologies
for Wireless Communications. It will be interesting to see how many other areas
will follow and whether the semiconductor industry will be able to repeat its past
successes or whether this was a unique stroke of luck in the history of technology
management.
105
4 CONCLUSIONS
New product introduction is such a challenging process because of its wide

scope. It spans very dierent activities from strategic decisions down to the implementation on the project and work package level. Each individual level is challenging but they need to be brought together to make a new product successful. This
report investigated a number of problems met in NPI processes and methods for
solving them.
The example of the semiconductor industry was taken to explore one aspect of
NPI processes in detail: strategic technology forecasting on an industry wide level.
The International Technology Roadmap for Semiconductors was identied as a
major success factor in sustaining Moores Law for decades. Current challenges
and new opportunities in the More-than-Moore regime were discussed. It will
be exciting to see how the semiconductor industry copes with these challenges and
whether its successes with classic More Moore can be repeated.
References
Arden, W. et al. eds., More-than-Moore White Paper. Available at: http://www.

itrs.net/Links/2010ITRS/IRC-ITRS-MtM-v2%203.pdf.
Bowden, M.J., 2004. Moores Law and the Technology S-Curve. Current Issues in
Technology Management, Stevens Alliance for Technology Management, 8(1).
Caupin, G. et al. eds., 2006. ICB IPMA Competence Baseline Version 3.0, Nijkerk
NL: International Project Management Association.
Gehani, R.R., 1998. Management of Technology and Operations, John Wiley &
Sons.
ITRS. International Technology Roadmap for Semiconductors, 2009 ed. Available
at: http://www.itrs.net/Links/2009ITRS/Home2009.htm.
Lock, D., 2007. Project Management 9th ed., Aldershot: Gower Publishing
Limited.
Mahadevan, B., 2010. Operations Management: Theory and Practice 2nd ed., Pearson India.
Moore, G., 1965. Cramming More Components onto Integrated Circuits. Electronics, 38(8), pp.114-117; reproduced in Proceedings of the IEEE, 86, 82-85
(1998).
106
Gerd Grau
Motzel, E., 2006. Projektmanagement Lexikon 1st ed., Weinheim: Wiley-VCH.

PATH, 2003. Technology Roadmapping for Manufactured Housing. Available at:
http://www.pathnet.org/sp.asp?id=7351.
Richman, L., 2006. Improving Your Project Management Skills, New York: American Management Association.
Semiconductor Industry Association, 2010. Industry Fact Sheet. Available at:
http://www.sia-online.org/cs/industry_resources/industry_fact_sheet
[Accessed
January 5, 2011].
Streetman, B. & Banerjee, S., 2005. Solid State Electronic Devices 6th ed., Prentice
Hall.
Teece, D.J., 1986. Proting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), pp.285305.
Tennant, C. & Roberts, P., 2001. A faster way to create better quality products.
International Journal of Project Management, 19(6), pp.353-362.
The 1993 Manufacturing attitude survey. Management Summary, Initiated by
Computervision, Undertaken by Benchmark Research, January 1993 (As cited in
Tennant & Roberts 2001).
Walsh, S.T., 2004. Roadmapping a disruptive technology: A case study: The

emerging microsystems and top-down nanosystems industry. Technological Forecasting and Social Change, 71(1-2), pp.161-185.
HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL TECHNOLOGY VENTURES?
107
HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL

TECHNOLOGY VENTURES?
A PROCESS AND ACTIVITY BASED APPROACH
Sonja Keppler and Timo Keppler
Comenius University Bratislava, Faculty of Management
Abstract
Venture capital decision-making has been in the focus of researchers since the
1970s, but mainly focused on decision-making criteria applied by venture capitalists. So far, only few researchers tried to investigate the decision process and activities performed by venture capitalists to evaluate new ventures. There is also a lack of
research taking into account the industry focus of venture capitalists and investigating the evaluation of new ventures belonging to a certain industry.
JEL classication: G24
Keywords: Venture capital, decision making, distinct investment process, deal
generation, screening , evaluation, cashing out or exit.
Introduction
Venture capitalists (VCs) are specialized nancial intermediaries allocating funds

to mostly young, growing companies that have developed new and outstanding
technologies or business models promising fast growth and high returns. VCs have
to make their investment decisions under a high degree of uncertainty. Technology
start-ups are dicult to evaluate since they do not have a track record, which outsiders can use to evaluate their potential, they are often years away from revenues,
their assets are mostly intangible and they are plagued by a high failure rate (Haeussler et al.; 2009, p. 4). VCs therefore spend a great deal of eort and time in assessing a ventures potential for success. They apply a set of specic criteria that need to
be fullled by a venture, and use sequential steps in their investment process.
So far, researchers only identied generic criteria, activities, and investment
processes covering all industries (e.g. Tyebjee and Bruno 1984; Fried and Hisrich
108
Sonja Keppler Timo Keppler
1994; Hall 1989; Silva 2004; Klonowski 2007), although criteria, activities and
processes might vary depending on the industry the fund-seeking company belongs
to. Industry-specic knowledge also seems to be crucial for successful VC investments (Gompers et al.; 2006, Norton and Tenenbaum; 1993). This research shall
help to identify industry-specic process steps and activities by analysing ve case
studies of investment proposals from the medical technology industry that were
evaluated by a Swiss VC rm between 2008 and 2010. The medical technology
(medtech) industry is in the focus of many VCs as it has shown stable growth
rates in the past and is expected to grow continuously in the future, main reasons
being the demographic development of the population in highly developed societies, the improved medical treatment in emerging countries and the technological
progress allowing better treatment and diagnosis of diseases. This research starts
with deal origination and covers the decision process till the investment is made or
the deal is rejected. Post-investment activities and exit are not covered.
Research on the VC Investment Process
VCs apply a distinct investment process consisting of a number of stages (Wells;

1974; Tyebjee and Bruno; 1984, Hall; 1989, Fried and Hisrich; 1994, Boocock
and Woods; 1997, Bliss; 1999, Klonowski; 2007), ranging from a ve-stage process (e.g. Tyebjee and Bruno; 1984, p. 1051) to a nine-stage process (Klonowski;
2007, p. 361). The investment process starts with the deal origination and ends
with the closing of the investment or the exit/cashing out, depending on the
researchers focus. The assessment of investment proposals comprises at least two
stages of the process: screening and evaluation / due diligence. The stages on which
the majority of the scholars are in agreement can be described as follows:
(1) Deal generation relates to establishing good sources of referrals that will
provide prospective investment opportunities. VCs are actively working on creating a network of referrers and make themselves known to companies through the
internet and membership in industry associations. A great number of deals are
received cold, i.e. without any introduction (Fried and Hisrich; 1994, p. 31).
(2) Screening involves a precursory review of an investment proposal. It involves a perusal of a proposals executive summary and/or business plan to determine whether a closer evaluation is worthwhile (Hudson and Evans; 2005, p.
3). Many VCs have rm-specic criteria on investment size, industries, in which
109
they invest, geographic location of the company, and stage of nancing1. Proposals
passing through the rm-specic screen undergo a generic screen based on the
reading of the business plan (Fried and Hisrich; 1994, p. 32). Most proposals are
rejected at this stage (Dixon, 1989, p. 339) without investing too much time. A
GO /NO-GO decision is reached in an average of less than six minutes on initial
screening and in less than 21 minutes on proposal assessment (Hall and Hofer;
1993, p. 25).
(3) Evaluation involves a greater scrutiny of the business plan, a detailed evaluation of the investment proposal and due diligence. However, VCs gather additional
information about the proposal, meet the management to develop a thorough understanding of the business and to assess the managements understanding of the
industry. Furthermore, VCs check references of the management, contact existing
and potential customers and do formal market studies. A technology assessment is
either done by experts aliated to the VCs or by the VCs themselves. Additional
sources of information are other VC rms (also in the context of syndication) and
existing portfolio companies active in the same industry as the fund-seeking company (Fried and Hisrich; 1994, p. 34). VCs maintain networks including other
VCs, university and research establishments, nancial institutions and consultants,
which are frequently used as sounding boards for information produced by management teams. These are a rich source of relevant information and help reducing
uncertainty surrounding the proposal under evaluation (Sweeting; 1991, p. 613).
(4) Deal structuring and Closing occurs after the VC has decided to proceed
to invest in a company. It includes the valuation of the company determining the
VCs equity stake in the company (Hudson and Evans;2005 ,p. 4). Usually, a Term
Sheet is presented to the entrepreneur, summarising the terms and conditions of
the deal. Conditions presented to the entrepreneur are designed to mitigate the
VCs risk and to align the entrepreneurs behaviour to the interests of the VC,
which are, overall, to increase the company value. One means of structuring is a
milestone-based payment of the funds, i.e. funding is not paid in a lump sum, but
is only released if the company achieves predetermined targets (Trezzini; 2005, p.
303). When the due diligence is successfully completed, the nal investment contracts and the shareholders agreement are signed. This is referred to as Closing.
1
Stages of venture nancing are usually referred to as seed, start-up and expansion phase, which is
divided into rst and second stage (Schefczyk, 2004)
110
(5) Post investment activities: include the VCs involvement with its investee
company. This may include site visits, mentoring, monitoring, raising additional
capital, providing strategic advice and representation in the companys board of
directors (Hudson and Evans; 2005, p. 4). VCs also provide their portfolio companies with organizational resources such as helping in building internal accounting
and reporting systems, key account management systems, and incentive schemes
(Achleitner and Fingerle, 2004, p. 14-15). VCs play an important role for the
development of the start-up rms, not only providing capital, but also support in
building up human resources and choosing a new CEO, even if this often means
that the founder of the company has to leave (Hellmann and Puri; 2000, p. 25).
(6) Cashing out or exit involves the VC divesting its investment to obtain an
economic gain. VCs play an active role in directing and assisting a company towards a merger, trade sale, initial public oering or other exit strategies (Hudson
and Evans; 2005, p. 4). One exit option has not been mentioned by any researcher,
but very often occurs in practice: If a company does not develop favourably, the
VCs exit is to depreciate the investment if he/she does not see a chance to sell it to
make it develop successfully. According to data presented by the European Venture
Capital and Private Equity Association (EVCA), European VCs divested EUR 11.1
billion in 2009 thereof EUR 4.0 were write-os (EVCA; 2010, p. 76).
The investment process is time-consuming and labour intensive. It takes on
average 97.1 days (s.d. = 45.0) for an investment to pass through the process from
deal origination till closing. On average the lead investor for a funded proposal
spends 129.5 hours (s.d. = 99.8) (Fried and Hisrich; 1994, p. 31).
The strongest disagreement among scholars is on the process steps performed between the initial screening and the closing of the investment. Table 1 gives an overview on the process stages described in prior studies. Klonowski (2007) also includes
the documentation used, the approval process, and the VC rms decision bodies.
Research on VC Investment Criteria
Substantial research in the US has identied four main categories of information

that are crucial to the VCs investment decision: 1. Entrepreneur / team capabilities, 2.
Product / service attractiveness, 3. Market / competitive conditions, and 4. Potential
returns if the venture is successful (Poindexter ;1976, Tyebjee and Bruno; 1984, Mac-
111
Millan et al.; 1985, Hall and Hofer; 1993, Bachher; 2000)2. Some studies researched
the decision process and the decision criteria, and found that criteria and their importance vary according to the stage of the decision process (Tyebjee and Bruno; 1984;
Fried and Hisrich; 1994; Sweeting; 1991; Boocock and Woods; 1997; Silva; 2004).
Table 1: The VC Evaluation Process

Tyebjee
& Bruno
(1984)
Deal
Origination
Silver
(1985)
Hall
(1989)
Generating a deal
ow
Proposal
Screening
Fried & Hisrich

(1994)
Boocock and
Woods (1997)
Bliss (1999)
Klonows-ki
(2007)
Origination
Generating a
Deal Flow
Origination
Deal Generation
Generic
Screen
Initial
Screening
Feedback from
Investment
Committee
(Due Diligence
Phase I)
Feedback
from Supervisory Board (DD
Phase I)
Pre-Approval
Completions
Formal Approvals and DD
Phase II
Deal
Completion
Process
Step
Wells
(1974)
Search
Screening
Screening
Initial
Screen
Proposal
Assessment
Generic Screen
Evaluation
Evaluation
Project
Evaluation
First-Phase
Evaluation
Due
Diligence
Second-Phase
Evaluation
Due Diligence
Deal
Structuring
Deal
Structuring
Deal
Structuring
Closing
Closing
Post
Investment
Activities
Monitor
Progress
Venture
operations
Ongoing
Monitoring of
Investments
Monitoring
Cashing
out
Cashing
out
Cashing Out
Exit
Venture
Board
meetings
Venture
Operations
Cashing
out
Search
Due
Diligence
Deal
Structuring
VC-Firm
Specic Screen
Initial
Screening
First Meeting
with the rm
Second Meeting with the
rm
Presentation
to the Board of
Directors
First-Phase
Evaluation
SecondPhase
Evaluation
Sources: Hall & Hofer 1993, Table 2, p. 28; Fried & Hisrich (1994); Boocock and Woods (1997); Bliss (1999); Klonowski (2007)
Methodology
The objective of this exploratory study was to gather information on the VC

decision-making process from a process perspective and to shed light on the ac2
For a detailed overview over all studies since the 1960ties on VC investment criteria, see Khanin et
al. (2008).
112
tivities performed by the VC when evaluating a medtech venture. Therefore ve

case studies of medtech ventures evaluated between 2008 and 2010 were analyzed.
All cases were taken from a Swiss venture rm focusing on medtech ventures in
the market entry phase (rst stage) in Switzerland and Germany. All cases were
evaluated in detail, two reached the due diligence phase, and one company nally
received funding.
One of the authors was a member of the investment team and had access to all
documents received and produced during the process, such as e.g. business plans,
investor presentations, and internal proposals to the investment committee. In addition, the author attended all meetings with the management, the investment
team and the investment committee and joined visits at the company. In all cases
the evaluation of the venture was done by the author herself. This methodology
may on the one hand be subject to a certain self-reporting bias, but on the other
hand, it allows insights into the process that could not be gained by any external
researcher.
The evaluation process itself had been dened by the VCs investment team and
had been laid down in writing. Thus, the ve case studies also followed this process. For the present research, in a rst step, all written documentation (including
e-mail communication) was reviewed and sorted chronologically in order to allow
an assignment to a particular process step. Then the activities performed to generate this documentation (e.g. reports on visits on site, documentation of reference
calls) were assigned to the respective process step. In a second step, all documented
internal meetings and decisions were listed in chronological order to lter out decision criteria. The case studies were then compared with each other based on dened
categories (documentation received, activities performed, criteria used), and similarities and dierences were identied for each process step.
Results and Discussion
The formal decision process to be applied for each proposal assessment had been
dened by the VC as follows:
1. Deal Origination
2. Screening
3. Evaluation
113
4. Proposal to the investment committee ( to reach a Go/No go decision of

the investment committee)
5. Due Diligence & Deal Structuring
6. Closing
Origination: Three out of ve cases analyzed were obtained through referral or
by the VCs active sourcing like e.g. attending of investors conferences where fundseeking companies presented themselves. In the screening phase, the VC reviewed
the documentation received, which was either an executive summary of the business case or a complete business plan, and had a telephone conversation with the
management on questions left open by the documentation. In one case, the VC
immediately got to know the management of the company as the company had a
booth at a conference. The following criteria needed to be fullled to proceed in the
evaluation process: innovative and patented technology with a clear unique selling
proposition (USP), product ready to market or already sold, great market potential
due to the prevalence of the disease addressed by the technology, KOL supporting
the company, technical and commercial skills of the management, exit opportunities. The less information was provided by the company on the fulllment of these
criteria, the more time the VC needed to invest to nd out whether the criteria
were met.
In the evaluation phase, the VC asked for a detailed business plan and tried to
verify the managements statements by some desk research on market (e.g. prevalence of the diseases addressed) and competition. In addition, management CVs,
information on the companys intellectual property (IP), clinical studies performed
with the product and scientic papers on the medical problem addressed by the
technology were requested from the company. Historical nancials and the nancial planning were analyzed and checked for plausibility, also in view of the nancing need expressed by the company. Again, the higher the quality and detail of
information provided by the company, in particular from reliable external sources,
the less time the VC had to invest in own research. Additional questions were claried by phone or email and a meeting with the management was agreed. In one
case, the investor met the company at an industry fair together with an expert, who
did a rst assessment of the technology and the management.
In all cases, 1-2 reference calls at customers, independent experts and/or KOLs of
the company were made by the VC to learn more about the eld of application and
114
potential problems of the technology. The VC also attended live presentations of

the product and its functionalities at the customer/KOL, or visited the company`s
premises and production facilities. This involved travelling in four cases. The VC
talked to the existing investors and potential co-investors and started reviewing the
most relevant legal documents (e.g. license agreements). At this point, discussions
of the deal structure and the company valuation started. Decision criteria at this
stage were management skills, trust in the managements capabilities and t of personal chemistry, a well-functioning product with a clear USP, high market potential
and medical need (conrmed by KOLs), low competition, existence of IP, reasonable valuation, and plausibility of the business model and strategy (including e.g.
the products potential for reimbursement by the health insurances).
Two cases were selected for presentation to the investment committee. The VC
therefore had to prepare a formal investment proposal including a summary of the
business case, nancials, proposed deal structure, amount of investment and valuation of the company. In both cases, the decision was positive and the formal due
diligence (DD) process was started. The committee also gave recommendations on
what to check in detail during DD.
The due diligence involved further reference calls at customers, KOLs, industry
experts from the VCs network, distributors, and members of the companys board.
Independent patient associations were also contacted to verify the medical need
from a patient perspective. In addition, meetings with existing investors took place
to check if there was a common understanding. Furthermore, the VC visited the
companys suppliers to get a better understanding of the quality of the production
process. The company had to provide all relevant legal, tax and nancial documents
as well as the DD documents previously produced by the existing investors. DD
focus was laid upon IP, CE certication and contracts with most relevant suppliers.
Criteria at this stage were mainly based on risk-exclusion, but also aimed at conrming the fulllment of the criteria dened in the evaluation process.
During the subsequent structuring phase the terms and conditions of the deal
were negotiated, the contracts were nalized and the closing was prepared.
Conclusion
Selection criteria applied to medtech investment proposals seem to overlap criteria identied in literature and go into more detail. In particular IP, clinical studies
and KOLs seem to play an important role, KOLs being either future users of the
115
product or needing to recommend the latter to their patients. The decision process
is much in line with literature ndings. The evaluation phase is the most intensive
and time-consuming phase of the process, during which the VC must build enough
condence in the quality of the deal to present it to the investment committee.
Activities performed during the process were similar in all cases, but sometimes appeared in both the evaluation and the DD phase. Some were just intensied in the
DD phase, which mainly serves the identication of potential risks. The length of
the investment process varied between two and nine months, and was very much
dependent on the managements cooperation, quality of documentation provided,
and the VCs trust in the managements capabilities. The latter caused the VC to
check even more references and to spend more time on research. The investment
process of the case, in which the VC invested, only lasted ve months.
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Management Science, Vol.30, No. 9, pp. 1051-1066
Wells, W. A. (1974): Venture Capital Decision Making. Unpublished doctoral dissertation, Carnegie Mellon University, Pittsburgh, USA
Marijana Zeki-Suac Slavko Vuli
118
PREDICTING THE SALE OF BREAD BY USING NEURAL

NETWORKS
Marijana Zeki-Suac
Faculty of Economics, University of J.J. Strossmayer in Osijek,
Gajev trg 7, 31000 Osijek, Croatia, [email protected]
Slavko Vuli
Konzum d.d. M. avia 1a, 10000 Zagreb, Croatia, [email protected]
Abstract
The aim of the paper is to suggest a model for predicting the next-day sale of
bread in retail by using articial neural networks. The eective prediction of sale
or demand is directly connected to customer relationship management and to cost
management. According to previous research, intelligent nonlinear methods such
as neural networks have advantages over classical statistical methods in situations
when the data are noisy and often uncertain. In the model preparation phase, different factors that inuence bread sale were analyzed in order to nd potential predictors that could be used to manage the bread demand. Unsold quantities of bread
that a retailer returns to the producer have a direct impact to the protability of the
bread production company. The improved management of bread stocks also means
better customer service and the increase of income for a retailer. The suggested
model uses input variables describing past sales, day of the week, sale promotions
and actions, as well as existence of competition in order to predict the next-day
sale of bread. Dierent architectures of multilayer perceptron neural network were
tested. The results show that the model is able to predict the next-day bread sale,
although the model accuracy should be the the focus of further research. The paper
could be useful to both researchers and practitioners in this area as a guideline in
designing an eective decision support systems in bread sale.
JEL classication: L81
Keywords: articial neural networks, bread sale, multilayer perceptron, sensitivity analysis
PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS
119
1. Introduction
One of the most important challenges in retail is to manage the demand. If

the uctuations in demand are not predicted, the company faces serious risks to
loose prot. The availability of goods at the stock is important to satisfy customers and to eliminate the missed sales. If the situation with a lack of goods occurrs,
it implies not only the loss of present margin, but also the loss of future income,
due to a high possibility of loosing a customer. The accurate future demand for a
product is dicult to predict by relying on existing reports on previous sales data
retrieved from the company database, since those data only record past transactions
without analyzing trends or causal relationships. Managers in sale often need more
advanced reports that will include prediction models of demand, and be able to
eectively support their decisions on ordering the goods. Nowadays it is required
that management information systems satisfy the criteria of fast reporting, integration and adding value (Spremi, 2004), but also that they include intelligent
methods that learn from historical data and are capable of adaptation to new conditions (Dalbelo-Bai, 2004). Classical decision support systems therefore evolve
into business intelligence systems that incorporate models and business analyses
enabling to nd the causes of problems, predict future movements of variables, and
assist managers in making business decisions.
The focus of this paper is in creating a neural network model that will be able
to predict future demand by nding hidden relationships among data, and assist in
realizing business objectives of a company. The purpose of the model is to predict
desired next-day quantities of bread in retail, in order to have enough bread at
shelves, and to keep the quantities of unsold bread minimal, i.e. that the surplus
of bread is minimal in order to lower the costs. The model is designed such that it
aims to predict the desired quantity, while the objective function in the learning
phase of modeling is to minimize the prediction error. Besides creating the model,
this research also analyzes its accuracy and gives directions for further research. The
paper also aims to emphasize the importance of using prediction modeling in retail
in order to increase the company eciency.
2. Review of previous research
As one of the frequently used methods of articial intelligence, neural networks

(NNs) are able to solve the problems of prediction, classication, and association
(Russell, Norvig, 2002). They also have the ability to overcome the proportional-
120
ity and linearity constraints imposed by parametric methods in prognoses (Detienne et al., 2003). According to Doganis et al. (2006), the initiative of a few large
companies in food industry in the last decade that aimed to improve prediction
in their business processes identied that 48% food processing companies have
undeveloped prediction processes (Adebanjo & Mann, 2000). Methods used in
sale prediction are usually statistical time seria forecasting methods, mainly linear
or nonlinear. Linear models such as ARMA (eng. AutoRegressive Moving Average) and ARIMA (eng. AutoRegressive Integrated Moving Average) are the most
popular models for those purposes, although their prediction accuracy is limited
by the assumed linearity in data (Zhang, 2003). A number of research has proven
the advantages of intelligent methods, such as NNs, over statistical methods that
do not include articial intelligence, in sense of prediction accuracy and ability to
generalize. The main advantage of NNs is their ability to approximate any nonlinear mathematical function (Masters, 1995). However, Doganis et al. (2006) report
on numerous studies in which the comparison of NNs and statistical methods
showed dierent results that do not give full advantage of one method over another.
According to a literature review conducted by Zhang et al.(1998) NNs produced
the same accuracy as linear statistical methods in 30% of researches, while in 56%
of researches they outperfomed other methods. Zeki-Suac and Musser (2002)
noticed that NNs in business were mostly used in the area of production, nances,
investments, and marketing, while their usage in sales of food products was not
investigated enough. The reasons could be found in frequent variations of factors
that inuence the sale, which are often interrelated, such as sale price, seasonality,
advertising, competition behaviour, changes in customer habits, or even weather
changes because in (Van der Vorst et al., 1998, Doganis et al., 2006). Some of the
successful applications of NNs in food processing industry were observed in the
prediction of peanut butter and ketchup sales, which investigated the inuence of
promotion acitivities and customer selection to the sale volume in retail (Agrawal
& Schorling, 1996). Luxhoj et al. (1999) used NNs in predicting a company total monthly sales of food products of a Denmark company, where the NNs outperformed other tested methods. Fili and Zeki-Suac (2009) investigated a NN
model for prediction of beer sale. They tested 29 dierent NN architectures of the
multilayer perceptron NN. The output variable was the nancial value of a montly
sale of beer in a town of Vukovar-Srijem county in Croatia. The best model yielded
a normalized mean square error of 11,73% on the out-of-sample data, implying
that this methodology has potential in sale prediction. However, Zhang (2003)
121
emphasizes that none of the methods is successfull enough in every situation if

used individually, and that the combination of dierent methods is the most effective way of achieving the most accurate prediction. Following these guideliness,
Doganis et al. (2006) used GA-RBF method which combines a radial basis NN
(RBF) with a specially designed genetic algorithm (GA) which selects the important features in order to obtain an accurate nonlinear model. The methodology is
used to predict the daily volume of fresh papaya milk sale. The model showed an
improvement in accuracy when the combined methods were used comparing to
the individual methods results. Kuo et al. (2009) presented a hybrid evolutionary
algorithm for sale prediction integrating main features of PSO (eng. Particle Swarm
Optimization) algorithm and GA in order to improve the performance of the RBF
network, which was also found successfull.
On the basis of previous research, it can be concluded that there is a variety of
domains in which NN methodology was used in business, and that authors use
dierent algorithms to predict sale. Since there are no paradigms on using one NN
architecture over another in certain area, one of the main diculties is that testing
dierent architecture is often time consuming and model dependent (Li, 1994).
The comparison of NNs to statistical methods showed that in most cases the NNs
outperfom other methods, especially linear ones.
3. Methodology
The performance of dierent architectures of the multilayer perceptron (MLP)

NN is tested in this paper in order to predict the sale of bread. The MLP is a type
of a feed forward NN which is able to use dierent algorithms in order to minimize
the objective function, such as backpropagation, conjugate gradient, and other algorithms. The backpropagation algorithm is based on deterministic gradient descent algorithm originally developed by Werbos in 1974, extended by Rumelhart
et al. (in Masters, 1995). The NN architecture consists of two or more layers of
processing units (i.e. neurons). The input layer of a NN consists of n input units
xi R , i=1,2,..., n, and randomly determined initial weights wi usually from the
interval [-1,1]. Each unit in the hidden (middle) layer receives the weighted sum of
all xi values as the input. The output of the hidden layer denoted as y c is computed
by:
n
y c = f wi xi
(1)
i =1
122
where f is the activation function selected by the user, which can be logistic, tangent hyperbolic, exponential, linear, step or other (Masters, 1995). In our experiments, the sigmoid and tangent hyperbolic transfer functions were used in the
hidden layer. The sigmoid activation function is computed according to (Masters,
1995):
1
f ( x) =
(2)
1 + e g x
where g is the parameter dening the gradient function. The computed output is
compared to the actual output ya, and the local error is computed as =yc-ya. The
error is then used to adjust the weights of the input vector according to a learning
rule, usually Delta rule according to (Masters, 1995).:
wi=yc
(3)
where wi is weight adjustment, is the learning parameter that could be experimentally determined. The above process is repeated in a number of iterations
(epochs), where the gradient descent or other algorithm is used to minimize the
error.
The output layer of all NN models in our experiments consisted of a continuous value representing the quantity of the bread sold in one working day. The
backpropagation and conjugate gradient algorithms were tested, by varying the
activation function in the hidden layer (sigmoid, tangens hyperbolic, exponential,
and linear). The NN structure and training time was optimized by a split-sample
procedure. The maximum number of training epochs was set to 1000. Overtraining is avoided by a cross-validation process which alternatively trains and tests the
network (using a separate test sample) until the performance of the network on
the test sample does not improve for n number of attempts (n=10). The optimal
number of hidden units is determined in a cascading procedure which gradually
increases the number of hidden units during the training phase, starting from a
minimum to a maximum value. The minimum value was set to 2 and the maximum was set to 50 in all experiments. After the best network is selected, it is tested
on a new validation sample to determine its generalization ability.
The modeling strategy of NNs included experiments by varying the NN algorithm, activation function in the hidden layer, and network topology. The accuracy
of prediction was measured by the MSE error, which is the standard measure of
performance for all regressive-type NN algorithms, computed by:
123
MSE =
1 n 1
( yd yc ) 2
n i =0
(4)
where n is the number of observations in the test set, yd is the desired output, yc is
the output computed by the model. If the data are normalized to interval [0,1], the
computed error represents a normalized mean square error (NMSE) indicating a
percentage deviation from the desired values. The advantages of NN methodology
are in its performance even when the data are noisy and uncertain, as well as in
capability to learn complex nonlinear relationships among data, while their limitations are in the need for time consuming experiments in the modeling phase.
4. Data description
For the purpose of modeling, the data on sold quantities of one sort of bread
(called white bread of 700 grams). were used. Data were collected in a retail store
placed in Osijek-Baranya county of Croatia, covering the period from March 1st,
2005, to May, 1st, 2006. The total of 296 daily observations were included in the
sample, with 8 input variables. All input and output variables with their descriptive
statistics are presented in Table 1. The output variable contains the quantities of
bread sold in the next day (yt+1) obtained from the real sale reports of the company.
The descriptive statistics given in Table 1 presents means and standard deviations
for continuos variables, while the frequencies for each category are given for categorical variables.
Table 1. Descriptive statistics of variables used in the models (source: authors)

Variable code Variable description
Day in the week (1=Monday, 2=Tuesday, 3=WedDay
nesday, 4=Thursday, 5=Friday, 6=Saturday,
7=Sunday)
Purchase
Purchase quantity of bread
Return
Returned quantity of bread
Sale_t
Sold quantity of bread in the current day t
Sold quantity of bread in the same day of the last
Sale_lm
month
Sold quantity of bread in the same day of the last
Sale_lw
week
Descriptive statistics
1=14.19%, 2=14.19%, 3=14.19%,
4=14.19%, 5=14.19%, 6=14.52%,
7=14.52%
Mean=45.206, st.dev=27.999
Mean=5.567, st.dev=8.935
Mean=39.638, st.dev=25.698
Mean=39.510, st.dev=24.567
Mean=39.476, st.dev=25.2189
124
Holiday
Weekend
Sale_t+1
Indicator of a holiday
Indicator of a weekend
Sold quantity od bread in the next day (t+1)
0=95.61%, 1=4.39%
0=57.43%, 1=42.57%
Mean=39.684, st.dev=25.733
The variable Holiday is introduced in the model because some extreme quantities of sale were observed in historical data on some holidays and days before
holidays. In order to enable the NN to predict those extremes, an indicator of a
hoilday is used in the model such that the value of 1 indicated that the current
day is a holiday or a day preceeding the holiday, while the value of 0 is assigned
otherwise. Similar although not so large increases in sale were observed during the
weekends, therefore the variable Weekend is also used, valued as 1 if the current
day is Saturday or Sunday, and 0 otherwise. The total dataset (296 observations)
is divided into three subsamples aimed for NN training, crossvalidation and nal
testing. The train sample used for NN learning consisted of 60% of data (rst 180
observations), the cross-validation sample consisted of 20% of data (60 observations), while the models were nally tested on the test sample which consisted of
the rest of the data (56 observations). The MSE obtained on the test sample is used
to assess the model performance.
5. Results
The results of individual models obtained by each NN architecture are presented in this section, followed by their comparison and selection of the best model
according to accuracy measured by the MSE. The total of 20 NN architectures was
tested in order to select the best model. Table 2 presents only 10 selected NN architectures tested in experiments, as well as the results of each architecture obtained
on the train and test sample. Due to the fact that the results obtained on the test
sample are used for evaluating NN successfullness, the best model is selected on the
basis of the minimal NMSE error on the test sample.
125
Table 2. Results of the NN architectures obtained on the train and test sample (source: authors)
Train results
Test results
Sigmoid
Normalized mean
square error
(NMSE)
0.0174
Normalized mean
square error
(NMSE)
0.3372*
2000
Sigmoid
0.0139
1.015
1000
Tangens hyperbolic
0.0192
0.4128
2000
Tangens hyperbolic
0.0221
0.3828
2000
Tangens hyperbolic
0.197
0.439
2000
Tangens hyperbolic
0.0186
0.3425
2000
Tangens hyperbolic
0.0307
0.6865
2000
Tangens hyperbolic
0.0155
0.4377
3000
Tangens hyperbolic
0.0161
0.3899
10
3000
Tangens hyperbolic
0.0206
0.7322
Architecture
no.
Number
of
hidden
layers
Number
of
hidden
units
Maximal
number
of
epochs
Activation function
1000
* the best result obtained on the test sample

It can be seen from Table 2 that the best result in sense of the NMSE is obtained
by the NN architecture containing two hidden layers and 4 processing units in
each hidden layer. The maximal number of epoch (iterations) was 1000, while
the activation function in hidden layers was sigmoid. This network produced the
NMSE of 0.0174 on the train sample, while the test NMSE was 0.3372. The error
value represents the average deviation of predicted values from the desired values
when the data were normalized to the [0,1] interval. Another measure of model
performance could be the Pearson correlation coecient, which measures the correlation among the predicted and desired values in the sample. The correlation coecient obtained for the best NN model was 0,8307 (obtained on the test sample).
In order to more clearly present the accuracy of the model, a chart of the real and
predicted values is given in Figure 1, where the full line presents the real values of
the output variable, while the dotted line presents the predicted values of the output variables i.e. sale quantities of bread. It can be seen from Figure 1 that the NN
predictions closely follow the real values of sale, although there are observations in
the test sample where the deviations are visible and signicant.
126
120
100
Output
80
Sale of bread - real
60
Sale of bread - predicted
40
20
0
1
11
16
21
26
31
36
41
46
51
56
Exemplar
Figure 1. Real and predicted values of the sale of bread obtained on the test sample (source: authors)
Especially large deviations of predicted values from the real values are observed
in days when a sudden high increase or decrease of sale occurs. In order to get more
insight into the importance of input variables in the best selected model, a sensitivity analysis is conducted in the way that the average change of the output variable is
computed if an input variable values varied in the range +-5%. Figure 2 shows the
chart of sensitivity coecients obtained for each input variable.
60
50
Sensitivity
40
30
Sensitivity
20
10
0
ol
ke
nd
se
ay
_l
_l
id
le
le
_t
ee
W
Sa
Sa
le
ha
n
ur
et
Sa
rc
ay
Pu
Input variable name
Figure 2. Results of the sensitivity analysis of the output variable (source: authors)
127
It can be seen from Figure 2 that the output is the most sensitive to the input
variable Weekend, which has the higher inuence to the output (sensitivity coecient is 52.7461). The next variable according to its importance for the model is the
variable Day which indicates the day in the week (sensitivity coecient 12,7093),
closely followed by the variable Holiday (sensitivity coecient 11,6531). All other
input variables have much lower importance for the model, and their coecients
range from 0.01 to 0.15. This analsyis shows that the decision makers should take
much care about type of the days in the week, weekends, and holidays, since those
are the periods where the output values change signicantly.
The above results are only preliminary and should be considered as a starting
point for further research in this area.
6. Conclusion
The paper deals with creating a model for predicting sale of bread and analyzing the features that inuence the model performance. The multi layer perceptron
NN methodology is used for modeling purposes, and more than twenty dierent
architectures were tested in order to obtain the best model. Due to a relatively small
number of input variables used, the performance of the best model is not sucient
for a practical implementation, but is a promising starting point for further research. The model accuracy could be improved by adding more predictors containing information about the promotion activities, competition activities, macroeconomic factors and other variables, as well by integrating NNs with other intelligent
methods, such as genetic algorithms, expert systems, and others. Sensitivity analysis
conducted in this research shows that more focus should be directed towards the
untypical days in which the sale drastically increases or decreases, such as weekends
and holidays. One of the guidelines for further research could be to build separate
prediction models for such untypical days, and therefore enabling the method to
capture some specic inherent relationships in data existing in those time periods.
The paper reveals that there are potential benets of the NN model for bread
sale prediction. However, for practical usage the model should be integrated in a
decision support system with a user-friendly interface that will enable the user to
control the input data, observe the output values, and use them as a support in
decision making process. In that way, a sale manager will enhance the quality of its
decision process, and be able to satisfy the customers needs by providing them with
an accurate quantity of bread in shelves, and in the same time to decrease the cost
128
of bread returns to the supplier. The model could also be used as a simulation tool
that will be integrated in demand management system, and therefore contribute
the sucessfulness of a company in a long term.
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Maja Lamza-Maroni Jerko Glava Igor Mavrin
130
MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF

CULTURE PROGRAMME
Maja Lamza-Maroni, Ph.D.
Jerko Glava, PhD student
Igor Mavrin, PhD student
SUMMARY:
The European Capital of Culture (ECoC) is one of the most successful cultural
programmes of the European Union, having numerous profound impacts upon economic and social development of a city. Certain cities have used their titles to raise
their visibility and prole on the European and international scale, as cities with
rich cultural oer. Cities included in the programme since its beginning in 1985
have been securing various funds for programme implementation. During the programme development, marketing budgets of ECoC cities have varied. The development of the Internet as a new medium, and especially certain online services, has
changed the approach to information dissemination EcoC title-holders. A part of
communication strategy of ECoC cities has been transferred into the online sphere,
which was not available to previous ECoC cities. This paper aims to investigate marketing aspects of the ECoC programme. Furthermore, it analyses the use of online
services for ECoC title promotion in candidate cities in the 2016 2019 period.
JEL classication: Z11
KEY WORDS: European Capital of Culture (ECoC), urban marketing, city
branding, cultural management, online services, promotion
1. Introduction:
The European Capital of Culture as a citys development potential
The European Capital of Culture (ECoC) has proved to be the longest-lasting,

as well as the most successful programme of the European Union in cultural, i.e.
creative sector. The programme was launched in 1985. Up until 2011, 44 cities
have been designated as holders of this prestigious title. According to the research
MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME
131
carried out in ECoC cities in 2004, the following aspects were the top priorities:
raising international prole of a city/region; implementing programmes for cultural
activities and art events, long-term cultural development of a city/region; attracting
domestic and foreign tourists; enhancing feelings of belonging and self-condence;
the growth and expansion of local cultural audience; creating a festive atmosphere.
2. The change in urban image through European Capital of Culture
City branding represents a long-term process, where local government in cooperation with the private sector and local community determine the future path
of the city image. Moreover, they inuence local and international visibility of the
urban surroundings. Baker (2007:73) names seven steps in dening destination
brand, also called 7As. The acronym includes the following elements, as well as
questions that should be answered in the branding process: assessment and audit
What is the position of the brand in the world?; analysis and advantage What
will make a city famous?; alignment What are the relationships of the brand?;
articulate How can the brand be expressed visually and verbally?; activation
How can the brand come to life?; adoption and attitudes How can stakeholders
contribute to the brand?; action and afterwards How can the brand remain fresh
and relevant?.
Cultural projects, i.e. mega-events, can signicantly contribute to dening and
developing a city brand. This makes the European Capital of Culture one of the
key programmes. One of the most successful ECoC cities is Glasgow, which used
its 1990 title to redene its urban image thus ultimately achieving city branding.
It possesses visibility and high prole in general public. While Glasgow was ...undoubtedly a place of signicant cultural value for Scotland, it was not internationally acknowledged as a cultural centre. Its image was reduced to being a proactive
industrial city with certain social problems and the economy undergoing a painful
process of contraction and restructuring. As a result of the basic idea conceived by
the local government to use the programme for ...promoting economic regeneration and image transformation, the British government decided to support Glasgow as the European Capital of Culture, i.e. the European City of Culture as it was
called in 1990. (Griths; 2006:417-418)
It should be mentioned that Glasgow started redening its urban image even
before the year it became the Capital of Culture the development of the new city
image ...started with Glasgows Miles Better Campaign, and was followed by the
132
National Garden festival in 1988. The capital of culture was later continued in
1990 by the new strengthening of the city image ...the last episode in the series
was rebranding Glasgow in 2004 (an investment of 1.5 million) as Glasgow: Scotland With Style. (Mooney, 2004:328)
ECoC programme in Glasgow and related projects have resulted in the change
of city image from an industrial/post-industrial city into a creative centre, as well as
in higher employment in cultural and creative sector and long-term increase in the
number of tourist visits and stays.
3. Marketing as a priority of the European Capitals of Culture
The rise in visibility and prole of a city on international scale is one of the top
priorities of most ECoC title-holders. From the perspective of public relations and
promotions, four major goals of the European Capitals of Culture can be outlined:
raising a citys international prole; changing a citys image; the growth of domestic
and foreign tourism; the growth of cultural audience. The cities European Capitals of Culture have mostly emphasised the following communication priorities:
promoting a citys prole; promoting the European Capital of Culture brand/image; promoting cultural programme of the European Capital of Culture. (Palmer;
2004:79) Marketing costs of some cities included in the ECoC programme vary.
Attracting each single tourist of this annual event has its price. According to data
from Richards and Palmer (2010:289), Graz spent the most, with even 63 Euros
(its marketing costs were around a third of the citys total budget for the ECoC programme 191 Euro per inhabitant was invested.) Nevertheless, when the number
of visitors is taken into account 2.76 million the cost seems justiable. The best
ratio between the invested and the acquired is that of Danish Copenhagen, which
invested 3 euros per inhabitant in marketing and had almost 7 million visitors
(costs per visitors were reduced to 0.70 euros). (Richards&Palmer; 2010:289) Liverpool (ECoC in 2008) stands out as a successful example of good communication
strategy. The key eects of the ECoC programme on the image and the perception
of Liverpool were the following: 65 percent of British population was aware that
Liverpool became the European Capital of Culture; 77 percent of visitors said that
the city was safer than they had expected; 99 percent of visitors liked the general
atmosphere and 97 percent of visitors liked the feeling of being welcome; 68 percent of British companies thought that ECoC had a positive eect on Liverpool.
(Garcia et al.; 2010: III)
133
4. Promotion models of the European Capital of Culture
Cities, the European Capitals of Culture, have used various means of communication to promote themselves. These means can be sorted into several groups (Palmer;
2004: 80-82): printed materials and broadcasting; new technologies and new media;
trade; special events; other initiatives. Promotion via printed materials and TV and
radio broadcasting remain in the spotlight, although the new medium the Internet
is assuming a more and more signicant role. The annual European Capital of Culture programme is diverse, rich and aims at manifold public, which can signicantly
inuence the communication with potential audience. It is impossible to summarise
a one-year programme into a short brochure or TV commercial. Therefore, it is necessary to communicate with the public on monthly, weekly and daily bases. Creative
teams in some cities have used various methods for programme promotion the city
of Burges used a short song ...adding programme details at the back of a publication,
sorted according to a discipline and calendar; on the other hand, Lille ...created
programmes in various formats, including monthly programmes and iers about certain projects; while Graz in 2003 ...printed more than 3,000 dierent advertising
materials. Moreover, each city had a special logo as part of communication with the
public, which featured basic information on the city and the year when the European
Capital of Culture was implemented. (Palmer; 2004:80)
Other internationally recognisable events can also be used to promote the city
as the European Capital of Culture. Liverpool ...developed interesting ways for
promoting the ECoC, by attracting other events interesting to media into the city
during 2008. It took advantage of MTV Awards an award presented by a famous
music television channel to promote itself as the Capital of Culture. Turkish
megalopolis Istanbul (ECoC in 2010) ...exhibited at Biennale in Bonn, Germany,
as well as EXPO 2008 in Zaragoza, Spain. (Palmer&Richards; 2009:40)
The Slovenian city of Maribor, the European Capital of Culture in 2012, participated in the World Travel Market in London, in 2010, together with 21 Slovenian tourist organisations. ECoC Maribor was presented by Mitja ander, a
programme director, who also took part in a well-attended press conference. The
emphasis of the Slovenian stand, expanding over 173 square metres, was placed on
Slovenia as a country, but also on the Maribor programme in 2012. Nine ECoC
cities in 2000 (AECC) jointly participated in a number of fairs, representing the
ECoC programme, as well as cities themselves. Furthermore, TV advertising is
becoming more important, not only for advertising an already designated ECoC,
134
but candidate cities as well. For instance, the Polish city of d, a candidate for
the title in 2016, has developed a 30-second TV commercial Would You in d,
which ...has been broadcast on BBC World and CNN, way before the ocial
candidacy ceremony in Brussels (...) advertising campaign has three goals: the promotion of the city as a vibrant urban centre, raising viewer awareness of the city
location in Europe and educating viewers how to pronounce this rather dicult
name of the city. (Palmer&Richards; 2009:39-40)
Figure: A model of successful communication of the European Capital of Culture

Inicial
Candidacy
Internet Communication
ECoC
Programme
Development
Citizens
&
Institutions
Internet
Communication
Citizens
&
Institutions
Formal
ECoC
Candidacy
Know-how
Transfer
Lobbying
EU Selection
Authority
ECoC
Event
Consultants
Selection
Process
Foreign
Tourists
Domestic
Tourists
ECoC
City
MARKETING
COMMUNICATION
(Internet,
TV & Radio
Advertizing,
Media
Coverage)
Time
Local
Audience
Participation
ECoC
Year
Source: Edited by authors
135
The gure above shows key elements of successful communication model of the
European Capital of Culture:
after initial candidacy using the Internet communication tools, citizens and
institutions participate in the creation of the ocial candidacy programme;
joint eorts lead to the ocial candidacy, while continuing to disseminate
further information to citizens and institutions, along with the communication with consultants ECoC experts, whose guidance, together with formal
means, are used to lobby for the selection process for the Capital of Culture
title;
the next phase comes after awarding the ECoC title to a city, when marketing communication activities directed towards the local public, domestic and
foreign tourists take place via dierent channels (the Internet, advertising,
media reports, etc.)
if the communication in the preparatory period proves successful, the ECoC
programme is well-attended, the number of tourists is on the increase, which
means the inow of money for private and public sectors; marketing activities
are continued.
5. Internet communication as a means of the European Capital of Culture
promotion
In some cities, the Internet was of signicantly low priority as a means of communication, especially in those cities that carried the title before the growth of
global network. Almost all European Capitals of Culture have created Internet
sites after 1995. Following 1997, most cities ...have sent e-mail messages or electronic newsletters. Helsinki and Graz have fully exploited the potentials of the
Internet by using ...e-conferences and debated, Internet broadcasting and other
elements of e-communication. Certain Internet sites created by the Capitals of
Culture have recorded signicant number of visits. Since social networks play an
important role on the Internet lately, some cities have decided to use this segment
of online promotion in their ECoC campaigns, as well as in researching the scope of
their projects. For example, Liverpool (ECoC in 2008) generated the following results: ickr (50,000 ECoC photographs of Liverpool, YouTube (2,200 videos, 2.5
million clicks); Facebook (500 new group sites, 13,000 members); Google (ECoC
Liverpool searches comparable to football searches). (Garcia et al.; 2010: III)
136
The same city generated the following results related to the Internet in 2008:
at least 50 percent of all researched institutions have used Facebook; 100 percent
of researched cultural institutions have used Facebook in the development of their
community; this Facebook community has become especially active as 2008 was
nearing; 25 percent of cultural institutions used Twitter for the development of
their community by the end of 2008; cultural institutions in Liverpool generally
accept new applications of social media a year after they become well-known; all
cultural institutions gather a common audience of around 1,000 members; this
critical mass indicates that there is a common, local online audience throughout all
institutions. (Miah&Adi; 2009:3)
6. The analysis of Internet use as a marketing tool by ECoC candidate cities in
the period 2016 2019
Host countries for ECoC have already been designated for the 2016 2019
period, and in most cases, candidate cities for the title have been nominated. The
following table shows the analysis of Internet communication of candidate cities,
the multilingualism of the portals, as well as the use and support of the social network Facebook.
Table: Internet communication of ECoC candidate cities from 2016 to 2019

CANDIDATE CITY
Poland 2016
Biaystok 2016
Gdask 2016
Katowice 2016
Lublin 2016
d 2016
Pozna 2016
Szczecin 2016
Toru 2016
Varava 2016
Wrocaw 2016
Spain 2016
Alcala 2016
Burgos 2016
Cceres 2016
Cordoba 2016
INTERNET SITE
NUMBER OF
LANGUAGES
FACEBOOK
(number of likes/ group members)
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
3
4
5
3
3
3
1
2
2
3
4,398
1,026
1,859
2,532
3,180
5,926
6,836
3,240
YES
YES
YES
YES
1
7
3
3
11,593
3,356
303
137
Cuenca 2016
Malaga 2016
Las Palmas 2016
Oviedo 2016
Palma de Mallorca
2016
Pamplona 2016
Santander 2016
San Sebastian 2016
Segovia 2016
Tarragona 2016
Zaragoza 2016
Denmark 2017
Aarhus 2017
Snderborg 2017
Cyprus 2017
Pafos 2017
Netherlands 2018
Almere 2018
Brabantstad 2018
Den Haag 2018
Maastricht 2018
Utrecht 2018
Malta 2018
Malta 2018
Italy 2019
LAquila 2019
Matera 2019
Siena 2019
Venice 2019
Bulgaria 2019
Varna 2019
YES
YES
YES
YES
5
5
2
5
9,170
131
305
18
YES
2,346
YES
YES
YES
YES
YES
YES
4
4
5
1
3
2
1,503
6,233
4,255
1,172
837
9,224
YES
YES
1
3
448
587
NO
394
YES
YES
YES
YES
YES
1
2
1
4
2
NO
NO
YES
YES
YES
1
1
1
11,427
4,986
-
NO
Source: Edited by authors
As it can be observed from the table above, Internet communication is used

more often by those cities that will learn sooner about the success of their candidacy
(Spain and Poland) each candidate city from these countries have an Internet site,
most of them is multilingual and almost all of them have created their Facebook
prole. Burgos is special among them, with its site in seven languages and the support of more than 11,000 Facebook fans. The delayed decision on ECoC candidate
cities/countries, from 2017 to 2019, has as a result both a smaller number of candi-
138
date cities and low Internet support. LAquila should denitely be singled out, since
it does not have an Internet site, but is already supported by 11, 427 members on
Facebook. This widespread support is surely connected to the destruction of this
city the earthquake of 2009.
7. Conclusion
A large number of European cities are recognising the development potentials

of European Capital of Culture programme, which induces greater participation
of cities within nominated countries. Furthermore, new communication trends
have imposed new ways of information dissemination on events in ECoC cities,
directed towards programme users. Attracting the local audience, as well as domestic and foreign tourists, has also become possible over the Internet. Similarly, the
Internet has become a mediator for accumulating quality ideas for the programme
development, which can be critical when deciding on ECoC title-holders. After
2019, Croatia will join the European Capital of Culture programme for the rst
time (in 2020 or 2021), and the battle for a nomination among Croatian towns
will partly be fought on the Internet, which will probably undergo certain changes
by then, i.e. improvements. It can be expected that the town with the best vision
of the ECoC year, as well as of its development afterwards, will be chosen. Moreover, good communication with the inhabitants themselves will certainly be of key
importance.
LITERATURE
Books:
Baker, B. (2007.): Destination branding for small cities; Creative leap books, ISBN:
978-0-9797076-0-5, Portland, USA
Richards, G., Palmer, R. (2010.): Eventful Cities: Cultural management and urban
revitalisation; Elsevier, ISBN: 978-0-7506-6987-0, Oxford, UK
Reports:
Palmer/Rae Associates (2004.): European Cities and Capitals of Culture (Part I);
European Commision, EU
Palmer, R., Richards, G. (2007.): European Cultural Capital Report; ATLAS,
ISBN: ; Arnhem, Netherlands
139
Palmer, R., Richards, G. (2009.): European Cultural Capital Report 2; ATLAS,

ISBN: ; Arnhem, Netherlands
Garcia, B., Melville, R., Cox, T. (2010.): Creating an Impact; University of
Liverpool
Miah, M., Adi, A. (2009.): Liverpool 08 Centre of the Online Universe; Impacts
08
Papers:
Griths, R. (2006.): City/Culture Discourses: Evidence from the Competition to
Select the European Capital of Culture 2008; European Planning Studies, vol. 14,
no. 4; pp 415-430
Mooney, G. (2004.): Cultural Policy as Urban Transformation; Critical Reections
on Glasgow, European City of Culture 1990; Local Economy, vol. 19, no. 4, pp
327-340
Internet:
http://www.maribor2012.info/; pristup: 17.11.2010.
http://www.candidatecities.com/; pristup: 16. 11. 2010.
http://www.facebook.com/; pristup: 15. 01. 2011.
140
Draen Kostelac
PROJECT PORTFOLIO MANAGEMENT IN

FAST-GROWING COMPANIES
Draen Kostelac mag.tech.ing
JGL d.d. Rijeka
Pulac b.b. Rijeka, Hrvatska
ABSTRACT
Many organizations are not getting a good return on investment from their
project portfolios. Without formally considering, through project portfolio management, what collection of projects the organization has the resources to execute,
the executives often push more projects into the organization well beyond its capacity. As a result, projects become slow to execute, and the various parts of the organization are constantly ghting each other over resources. One of the key strategic
values of a portfolio manager is to guide the Governance Board to a balanced project portfolio. Portfolio management is unquestionably at the heart of the projects
success or failure. This article deals with portfolio management in fast-growing
companies with one case study in the pharmaceutics company.
JEL classication: O22
Key words: project management, project portfolio, organization management,
growing companies
1. INTRODUCTION
Today, after 20 years on the market, JGL has transformed into an agile, projectoriented pharmaceutical company. According to its own estimate, the company
holds 4 % share of the Croatian market and is third indigenous manufacturer in
Croatia.
The total revenue growth rate for the last eight years of about 30% per annul
makes the company one of the fastest growing and one of the most stable in the
country.
PROJECT PORTFOLIO MANAGEMENT IN FAST-GROWING COMPANIES
141
JGL holds many projects in our portfolio (e.g. more than 50 projects) so it is
sensible to dene several project portfolios for dierent types of projects e.g. (contracting projects, product development projects, IT projects etc.).
A project portfolio presents a point in time-related analysis.
The general objective of project portfolio management is the optimization of
project portfolio results. Dierent objectives are pursued in the various business
processes of project portfolio management. The central objectives of assigning a
project or program are the selection of a favorable investment and the adequate
organization form for initializing the investment.
The objectives of the project portfolio coordination are the coordination of the
objectives of the projects of the portfolio, the coordination of the internal and
external resources used on these projects, the organization of learning from and
between the projects, and the determination of the project priorities.
Picture 1:
Source: Internal JGL document (02.02.2011.)
142
Draen Kostelac
2. MATURITY AND ORGANIZATIONAL PERFORMANCE
The concept of maturity brings the question whether increasing maturity leads
to increasing performance. Work in that area has been done at the University of
California in Berkley. They found that increasing maturity did lead to increasing
performance. Their performance curve followed a learning curve, so the performance improvement going from one level to the next is only half what was obtained coming for the previous level to this. Cost of achieving the performance
improvement is twice what it was at the previous level. In their research Bill Ibbs
and Justin Reginato dened a project management return on investment (PM ROI)
as the performance improvement obtained divided by the cost of obtaining increased maturity:
The eciency gain is the combined improvement from cost and schedule performance improvement. Companies with fewer projects need to stay at Maturity
Level 3.
Table 1: Levels of Maturity

Level
1
2
3
4
5
Requirements
Ad hoc processes, no guidance, no consistency
Procedures for individual processes, minimum guidance
Full procedures manual, group support
Process measured, collection of experiences and learning through reviews
Benchmarking, continuous improvement
Source: www.pmi.org (01.02.2009.)
3. ECONOMIC PROJECT SELECTION CRITERIA
We could say that project benets can be measured in either nancial or nonnancial terms. The process of identifying the nancial benets is usually called
capital budgeting. Capital budgeting may be dened as the decision-making process
by which organizations evaluate projects. In this article we will restrict ourselves to
discuss the following topics:
Net Present Value (NPV)
Internal Rate of Return (IRR)
143
3.1. Net present value (NPV)
The Net Present Value (NPV) method is a sophisticated capital budgeting

technique that equates the discounted cash ows against the initial investment.
Net present value is widely used across industries in evaluating and comparing
investments.
FV = Future value of an investment
II = Initial Investment
k = Investment interest rate (or cost of capital)
n = Number of years
Present value approaches are based on the principle that money in hand should
be valued more highly than an identical amount that would be received in the
future. It is assumed that money in hand can in principle be invested immediately
and because of that achieve an additional return or interest in the future. The value
of money that is receivable at some future point in time is discounted to reect its
lesser value - equivalent to its in hand value.
NPV approaches compare the present value of the cost streams associated with a
project with the present value of the revenue streams. The cost stream is subtracted
from the revenue stream to obtain the net stream of returns, which can then be
discounted to calculate the net present value.
Three key variables are required to calculate a projects NPV:
The future costs and their timing;
The future revenues and their timing;
A discount rate.
If a projects NPV is positive (i.e. greater than zero) then the current value of the
net future returns generated by the project exceeds investment expectations, indicating a positive investment opportunity. All other things being equal, the higher
the NPV, the more nancially valuable the project opportunity.
The decision-making criteria using NPV are:
If the NPV is greater than or equal to zero , accept the project.
If the NPV is less than zero , reject the project.
A positive value of NPV indicates that the rm will earn a return equal to or
greater than its cost of capital.
144
Draen Kostelac
3.2. ROI
Today more and more clients are asking what value their IT investment will bring
the company because they are authorizing the capital to fund a project. Increasingly,
project managers are now requested to inform Executive board what their likely returns would be because the project managers are managing the proposed project.
Project Example:
A pharmaceutical company has assigned a project manager to replace a companys

software and procedures that are used for developing R&D products. The executive
team assigned a task to PMO Manager to perform a ROI, as the project could have
great inuence on company. PMO Manager begins to quantify several things.
Table 2: Cost with NEW Solution

Cost with NEW Solution
Hardware
Software
Project Implementation
Support
TOTAL
Yr0
Project [1]
300 000
400 000
500 000
1 200 000
Yr1
Support
Yr2
Support
Yr3
Support
200 000
200 000
200 000
400 000
600 000
400 000
600 000
400 000
600 000
Authors calculations: example
Table 3: Cost with CURRENT Solution

Yr0
Yr1
Yr2
Yr3
Cost with CURRENT Solution
Support
Support
Support
Support
Database Administrators
700 000
700 000
700 000
700 000
Operational Support
900 000
900 000
900 000
900 000
TOTAL
1 600 000
1 600 000
1 600 000
1 600 000
The Net Savings if Project is Chosen
[2]
1 000 000
1 000 000
1 000 000
Now Calculate the Discounted Net Savings - assuming a rate of 9% [3]
Year 1: 1,000,000 /(1 + .09) = 917 431.19
Year 2: 1,000,000 /([1 + .09) + .09)] = 841 679.99
Year 3: 1,000,000 /[((1 + .09) + .09) + .09)] = 772 183.48
NPV TOTAL: 2 531 294.66
ROI
Discounted Net Savings at 9%
2 531 294.66
Initial Cost of New Solution
1 200 000.00
ROI
210%
(positive)
Authors calculations: example
145
[1]The comparison of the initial cost of the new solution to the cost of the current solution is not appropriate because the new solution will not be available until
the end of Year 0. The comparison of the two solutions is not meaningful until the
new solution is complete.
[2]Assumes that the project will be completed by the end of Year 0 and will be
available starting Year 1.
[3]There are several options for choosing the discount rate, such as the cost of
capital (e.g., borrowed from a bank), the rate of return of alternative projects, or
the investment yield rate.
3.3. Internal Rate of Return (IRR)
The internal rate of return (IRR) is perhaps the most sophisticated capital budgeting technique and also more dicult to calculate than NPV. The internal rate of
return is the discount rate where the present value of the cash inows exactly equals
the initial investment.
Mathematical formula for IRR:
FV = Future value of an investment

IRR = Discount rate when the NPV=0
II = Initial Investment
k = Investment interest rate (or cost of capital)
n = Number of years
3.4. Comparing IRR and NPV
Both IRR and NPV for most projects will generate the same accept-reject decision. However, there are dierences that can exist in the underlying assumptions
that can cause the projects to be ranked dierently. The major problem is the differences in the magnitude and timing of the cash inows.
NPV assumes that the cash inows are reinvested at the cost of capital, while
IRR assumes reinvestment at the projects IRR. NPV tends to be a more conservative approach.
146
Draen Kostelac
The timing of the cash ows is also important. Early year cash inows tend to
be at a lower cost of capital and are more predictable than later year cash inows.
Because of the downstream uncertainty, companies prefer larger cash inows in the
early years rather than the later years. Magnitude and timing are extremely important in the selection of capital projects.
Picture 2:
147
Picture 3:
4. CONCLUSION
PMO manager suggests creating new overview of all projects developed by PPM
model (marketing, sales, etc), recognizing familiarities and dierences between
these projects, recognizing synergetic and / or competing relationship between the
projects. Also identifying barriers such as organizational climate, perceptions, customer pressure, too many communication links, and too many projects, and working to avoid or minimize them by talking with the middle managers.
148
Draen Kostelac
Senior management must be willing to hear bad news and have the courage to
possibly cancel a project. Since changes can alter expectations, project portfolio
management must be integrated with the projects change management process.
Main benets for fast growing company (in this case JGL):
Optimization of the project portfolio results,
Controlling of the structure of the project portfolio,
Control of the project portfolio risk,
Coordination of the project objectives with the strategic objectives of the project-oriented organization,
Coordination of the objectives of individual projects,
Coordination of the resources used both internally and externally in the projects, and determination of project priorities,
Any potential stop or interruption of projects.
REFERENCES:
Englund, Randal L. & Graham, Robert J & Dinsmore, Paul C. (2001.) Creating
the PMO, USA, San Francisco
Gareis, Roland (2005) Happy Projects!, Wien, Austria
Rad, Parviz F. & Levin, Ginger (2002.), The advanced PMO, USA, Washington
PMA baseline Wien www.p-m-a.at/ ( 20.02.2010)
ICB IPMA Competence Baseline Version 3.0 www.ipma.ch ( 11.01.2010)
Project Management Institute www.pmi.org (01.02.2009.)
Stanleigh, Michael (2006.), Process Management vs. Project Management , Wien,
Austria
Kerzner, Harold (2001.),A Systems Approach to Planning, Scheduling, and Controlling, USA, Ohio
Turner, J. Rodney (2009.), The Handbook of Project-Based Management - 3rd
Edition, London, England
FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES
149
FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION

OF CROATIAN COMPANIES
Hrvoje Serdarui M.Sc., Zagrebaka banka d.d., Croatia, [email protected]
Abstract
When considering problem question from the area of nancial decisions (how
to nance capital structure question) and problem question from the area of
a corporate governance (so called agency problem), one of key roles has nancial
analysis.
In the research presented, question was asked: Do companies make their owners wishes come true in a manner that they increase owners wealth and, in the
long-run, do they accomplish it in a sustainable manner? Companies manage
when they are creating real economic value for theirs owners and when they are
creating value investing capital where return rate is greater than cost of capital.
Therefore it is of vital importance that nancial management deeply understands
what the value is, how it is created and what is the role and responsibility of nancial management in front of owners. Professional experiences in the risk assessment
and business relationship with numerous clients indicate that the vast part of the
problem of weak Croatian national economy lies on a micro-level in companies
which are not success-driven, on a continuous and sustainable frequency, meaning
lack of a long-term value increase.
JEL classication: G11, G24, G32
Keywords: Financial analysis, valuation
1. INTRODUCTION
Normative goal, according to theory of nancial management, is increase of

owners wealth or, dierently put, maximisation of owners equity. This maximisation is considered socially desirable aim, which tangs interests of all participants
when deciding on how to nance, in what to invest, do we or do we not pay dividends and in what a manner is a corporation governed.
150
Hrvoje Serdarui
Value is a dening dimension of measurement in market economy. Valuation, as

a process which derives out of that dimension, is consisted of ve steps:
1. understanding the business and current nancial prole;
2. forecasting company performance;
3. selecting the appropriate valuation model;
4. converting forecasts to a valuation;
5. making the investment decision.
When considering problem question from the area of nancial decisions (how
to nance capital structure question) and problem question from the area of
a corporate governance (so called agency problem), one of key roles has nancial
analysis.
Financial analysis contributes in two rst steps of valuation. Fundamental equity-analysis is engaged in a estimation of operating performance and equity of a
company in order to asses relative attractiveness of an equity (companies shares) as
an investment. Analysts use dierent valuation methods in order to estimate equity,
including dierent approaches:
- valuation ratios (such as P/E ratio);
- discounted cash ow (DCF Method);
- residual income (comparison of ROE vs. cost of capital).
In the research presented, question was asked: Do companies make their owners wishes come true in a manner that they increase owners wealth and, in the
long-run, do they accomplish it in a sustainable manner? Companies manage
when they (1) are creating real economic value for theirs owners and when they (2)
are creating value investing capital where return rate is greater than cost of capital.
Therefore it is of vital importance that nancial management deeply understands
what the value is, how it is created and what is the role and responsibility of nancial management in front of owners. Professional experiences in the risk assessment
and business relationship with numerous clients indicate that the vast part of the
problem of weak Croatian national economy lies on a micro-level in companies
which are not success-driven, on a continuous and sustainable frequency, meaning
lack of a long-term value increase.
2. UNDERSTANDING THE BUSINESS AND CURRENT FINANCIAL PROFILE
Creators and analysts of nancial statements are playing cats and dogs game:
the analyst can not take statements for granted, in the rst place because nancial
statements are presented in the nominal (face) regarding equity-valuation.
151
On the other hand, nancial statements standards enable managers (owners

agents) that nancial position and protability of a company are exible communicated up to the certain level. Moreover, their position enables also hiding some
bits of information from their competitors, analysts and investment public. Here
is the choice presented:
- potential benets (revelation of data decreases insecurity (e.g. risk), and therefore, cost of capital is decreased, which enlarges value) or
- potential costs (revelation of data decreases current and future competitive and
market position, what can possibly destroy value).
The way people treat data come out from accounting process divides them into
two groups: ones who treat this data as a rich source in valuation process, and the
ones who do not.
A companys value is driven by its ability to generate cash ows in the long
term.
At the same time, the ability to generate cash ows (and hence its value creation
ability) is driven by long-term growth and the returns a company earns on invested
capital relative to its cost of capital.
Out of 10 valuation methods based on discounting of cash ows, in the research two were used: Free Cash Flow or shorted FCF) and economic value added
(EVA)1.
1
Paragraph citated from Doctor of Business Administration Thesis, author Andrej Grubii: ValueBased Management: Is it embraced in practice?, Business Scholl Lausanne, 2007., mentor: Dr. Alkis
Tsiklis.
Author gave 10 methods in his work:
1) Free cash ow discounted at the WACC;
2) Equity cash ows discounted at the required return to equity;
3) Capital cash ows discounted at the WACC before tax;
4) APV (Adjusted Present Value);
5) The business risk-adjusted free cash ows discounted at the required return to assets;
6) The business risk-adjusted equity cash ows discounted at the required return to assets;
7) Residual income discounted at the required return to equity;
8) EVA discounted at the WACC;
9)
The risk-free rate-adjusted free cash ows discounted at the risk-free rate; and
10
) The risk-free rate-adjusted equity cash ows discounted at the required return to assets.
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Hrvoje Serdarui
FCF is closely connected with the basic valuation principle: net present value.
Furthermore, FCF is forward-looking, based on expectations, not on what was done
in past. Equity investors (owners of the company) are just doing right that: they are
expecting their investment to be paid back. They are grounding their choices on the
promise of payback of the future cash ow.
Equity investors in the capital markets are reasoning on future expectations,
while the very same equity investors in the persons of the company owners pay
their agents (board members whom is value creation entrusted) by the results, not
promises, by past actions, not future expectations. There is a risk that the board
(management) is being paid while they are destroying value for the owners. In order to resolve this matter, companies are implementing value metrics conceptually
close to free cash ow model.
Early was mentioned that two methods will be used forward on, so:
- NPV:
Based on DCF technique, so in corporate valuation we say it is a
bottom-up approach. Every investment is contemplated through the time horizon
in terms of future expected economic benet (cash ow). NPV analysis looks on
the project through the long-term period (e.g. 5-year, 6-year etc.) in order to consider all project eects. It is concentrated on a question: do we have a go for this
project? It puts a weigh on decisions, not on a time period.
- EP:
Short of economic prot. Calculated as a dierence of net operating prot after tax (NOPAT) and price of a capital. Uses top-down approach
and is usually calculated fore denite time period (most frequent on a yearly basis),
more on the level of a company, rather than on a project-level. Economic prot
calculations are trying to allocate value creation on the specic time period.
Table 1. Comparison of two principles (NPV vs. EP)2
Typical application
Time period
Basis
NPV
Project or decision
Whole life cycle
Cash ow
Investor benchmark
Cost of capital as a hurdle rate
EP
Company or division
Dened calendar period
NOPAT
Capital charge (Amount of capital
times cost of capital)
Table from study case Value Creation, Net Present Value, And Economic Prot, author: Prof.
Robert S. Harris, Copyright University of Virginia, Darden School Foundation, Charlottesville, VA,
1997, Page 3.
Cos of capital
Amortisation and deprecation
Working capital
Primary scope
Decreases cash ow
Added to NOPAT
Aects cash ow
Valuation of future decisions
153
Increases level of capital

Decreases level of capital
Aects level of capital
Valuation of current performance
Formulas in use are:

NPV =
Net present value of future cash ows Initial investment;
Cash ow = NOPAT + Amortisation and Depreciation Increase of Net

Working Capital CAPEX
Economic prot
= NOPAT Cost of capital =

= NOPAT Cost of capital * Level of capital3
For the forecasting of the future performance which will aect company value it
is vital that nancial analyst understands economic and industrial context (macro
economical analysis, eects of monetary policy, industrial analysis) and to analyse
nancial statements. More, it is needed to make a sensitivity analysis, what is tangible with probability (e.g. Bayes theorem).
3. UNDERSTANDING OF CURRENT FINANCIAL PROFILE
When considering issue of a prole, we can say that it is an understanding of

current nancial position (Balance Sheet) and protability (Income Statement).
Through nancial analysis it is possible to assess ones buyers and build conclusions
into a business relationship.
It can be done through nancial ratios as well. Relative valuation models use
principle that assets that are alike have prices that are also alike. That is why relative
valuation uses ratios or rational numbers.
3.1. Relative valuation models
Worlds authority on a led of valuation, professor Aswath Damodaran, writes

in his book Damodaran on valuation that most valuations in practice is relative,
3
Cited from Value Creation, Net Present Value, And Economic Prot, professor Robert S. Harris,
Copyright University of Virginia, Darden School Foundation, Charlottesville, VA, 1997.
154
Hrvoje Serdarui
so no point to argue against it. While DCF valuation has an end to reach to an
asset value, considering its cash ow, growth and risk characteristics, at a relative
valuation side there is an objective to value assets based on how similar assets are
currently priced by the market.4
Here are listed key ratios:
1) Price/Book Value Ratio (P/B)
2) Price/Cash Flow Ratio (P/CF)
3) Price/Earnings Ratio (P/E)
4) Price/Earnings To Growth Ratio
5) Price/Sales Ratio (P/S)
6) Dividend Yield (Yd)
7) Enterprise Value Multiple
8) EPS
9) DPS
The most used ratio is P/E, which is connected with growth of sales and earnings (e.g. Gordons growth model), with cost of capital and CAPM, ROE and
DuPont analysis, etc...
3.2. Absolute valuation models
Task of these models is to come up with the real (intrinsic) asset value, the
result which comes in the form of a number in monetary is being compared with
the market price of the particular asset. In nancial theory, the most important
are NPV models. The method is DCF method or The Discounted Cash Flow
Method).
Cash ow is dened on a company level: the rst denition Free Cash Flow and
the other is residual income.
The rst denition arises on an operative cash ow and it considers principle going-concern: reinvesting in the capital (long-term) assets and working capital needs.
It is based mostly on the Statement of the Cash Flow.
4
Damodaran, A. (2006.). Damodaran on valuation: security analysis for investment and corporate
nance, New Jersey: Wiley and Sons. (pages 231-233), text adapted.
155
The other denition is residual income based on an accrual category of earnings versus the opportunity cost which are generating those same earnings. So, the
second denition is mostly based on the Income Statement.
In valuation, Free Cash Flow method is suitable when a company does not pay
dividends, if dividends are signicantly adverse from the Free Cash Flow To Equity
(FCFE), when Free Cash Flow correlates with the protability and when investor
takes majority in a company.
Residual income method (approach) can be used in valuation when company
does not pay dividends as alternative to the rst method or free cash ow is a negative one.
Here it is compared Return on Equity (ROE) versus cost of capital. The helpful
DuPont analysis can detect generators of protability.5
4. RESEARCH RESULTS
Here down is presented analysis of Croatian tourism companies in the period of

2002 2004. Calculation is based on the cost of Equity of 11%.
Table 2. Key results of Free Cash Flow and Economic Value Added
(values in HRK)
EBIT
2002.
2003.
2004.
2002.
2003.
2004.
7.209.096
14.188.721
12.722.416
9.394.450
9.545.804
14.096.234
min
-67.926.361
-17.732.344
-11.407.867
-66.440.769
-79.610.425
-8.728.205
max
45.649.838
66.360.629
61.085.089
52.023.083
84.052.080
60.959.101
count +
26
32
33
25
25
33
count -
10
11
11
median
4.013.588
8.974.369
8.856.571
7.306.374
6.208.861
10.095.806
AVG - MED
3.195.508
5.214.352
3.865.846
2.088.077
3.336.944
4.000.428
average
Free Cash Flow
See authors article in magazine Raunovodstvo i nancije, December 2010: Measurement of

protability.
156
Hrvoje Serdarui
NOPAT
(FD + Equity) x WACC
2002.
2003.
2004.
2002.
2003.
2004.
6.390.629
13.766.623
12.220.750
38.936.245
39.470.172
42.947.165
min
-67.926.361
-17.732.344
-11.407.867
164.435
453.826
690.765
max
45.649.838
66.360.629
61.085.089
154.022.941
158.496.162
161.042.051
count +
25
32
33
36
36
36
count -
11
median
2.351.668
8.702.307
8.738.289
24.157.269
23.236.433
28.655.639
AVG - MED
4.038.961
5.064.316
3.482.461
14.778.975
16.233.739
14.291.526
average
average
min
max
count +
count median
AVG - MED
2002.
-32.545.615
-126.240.542
359.374
1
35
-18.641.552
-13.904.063
EVA
2003.
-25.703.549
-92.135.533
7.408.183
3
33
-18.674.363
-7.029.186
2004.
-30.726.415
-118.371.773
6.032.893
5
31
-22.648.677
-8.077.738
Source: Authors calculations

Although FCF (Free Cash Flow varies from 9.4m HRK to 14.1m HRK in average and most of 36 companies researched are FCF positive (minimum 25 of 36),
on the other hand, EVA is in the negative territory ranging from -32.5m HRK to
30.7m HRK in average, with only 5 EVA positive companies in 2004, what was
the best year. The reason is that the level of capital is bigger than NOPAT.
ROE analysis showed that average was between -5,8% and 4,6%. Upper level
(rst 12 by the revenue size) have ROE ranging from 3,8% to 6,0%, what is better
than average. Out of 36, there are 25 companies with increased ROE.
157
Correlation coecient between change of revenues and change of ROE is 0.02,

what is low and gives a conclusion that there is no signicant connection between
increase in revenue and protability.
Protability comes from high leverage (2,2 1,9) and the amount of EBT
(Earnings before taxes) which powerfully injects in value of tax burden ranging
from 3,5 to 0,5 and interest burden (values close to 1: 0,94 0,96). EBT is high
because of tax shield.
5. CLOSING THOUGHTS
Valuation is forward looking business; going for forecasts is company performance what will generate future paybacks to owners. Depending on inputs, results
will vary from bad to good. This is no revolutionary revelation. Professor Damodaran in one interview said in February this year: Keep it simple! 6 So valuation
should be done this way.
After research conducted, results for period 2002 2004 for biggest Croatian
tourist companies are that they are not EVA positive business. Free cash ow and
EVA, by theory, should give same or pretty same results. Results presented in this
article are totally opposite, so it is not possible to rmly state which result is to be
taken into account.
Bibliography:
Andrej Grubii, DBA Thesis: Value-Based Management: Is it embraced in practice? , Business Scholl Lausanne, 2007, mentor: Dr. Alkis Tsiklis
Bradley, M., Jarrell, G. A., Han Kim, E.: On the Existence of an Optimal Capital
Structure: Theory and Evidence, The Journal of Finance, Vol. 39, No. 3, Papers and
Proceedings, Forty-Second Annual Meeting, American Finance Association, San
Francisco, CA, December 28-30, 1983 (Jul., 1984), pp. 857-878
Brealey, R. A. i Myers, S. C.: PRINCIPLES OF CORPORATE FINANCE,
McGraw-Hill/Irwin, New York, 2003.
Interview given by CFA Institute with the Professor Aswath Damodaran called Criticisms of Traditional Discounted Cash Flow Analysis can be viewed at: http://www.facebook.com/#!/video/video.p
hp?v=190412274322472&oid=387464390460&comments.
158
Hrvoje Serdarui
CFA Institute, Level I 2008, Volume 1-6, CFA Program curriculum, Pearson Custom Publishing, Boston: (ISBN 0-536-34178-8; ISBN 0-536-34179-6; ISBN
0-536-34180-X; ISBN 0-536-34182-6; ISBN 0-536-34227-X; ISBN 0-53634228-8)
CFA Level 1, Study Guide, Study Sessions 1-18: Corporate Finance, Portfolio
Management, Equity Analysis, Part 11-29, Edition 2010., DeVry/ Becker Educational Development Corp., 2009.
Copeland, T.: VALUATION, Wiley John & Sons: McKinsey&Company Inc.,
New York, 1991.
Damodaran, A. (Vol. 25, No. 3, September 2008). The Anatomy of an LBO: Leverage, Control, and Value. CFA Institute Conference Proceedings Quarterly (str.
16-27). Charlottesville, Virginia: CFA Institute
Damodaran, A. (2006). Damodaran on Valuation, Wiley and Sons, New Jersey,
ISBN 978-0-471-75121-2
Helfert, E. A.: TEHNIKE FINANCISJKE ANALIZE, Hrvatska zajednica
raunovoa i nancijskih djelatnika, Zagreb, 1997.
Hirst, D. E., Hopkin, P. E.: Earnings: Measurement, Disclosure, and the Impact on
Equity Valuation, 2000., The Research Foundation of the Association for Investment Management and Research, CFA Publications, www.cfapubs.org
Hrvatska udruga nancijskih analitiara: PRIRUNIK ZA POLAGANJE ISPITA ZA OBAVLJANJE POSLOVA INVESTICIJSKOG SAVJETNIKA, Zagreb,
2002.
Koller, T., Goedhart, M. et Wessels, D. (2010). VALUATION, Measuring and
Managing The Value of Companies, John Wiley & Sons, Inc., McKinsey & Company, New Jersey, ISBN 978-0-470-42465-0
Modigliani, F., Miller, M. H.: The Cost of Capital, Corporation Finance and
The Theory of Investment, The American Economic Review, June 1958, Volume
XLVIII.
Modigliani, F.; Miller, M. H.: The Cost of Capital, Corporation Finance and the
Theory of Investment, The American Economic Review, Vol. 48, No. 3. (Jun.,
1958), pp. 261-297.
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Novak, B.: Mjerenje i upravljanje dodanom ekonomskom vrijednou tvrtke,

EKONOMSKI PREGLED, Zagreb, 53 (3-4) 269-291 (2002)
Peterson, P. P., Peterson, D. R.: Company Performance and Mesaures of Value
Added, The Research Foundation of The Institute of Chartered Financial Analysts, December 1996.
Serdarui, H. (2010). Measurement of protability, Raunovodstvo i nancije,
Zagreb, December 2010.
Young, D. S. & OByrne, S. F. (2001). EVA and value based management: a practical guide to implementation, McGraw-Hill, ISBN 0-07-136439-0
Harris, Robert S., Value Creation, Net Present Value, And Economic Prot, Copyright University of Virginia, Darden School Foundation, Charlottesville, VA,
1997.
Pinto, J. E. et al. (2007). Equity asset valuation, Wiley and Sons, New Jersey, ISBN
978-0-470-57143-9
Bloxham, E. (2003). Economic Value management, Wiley and Sons, New Jersey,
ISBN 978-0-470-35426-0
160
Nino Grau
STANDARDS UND EXZELLENZ UNVERSHNLICHE

GEGENSTZE?
Prof. Dr. Nino Grau
Technische Hochschule Mittelhessen - University of Applied Sciences
Fachbereich Wirtschaftsingenieurwesen
Abstract:
This paper presents two dierent approaches to improving the project namely
the standards for project management and the model for the project excellence.
There is evidence that both standards in useful combination can dramatically increase the quality of projects
Keywords: Project management standards, Excellence Award, IPMA
1. Einfhrung
Die Globalisierung und die internationale Zusammenarbeit fhren dazu, dass

die Erwartungshaltung der Kunden und Auftraggeber ein bisher kaum vorstellbares Niveau erreicht hat sowohl in Bezug auf das Angebot der Sach- als auch der
Dienstleistungen.
Einerseits soll alles so schnell und mglichst so preiswert angeboten werden,
wie nie zuvor. Dies wird durch internationale Arbeitsteilung und Anwendung
komplexer Methoden und Technikum (inklusive Informations- und Kommunikationstechnologie) fr die Koordination der verteilten Arbeit erreicht. Die Arbeit
in verteilten und virtuellen Teams ist fr Kommunikationsprobleme und Missverstndnisse besonders anfllig. Deshalb ist es sehr wichtig, in solchen Projekten Standards zu verwenden, die die gemeinsame Projektarbeit auf eine von allen
anerkannte Basis stellen. Es ist nicht verwunderlich, dass solche Standards nur den
kleinsten gemeinsamen Nenner darstellen. Zustzlich wird noch als negatives Element die starke Brokratisierung der Vorgehensweise empfunden. Die Benutzung
der Standards wird nicht selten eher als eine Einengung als eine Hilfe empfunden.
161
STANDARDS UND EXZELLENZ UNVERSHNLICHE GEGENSTZE?
Andererseits wird die hchste Qualitt erwartet. Dies bedeutet, dass die Projektteams durch ein exzellentes, herausragendes, alles Bisherige in den Schatten stellendes Projektmanagement glnzen sollen. In jeder Hinsicht sollen sie die Erwartungen der Auftraggeber erfllen oder noch besser bertreen. Erwartet wird also hoch
innovatives, exibles Vorgehen und herausragende Projektergebnisse.
Wie stehen nun die Forderung nach Standards einerseits und die nach Exzellenz
andererseits zueinander?
2. STANDARDS FR DAS PROJEKTMANAGEMENT
Schliet man sich der Denition des BSI (British Standards Institute) an, so
istein Standard a published specication that establishes a common language, and
contains a technical specication or other precise criteria and is designed to be used
consistently, as a rule, a guideline, or a denition (BSI,2011).Diese Denition
klingt so einleuchtend, dass man leicht auf die Idee kommen knnte, es gebe einen
fr alle verbindlichen Standard fr das Projektmanagement. Wenn von Standards
fr das Projektmanagement gesprochen wird, so macht dies aber deutlich, dass es
nicht einen allumfassenden Standard gibt, sondern eine Flle von verschiedenen
Standards (s. Abb. 1)(s. GRAU, E. & GRAU, N. 2011)..
Abb. 1: unterschiedliche Standards fr das Projektmanagement
De facto Standards
ICB 3.0
special Standards
PRINCE 2
Scrum
V-Modell XT
PMBOK
PM-Kanon
ProjektManager
PM3
De jure Standards
VDA 4.3
HOAI
VOB/FIDIC
Maturity-Models
project excellence
DIN 69900 / 69901

ISO 10.006
IEC 62198
ISO 21.500
PM-Delta
CMMI
SPICE
OPM 3
162
Nino Grau
Verschiedene Standards fr das Projektmanagement (z.B. DIN 69.900/69.901

und die in der Entwicklung bendliche ISO 21.500) legen zwar vieles fest, erlauben
aber dem Anwender, selbst zu entscheiden, welche dieser Prozesse fr sein Projekt
sinnvoll sind. Dabei unterscheidet die deutsche DIN 69 900 zwischen Prozessen,
die verbindlich sind und zustzlichen Prozessen, deren Anwendung empfohlen
wird.Dadurch wird einerseits so vieler festgelegt wie ntig andererseits wird aber so
viel Flexibilitt gewhrt wie nur irgendwie mglich. Durch die Beteiligung breiter
Kreise an der Entwicklung der Normen (vgl. WASCHEK, 2009) wird darber
hinaus eine weiterhin konsensfhige Lsung gefunden
3. MODELL OF PROJECT EXCELLENCE
Das Modell fr die Bewertungder Exzellenz in Projekten (PEM ProjectExcellence Modell) wurde Ende des 20. Jahrhunderts von der GPM (Deutsche Gesellschaft fr Projektmanagement e.V.) entwickelt. Das Modell wurde zunchst
im Rahmen eines Auswahlverfahrens dazu benutzt, exzellente Projekte zu nden
und im Rahmen eines Award-Prozesses zu wrdigen. Im Vordergrund stand die
gerechte Bewertung der Bewerber. Das Modell ist deswegen so klar, dass es einerseits fr die Assessoren als klare Grundlage fr ihr Vorgehen dient. Andererseits
ist es auch fr die Bewerber gut nachvollziehbar (Grau&Hutterer, 1999).Darber
hinaus war es wichtig, ein Verfahren zu entwickeln, mit dem in einem Train the
Trainer Prozess verhltnismig schnell eine grere Anzahl von Assessoren fr
ihre Aufgabe vorbereitet werden konnte. Das Modell sollte auch so gestaltet sein,
dass es von vielen Projektmanagern akzeptiert werden konnte, ohne dass sie eine
aufwndige Ausbildung dazu brauchen. So bot es sich an, dass weit verbreitete
Modell von EFQM-Modell zum Vorbild zu nehmen. Dieses Modell konnte durch
verhltnismig wenige nderungen an das Thema Projektmanagement angepasst
werden. Es standen auch viele EFQM-Assessoren zu Verfgung, die durch verhltnismig wenig Training zu PEM-Assessoren ausgebildet werden konnten. Das
Modell, das mehrere Jahre in Deutschland im Einsatz war, wurde 2002 beim Weltkongress in Berlin an die IPMA bergeben, wo es als Bewertungsgrundlage fr den
IPMA International Award dient.
Aus der Tabelle 1 ist deutlich sichtbar, dass das Modell fr Projekte verschiedenster Grenordnung anwendbar ist. Es kann auch unabhngig von der Branche
bzw. von der Projektart angewendet werden. Es handelt sich also um ein oenes
Bewertungsmodell, das heit das Modell lsst viel Spielraum bei der Bewertung.
163
Tab. 1: Unterschiedliche Kategorien von Projekten, die am IPMA Award

teilnehmen
Das PEM-Bewertungsmodell (siehe Abbildung 2) sieht fr das zu bewertende

Projekt die Mglichkeit, maximal 1000 Punkte zu vergeben. Die neun Kriterien,
die zur Bewertung herangezogen werden, werden dazu in zwei Gruppen eingeteilt,
wobei in jeder Gruppe 500 Punkte vergeben werden knnen. Bei den beiden Gruppen von Kriterien handelt es sich um die Kriterien zur Bewertung der Projektergebnisse bzw. des Vorgehens im Projektmanagement.
Abb. 2: Das PEM
The IPMA Asse ssme nt Mode l for

Proje ct Exce lle nce
164
Nino Grau
Pro Kriterium gibt es unterschiedliche Anzahl von Bewertungspunkten (s.Abb.

edes Kriterium setzt sich aus mehreren Teilkriterien zusammen, die jeweils einzeln
bewertet werden. Die Teilergebnisse werden dann zu Ergebnissen pro Kriterium
zusammengefgt
Abb. 3: Punkteverteilung im PEM
200
180
160
140
120
100
180
180
80
140
140
60
40
80
70
70
People
Resources
80
60
20
0
Project
Objective
Leadership
Processes
Customer
Results
People
Results
Key
Results of
other parties Performance
I
l d
dP j
Da es sich hier um ein sehr oenes Bewertungsmodell handelt, kommt dem Bewertungsprozess besondere Bedeutung zu. In einem aufwndigen Prozess bewerten
die Assessoren die Bewerbungsunterlagen zunchst individuell. Danach berprfen
Sie Ihre individuellen Bewertungen in einem Konsensprozess aller Mitglieder des
Assessorenteams. Gegebenenfalls werden die Bewertungen bei einem Vorortbesuch
beim Projektteam endgltig erhrtet (siehe Abbildung XX). Bei diesem Prozess
bilden das Wissen und die Erfahrung der Assessoren neben dem Modell die zweite
wichtige Voraussetzung fr das Gelingen der Bewertung. hnlich verhlt es sich
beim internen Einsatz des Modells zur Verbesserung des Projektmanagements
eigenen Unternehmen.
165
Abb. 4: Vorgehen beim Award-Prozess der IPMA

Neben der Mglichkeit, ganze Projekte im Detail so ausfhrlich und damit aufwndig zu analysieren wie im Awardprozessgibt es noch andere Mglichkeiten,
vom PEM zu protieren. So kann man z.B.:
1. aus Berichten von Award bzw. Prize Winnern bzw. Finalisten deren Projekte
kennen lernen und aus deren Erfahrungen im Sinne von bestpractices lernen.
2. Kleinere Segmente eines Projektes identizieren und versuchen, von Anfang
an in diesen Bereichen Projekt mglichst exzellent zu arbeiten
3. Last But not least kann man sich mit seinem Projekt um den sofort auch dann
bewerben, wenn man sich keine allzu groen Honungen macht, den Award
zu gewinnen. Schon der Benchmarkingbericht durch das Assessorenteam hilft,
das eigene Projektmanagement zu verbessern mit einem vergleichsweise moderaten
Aufwand fr die Teilnahme am Award.
Dadurch, dass sowohl das Modell als auch das Bewertungsverfahren bekannt
sind, kann jenes Projektteam das Verfahren nutzen, um sein Projekt zu verbessern.
Einen Anhaltspunkt fr die Bewertung des Projektmanagements bekommt man
aus der Bewertungstabelle fr die Kriterien 1-5 (s. Tab. 2). Vergleichbare Tabelle
166
Nino Grau
gibt es auch fr die Kriterien 6-9. Entsprechende Tabellen und Hinweise zur Bewertung sind aus der Bewerbungsbroschre fr den Award der IPMA ersichtlich.
Tab. 2: Bewertungstabelle fr die Qualitt des Projektmanagements
Criteria 1-5 Assessment Table
Obwohl das Modell und das Bewertungsverfahren entlich bekannt sind, lebt
dieses Bewertungsverfahren von dem Wissen der Assessoren. Dies bedeutet das das
Modell den grtmglichen Nutzen dann erbringt, wenn das Modell und das Bewertungsverfahren zumindest ansatzweise so kombiniert werden, wie dies bei dem
Assessment vorgesehen ist (s. Abb. 5). Dazu sollen die diejenigen, die im Unternehmen das Modell anwenden, sinnvollerweise ein Training durchlaufen haben. Noch
besser ist es, wenn sie alles Assessoren im Rahmen des in Award Prozesses ihre
Erfahrungen gesammelt haben.
167
Abb. 5: Zusammenspiel zwischen Verfahren und Modell fr PEM
Excellence = Model + Process
FAZIT
Die Anwendung des Modells und des Prozesses fr Projekt Exzellenz verhilft
den Projektteams, ihre Projekte deutlich zu verbessern und sie zumindest auf lange
Sicht exzellent zu machen. Diese Exzellenz kann allerdings nicht darauf verzichten, bei den Grundlagen die geltenden Standards zu bercksichtigen. Die Standards sind heutzutage so exibel, dass sie die Projektarbeit nicht unntig durch
brokratische Hrden erschweren und die Initiative der am Projekt beteiligten zu
ersticken (Grau, 2011). Sinnvolles Projektmanagements wird deshalb die Standards als die Basis ihrer Arbeit anwenden, um dadurch die Freiheit zu erlangen,
durch innovative und kreative Vorgehensweisen die Exzellenz in der Projektarbeit
zu erreichen.
Beide Bereiche helfen aber nur insoweit, als sie von den gut ausgebildeten, kompetenten Projektbeteiligten sinnvoll angewendet werden.
168
Nino Grau
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B Kohl, H. (Hrsg.) Benchmarking 99 Steigerung der Wettbewerbsfhigkeit privater
und entlicher Unternehmen, IPK (Fraunhofer-Institut fr Produktionsanlagen
und Konstruktionstechnik) Berlin Eigenverlag, ISBN 3-8167-5275-6
Grau, N.:(2011) Project Management Standards New DevelopmentsincludingISO 21.500 Vortrag in Zagreb Tagungsband in Vorbereitung
Mertins,K. & Kohl, H. (Hrsg.)(1999) Benchmarking 99 Steigerung der Wettbewerbsfhigkeit privater und entlicher Unternehmen, IPK (Fraunhofer-Institut fr
Produktionsanlagen und Konstruktionstechnik) Berlin Eigenverlag, ISBN 3-81675275-6
Otmann, R.&Shelle, H. (2011): professionelles Projekt-Management die besten
Projekte, die erfolgreichsten Methoden in ISBN 978-3-406-61988-5
Waschek, G.(2009): Normen und Richtlinien in GPM Deutsche Gesellschaft fr
Projektmanagement Frau/Gessler, M. (Hrsg.) Kompetenz passierte es Projektmanagement (PM3) (Seite 1299-1327), Nrnberg, ISBN 978-3-924841-40-9
SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR CORPORATE ...
169
SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL

FRAME FOR CORPORATE GOVERNANCE IN BOSNIA AND
HERZEGOVINA
M.sc. Nikola Papac, Faculty of Economics, University of Mostar
Ph.D. Marija utura, Faculty of Economics, University of Mostar
M.sc. Anela olak, Faculty of Economics, University of Mostar
Abstract
This paper will analyze corporate governance in Bosnia and Herzegovina, i.e.
it will analyze the institutional or the legal frame of the corporate governance in
Bosnia and Herzegovina. The goal is to show the state and the perspectives of institutional or the legal frame of the corporate governance.
Keywords: corporate governance, Bosnia and Herzegovina
1. Introduction
Corporate governance, in the broadest sense, represents a relation between the

manager (the governance) and the people or the institutions which invested the
capital in the corporation. The theory of corporate governance is getting more and
more important because of the large corporations whose income is signicantly
above GDP of many countries and the fact that the government is daily getting
harder and more complex because the issue of separating the ownership and the
government in large corporations is emphasized daily. The necessity for corporate
governance reached its peak after the ruination of large global corporations followed by the malversations of management and crises and turbulences on global
market (ENRON and WorldCom in USA and Parmalat in Italy).
In countries in development the routs of what is now called corporate governance lay in the initiatives for privatization which grew stronger from late 70s and
during 80s till today. Transformation (privatization) of state or social ownership to
170
Nikola Papac Marija utura Anela olak
private ownership is one of rst and very important steps or phases in the whole
process of transition or changing the state-planned and administratively regulated
economy to market economy.
Corporate governance in one country consists of laws and other rules that regulate this eld, these are the formal rules, and of the informal rules which are dened
inside of or between corporations by various contracts and agreements.
This paper will analyze corporate governance in Bosnia and Herzegovina, i.e.
it will analyze the institutional or the legal frame of the corporate governance in
Bosnia and Herzegovina. The goal is to show the state and the perspectives of institutional or the legal frame of the corporate governance.
The legal frame for corporate governance in Bosnia and Herzegovina is determined by entity laws. The existing laws which regulate this issue oer only partial
and incomplete solutions and are not completely harmonized with the supranational regulations and recommendations.
2. The denition, role and the meaning of corporative governance
The term rm /business/company/enterprise can be dened as an independent

economic, technical and social whole in the ownership of certain subjects which
produces goods or services for the need of the market using available resources and
bearing the economic risk with the goal of making prot and accomplishing other
economic goals.
The corporation (in B&H dioniko drutvo or Joint Stock Company in
English) is a legal person and represents the most complex organizational form in
market economy. The companys capital is shared on stocks and one may become
a co owner by buying stocks on the market. The owners of the corporation, i.e. its
stock-holders, have a limited responsibility, i.e. they are responsible for the corporations business success only to the level of their capital invested in the stocks.
According to Demb and Neubauer4 corporate governance is a kind of process
in which corporations respond to rights and wishes of its interested groups the
stockholders.
171
According to the denition of the Organization of Economic Cooperation and

Development (OECD)1 the corporate governance consists of group of relations
between the management, the direction, the board of directors, stockholders and
other interested parties. Corporate governance also represents a structure inside
which the goals of corporation are set as well as the patterns for accomplishing these
goals and monitoring the results. Good corporate governance should be a stimulus
to board of directors, the direction and the management in accomplishing the goals
which are in the best interest of both - the corporation and the stockholders and
should ease ecient monitoring for them. The existence of ecient corporative
governance inside a particular corporation and the entire economy helps secure a
degree of trust necessary for proper functioning of the market economy.
Making ecient corporate governance includes three elds: (1) management
control management board controls the choice of directors and evaluates the
work of directors; (2) reports to stockholders audit and including them in important decisions of the owner; (3) monitoring and the evaluation of long-term
strategies and evaluation of companys work.5
3. Systems of corporate governance the inuence of legislative or institutional frame on the model of corporate governance in
Bosnia and Herzegovina
The system of corporate governance is determined according to the person

which has the leading position and role on the relations in the corporation. The
systems of corporate governance are dierentiated by the system of allocation of
power, the level of separating the owner and the management structure, and nally
by the problem of ecient decision making. Considering weather the interior or
exterior structures have the leading position, we dierentiate an open and closed
system of corporate governance.
3.1. Convergence of opened and closed system - their advantages
and disadvantages
To claim that one of these systems is better than the other is very hard, rst of
all because they have developed in dierent situational frames, but also because
Organisation for Economic Co-Operation And development, OECD Principles of Corporate Governance, OECD, 2004
172
partially they overlap in their characteristics. Based on everything said so far we can
conclude that closed system is based on
Table 1 Comparison of opened and closed system of corporate governance
OPENED SYSTEM
CLOSED SYSTEM
Ownership
dispersed
concentrated
Concentration of voting
Weaker
stronger
power of stock - holders
Control and ownership
developed
connected
Owners of controlling packages of
power
management
stocks and stock - holders
The role of owner in corpora- Usually small because of the free-rider Preferably high because of the no
tive management
eect
transparency
Instrument of corporative
mostly external
mostly internal
government
Interests of other interested
lesser level of representation
higher level of representation
inuence-group
Major stock-holders vs. Minor stockBasic agency relation
Stock-holders vs. management
holder
Accomplishing the goals of manageAccomplishing the goals of major ownment (preinvesting) at the damage of
ers and other groups at the damage of
eciency and protability
interests of minor stock-holders
Institutional investors are prevalent and First companies, then nancial instituIdentity of stock-holders
then the individual investors follow
tions and then individual investors
Medium developed with secondary
Market of capital
Very developed with primary role
role
It exists with a signicant part of hostile It does not have a relevant role, hostile
Market for corporative control
takeovers
takeovers are rare
Source: Tipuri, D. (2006): Nadzorni odbor i korporativno upravljanje, Sinergija, Zagreb, page 88
After seeing all this we can conclude that the system of corporative government
in B&H is closer to closed system. That can be the consequence of experiences
gathered from central European countries, but also the low level of the development of nancial market in countries with dominantly opened system of corporate
governance.
173
4. Regulation of corporate governance at the level of European Union
By the regulations of the contract about the establishing of EU as the primary

source, the frame of supranational regulative and the rights of corporation and
corporate governance are determined, as well as through numerous regulations of
secondary legislative of EU and the verdicts of the court of EU.
Most of the initiatives at the level of European Union at the area of corporation
and corporative government are based on the article 44 part 2 point g (chapter
54.) of the Contract about the establishment of European Union. Article 43 of the
contract about the establishing of EU regulates the freedom of corporation to establish Daughter Company, branches of a company or agency in another countrymember. In the court practice of the Court of EU the establishment of a business is
dened as an actual performance of economic activity through constant business
activity in another country-member through undetermined period.2
The court of EU took a stand that it is an obligation of a country-member to
admit the companies and their branches of a company established by the right of
another country-member and to give them freedoms by the Contract about the establishing of EU.3 In the middle of the year 2003 the European commission issued
a document titled Modernization of the Rights of Companies and Improvement
of corporate governance in European Union The Plan of Moving Forward with
the goal of advancing and equalizing the practice of corporative government in
countries-members which have dierent systems of corporative governance. This
document is known in public under the title Action Plan. In Action Plan it is
clearly stated that its intention is not to create a unique codex of corporate governance at the level of EU, but to set some special regulations and principals and to
coordinate national codex of government to encourage future.
Tipuri and Horak4 emphasize the following directives, decisions and recommendations which, as secondary legal norms, regulate corporate governance at the
level of EU:
- Directive 2006/46/EC determines the obligation of reporting on nancial and
other crucial issues,
Mlikotin Tomi, D, et al. (2006): Europsko trino pravo, Zagreb: kolska knjiga, page 35-37
Tipuri, D. et al (2008): Korporativno upravljanje, Sinergija nakladnitvo d.d., Zagreb, Page 199
Tipuri, D. et al, (2008), Page 207-217
174
- Directive 2006/68/EC determines the conditions that must be fullled concerning the preservation of basic capital with the purpose of protecting the creditor
and the principle of equal position of stock-holders,
- Directive 2004/25/EC gives a minimum of standard considering the matter of
taking over the stocks of companies with stocks on the stock-market,
- Directive 2005/56 on international merging of corporation tries to solve the
problems of international activities in European Union,
- Directive 2004/109/EC on harmonizing the demand for transparency of data
about the issuers whose loan stock are part of trading on set market,
- Recommendation about the compensation to directors of corporation whose
stocks are at the stock-market (Recommendation 2004/913/EC),
- Recommendation which determines basic principles of independence of auditors who perform legal audit of nancial reports (Recommendation 2002/590/EC),
- On February 15. 2005 the European commission brought a recommendation
on basic qualities that non executive members of board of directors must have.
Besides numerous directives and recommendations in the eld of trade law,
nances, accounting, audit, etc. which contain regulations directly linked to corporative government in European law, there is a regulation on importance of corporative government called Directive of EC Council (EU) number. 2157/2001 October
8th 2001 on the statute of European company.5 European company is corporation
whose capital is shared on stocks, and the company is based on the frame of European supranational law. The regulation clearly determines the organization of the
company. Obligated organs are determined, but the choice is left between monistic
and dualistic government system according to national regulations. Along with the
regulation a Directive, that complete Statute of European Company about joint
decision-making, was brought.
5. OECDs principals of corporate governance
Organization for Economic Cooperation and Development (OECD) gives the

most important stimulus to building of good practice of corporate governance on
global level through representing non obliging standards, practice and instructions
5
Council Regulation 2001/2157/EC of 08 October 2001 on the Statute for a European Company SE,
Ocial Journal of the European Union, 294, 10/11/2001, page 1-21
175
for implementation that can be adopted to specic circumstances of individual

countries and regions.
OECD brought the Principals of corporate governance for the rst time in
1999, but they are revised to adapt to changes and in 2004 new were adopted.
The principals are not obliging, they are based on the principals and recommendations that do not determine anything strictly, and their importance is not slashed
if social, economic or legislative context is changed. The forum for stability marked
the Principals as one of twelve key standards for worthy nancial systems.
The principals of corporate governance are divided into two parts. The rst part
of the document considers I) securing basics for ecient frame of corporate governance; II) the rights of stock-holders and key owner structures; III) equal treatment
of the stockholders; IV) the role of interested parties (stockholders); V) announcing
the data and transparency; VI) the responsibility of the board. Every one of those
six principals has several sub-principals. In the second part of the document the
Principals are contain comments on principals and their intention is to help the
readers to understand the argumentation.
6. Regulative of corporate governance in Bosnia and Herzegovina
In countries in development the roots of what is now called corporate governance lay in the initiatives for privatization that grew stronger from the late 70s,
during 80s and are still lasting. The core questions related to the success of corporative government in countries in transition are: (1) transparency or opened access to
key information related nances or business results, (2) conict of interests which
includes boards, directors and managers, (3) rights of owners, (4) corruption and
stealing.6
Institutional basics of corporate governance in one country consist of implying supranational documents that the state accepted signing certain international
contracts, national laws and sub legal acts and other codex that regulate this
eld.
In Bosnia and Herzegovina in the eld of accounting there is a state Law on
accounting and audit of Bosnia and Herzegovina, it determines the standards for
6
Neziri, D. (2005): Korporativno upravljanje pokreta razvoja trine ekonomije, Poduzetnika

ekonomija, Volume IX, 12/2005, page 238-354
176
performance of accounting and audit in Bosnia and Herzegovina, the way of gaining certicate and training in your profession, harmonizing the executive regulations and activities in the entities and forming an independent committee for
supervision and performance of standards in the entire Bosnia and Herzegovina.
Besides the mentioned law on the state level, there are entity laws, Law on audit
and accounting in the Federation of Bosnia and Herzegovina entity14 and the Law
on accounting and audit in Republic of Srpska entity.
International accounting standards, i.e. International standards of nancial reporting are the basic for making our own accounting regulations which than regulate everything connected to making nancial reports.
In the eld of internal audit it is dierently dened depending on the area of
work. Laws on banks and Laws on public companies regulate obligated forming of
the department of internal audit. If we observe public companies we must observe
the structure of state ownership in public companies which also enforces the need
for internal control and surveillance. Other companies, depending on their needs
can form a department of internal audit.
The primary legislative frame for corporate governance in Republic of Srpska
consists of: Law on companies in Republic of Srpska entity, Law on public companies in Republic of Srpska entity Law on banks in Republic of Srpska entity.
In Republic of Srpska entity in 2006 the commission for securities has accepted
and announced the codex of corporative government under the title: Standards of
managing in corporation. These codexess are made at the initiative of stock-market
in Banja Luka and are mostly compatible with international standards.
The primary legislative frame that denes this eld in the Federation of Bosnia
and Herzegovina entity is a group of laws consisting of: Law on corporation, Law
on banks, Law on taking over corporation. In Federation of Bosnia and Herzegovina entity in 2009 at the initiative of stock-market in Sarajevo has created, accepted
and announced the codex of corporative government under the title: Codex of corporate governance for corporation listed on the market of Sarajevo stock exchange.
These codexess are made at the initiative of stock-market in Sarajevo and are mostly
compatible with international standards.
Bosnia and Herzegovina does not have a harmonized interior legislative frame,
but it is based on entity laws. In the following table we can see the legal framework for
both entities (Federation of Bosnia and Herzegovina and the Republic of Serbian)
177
Table 2 - Legislation in the eld of corporate governance in the Federation of Bosnia and Herzegovina and the
Republic of Serbian
Federation of Bosnia and Herzegovina
Zakon o gospodarskim drutvima
(Ocial Gazette of FB&H, Num.
23/99, 45/00, 2/02, 6/02, 29/03,
68/05, 91/07 i 84/08)
Republic of Srpska
Zakona o preduzeima (Ocial
Gazette of RS Num. 24/98, 62/02,
38/03. 97/04 i 34/06. )
Fields of application
These laws regulate the establishment, operation, management
and termination of companies, the
concept and forms of economic
society.
Zakonu o privatizaciji dravnog

kapitala u preduzeima (Ocial
Gazette of RS Num. 51/06, 1/07,
53/07 i 41/08)
These laws determines the general

rules of privatization
2.
Zakon o privatizaciji poduzea (Ofcial Gazette of FB&H, Num. 27/97,

8/99, 32/00, 45/00, 54/00, 27/01,
27/02, 61/01, 33/02, 28/04, 44/04,
42/06 i 4/09 )
3.
Zakon o poetnoj bilanci stanja

poduzea i banaka (Ocial Gazette
of FB&H, Num. 12/98, 40/99, 47/06
i 38/08 )
Zakon o poetnom bilansu stanja

Republike Srpske (Ocial Gazette of
RS Num. 24/98)
These laws regulate the procedure

and method of preparing the initial
balance sheet of enterprises and
banks.
Zakonu o stranim ulaganjima (Ocial

Gazette of FB&H, Num. 61/01, 50/03 )
Zakon o direktnim stranim ulaganjima (Ocial Gazette of RS Num.

17/99); Zakonu o stranim ulaganjima
(Ocial Gazette of RS Num., br.
25/02 i 24/04)
Zakon o bankama Republike Srpske
(Ocial Gazette of RS Num. 44/03)
These laws regulate the rights,

obligations and privileges of foreign
investors in entity of Bosnia and
Herzegovina.
1.
4.
5.
6.
7.
8.

39/98, 32/00, 48/01, 41/02, 58/02,
13/03, 19/03 i 28/03)
Zakon o preuzimanju dionikih
drutava (Ocial Gazette of FB&H,
Num. 7/06)
Zakon o raunovodstvu i reviziji u FBiH
(Ocial Gazette of FB&H, Num. 2/95,
12/98 i 32/05);
Zakon o steaju i likvidaciji (Ocial
Gazette of FB&H, Num. 23/98)
Zakon o preuzimanju akcionarskih

drutava (Ocial Gazette of RS
Num. 65/08)
Zakon o raunovodstvu (Ocial
Gazette of RS Num. 18/99, 62/02
i 67/05)
Zakona o prinudnom poravnanju,
steaju i likvidaciji (Ocial Gazette
of SFRJ Num. 84/89), which is
used in Republic of Srpska on the
basis of Article 12 Constitutional Law
for the implementation of the Constitution of the Republic of Srpska
(Ocial Gazette of RS Num.
21/92)
These laws regulate the establishment, supervision, operation and

management of banks.
These laws regulate the conditions
and manner of taking over companies in the entities of Bosnia and
Herzegovina.
These laws govern matters of accounting and auditing in entities of
Bosnia and Herzegovina.
These laws regulate the conditions
for enforcement and bankruptcy.
178
9.
Zakon o tritu vrijednosnih papira

85/08)
Zakon o tritu hartija od vrijdnosti (Ocial Gazette of RS Num.

92/06)
These laws regulate the securities

markets in the entities of Bosnia and
Herzegovina.
10.
Kodeks korporativnog upravljanja za

drutva uvrtena na tritu Sarajevske
burze vrijednosnih papira
Standardi upravljanja akcionarskim

drutvima, (Ocial Gazette of RS
Num. 3/06)
Codes of Corporate Governance.

Detailed establishes mechanisms to
protect the interests and functioning of the mutual relations of all
stakeholders.
11.
MRS and MSFI
International standards for the preparation and publication of nancial

statements.
Source: Papac, N.: Master thesis, Faculty of Economics, University of Mostar, 2009., page 118
Based on this we can conclude that in Bosnia and Herzegovina are two systems
of corporate governance based on the entity laws and codes. This is a unique example in the world and is determined by the structure of Bosnia and Herzegovina
as a state. Therefore, the most important recommendation is to create a uniform
system of corporate governance
7. Conclusion
Legal frame has a great inuence on the quality of corporate governance through
the protection of stockholders (especially minor), behavior of investors, behavior of
management and the forming of national codex.
Bosnia and Herzegovina does not have a harmonized interior legislative frame,
but it is based on entity laws (Republic of Srpska and Federation of Bosnia and
Herzegovina) which solve certain problems only partially. They are not harmonized
mutually or with the supranational standards. That is also conrmed by the fact
that Bosnia and Herzegovina has no established common codex of corporate governance, and in Federation of Bosnia and Herzegovina and Republic of Srpska they
are not harmonized among themselves and with supranational recommendations.
Observing the importance of corporate governance we may conclude that the
basic perspective in Bosnia and Herzegovina is to make models and mechanisms
that will enable stabile nancial market and attract foreign investors. As basic
presupposition we can take the making of joint Codex of corporate governance
of Bosnia and Herzegovina and its harmonization with supranational codex and
demands.
179
The importance of corporate governance is in the core of development of market economy and the democratic society and it is there fore the foundation of economic and social development of Bosnia and Herzegovina.
References
1. Buble, M. (2006): Osnove menadmenta, Sinergija, Zagreb

2. Channdler, A.D.Jr. (1990): Scale and Scope: Dynamics of Industrial Capitalism,
Harvard University Press, Cambridge
3. Council Regulation 2001/2157/EC of 08 October 2001 on the Statute for a European Company SE, Ocial Journal of the European Union, 294, 10/11/2001
4. engi,D. (2001):Vlasnici, menaderi i kontrola poduzea, Institut drutvenih
znanosti Ivo Pilar i Hrvatska sveuilina naklada, Zagreb
5. Demb,A., Neubauer,F. (1992): The Corporate Bord: Confronting Paradoxes,
Oxford University Press, London
6. Mlikotin Tomi, D., Horak,H., oljan,V. i Pecoti-Kaufman,J. (2006): Europsko trino pravo, kolska Knjiga, Zagreb
7. Neziri, D. (2005): Korporativno upravljanje pokreta razvoja trine ekonomije, Poduzetnika ekonomija, Volume IX, 12/2005
8. Organization for Economic Co-Operation and development, OECD Principles
of Corporate Governance, OECD, 2004
9. Tipuri, D. et al. (2008): Korporativno upravljanje, Sinergija nakladnitvo,
Zagreb
10. Tschopp,H.G. (2005): Corporate Governance The Key to Success of Failure,
Boardroom Magazine for Corporative Governance, Leadership and Quality of
Life, Num 1
11. White Paper on Corporate Governance in South East Europe - OECD
2003
12. Laws and regulations in B&H
180
Meike Mogk
MIT ACTIVOTE ZUR HANDLUNGSKOMPETENZ NEUE

LEHRMETHODEN IM STUDIUM
Meike Mogk
Fachbereich Wirtschaftsingenieurwesen
Technische Hochschule Mittelhessen, Campus Friedberg
Abstract
A new educational concept for training in the eld of project management has
beenused by us for several semesters. Using this concept, we want to achieve an
improvement of the quality of education. Therefore we study constantly how this
structure contributes to the activation of students. This paper examines how the
teaching at universities for the students can make the content of teaching as interesting and ecient as possible. We believe that, the results of the rst 2 semester
show us that we are on the right track.
JEL classication: I21, I28
Keywords: Project Management, Education, PM standards, IPMA ICB 3.0
Blended Learning
1. Einleitung
Der Gedanke einer kompetenzbasierten Lehre (nicht nur) an Hochschulen ist

verschiedentlich umsetzbar. Bereits im Projekt Weiterentwicklung der Lehr- und
Lernformen: Blended Learning in grundstndigen Studiengngen unter realen
Bedingungen wurden erste Erfahrungen in der grundstndigen Lehre gemacht,
die als Grundlage fr das neuartige Konzept dienten. Als Schlssel fr den Erfolg
wurde hierin besttigt, dass ein stringentes Anwenden und Weiterentwickeln eines
didaktischen Konzeptes notwendig ist, um Studierende zum aktiven Lernen zu
zwingen.
Daher wurde im Modul Projekt- und Prozessmanagement, an der Technischen Hochschule Mittelhessen, Campus Friedberg eine Weiterentwicklung der
Unterrichtsform gestaltet, die neue Medien und deren Mglichkeiten einbringt.
MIT ACTIVOTE ZUR HANDLUNGSKOMPETENZ NEUE LEHRMETHODEN IM STUDIUM
181
Die grundstzliche Idee ist, Wissen, Kompetenz und Reektion des eigenen
Tuns auf verschiedenen Ebenen zu vermitteln und den Studierenden mit einer
Kombination aus Lehr- und Lernmethoden ber das gesamte Semester hinweg in
das Thema einzubinden.
Auslser der nderung des gewohnten Vorlesungsmodus war im Sommer
2009 unser selbst gestecktes Ziel, die Studierenden zur Handlungskompetenz zu
fhren und somit weg vom reinen Auswendiglernen bestimmter Denitionen und
Methoden. Diese Handlungskompetenz soll als Grundlage fr die Studierenden
gelten, wenn sie im spteren Berufsleben auf Projektmanagement-Kompetenzen
angewiesen sind.
2. Vorlesung Projekt- und Prozessmanagement
Derzeit wird das Modul Projekt- und Prozessmanagement (PPM) in15 Vorlesungen 3 Stunden pro Semester fr die Diplomstudierenden des Fachbereichs
Wirtschaftsingenieurwesen gelehrt. Es nden zwei Vorlesungen statt (Vorlesung A
und Vorlesung B).Die Teilnehmerzahl an Vorlesung A ist auf 20 Studierende limitiert. Eine grere Anzahl lsst ein intensiveres Arbeiten mit den Teilnehmern nicht
zu.Neben der Vorlesung A, bietet der Fachbereich, auch auf Grund der Restriktion
auf 20 Teilnehmer eine alterative Mglichkeit an und hat hierfr einen Lehrbeauftragten eingestellt.Die Vorlesung B ist als klassische Frontalvorlesung strukturiert.
Die Inhalte der Vorlesung sind angelehnt an die des deutschen PM 3 (Deutsche
NCB (National Competence Baseline) abgeleitet aus der ICB 3.0 (IPMA Competence Baseline (IPMA = International Project Management Association)) einem
weltweit verbreiteten PM Standard. Die Klausur besteht aus oenen und Multiple
ChoiceFragen, die Verwendung des Skripts in der Klausur wird zugelassen.
3. Didaktisches Konzept der Vorlesung
Bei der Entwicklung des didaktischen Konzeptes lehnen wir uns an das Konzept
von Franke an, der als Voraussetzung die Bercksichtigung folgender Dimensionen nennt: wissenszentriert, Performanz zentriert und handlungszentriert.(Jenert;
2008: S.38 nach Franke;2005)Diese Dimensionen haben wir in Ebenen der Lehre
in Vorlesung A umgesetzt. Die Ebenen werden nachfolgend erlutert sowie die
eingesetzten Instrumente genannt. Zunchst musste die Vorlesung unter diesen
Gesichtspunkten neu gestaltet und die Leistungsbewertung angepasst werden.
182
Meike Mogk
Ein interaktiven Whiteboards (zum IWB, s. Kapitel 4)bietet hierfr die idealen Voraussetzungen. Wir versprachen uns im ersten Schritt die Aktivierung der
Studierenden durch die neue, unbekannte Methode und somit ein spielerisches
Erlernen des denitorischen Grundwissens.
Im zweiten Schritt wird das Gelernte in bungen angewendet. Im dritten und
letzten Schritt wird die Reektion des Gelernten in Form einer mndlichen Prfung getestet. Dies fhrt im idealen Fall zum gewnschten Erfolg der Handlungskompetenz.Nachstehend zeigt die Graphik das didaktische Konzeptund den
Aufbau der Bewertungen in der Vorlesung.
Das Schema ist so aufgebaut, dass die Mindestanforderung, das Erlernen des
PM Basiswissens von jedem Studierenden erfllt ist, der dieses Modul bestanden
hat. Dies bedeutet konkret, dass ein Studierender, der an den bungen teilnimmt,
sowie die Kurztests erfolgreich absolviert, das Modul bestanden hat.
Die Inhalte, die in der Vorlesung gelehrt werden basieren grundstzlich auf
der ICB 3.0 sowie der deutschen DIN fr das Projektmanagement (DIN 69900 /
69901).
Abb. 1 Struktur der Vorlesung
Mndl.
Prfung
Ausarbeitung
bung/Prsentation
Basiswissen durch Activote
(eigene Darstellung)
Die nchste Stufe beinhaltet die Anfertigung einer Hausarbeit, die in der Gruppe erstellt werden soll. Hier ist das Erfahren der Teamarbeit ein weiteres Lernziel
183
der Vorlesung. Die Studierenden knnen weitere 30 Punkte erreichen, so dass sie,
mit den Punkten des Kurztests und der Mitarbeit im Labor bislang insgesamt 90
Punkte erreichen konnten.Die verbleibenden 10 Punkte werden in einer mndlichen Prfung vergeben.
4. Interaktives Whiteboard
4.1. Einfhrung des Interaktiven Whiteboards
Wie in Kap. 3 beschrieben, ist als Neuartigkeit in der Vorlesungsgestaltung das

Instrument des Whiteboards mit dem dazugehrigen Abstimmungssystem zu sehen. Im Folgenden wird der Aufbau sowie die Anwendung kurz vorgestellt.
Als einfache und zutreende Erklrung des IWB dient an dieser Stelle ein Zitat
von Wikipedia: An interactive whiteboard is a large interactive display that connects to a computer and projector. A projector projects the computers desktop
onto the boards surface, where userscontrol the computer using a pen, nger or
other device. The board is typically mounted to awall or on a oor stand.(o.V.;
2009b, S. )
In der Phase der Konzeptionierung und der Entscheidung pro/contra fr das
Interactive Whiteboard (IWB) fllt auf, dass der berwiegende Teil der Erfahrungsberichte und Studien im schulischen Bereich angesiedelt sind. Die Vorreiterrolle
bei der Anwendung der IWBs fllt hier den Englndern zu, denn in England sind
bereits 60 Prozent aller Klassenrume mit interaktiven Whiteboards ausgestattet
(o.V.; 2009a, S. ), whrend es in Deutschland 2009 gerade mal 5% waren.(vgl.
o.V.; 2009a, )Mit unserem Konzept versuchen wir, einige Vorzge, die sich in Studien im Sekundarbereich herauskristallisiert haben, in den Hochschulbereich zu
bertragen.
Zunchst im Folgenden einige grundlegenden Vorteile eines IWBS im Unterricht: In einer Erhebung im Jahr 2002 nahmen 10 Mittelschullehrer und deren
197 Schler an einer Untersuchung mit anschlieender Fragebogenerhebung, zur
Verwendung von IWBs im Unterricht und deren Beeinussung an der Beteiligung
der Schler, teil. Die Ergebnisse der Studie belegen eindeutig, dass IWBs die Beteiligung der Schler am Lernprozess steigern. Folgende positiven Eigenschaften wurde
dem Unterricht mit Untersttzung von IWBs von den Schlern zugeschrieben.
Diese Vorteile sind unseres Erachtens, auf den Hochschulbereichbertragbar:
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Meike Mogk
- bessere Mglichkeit der interaktiven, visuellen Darstellung von (multimedialen)Inhalten

- intensivere Teilnahme der Schler resp. Studierende am Unterricht
- gelerntes wird besser im Gedchtnis verankert (Wieden-Bischof; 2008, S.4)
Studien ber die Nutzung als Ersatz fr die Tafel nden sich huger als der
Einsatz der anschliebaren Gerte, wie das Activote. (Als Bsp: Cutrim-Schmid;
2006, S.)Die Literatur zeigt Vorteile auf, die zwar nicht den Kern der Vorlesungsgestaltung treen, dennoch sich mit demFeedback der Studierenden decken. (s.
Kap. 7).
Selbstverstndlich existieren Vorteile nicht ohne Nachteile und so zeigt sich,
dass allein die Anschaung des IWB nicht gengt, um einen guten Unterricht durchzufhren. Vielmehr ist es die Umsetzung eines didaktischen Konzepts, das die
Schler resp. die Studierenden einbindet und hierin die Mglichkeiten der interaktiven Lehre nutzt (vgl. o.V.; 2009a, S.).Als zweiter Nachteil wird das aufwendigere
Vorbereiten des Unterrichts genannt. Es lsst sich besttigen, dass der betriebene
Aufwand grer als bei einer klassischen Frontalvorlesung ist.Er hat dennoch seinen Nutzen.
4.2. Zeitlicher & nanzieller Aufwand
Neben den Anschaungskosten fr die Hardware haben wir bei der Nutzung
des IWB festgestellt, dass ein erhhter personeller und damit zeitlicher Aufwand
betrieben werden muss.
Im Folgenden mchten wir diesen kurz darstellen.
Kosten:
Beamer
Anschaung Whiteboard: Gre 78q
Anschaung Activotes: 32 Stck
Schulung: 1 Tag
bereits vorhanden
ca. 1800
ca. 1800
ca. 1000
Zeitlicher Aufwand
Jede Vorbereitung eines von 4 Votes mit 25 Fragen nimmt etwa 3 Stunden
in Anspruch. Die Nachbereitung, mit Auswertung fr jeden Studierenden ca. 1
Stunde. Die Konzeption der Fragen ist im Nachhinein nicht messbar. Veranschlagt
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man 10 Minuten pro erstellte Frage, ist das bei momentan vorhandenen 120 Stck
ein Zeitaufwand von 20 Stunden. Diese Zeit amortisiert sich ber die eingesetzten Semester hinweg.
Die mitgelieferte Software ist nicht vollstndig selbsterklrend. Mittlerweile
gibt es eine neue, komplett berarbeitete Softwareversion. Diese verfgt allerdings
noch nicht ber die Mglichkeit, eine Datenbank mit allen Fragen anzulegen. Das
bedeutet, dass vor jedem Vote smtliche Fragen und Antworten erneut einzugeben
sind. Nach Rcksprache mit der Hotline wird dies im nchsten Update angedacht,
zugesichert werden kann es aber nicht. Daher werden wir weiterhin mit der alten
Software arbeiten mssen.
Fr den Bereich anderen Elemente der Vorlesungen knnen wir lediglich die
zeitliche Einbindung berschlgig benennen. Diese ist:
Vorlesung:
Prof. Grau hlt an 11 (11x 3 Std.) Terminen im Semester die Vorlesung, die die
Grundlagen des PM vermittelt.
bungen:
An den 4 bungen stehen Prof. Grau und Frau Mogk als Betreuer zur Verfgung. (4 x 3 Std.). Zustzlich ist min. eine Person nach den bungen noch fr die
Studierenden erreichbar, die lnger arbeiten wollen und Rcksprachebedarf haben.
berschlgig sind das zustzlich 3 Stunden je bung.
Ausarbeitung:
Die Korrektur bzw. Bewertung der Ausarbeitung erfolgt zeitnah nach Abgabe.
Je Ausarbeitung sind diesca.3 Stunden. In jedem Semester sind min. 4 Gruppen
zu bewerten.
4.3. Das IWB im PM-Labor
Wir nutzen einen fest installierten Beamer, der hauptschlich auch fr die
Darstellung der Prsentationen und sonstigen digitalen Inhalten whrend anderer
Vorlesungen zur Verfgung steht. Neben den von uns genutzten Funktionen des
sog. votens bietet das IWB weitere Funktionen. Unter www.promethean.com ndet sich die gesamt Produktpalette der Promethean Ltd. Daneben existieren noch
mehrere Anbieter dieser Technologie. Informationen ber mgliche Alternativen
bietet Wieden-Bischof. (Wieden-Bischof; 2008, S.3)
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Meike Mogk
Wir mchten im Folgenden nur auf die von uns genutzte Funktion des votens nher eingehen.Hierzu mussten neben dem Board periphere Gerte gekauft
werden, die den Abstimmungsgerten bspw. bei Who wants to be a millionaire?
hneln.Promethean stellt zur Bearbeitung eine Software zur Verfgung.
Durch die Komplexitt des Programmes und die Neuartigkeit des Produktes
wurde eine Produktbezogene Schulung ntig. Hier wurden die Basisanwendungsmglichkeiten vorgestellt. Primr werden durch das Angebot Lehrer in den
unterschiedlichen Stufen des Schulsystems angesprochen, die im Unterricht die
Basisfunktionen (Mitarbeit der Schler am Board, etc.) nutzen mchten
Im Gesamten ist der Umgang mit dem Board und den Abstimmungsgerten
fr jeden erlernbar. Es hat sich aber gezeigt, dass erst mit dem Einbringen in den
Unterricht, Verbesserungspotentiale erkannt wurden. Diese haben wir dann konsequent umgesetzt und so ein stabiles, didaktisch sinnvolles System gestaltet.
4.4. Integration in das didaktische Konzept
Die Integration des IWB ndet in der ersten der drei Ebenen statt, dem sog.
know what, da es, wie in Kap. 4.3 beschrieben, die Mglichkeit bietet, mit Hilfe
von Abstimmungsgerten einen interaktiven Test durchzufhren. Das Ziel dieser
Test ist es, denitorisches Basiswissen zu schaen, so dass eine eindeutige Kommunikation und Verstndnis der wichtigsten, grundlegenden PM-Begrie (orientiert
weitestgehend an den o.g. Standards) erzielt werden kann.
Dieser berlegung liegt die Beschreibung von Vorteilen (o.V.; 2004, S. 10).)
zu Grunde, die besagen, dass Studierende resp. Schler das erlernte Wissen in den
Vorlesung durch hhere Motivation und Engagement besser behalten. Zudem
stellt die elektronischen Notenauswertung sicher, dass die Studierenden ein transparentes, zgiges Feedback ber Ihren Stand des Wissens erhalten, dass zur langfristigen Sicherung des Wissens beitrgt.
Die Studierenden, die die Stufe know what erfolgreich absolviert haben,
sind jetzt in der Lage, in den nchsten Stufen dieses Wissen einzusetzen.Die zweite
Stufe des anwendungsorientierten Wissens ist in den bungen verankert.In diesen
4 bungen werden die Grundbausteine zur Planung von Projekten thematisiert
und anhand eines selbstgewhlten Projektes umgesetzt. Hierfr wird die Gesamtgruppe in max. 4 Studierende starke Teams aufgeteilt Die Inhalte der bungen
187
sind:Teambildung, Projektdention, Zieldenition, Projektstrukturierung und

Projektablaufplanung.
Resultierend aus den bungen soll neben der praktischen Anwendung und
somit dem Aufbau des Anwendungswissens dieses in einer theoretischen Ausarbeitung gefestigt werden. Diese Anfertigung ist fr die Studierenden optional. Es ist
bislang noch nicht vorgekommen, dass ein Studierender nach dem Stattnden der
bungen die Vorlesung quasi beendet hat, da sein persnliches Ziel erreicht war.
Dies lsst den Schluss zu, dass Studierende von den anderen Gruppenmitgliedern
mitgetragen wurden und somit, zumindest Teilpunkte erlangt haben.
Das bislang erworbene denitorische Wissen, eingehend in die Anwendungskompetenz der 2. Ebene soll in der letzten Stufe know why in die gewnschte
Handlungskompetenz fhren. Mit dem Wissen der Tests und der bung resp.
Ausarbeitung ausgestattet, werden die Studierenden als Gruppe zu einem Prfungstermin eingeladen. Als Ergebnis sollen die Studierenden das gelernte Wissen reektieren und die Anwendung in konkreten Fllen erlutern.
Die zeitliche Struktur der Ebenen haben wir nachfolgend abgebildet.
Abb. 1 Zeitlicher Verlauf des Vorlesungskonzeptes
(eigene Darstellung)
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Meike Mogk
Mit diesen 3 erluterten Ebenen, mchten wir ein Umdenken erreichen, das bei
den Studierenden die Basis schat, Gelerntes lnger zu behalten und im konkreten
Anwendungsfall nach dem Studium, auf dieses Wissen zurckzugreifen, bzw. es
auszubauen.
5. berprfung der Zielerreichung
Nach 2 Semestern, in denen 75 Studierende am Labor teilgenommen haben,

lassen sich erste Tendenzen erkennen. Davon als Auszug einige Fragen, die wir uns
in diesem Zusammenhang gestellt haben:
- Besteht ein Zusammenhang zwischen der individuellen Note und der Mitwirkung in der Projektarbeit?
- Ist das ber das Semester hinweg konstant geprfte Wissen haltbarer?
- Sind die Studierenden der Meinung, dass Sie mehr gelernt haben?
- Wer ist schwach in den Votes und partizipiert von den Ausarbeitungen?
- Welche Gruppe nimmt tendenziell eher an den mndlichen Prfungen teil?
Die Starken oder Schwachen?
Im Folgenden mchten wir diese Fragen mit Hilfe der Daten, die wir aus
den Leistungen der Studierenden sowie aus den Evaluationen gewonnen haben,
beantworten.
6. Vergleich des Leistungsniveaus auf den 3 Ebenen
Ebene know what
Ziel der Votes in der Vorlesungsgestaltung ist es, denitorisches Wissen als Basis
fr die weiteren Ebenen zu schaen. In diesem Zusammenhang ist interessant zu
beobachten, ob alle Studierenden diese Kurztests mit der vollen Punktzahl bestehen. (Hinweis: 70 aus 100 Fragen mssen richtig beantwortet werden, was einem
Leistungsniveau C entspricht. Genauso steht die Frage im Raum, ob die Studierenden mehr als ntig leisten.
Von 75 Studierenden hatten nach den 4 Votings 33 Studierende mindestens die
erforderlichen 70% erreicht. Bislang ist es keinem Studierenden gelungen, bereits
nach 3 Votings die volle Punktzahl zu erreichen.
189
Nach dem ersten Voting wurden den Fragen maximale Beantwortungszeitrume

vorgegeben. Dies hat zunchst einen Einbruch der Studierendenleistungen hervorgerufen. Im 4. Vote haben die Studierenden wieder hhere Punktzahlen erreicht.
Diese Zahlen decken sich mit den Aussagen der Studierenden hierzu (s. Kap.7).
Es lsst sich noch die Frage stellen, wie viel an Mehrleistung die Studierenden
in das Lernen investieren. Gengen den Studierenden die 70% oder sind Sie an
zustzlichem Wissen interessiert?
Dies lsst sich nicht einwandfrei beantworten. Wir haben dazu den Vergleich
der ersten 3 Votes gegenber den Ergebnissen des vierten Votes genommen. Zum
Zeitpunkt des vierten Votes hatte noch KEIN Studierender die notwendigen 70
richtigen Fragen beantwortet (bei insgesamt 75 gestellten Fragen).
Lediglich 11 der 75 Studierenden hatten im letzten Vote nicht mehr die Mglichkeit die volle Punktzahl durch max. 25 richtige Antworten zu erreichen. Die Chance
im letzten Vote die angestrebten 70% im gesamten zu erreichen, nutzen lediglich
33 und somit ca 45% aller teilnehmenden Studierenden.
Es lsst sich hier vermuten, dass jeder Studierende das letzte Vote genauso ernst
nimmt wie die ersten 3, da die notwendigen Punkte noch erreichbar sind.
Ebene know how
Die Teams bilden sich derzeit nach Sympathiewerten und nicht nach dem Anspruch, eine Gruppe zu nden, die den gleichen Leistungsstand aufweist. Es wird
daher unbewusst von den vermeintlich Starken oder denjenigen, die Arbeit investieren wollen, hingenommen, dass sie die mittragen, die sich auf Grund des
Leistungsniveaus oder auch der mangelnden Motivation nicht einbringen.
Es stellt sich also die Frage: Partizipieren die Schwachen aus dem Vote von
der Ausarbeitung?In diesem Fall wird als Schwach eingestuft, wer nach den 4 Votes
weniges als 36 Punkte hatte. Die Anzahl der Studierenden liegt bei 33% aller Teilnehmenden (25 Studierende absolut) hingegen 33 Studierende und somit ca.
46% hatten bereits nach den Votes die volle Punktzahl erreicht.
Ausarbeitungen
Im Bereich der durchschnittlichen Punkte der Ausarbeitungen bilden die 25

Studierenden der Gruppe den Durchschnitt nahezu ab (17,5 Punkte von 30 mglichen Punkten, gegenber 17,9 ber alle Studierenden hinweg).
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Meike Mogk
Ebene know why
Zum Teil der mndlichen Prfung lassen sich noch keine validen Aussagen machen. Diese Mglichkeit der Leistungsbewertung wurde grtenteils von denjenigen Studierenden wahrgenommen, die durch die zu erreichenden Punkte einen
Notensprung erreichen konnten. Insgesamt nahmen von den 75 Studierenden bislang 35 teil, was ca. 47% entspricht. Hierbei wurden die mglichen Punkte von
0-10 vergeben, im Schnitt haben die Studierenden 4,75 Punkte erreicht.
Zur Frage der Leistung der Gruppe der Schwachen Studierenden kann gesagt
werden, dass die Punkte dieser Gruppe in der mndlichen Prfung im Schnitt
geringer ausgefallen, 2,44 gegenber 4,75 im Gesamtdurchschnitt. Das kann aber
auch daran liegen, dass diese Studierenden auf Grund des nicht mglichen Notensprungs nicht angetreten sind, denn von den 25 haben 14 nicht teilgenommen.
Pauschal kann man anmerken, dass durch das fehlende denitorische Wissen
aus der Ebene know what die Grundlage fr die Reektion des Wissensin der
mndlichen Prfung gefehlt hat. Daher knnte es eine gute Selbsteinschtzung der
14 Studierenden, die nicht teilgenommen haben, sein, dass sie die diese Prfung
nicht bestehen und erst gar nicht dazu antreten.
Gesamtnotenvergleich
Die Notenverteilung ergibt sich wie folgt: Insgesamt haben in der Vorlesung B
84 Studierende in den 2 Semestern die Leistungsnachweise erbracht, in der Vorlesung Agelten die Vergleichszahlen der Semester WS 09/10 und SS 10 mit einer
Grundgesamtheit von 75 Studierenden.
Inder Vorlesung A wurde unter bislang 75 Studierenden als Bestnote ein Avergeben. Die groe Masse der Studierenden, knapp 70%haben 76 bis 90 Punkte
erreicht, Das bedeutet im Schnitt ein C+.
Notendurchschnitt
Im Notendurchschnitt zeigt sich, dass die Schwachen auch alles in allem

schwcher bleiben liegt auch an der Vergabe der Teilpunkte im Semester. Die
Durchschnittsnote liegt bei C gegenber B- ber alle Studierenden hinweg.
Die Gesamtnoten der Vorlesung B sind tendenziell schlechter als die der Vorlesung A. Die 84 Studierenden, die an der Vorlesung und Prfung teilgenommen
haben, wurden im Schnitt mit einem C- bewertet. Der Hauptanteil der Punkte
liegt bei der Vorlesung B zwischen B- und C+. Im Gegensatz zu den Punkten der
191
Vorlesung A sind hier am unteren Rand der Notenskala vermehrt Bewertungen

vorhanden, so haben 31% ein D+ und schlechter.Der Gedanke der Studierenden,
dass durch die Mitnahme von Unterlagen der Vorlesung eine bessere Note erzielt
werden kann, wird hier nicht besttigt. Es scheint eher so, dass trotz Vorlesung das
Verstndnis fr PM Themen geringer ist, weil diese nicht angewendet werden.
Hier zeigt sich ein klarer Vorteil der direkten Arbeit mit den Studierenden und
der Anwendung des Votings als Prfungsinstrument. Denn zieht man alleinig den
erreichten Notendurchschnitt als Vergleichskriterium hinzu, ergibt sich folgendes
Bild.In den beiden Semestern ist der Schnitt in der Vorlesung B bei einem C-. In
Vorlesung A bewegt sich der Punkteschnitt ber die beiden Semester bei einem
C+.So wird damit deutlich, dass unsere Art des Lehrens und Lernen erfolgreicher
ist.
7. Erste Erkenntnisse der Studierendenbefragung.
Bezglich der Ergebnisse des Votes hat die Befragung der zwei Semester (WS
2009/10 und SS 2010) folgendes ergeben:
Ca. 63% geben in der Evaluation an, dass sie sich in den Votes verbessert haben,
davon sind ca. 83% der Meinung, dass dies auf Grund der Tatsache geschehen ist,
dass die Art der Fragen bekannt war und sie sich darauf einstellen konnten.
Von den ca. 37% der Studierenden, die angegeben haben, dass sie sich in den
Votes verschlechtert haben, sind 57% der Meinung, dass dies daran liegt, dass sie
nicht genug gelernt haben
Der Aufwand, der fr die einzelnen Ebenen durch die Studierenden betrieben
wurde, wird im Durchschnitt wie folgt angegeben:
25% der Vorbereitungszeit wird fr die Ebene know what investiert
63% fr die Ebene know how und
12% fr die Ebene knwo why.
Es lsst sich tendenziell sagen, dass die Wertigkeit der Ebenen dem Aufwand
dafr annhernd entspricht.
Wir mchten in den nchsten Semestern diese Werte weiterhin erheben und
hoen, ber einen lngeren Zeitraum hinweg, eine solide Datenbasis fr die Aussagen zu schaen.
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Meike Mogk
Aus der Erhebung des Wintersemester 2010/11 mchten wir an diese Stelle
noch einige Aussagen der Studierenden stellen, die belegen, dass das Konzept und
die Art der Lehre von den Studierenden als positiv empfunden wird.
Die Votes waren gut, auch dass sich die Fragen wiederholt haben.So konnte
man es sich besser merken.
Ein sehr gut ausgearbeitetes Konzept, knnen sich andere Professoren eine
Scheibe davon abschneiden. Eins der wenigen Fcher meines Studiums wo es nicht
darum ging auswendig zu lernen, sondern um aktive Mitarbeit und Interesse,
spiegelt sich ja auch in den Endnoten wieder. Die Atmosphre im Labor war sehr
gut, man hat sich gefreut morgens hin zu kommen. Weiter so!
Sehr positiv fand ich, dass das Arbeitspensum ber das gesamte Semester
verteilt war und nicht nur stumpfes auswendig lernen vor der Klausur angesagt
war!(so ist es leider in den meisten anderen Fchern) Bei einer solchen Einteilung
bleibt eindeutig mehr hngen als beim standartmigen Klausurschreiben.
8. Fazit
Mit Hilfe dieses Konzeptes wollen wir eine Verbesserung der Qualitt der Lehre
erreichen. Des Weiteren untersuchen wir laufend, wie diese Strukturierung zur
Aktivierung der Studierenden beitrgt und deren Leistung lnger bzw. konstanter
abgerufen werden kann.Die Lehre an Hochschulen sollte fr die Studierenden (als
auch fr die Lehrenden) derart gestaltet sein, dass die zu vermittelnden Lehrinhalte
interessant gestaltet sind. Die Studierenden sollten aktiviert werden und ein selbstndiges Lernen gefrdert werden.
Die Qualikation der Studierenden soll vom reinen Wissen bis zur Handlungskompetenz gefrdert werden. Eine Frontalvorlesung ist dafr ein ungeeignetes
Mittel, so dass die Vorlesung PPM derart gestaltet wurde, dass dieses Ziel erreicht
werden kann. Neben dem Erlernen der wichtigsten PM Basics ist die Teamarbeit
ein Aspekt, der im Labor und in der Zusammenarbeit gelernt und erfahren werden
soll.
Wir sind der Meinung, dass uns die Ergebnisse der ersten 2 Semester Recht
geben und wir auf dem richtigen Weg sind.
193
Quellennachweis:
Cutrim Schmid, E. (2007): Enhancing Perfomance Knowledge and Self-Esteem in

Classroom Language Learning: The Potential of the ACTIVote System Component
of Interactive Whiteboard Technoloy.In: System. Elsevier Vol 35,2, S. 119 -133
Franke, G. (2005): Facetten der Kompetenzentwicklung, Bielefeld; Bertelsmann
Grau. N., Mogk, M. (2010): Active vote A New method in teaching Project
Management at Universities; Vortrag beim24th IPMA World Congress
Jenert, T. (2005): Eine pdagogisch-psychologische Perspektive auf das Kompetenzkonstrukt; unter: (http://www.imb-uni-augsburg.de/les/Jenert_Kompetenzentwicklung_Bologna_08.pdf )
o.V. (2004): Interactive Whiteboards A Review of Classroom Cases Studies and
Research Literature; SMART Technologies, Ltd, unter:
(http://peremarques.pangea.org/pdigital/es/docs/Research%20White%20Paper.
pdf )
o.V. (2009a): Interaktive Tafeln: Hardware allein gengt nicht Lehrer brauchen
Fortbildung und passende Inhalte. Unter: (http://bildungsklick.de/a/66638/
interaktive-tafeln-hardware-allein-genuegt-nicht/)
o.V. (2009b): Interactive Whiteboard, unter:(http://en.wikipedia.org/wiki/
Interactive_whiteboard)
Wieden-Bischof, D. (2008): Interaktive Whiteboards berblick und Einsatzmglichkeiten im Unterricht, unter (http://virtuelleschule.bmukk.gv.at/uploads/media/UEberblick_SR_Interactive_whiteboards.pdf )
194
Bruno Dernaj
TIME MANAGEMENT QUALITY - MANAGERS OF SLAVONIJA

CITIES vs CROATIAN MANAGERS
Bruno Dernaj PhD student
Abstract
This paper will show the level of time management skills of managers in the
cities of Osijek and Vukovar, whose self-assessment results are compared with results of previous studies on the overall territory of Republic of Croatia. It is an
indisputabile fact that the cities of Osijek and Vukovar among the least developed
in the Republic of Croatia, compared with the situation twenty years ago. There
are many reasons that lead to such results. Among them are the embarrassment
of the war, emigration of educated and skilled population, however, the reason of
underdevelopment can be found in unskilled management of time at all levels of
management. We hereby wish to explore the need for additional training of managers in the cities of Osijek and Vukovar, the time management skills so that they
can be educated on time and accordingly facilitate rapid development. This paper
consists of three parts, of which the rst is about theory of time management and
people who manage it. The second part contains the functions of a successful time
management as form of presentation of instructions for organizing a quality time.
The third section presents the results of research conducted in a way self-assessment
managers of personal time management and compare them with previous studies
performed on the entire Croatian territory.
JEL classication: C22
Key words: Quality, management, time management, manager, selfassessment
INTRODUTION
Time is needed for everything. All working activities happen throughout time
and take time. Nevertheless, most people take this unique, irreplaceable and necessary resource for granted. (Drucker; 2005., p 194.)
TIME MANAGEMENT QUALITY - MANAGERS OF SLAVONIJA CITIES vs CROATIAN MANAGERS
195
Time is completely irreplaceable. One resource can be replaced by or substituted

for another to a certain extent, e.g. copper for aluminium, wood for plastic etc. Human work can be replaced by machine. We can use more knowledge or more physical
strength, but when it comes to time, there is no such possibility. (Drucker; 2005., p
193.)
Todays lifestyle and working habits will denitely indicate even more that every
manager has to posses the skill of time management as one of the basic skills. The
production process has to full certain quality standards in order to be competitive;
equally every manager has to possess time management skills to full their function.
1. TIME MANAGEMENT
Time management (Ger. Zeit Management) is a discipline focused on using

time, as a precious and scarce resource, economically and rationally and on improving methods and techniques in order to improve work methods, eciency and
time usage. Its starting point is task planning, priority setting, time distribution in
accordance with importance and urgency of its completion.1 Time management
ensures that managers deal with the right tasks and crucial problems. The following picture provides answer to the question how often managers are interrupted
by the associates with the good reason, and how often their problems can be solved
in other ways.
Image 1. Contacts between menagers and associates in solving problems

Problems which associates can solve by themselves
35%
23%
Problems which can be solved with the help of

colleagues
Problems which can be solved on the phone
20%
22%
Problems which can be solved with the help of the

manager
Source: Sikavica, P.& Bahtijarevi-iber, F. (2004.) Menadment, MASMEDIA, ISBN 953-157-455-3, Zagreb, p 412.
Time management is an exceptional tool since it can always be improved and is

never perfect; furthermore it is an irretrievable resource. It is a skill that has to be
developed and one has to strive to advance it. According to Gorupi and Bokovi
1
http://www.poslovni.hr/84384.aspx (20 April 2010)
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Bruno Dernaj
time management is a work and life technique of behaviour and self-organisation

in order to achieve the biggest possible success. (Gorupi, Bokovi; 2006., p 13.)
Drucker claims that there might be nothing that dierentiates ecient managers more than their relation towards time. Therefore, an ecient person foremost
has to know on what they spend their time to be able to manage it. (Drucker;
2005., p 194.) Time management is not a choice; it has become a requirement and
necessity. Unfortunately there is no universal plan that would satisfy all needs and
solve all diculties regarding time management. The most dicult part is to nd
the right combination between the nature of the individual and the nature of the
tasks that need to be done.2
Time is the only factor whose demand is not elastic. No matter how big the demand for time is, the amount of time will not change, therefore it has to be learnt
to manage it better. (Bahtijanovi iber; 2008., p 7.)
2. FUNCTIONS OF SUCCESSFUL TIME MANAGEMENT
Since in each organisation, in which eciency is missing, the problem is

not equally set, it is necessary to start reorganising according to the following
functions.
2.1. Planning and target Setting
If you are not planning, you are planning to go bankrupt. (Kotler; 2006., p
171.) The opinion that planning is inevitable for successful business generally prevails nowadays, but it is also highlighted that the execution of the plan mostly does
not work out. (Drucker; 2005., p 215.) If a manager creates plans regularly (daily,
weekly, monthly, permanently), he/she denitely plans to execute them. However,
the future cannot be foreseen, so it can come to diculties which can inuence
the scheduled plans. Sometimes it is enough to reprogram or adjust those plans
to a minimum extent, but there are situations when everything has to be thought
trough and planned from scratch.
2.2. Target sorting
Although it seems at rst that there is one target, which is unique, every manger
has plenty of tasks which he/she needs to fulll, namely, targets that need to be
2
http://www.zorantomic.net/index.php?option=com_content&view=article&id=299:upravljanjevremenom-u-odnosima-s-javnou&catid=48:pr-blog
197
achieved in order to not waste time, without fullling all obligations and solving
the business case on which he/she is working. The best way to sort targets is to write
them down on paper, arranging them according to: (Bahtijanovi iber; 2008., p
11.)
2.2.1. Priorities which are the fundamental targets of the organisation and to
which the non-priority targets have to be subordinated. Priorities should not be
delegated to others since they are the most demanded and therefore the most valued, which can largely contribute to the managers reputation.
2.2.2. Time obligations these are including meetings, business trips, phone
calls, writing letters and reports. Managers should delegate most of the time obligations to their associates, so they have more time to solve the priorities. (Bahtijanovi
iber; 2008., p 11) Nevertheless, time obligations are not tasks that can or may be
neglected.
2.2.3. Desired activities are activities which are largely enhancing the business
operations and by applying them regularly, time and concentration can be saved,
which is evident in the eciency and eectiveness. (Bahtijanovi iber; 2008., p
11.)
2.3. Minimising the so-called Time Stealers
Time stealers are undesired activities which do not contribute to the achievement of the organisations goals at all (searching in the untidy workspace, perfectionism etc.). Time spent on such activities has to be minimised or completely
eliminated. (Bahtijanovi iber; 2008., p 11.)
2.4. Task Realisation and Urgency
Time management is not dicult. As long as you are capable (physically and
mentally) to concentrate completely, you will nd out that it is possible to manage
time better.
The complicated and important things needs to be done rst in order to not
leave them for the end when there is a lack of time, which increases the pressure
and can inuence the quality. If something is really important, it may never be urgent. (Sria; 2003., p 176.) The opposite attitude says that creating a strong feeling of urgency often requires courage or risky activities which are usually associated
with good leadership. (Kotter; 2009.,Voenje promjena, p 47. and 48.) A genuine
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Bruno Dernaj
feeling of urgency occurs rarely because it is not the natural state of things, but
this feeling has to be created and recreated. According to Kotter urgency does not
stay and cannot stay at a high level without conscious eort, except if it is strongly
rooted in the organisational culture, which is rare nowadays. (Kotter; 2009.,Smisao
hitnosti, p 149.)
Image 2. Urgency problem destroyed by the success
Source: Kotter J.P.(2009.) Smisao hitnosti; Lider press d.d.; Zagreb; p 151.
2.5. Controling
The plan of the business operations has to provide time for the controling of
the existing situation in order to ascertain whether we are on the right track and
whether we are going in the right direction. Regular checking of the execution is
emphasized because it provides a better insight on how to master every step successfully and the path that is leading us to the goal. (Gorupi, Bokovi; 2006., p
34. and 35.)
The checking process consists of two very signicant procedures: (Kotler; 2006.,
p 191.)
1. evaluation and interpretation of the current results and correction of the
mistakes
2. audit of the eciency and plan development for improving weak but signicant components.
2.6. Information and Communication
Information and communication are key functions of every management process including time management. (Gorupi, Bokovi; 2006., p 36.) When carry-
199
ing out a task, timely information is the key factor. Communication directly inuences the success of a particular organisation, therefore it is necessary to establish
proper communication within the organisation as well, but also with its surrounding. Proper communication means free, informal and intensive communication,
but also insisting on active participation in the communication, establishing new
relations and improving the existing communication. (Lamza, Glava; 2008., p
20.)
One of the most successful ways of enhancing communication within an organisation is team building. People communicate more easily in an informal surrounding, and since it contains various social, sports and recreational activities, the
members of the organisation nd to have many things in common, which in most
cases results in successful communication and nally enhances the information
exchange.
3. RESEARCH
The emphasis of this research is put on the quality of time management of

managers in the cities Osijek and Vukovar mostly managers working in little
private enterprises. The companies were chosen in Osijek and Vukovar since Osijek
is the biggest city in eastern Croatia and therefore it is a signicant representative,
whereas Vukovar is the city that suered the most because of the war, therefore it
participates in todays market under dicult conditions.
Three goals were set for this research: 1. to illustrate how managers in the cities
Osijek and Vukovar perceive successful time management based on self-evaluation;
2. establish transparent data on how much time during the working day managers
spend on so-called time stealers; and 3. compare the results with the research on
time management conducted by Nina Poloki-Voki and Robert Mrenovi with
the title Dierences in Time Managements of Croatian Managers in regard of
their sex and Hierarchical Level, conducted in the entire Republic of Croatia.
For the purposes of the research referred to, managers of companies in the cities
Osijek and Vukovar have lled in questionnaires at the end of the year 2010. The
research instrument was a questionnaire for self-evaluation created by the authors
of the paper on the basis of generally accepted viewpoints on successful time management. The questionnaire consisted of two separate parts the rst part included
questions regarding the evaluation of time management activities, done by individ-
200
Bruno Dernaj
uals, according to their importance for the success of the organisation. The second
part included question on time stealers.
One of the reasons why this research was conducted was the fact that no such
research had been conducted in eastern Croatia. The second reason were the constant indicators in the media claiming that this region has made the least progress
in the latest history3, and most valued, the data in the attachment of the County
Development Strategy of Osijek-Baranja County for 2011. 2013. shown in the
following gure.
Image 3. Assessment and classication of county and local governments to development
Source: http://www.slavonija.hr/ (access - 21.02.2011.)
That document shows that the development index of Vukovar-Srijem County

is 20.57% and of Osijek-Baranja County 52.88%, whereas the most developed
counties The city of Zagreb and the Istrian County have an index several times
bigger (197.54 % and 156.10 %).
The research was conducted in order to nd out whether the lack of time management skills of managers in this region is the reason for such results and whether
they need to be educated on time management. The research included 98 managers, which is considered to be sucient to draw conclusions since the average
http://www.glas-slavonije.hr/vijest.asp?rub=1&ID_VIJESTI=124225
http://www.sib.hr/Ostalo-Vijesti/sluzbeno-potvrdjeno-slavonija-i-baranja-najsiromasnija-regija.html
http://www.osijek031.com/osijek.php?topic_id=30347
201
number of participants in time management researches is 90 (Classens et al., 2007.

in Poloki-Voki, Mrenovi; 2008., p35.- 47.)
3.1. Research Results
The research consisted of two parts: 1. The importance of particular time management activities for the organisations success; 2. Working time spent on activities
which are not contributing to the organisations success, namely, time stealers.
The research results will be illustrated, commented on and compared with the previous research.
The average rating of all time management activities is 4.04, which is an indicator that they are, according to the participants, very important for the organisations functioning. Determining the priorities was rated the most important with
an average rating of 4.46, meaning that only 2% of the participants do not consider
it to be very important or the most important for the organisations success. The
second most important was rated long term and short term planning with an average rating of 4.39, which 94% of the participants considered very important or
most important for the organisations success, followed by daily tasks setting and
realisation with an average rating of 4.32, which was not considered the least important or of little importance by any participant.
Table 1. The importance of time management activities for the organisations success
Source: made by author
In contrast to the research conducted by Nina Poloki-Voki and Robert

Mrenovi, because of the average result of 3.06, we can claim that when it comes
to theoretical knowledge about time management skills, manager in the cities
Osijek and Vukovar are more educated. The similarities between this research and
202
Bruno Dernaj
the previously mentioned research are that the activities with the highest ratings in
both are determining the priority tasks, followed by goal setting and planning.
Image 4. Time management activities of the Croatian managers
Source: Poloki-Voki, N.; Mrenovi, R.: Razlike u upravljanju vremenom hrvtaskih menadera s obzirom na spol i hijerarhijsku
razinu, Ekonomska istraivanja, VOL.21., NO.1., march 2008., p 35.- 47.
It is also interesting that in both researches the participants had a very similar
opinion on delegating (average rating: 3.94 and 3.85).
Table 2. Working time spent on time stealers.
Source: made by author
This table says that managers of companies in Osijek and Vukovar spend on
average around two hours of their working time on time stealers. If we assume
that one year includes 200 working days and a fourth is spend on time stealers that
means that 50 days annually are wasted. When we compare this research to the
research done throughout the Republic of Croatia, we can establish several similarities and dierences.
203
Image 5. Time stealers activities of the Croatian managers
Source: Poloki-Voki, N.; Mrenovi, R.: Razlike u upravljanju vremenom hrvtaskih menadera s obzirom na spol i hijerarhijsku
razinu, Ekonomska istraivanja, VOL.21., NO.1., march 2008., str. 35.- 47.
Both researches established that managers spend plenty of time on unplanned

meetings. The dierence is that this research has shown that managers spend the
most time on analysing past events, namely, thinking about things that cannot be
inuenced anymore.
4. CONCLUSION
The aim of this paper was to establish, by means of research in form of self-evaluation of mangers, whether time management skills are the reason of the poorer
development in the cities Osijek and Vukovar, in regards to their development in
the past, and whether it is necessary to education managers from this region on
time management skills.
The results have lead to the following conclusion:
1. managers are very well educated on time management, however, there is
room for improvement; 2. the obvious problem of eliminating the so-called time
stealers. Although the awareness of activities which do not contribute to the organisations progress exists, the theoretical knowledge is not properly implemented
in practice; 3. it is possible that the level of mastery of time management is one
of the reasons of the slower development in the cities Osijek and Vukovar. As a
precaution and in order to achieve better results it would be useful to systematically
educate managers on all managing levels about time management activities and
so- called time stealers.
204
Bruno Dernaj
5. REFERENCES
Books
-Bahtijanovi iber, F. (2008.) Suvremeni menadment, kolska knjiga, ISBN 978953-0-30352-2, Zagreb
-Drucker, P. (2005.) Najvanije o managementu, M.E.P. Consult, ISBN 9536807-24-6, Zagreb,
-Gorupi, D. & Bokovi, M.(2006.) Management ciljeva i vremena, Horizont,
ISBN 953-95312-0-9, Zagreb
-Kotter, J. P.(2009.) Smisao hitnosti; Lider press d.d., ISBN 978-953-95472-5-5,
Zagreb
-Kotter, J. P.(2009.) Voenje promjena; Lider press d.d., ISBN 978-953-95472-93, Zagreb
-Kotler, P. (2006.) Kotler o marketingu, MASMEDIA, ISBN 953-157-494-4,
Zagreb
-Lamza-Maroni, M. & Glava, J. (2008.) Poslovno komuniciranje, Ekonomski
fakultet, Studio HS Internet, ISBN 978-953-253-053-7, Osijek
-Sikavica, P.& Bahtijarevi-iber, F. (2004.) Menadment, MASMEDIA, ISBN
953-157-455-3, Zagreb,.
-Sria, V. (2003.) Inventivni menader u 100 lekcija, Znanje, ISBN 953-195-3694, Zagreb
Articles in conference proceedings:
-Poloki-Voki, N.; Mrenovi, R.: Razlike u upravljanju vremenom hrvatskih
menadera s obzirom na spol i hijerarhijsku razinu, Ekonomska istraivanja,
VOL.21., NO.1., march 2008., str. 35.- 47.
http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=33767
- 15.12.2010.)
(accessed
websites:
*http://www.budi.in/3669-clanak-upravljanje-vremenom-2-dio.aspx
- 15.04.2010.)
(accessed
205
*http://www.zorantomic.net/index.php?option=com_content&view=article&id
=299:upravljanje-vremenom-u-odnosima-s-javnou&catid=48:pr-blog (accessed
16.02.2011)
*http://www.poslovni.hr/84384.aspx (accessed - 20.04.2010.)
*http://wmd.hr/rjecnik-nancijski/pojmovi/poslovi (accessed - 10.04.2010.)
*http://www.glas-slavonije.hr/vijest.asp?rub=1&ID_VIJESTI=124225
- 04.05.2010.)
(accessed
*http://www.sib.hr/Ostalo-Vijesti/sluzbeno-potvrdjeno-slavonija-i-baranja-najsiromasnija-regija.html (accessed - 16.02.2011)

*http://www.osijek031.com/osijek.php?topic_id=30347 (accessed -21.02.2011.)
*http://www.slavonija.hr/ (accessed - 21.02.2011.)
206
Zvonimir Strnad
EFFECT OF PRINCIPAL-AGENT PROBLEM ON THE

BANKING CRISIS IN 2008
Zvonimir Strnad, M.Sc. Ministry of nance, Croatia
[email protected]
Abstract
Principal-agent problem is one of the most pressing and dicult problems in

the world of business and banking today. Principal-agent problem always occurs
when there is a relationship in which the benet of one person depends on another
person. Such a relationship where one person (agent) acts / intervenes in the interest/welfare of other persons is present in many other areas of life such as political,
health, social, etc. Operations of large companies are increasingly dominated by
managers who are not their owners, while their selection and supervision is left
to the supervisory boards that are too often staed mostly by people who have
no stake in the companies whose operations they monitor. This distance between
principals / owner of the business and decision-makers/ agents as well as information asymmetry creates more room for moral hazard. The aim of this paper is to
show the reasons which lead to the breakdown of mutually benecial relationship
between principal and agent and consequences of such an occurrence. The banking
sector has proven to be most critical in terms of moral hazard and principal-agent
problem and will be in the focus of this article.
Key words: principal-agent problem, nancial crises, moral hazard,
deregulation
Introduction
Principal and agent relationship is one of the most pressing and acute problems
in the world of business and banking today. Relation of principal-agent always occurs when there is a relationship in which benet of one person depends on another
person [Barkovi; 2009, 65]. Such a relationship where one person (agent) acts /
EFFECT OF PRINCIPAL-AGENT PROBLEM ON THE BANKING CRISIS IN 2008
207
intervenes in the welfare of other persons present in many other areas of life such as
political, health, social, etc. Since beginning of time people are living and working
in groups and there is a need for mutual interaction and mediation. Principal-agent
problem that occurred throughout history was settled mostly by social and other
sanctions in case of abuse of trust by an agent. Reputation that the agent has painstakingly built and the price for its loss was simply too great to be easily squandered
or lost. Development of society and its growing complexity in almost all areas has
led to denition of completely dierent relationships in almost all areas of human
activity. The economy has changed with the appearance of stock companies and
created increasingly complex ways of doing business. Principal-agent problem is becoming more and more acute as the distance between these two functions increases.
Operations of large multinational nancial companies are increasingly dominated
by managers who are not their owners while their selection and supervision is left
to the supervisory boards that are too often staed mostly people who have no stake
in the companies whose operations they monitor. This distance between agent /
owner of the business and decision-making principals creates more room for moral
hazard. Informations about the business practices and strategies may be available
to shareholders but in limited form and always after the fact. Principals in the 2008
banking crises can be put in three categories:
Shareholders
Investors
Tax payers
Agents in the 2008 nancial crises would accordingly be:
Banks/Financial companies
Rating agencies
Government/regulators
Principals have tried various modes of action to reduce the potential consequences of the principle-agent problem through the reward system. Principals tried
to promote positive and benevolent behavior of an agent in promoting the interests
of principals by adequately rewarding them. The aim of this paper is to show the
reasons which lead to the breakdown of mutually benecial relationship between
principal and agent and possible solutions for agent-principal problem. Dangers
which such breakdown presents are most visible in the events that led to a major
208
Zvonimir Strnad
United States banking crisis in the 2008. The banking and nancial sectors have
proven to be particularly susceptible in terms of breaking bonds of the principalagent and they are in the focus of this article.
Eect of Principal-Agent Problem on Banking Crisis In 2008
Unfortunately crises that began in the United States then spilled over to almost
the entire world and caused the recession of scale comparable only with the Great
Depression in the early 20th century. Banks and other companies had problems in
relations of the principal and agent which proved to be more than disastrous for the
entire world economy. Collapse of Lehman Brotherson, one of the largest and oldest nancial institutions in the United States, on September 15, 2008 set o chain
of events that proved to be beyond anything previously seen in terms of nancial crises. Lehman Brothers was just one of many nancial institutions or investment banks that lived dangerously in age of nancial deregulation and real estate
boom in a period 2001-2008. Deregulation of nancial sector reached nal stage
in the United States with enactment of Gramm-Leach-Bliley Act which in its rst
paragraph states: Amends the Banking Act of 1933 (Glass-Steagall Act) to repeal
prohibitions: (1) against aliation of any Federal Reserve member bank with an
entity engaged principally in securities activities (securities aliate); and (2) against
simultaneous service by any ocer, director, or employee of a securities rm as an
ocer, director, or employee of any member bank (interlocking directorates).
This deregulation allowed banks and other nancial institutions to do retail and
investment banking at the same time. Investment banks on the other hand started
to be involved in all sorts of business down to basically giving out mortgages than
repackaging them and selling them on to investors. In theory deregulation should
have led to more ecient nancial system and innovations such as securitization to
safer one. In practice it meant numerous conicts of interests and huge systematic
risks. Testifying before the Oversight Committee of U.S. Congress Alan Greenspan, former governor of the U.S. central bank popularly called the Fed, said at the
time for the observers almost incredible statement : Those of us who have looked
to the self-interest of lending institutions to protect shareholders equity, myself
included, are in a state of shocked disbelief, (Andrews;2008). Furthermore he
stated that this error in judgment stemmed from aw in his personal ideology that
markets should be left to their own devices. But is it really true? Many observers
will notice something interesting in the Greenspens statement that banks are act-
209
ing in their own interest and interest of their shareholders. It seems that the former
governor believes that banks are rational, intelligent, responsible and aware. Banks
are not any of those things. Banks are the companies that operate as determined
by the people who work in them and those people are indeed rational, intelligent,
responsible and aware of rst and foremost their own interests . What Mr. Greenspan seems to have totally missed is that what is in the interest of the people running the bank is not in the interest of banks and its shareholders. Classic example
of principal-agent problem to which, during his presidency of the Fed, he greatly
contributed by use of legendary Alan Greenspan put or a tendency of the Fed
that when the economy sank, or ran into a problem, to reduce interest rates. This in
turn would, in the short-term, rescue the U.S. economy and the banks that lent
money to the left and right using lower lending criteria. In the long run this meant
huge supply of cheep credit that had to be lent to someone. That someone ended
up being people who couldnt aord loans or simply victims of predatory lending1.
Many of irregularities present in banking system should have been picked up
by regulators but political clout of banking system made them ineffective. The
theory of mediation as sometimes principal-agent problem is also called relies
on the efciency of the contract between the agent and principal, taking into
account the assumptions about people, organizations and information. Given
these assumptions, the question is which contract is most effective? - One focused on the behavior (eg, wages, the hierarchic organization) or one focused on
results (eg, commissions, options to purchase shares, transfer of property rights)
(Ottan; Wanpe; pg 8.). The manner staff remuneration is therefore an essential
tool which tries to solve the principal-agent problem through manipulation of
incentives.
Bank management proved however exceptionally susceptible to taking advantage of information asymmetry it has in relation to shareholders and other investors. Bank managers successfully used their privileged position in order to secure
for themselves more lavish bonuses. Big investment banks pay and reward their
employees with performance linked bonuses. Such incentive system is very popular
both in theory and practice because, on the face of it, it encourages employees to
give it their best while x pay does not. It is reasonable to claim that paying for
example sales people by number of items sold will lead to more sales however it is
1
Predatory lending is a practice where lenders originate loans with fraudulent, unethical and deceptive practices. Target of such lending practices are usually people with no means to qualify for normal
credit and therefore have to pay higher interest rates.
210
Zvonimir Strnad
questionable how prudent is such pay structure for all business models. Medical
led is good example how performance based salaries may not give better performance. For example lets take a surgeons salary and let as link it to number of
surgeries preformed. It is reasonable to assume this will lead to more surgeries but
not necessarily to more healthy people. In the matters of medicine one does give
more weight to safety and favorable outcomes than in sales. Banks should be more
like medical profession and less like sales. It would be nave to say that the number
of loans that bank made is the only indicator of how well management is doing
its job but somehow that became the norm. Banks balance sheets got bigger and
bigger according to IMF in the space between 2001-2008 U.S. Commercial Banks
consolidated assets almost tripled (Stella; 2009:16-17). Shareholders/agents where
and are interested in the price of shares they own so naturally they want the price
to go higher and higher. Markets are on the other hand concerned with prots and
therefore management/principal is concerned with maximizing prots and keeping
the share price on in a constant upward trajectory. Boards of companies presumably acting on behalf of shareholders set up remuneration committees that set management pay structure in such a way that management is maximally motivated to
run business successfully. Management is awarded in addition to xed salary stock
options, performance related bonuses, interest free loans etc. Some companies and
their boards because of the fear of public outcry camouage various benets managers get so probably many remain unknown. It is important to say that none of
the remuneration packages mentioned above are illegal. Criticizing in high insight pay structures performance based sat up in banking is easy but what is wrong
with paying people in accordance with their results? Shouldnt one reward hard
work and promote meritocracy? Like everything else it depends. It turns out bank
managers had undue inuence on make up of boards and therefore remuneration
committees. Business practice showed that pay packages implicitly encouraged
management to maximize market capitalization (Fried;Bebchuk; 2004:74) which
in interest earning institution almost always means bigger prots. Such a trend can
easily be seen demonstrated by the fact that ten of the world leading banks in a period between 2003-2007 more then doubled their balance sheets(Economist; January 2011:71). This is a direct consequence of bad oversight by boards which didnt
take into consideration sustainability of prots made. Bank managers decided to
take on more risk in order to increase prots which in turn resulted in higher share
prices and bonuses. Information asymmetry which accurse in relations between
shareholders/agents and companies management/principals greatly contributed in
211
emergence of moral hazard. Moral hazard can be dened as a situation in which

one side is responsible for interests of another but has the incentive to put its own
interests rst: one example would be employee who is slacking on the job. Examples in the realm of nances would be (Dowd; 2009:142):
Sale of nancial product (e.g. mortgage) knowing that its not in the clients
best interest,
Paying large bonuses from funds under ones management: or
Taking on risks without being responsible for consequences.
Management is generally very concerned with perception shareholders and markets get about its business decisions so it is not surprising that informing the investors about decision to take on more risks is not easy. Bankers are therefore very
reluctant to say anything that might be interpreted as increasing risk exposure. In
order to hide the fact that any balance sheet expansion naturally means taking on
more risks bankers devised process known as securitization as sort of black box in
which risky loans came in on the one end and AAA rated bonds out the other. This
is not however just public relations because exercise regulator would demand of
banks to hold more capital on their books for lower rated in order to oset possible
loses bonds which would in turn lead to smaller prots. Investors liked securitization because jumbo mortgages provided higher yields than usual for an AA default
rating (Williams; 2010:101). Bankers and nancial institutions in general couldnt
pull this trick on their own. Assistance came from two places of extreme power one
is of course politics the other rating agencies. Since deregulation become a norm
in the world of nance and politics banks and other nancial institutions and even
whole markets of sophisticated nancial products went relatively unchecked by
regulators. This was possible by the fact that nance in the developed world became large part of national wealth and was therefore given special treatment by the
politics and regulators which is also example of agency problem. Great Britain and
London city on one side of the Atlantic Ocean and New York in USA on the other
present prime example of this fact. From 1973 to 1985 the nancial sector (in the
US) never earned more then 16 percent of domestic corporate prots. In 1986, the
gure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30
percent, higher than it had ever been in the postwar period. This decade (2010),
it reached 41 percent (Lanchester; 2010:13).But there was another culprit, rating
agencies. There job was to asses credit wordiness of banks and their assets in order
to give information to the markets about stability of this vital institutions and qual-
212
Zvonimir Strnad
ity of nancial products. Problem as always turned out to be wrong incentive structure or plainly put money. Rating agencies where and are paid usually by issuers of
nancial instruments and not by investors so they want to make their clients happy.
Issuers of nancial instruments could therefore go shopping for ratings. This gave
agency problem a whole new meaning because while during the boom years ratings
holed up but when crises hit in 2008 they where exposed as worthless.
Table 1. CDOs from bonds with subprime mortgages as collateral for the period 2005-2007, %
Credit rating
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBB-
Estimated percentage of defaults in the period of three years

0.001
0.01
0.04
0.05
0.06
0.09
0.12
0.34
0.49
0.88
Actual default rate

0.10
1.68
8.16
12.03
20.96
29.21
36.65
48.73
56.10
66.67
Source: Number-crunchers crunched, Economist, Vol.394, No.8669, 13.-19 February 2010.A special report on nancial risk; 5-6.
Bankers however had no interest in doubting rating agency because it was precisely those rating that made them look so successful. Remember asset backed securities with AAA rating had higher yields then government bonds. It seemed as
if risk has gone away by this powerful new nancial engineering techniques and
rating agency where just stating that fact. Reality was that a lot of loans were made
to people, especially mortgage loans, with no means to pay them back. Those loans
where called sub-prime loans because bankers knew they were risky. The fact that
they knew presents strong indication that this was not some usual hard to predict crises that happened in 2008 but agent-principal problem fueled one. Bankers basically convinced markets and shareholders that their exposure to risk was
not signicantly rising along with their prots by taking advantage of information
asymmetry about quality of loans and investments they where making. Another
problem regarding principal agent relationship is how to count the prots. This
seems a small matter but as we said earlier prots are the prime indicator for evaluation of just how successful is CEO. Accounting, as even most uninterested observer
is aware, makes for uninteresting reading therefore it is very suited to obscure facts
about business performance. One can easily count future prots as todays and
give himself bigger bonus although actual prots may or may not be made in the
213
future. This however gives even more importance to short term performance. Long
term risks which should be most relevant to principal whose assets are on the line
is suppressed by short term nature of agents incentives. Examples of reckless risk
tasking and imaginative accounting during 2008 nancial crises where: Lehman
Brothers (Untied States), Northern Rock (United Kingdom) and AIG (Untied
States/ United Kingdom). First mayor bank run in United Kingdom for more
then a hundred years happened when Northern Rock under CEO Adam Applegarth become insolvent in the September of 2007. Applegarths distinctive business model involved rapid growth, large-scale reliance on the capital markets for
nance, and an innovative and very accommodating mortgage, the racy together
loan, in which customers could borrow 125 percent of their property value and
up to six times their annual income: the boring days when customers could borrow
only 75 percent of their property value and a maximum of three times their income
were over (Dowd; 2009, pg. 151.). This all work well when times where good but
when subprime crises broke in the summer of 2007. Northern Rock went under
and had to be nationalized. So what happened to CEO of Northern Rock Adam
Applegarth? While the Northern Rock workforce could anticipate major job losses,
Applegarth was able to retire on a generous settlement package. It also transpired
that he had been quietly cashing in his own Northern Rock sharesa nice vote of
condence in his own leadership. He managed to get 2m for his shares while other
shareholders lost everything (Dowd; 2009:152.).
Lehman Brothers on the other hand was not small bank with ambitious management but nancial institution with a hundred years of history and managed by
veteran CEO and Wall Street legend Richard S. Fuld Jr. With Fuld at the helm
(prior to recent events), shareholders had been rewarded with an impressive annual return on equity of more than 24 percent (Williams; 2010:5.). Unfortunately
for investors this was done by use of leverage that once the crises struck destroyed
entire shareholder equity and caused biggest bankruptcy in US history. Lehman
started to originate mortgages during the market boom which it then repackaged
and sold o to investors. How ever in order to increase volume of its business Lehman Brothers took on more and more debt. Lehman Brothers leveraged it self to
the tune of 30:1 at the end of 2007(Lehman Brothers Annual Report 2007:29.)
which meant any sort of drop in value of its assets could very quickly render it insolvent. Lehman Brothers as we said repackaged and then sold o a lot of CDOs
however it had to keep some of exposure on it books. A typical synthetic collateralized debt obligation (CDO) has an equity or rst loss tranche (absorbing approxi-
214
Zvonimir Strnad
mately the rst 3 percent of the losses), mezzanine tranche (absorbing between 3
percent and 7 percent of the losses), a senior tranche and possibly a super senior
tranche absorbing the rest. Thus the senior tranche will not suer a loss unless
losses exceed 7 percent of the notional amount of the assets (Raghuram; 2005:7.).
Lehman Brothers executives believed that housing market boom would lest for ever
so asset prices they had on their books would never fall and for almost a decade they
where right. Between 1997 and 2006, the average home price in America increased
by more than 120 percent. The leveraged real estate boom screeched to a halt, and
Lehman was stuck holding billions of dollars in junk loans on its books (Williams;
2010:118.). When the fall of house prices eventually did come it rendered Lehman
Brothers insolvent. Richard S. Fuld Jr. didnt face any charges and made only one
public appearance before the Congress on October 6, 2008. When the touchy
subject of his remuneration then came up, he went on to defend the compensation
system that had paid him about $350 million between 2000 and 2007. (Dowd;
2009:151.). American Insurance Group fall victim to its incentive structure. Insurances it sold on mortgage backed securities and CDOs soured as house prices began
to fall. Making matters even worse for AIG was that it sold multiple Credit Default
Swaps for just one asset therefore multiplying its losses.
Conclusion
Principal-agent problem proved central in origins of 2008 banking crises. Given

that incentive structure and other polices instituted by regulators have not given
desired results these are the areas where most can be done. For example why pay
bonuses on the basis of short term results or give CEO massive golden parachutes
when simple modication of time frame for both instruments can possibly give
better results. Bonuses should be more correlated to sustainability of results so for
example if CEOs company has made spectacular prots in one year it shouldnt automatically result in massive bonuses but rather in potential for big pay o further
down the line. This could ensure more conservative behavior even in highly competitive settings. Rating agencies should be paid from interests that bonds they rate
should yield. That means for example if bond has an annual yield of say 5 percent
rating agency should gat 0,2 percent until maturity. This would put rating agency
interest in line with those of principal/investor and not like today with those of issuer/agent. Making sure that government and regulators do their job properly can
be done by prohibiting any major lobbying or donations to political campaigns.
Regulators should not be permitted to take jobs at nancial institutions after they
215
leave public service and of course should be paid more in order to insure maximum
competence.
Bibliography
Books
Barkovi, D;(2009).Menadersko odluivanje, Ekonomski fakultet u Osijeku,
ISBN: 978-953-253-069-8, Osijek
Bebchuk, L; Fried J. (2004). Pay Without Performance, Harvard University Press,
ISBN:0674016653, Cambridge, Massachusetts and London, England
Lanchester, J ;( 2010).Whoops-Why everyone Owes Everyone and No One Can
Pay, Penguin Group, ISBN: 978-0-141-04571-9, London
Williams T. Mark ;(2010). Uncontrolled Risk- The lessons of Lehman Brothers and
how systemic risk can still bring down the world nancial system; The McGrawHill Companies, Inc. ISBN: 978-0-07-174904-6
Articles in journals
Dowd, K.(2009). Moral Hazard and the Financial Crises; Cato Journal Vol.25
No1.
Stella, P.(2009). The Federal Reserve System Balance Sheet: What Happened and
Why it Matters; IMF Working Paper
Raghuram G. Rajan ;( 2005) Has Financial Development Made the World Riskier? National Bureau Of Economic Research Working Paper 11728; Cambridge
Massachusetts
Available at: http://www.nber.org/papers/w11728
Wolf, M. (2008) Regulators should intervene in bankers pay; http://www.ft.com/
cms/s/0/73a891b4-c38d-11dc-b083 0000779fd2ac.html#axzz1BsDpEWXm
accessed 11.1.2011.
Number-crunchers crunched, Economist, Vol.394, No.8669, 13.-19 February
2010.A special report on nancial risk
The great unknown, Economist, Vol.398, No.8716, 15. -21 January 2011.
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Zvonimir Strnad
Andrews, L.E. (2008).Greenspan Concedes Error on Regulation; The New

York Times; http://www.nytimes.com/2008/10/24/business/economy/24panel.
html?_r=1
- accessed 11.2.2011.
Laws
Gramm-Leach-Bliley Act
Available at: http://thomas.loc.gov/cgibin/
bdquery/z?d106:SN00900:@@@D&summ2=m&
Internet
Lehman Brothers Annual Report 2007.
Available at: http://www.secinfo.com/d11MXs.t5Bb.htm#1stPage
Otten, J; Wempe B; Corporate Governance and the Politics of Agency Theory,
RSM Erasmus University Rotterdam
Available at:
http://www.uu.nl/faculty/leg/nl/organisatie/departementen/departementeconomie/onderzoek/seminarserie/previousseminars/extjan08jun08/Documents/
The%20politics%20of%20agency%20theory%20in%20corporate%20governance%20sub.pdf
THE ANALYSIS OF FINANCIAL RATIOS UTILITY IN PREDICTION OF LOAN DEFAULTS...
217
THE ANALYSIS OF FINANCIAL RATIOS UTILITY IN PREDICTION

OF LOAN DEFAULTS USING T-TEST
Mr. sc. Miodrag Streitenberger, Team leader Credit risk, Hypo Alpe Adria Bank d.d.,Croatia
[email protected]
Abstract
This paper explores predictive potential of nancial ratios in discrimination of

companies which pay bank debt on time from companies that have diculties in
loan repayment. Research was conducted by using the purposive sample of Croatian SME companies. Research aim was to nd nancial ratios eective in identication of companies which will not be able to pay due debt on time, before the
loan has been granted. Identied ratios would help bank analysts in assessment of
credit risk of potential clients. On the basis of conducted research and results of
univariate analysis, discriminatory and predictive power of a certain number of
analysed ratios have been proven. Discriminatory power of 12 out of 16 nancial
ratios analysed, has been conrmed. Net working capital to Total assets and Equity
ratio are shown as statistically signicant and relevant for prediction of diculties
in loan repayment. Predictive power is also conrmed for following ratios: Return
on investment, Times interest earned, Current ratio, Liabilities to Revenues, Bank
debt to Assets and Equity to Fixed assets. On the basis of conducted research it
can be concluded that nancial reports small and medium-sized enterprises deliver
to the bank provide sucient information for ecient estimation of credit risks.
However, it is advisable to use all other available sources of business information
besides nancial reports.
JEL classsication: G21
Key words: nancial ratios, banking, loan defaults, small and medium-sized
enterprises (SME)
1. INTRODUCTION
Banks analyse their commercial borrowers nancial statements to assess credit

risks and estimate probability of loan defaults. They do so before loans are granted
218
and, occasionally, during the entire period of contractual relationship. The main
purpose of analysis is to avoid granting loans to defaulting debtors, which could
result in risk provisioning and losses (CNB decision)1. One of most commonly applied tools banks use to analyze nancial statements, for the purpose of predicting
loan defaults, is ratio analysis. Therefore, it is very important to correctly assess nancial ratios utility in prediction of loan defaults (predictive potential of nancial
ratios).
There is a large body of scientic research in the world (somewhat less in Croatia) in the eld of ratios predictive potential assessment. Since the mid 1960s
there is a great expansion of similar research studies whose popularity became
such that a whole new, independent broad research eld is created - bankruptcy
prediction studies. The earliest studies (Beaver2, Altman3) use univariate and multivariate discriminant analysis (MDA), later, conditional probability methods are
introduced (Ohlson4, Zmijewski5), non-parametric methods (Barniv & Raveh6),
neural networks (Zapranis & Ginoglou7), multidimensional scaling methods (Novak8), etc...
Such research resulted in universally accepted conclusion that ratios are useful in discriminating companies with good nancial standing from problematic
companies. Moreover, it is concluded that ratios can predict companies nancial
diculties or bankruptcy even few years before they occur.
Narodne Novine (2009) Decision on the classication of placements and o-balance liabilities of credit
institutions. Zagreb: Narodne Novine d.d., 1/2009, pp. 20.
2
Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3),
pp71-111.
3
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy, Journal of Finance, 23 (4), pp589-609.
4
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy, Journal of Accounting Research, 18 (1), pp109-131.
5
Zmijewski, M. (1984) Methodological Issues Related to the Estimation of Financial Distress Prediction Models, Journal of Accounting Research, 22 (1), pp59-82.
6
Barniv, R. & Raveh, A. (1989) Identifying Financial Distress: A New Non-Parametric Approach,
Journal of Business Finance & Accounting, 16 (3), pp361-383.
7
Zapranis, A. & Ginoglou, D. (2000) Forecasting Corporate Failure with Neural Network Approach:
The Greek Case, Journal of Financial Management and Analysis, 3 (2), pp11-20.
8
Novak, B. (2003) Predvianje poslovnih tekoa banaka u Republici Hrvatskoj na osnovi javno
dostupnih nancijskih pokazatelja, Ekonomski Pregled, 2003 (54), pp904-924.
219
Although general subject of all bankruptcy prediction studies is the same,

methodology and research design vary considerably. There is a variety of statistical
methods, sample selection methods (scientic method, pragmatical empiricism)
and research sample designs (paired sample, random sample) that are used in bankruptcy prediction studies. Furthermore, dierent denitions of companies failure
are used: Beaver denes failure not only as bankruptcy, but also as bond or preferential shares defaults, while Kahya and Theodossiou9 dene failure as loan default
or loan restructuring.
The reason why dierent denitions of failure are used is time-lag between rst
occurrence of nancial diculties and actual bankruptcy. Bankruptcy is usually
preceded by longer period of nancial weakening and deterioration. Fitzpatrick
described the process that leads to bankruptcy and identied ve stages in the
process: (1) incubation, (2) nancial diculties, (3) nancial insolvency, (4) total
insolvency and (5) conrmed insolvency (bankruptcy)10. However, not all companies with nancial diculties end up in bankruptcy: some recover and some are
taken-over before bankruptcy is declared. In some cases, bankruptcy is not a consequence of business diculties, but can be the way of protecting companies from
litigation. Such vagueness in bankruptcy denition is recognized long time ago, but
is commonly overlooked in empirical researches.
To proect themselves from losses in case of loan defaults, banks need to detect
their clients nancial diculties as early as possible (preferably with occurrence of
Fitzpatricks stages 1, 2 or 3). Therefore, it is important for banks to concentrate
on prediction of early stages of bankruptcy process (which can be detected by loan
defaults), in stead of concentrating on predicting the actual bankruptcy. However,
there is a large body of research in the world that explore power of ratios in bankruptcy prediction, while there is a very few studies that explore power of ratios in
predicting loan defaults (in Croatia, particularly, such studies are very rare, almost
non-existent). Therefore, the primary objective of this study is to close this gap and
explain some specic relationships that exist between content of companies nancial reports and companies actual loan repayment behaviour.
Kahya, E. & Theodossiou, P. (1999) Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology, Review of Quantitative Finance and Accounting, 13 (4), pp323-345.
10
Fitzpatrick, P. (1934) Transitional Stages of a Business Failure, The Accounting Review, 9 (4), pp337340.
220
2. RESEARCH SUBJECT, OBJECTIVES AND HYPOTHESES
Basic subject of this research is asesment of ratios utility in prediction of loan

defaults (delays of 90 days or more). In other words, it will be explored whether or
not ratios can discriminate between companies that orderly repay debt from those
that will have signicant delays. That way the question will be answered whether or
not content of companies nancial reports adequately represents companies actual
loan repayment behaviour.
Research objectives were following:
To asses the power of individual ratios to discriminate between companies that
orderly repay debt from those that have signicant delays.
To asses predictive power of individual ratios, i.e. to explore whether or not
ratio analysis can result in accurate predictions of loan defaults.
To asses whether or not nancial reports companies deliver to the bank can
be trusted. Can they serve their ultimate purpose objective and accurate
representation of companies nancial situation. Can they be used in credit
risk estimation or not. Should other available sources of information about
companies business be used to complement nancial reports.
In accordance with research objectives, following research hypotheses are set:
H1:There exist nancial ratios with sucient information content for discriminating between companies that orderly repay debt from those that have signicant delays.
H2:There exist nancial ratios with sucient information content for predicting
loan defaults.
H3:Financial reports companies deliver to the bank provide sucient information
for ecient estimation of credit risks.
Using adequate statistical methods, hypothesis will be tested that ratios mean
values in the sample of companies that orderly repay debt, signicantly dier from
ratios mean values in the sample of companies that have signicant delays.
3. METHODOLOGY
Research methodology is adapted to research design and objectives. The research

is quantitative and uses secondary data, for the purpose of analysing dierences in
ratios means between two dependent (paired) samples.
221
3.1. Research design
Data was extracted from banks databases about loan repayment behaviour for
60 small and medium sized enterprises (SMEs) in a three-year period, which begins from the day of loan disbursement. Initial sample was split in two samples of
30 companies. Sample of risky companies is formed from 30 companies that start
with the delays shortly after loan is approved, and are constantly late so that till the
end of observed period, delays get signicant (180 days or more). Sample of good
companies is formed from 30 companies that orderly repay debt throughout the
observed period and are never signicantly late (max. delay is 60 days). Samples are
paired by industry (min. rst 3 numbers in NKD11 is equal) and size to avoid negative inuence of ratios heteroscedasticity on the results of statistical analysis12.
Companies nancial reports from banks databases in three-year period are used:
(1) for the year-end that preceded loan approval (this reports were used for credit
risk estimation prior to loan approval), (2) for the next year-end when there were
already many delays in the sample of risky companies and (3) for last year-end
when there were signicant delays in the sample of risky companies, while good
companies still orderly repaid debt.
16 nancial ratios are used:
Table 1: Financial ratios

Ratio groups No.
1
2
Protability
3
4
5
Eciency
6
7
8
Liquidity
9
10
11
Ratios
ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets
Description
Return on sales
Return on investment
Return on equity
Times-interest-earned
General eciency
Eciency of ordinary activities
Cash ratio
Quick ratio
Current ratio
NWC to Total assets
Formulae
EBIT / Revenues
EBIT / Total liabilities
EBIT / Equity
EBIT / Interest expenses
Revenues / Costs
Rev. from ord. act. / Costs of reg. act.
(CA-I-A/R) / (CL+Accruals)
(CA-I) / (CL+Accruals)
(CA+P&AI) / (CL+Accruals)
(CA+P&AI) - (CL+Accruals)) / T. Assets
Narodne Novine (2002) Odluka o nacionalnoj klasikaciji djelatnosti NKD-2002. Zagreb: Narodne Novine d.d., 13/2003, pp161.
12
Narodne Novine (2005) Zakon o raunovodstvu. Zagreb: Narodne Novine d.d., 146/2005,
pp2736.
222
11
12
13
Indebtedness
14
15
16
If
Liabilities/
Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA
Indebtedness factor
Liabilities to Revenues
Equity ratio
Bank debt to Assets
Equity to Fixed assets
Equity+liabilities to Fixed
assets
(LtL+Stl+Accruals-Cash) / CF1
(LtL+Stl+Accruals) / Revenues
EQ / T. Liabilities
(LtD+StD) / Total Assets
EQ / FA
(EQ+LtL) / FA
Source: Author
Research design can be comprehensively presented by following graph:
Graph 1: Research design

Days of delay
Dates of financial reports
360
Risky
companies
180
120
90
60
30
0
Good
companies
t-2
31.12.2006
t-1
31.12.2007.
Time
31.12.2008.
Source: Author
On y-axis are indicated days of delay in debt repayment, while on x-axis are
indicated nancial reports dates, starting from date of loan disbursement. Dashed
line indicates increase in delay of risky companies, while solid line indicates orderly
repayment of good companies. Three vertical lines indicate dates of nancial reports (year-ends).
3.2. Sample selection methods
Research sample is not randomly selected, but it is purposive sample, i.e. it

consists of population units with required properties. Sample elements are dichoto-
223
mously classied (risky/good) and thus, paired sample is designed. Basic drawback
of such design and selection method is that it implies equal distribution of risky
and good companies in general population (probability of loan default is 50%)13.
Since exact proportions in Croatia are unknown, it can not be stated with certainty that research sample proportions are equal to population proportions. Due
to limitations inherent in sample selection methods, research results can not be easily generalized. In order to increase validity of research results, sample of SMEs is
selected. Thus better control of research variables is assured. Due to distinctive lack
of theoretical background, ratios for the research are selected by authors discretion,
but still using some guidance from previous studies.
3.3. Applied statistical methods
Statistical methods of analysis of variance were used to explore whether signicant dierences exist in two samples ratios mean values, all in accordance with research objectives and hypotheses. Specically, univariate method t-test for paired
samples was used.
4. RESEARCH RESULTS
Before application of t-test, it was necessary to verify that all prerequisites for
statistical validity of research results were fullled. Main prerequisite for validity of
t-tests is normal distribution of ratios mean values dierences.14
The simplest normality test is a visual analysis of statistical distribution graphs
(histograms). Such analysis indicate that, in general, ratios mean value dierences
are approximately normally distributed. However, there is a number of ratios which
were not normally distributed. Therefore, it was necessary to test hypothesis of normality of ratios mean values dierences. Shapiro-Wilks W-test15 is used in which
probability p for W statistic less than 0,05 indicates that normality hypothesis can
be rejected. Results of Shapiro-Wilks test are summarized in following table:
13
Joy, M. & Tollefson, J. (1975) On the Financial Applications of Discriminant Analysis, Journal of
Financial & Quantitative Analysis, 10 (5), pp725.
14
Mc Clave, J.T., Benson G.P. & Sincich, T. (2001) Statistics for Business and Economics. New York:
Prentice-Hall Inc., pp414.
15
http://www. statsoft.com.
224
Table 2: Shapiro-Wilks W-test results

Ratio groups
Protability
Eciency
Liquidity
Indebtedness
No.
Ratios
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA
t-2
0,00015
0,00027
0,00000
0,02883
0,00026
0,00810
0,00000
0,00000
0,00000
0,37626
0,00000
0,00000
0,21003
0,66158
0,00023
0,00000
p values for W statistic

t-1
0,00240
0,04272
0,00000
0,10028
0,00149
0,00004
0,44268
0,05781
0,01589
0,95299
0,00015
0,04476
0,32825
0,67626
0,00073
0,00492
t
0,00009
0,02008
0,00000
0,03162
0,00173
0,03688
0,00045
0,11612
0,00000
0,92901
0,00000
0,11901
0,92219
0,77282
0,00088
0,00000
Source: Author
On the basis of Shapiro - Wilk W test results, normality hypothesis was rejected for majority of tested ratios. Hypothesis was accepted only for ratios: Net
working capital to Total assets, Equity ratio and Bank debt to Assets.
Visual analysis of histograms, as well as statistical tests, prove that basic prerequisite for t-test is not fullled. However, that sole fact does not mean that results of
t-test would be completely false. They would just be less reliable. Since several ratios
passed normality test, t-test is conducted.
T-test results are summarized in following table:
Table 3: T- test results

Ratio groups
No.
Ratios
Protability
1
2
3
4
ROS
ROI
ROE
TIE
t-2
0,143808
0,010024**
0,210477
0,010204**
p values
t-1
0,640449
0,014524**
0,259695
0,051432*
t
0,094412*
0,000741***
0,873723
0,001937***
Eciency
Liquidity
Indebtedness
5
6
7
8
9
10
11
12
13
14
15
16
E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA
0,478199
0,114997
0,105758
0,124843
0,058758*
0,003686***
0,150353
0,028748**
0,000058***
0,069025*
0,018688**
0,776221
0,989575
0,861446
0,005468***
0,008512***
0,004460***
0,004428***
0,496298
0,000233***
0,000399***
0,116805
0,016468**
0,150751
225
0,202326
0,098675*
0,052936*
0,000747***
0,023566**
0,000694***
0,267766
0,004213***
0,000255***
0,018188**
0,075406*
0,722323
*** Signicant at 99% condence level

** Signicant at 95% condence level
* Signicant at 90% condence level
Source: Author
Out of 16 ratios tested, 12 were found signicant in at least one period (at 90%
or more condence level). Furthermore, 8 ratios were found signicant in at least
one period at 99% condence level. Only two ratios were found signicant at 99%
condence level in all three periods: Net working capital to Total assets and Equity
ratio. Since these ratios were also found normally distributed, it can be concluded
that ratios Net working capital to Total assets and Equity ratio have strong discriminating power in all three periods.
As ratio normality hypothesis was not universally accepted, t-test results had to
be validated by alternative method. For that purpose, non-parametric Wilcoxon
Matched Pairs Test16 was chosen. It is most commonly used test for small paired
samples, because central limit theory does not apply to it17. Wilcoxon Matched
Pairs Test results are summarised in following table:
16
17
Ibid.
Kazmier, L.L. (2003) Schaums Outline of Business Statistics. New York: Mc Graw Hill, pp319.
226
Table 4: Wilcoxon test results

Ratio groups
Protability
Eciency
Liquidity
Indebtedness
No. Ratios
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA
p values
t-2
0,135909
0,006035***
0,184623
0,002415***
0,155837
0,147041
0,031604**
0,005460***
0,004682***
0,004992***
0,198611
0,003162***
0,000359***
0,059836*
0,002958***
0,082207*
t-1
0,271156
0,013195**
0,253645
0,152862
0,688360
0,280215
0,004422***
0,003379***
0,007051***
0,004992***
0,893644
0,000332***
0,000895***
0,184623
0,004390***
0,051932*
t
0,054463*
0,001287***
0,262300
0,001484***
0,035010**
0,049499**
0,007575***
0,000895***
0,001114***
0,001287***
0,338857
0,001382***
0,000664***
0,021827**
0,011080**
0,097773*
*** Signicant at 99% condence level

** Signicant at 95% condence level
* Signicant at 90% condence level
Source: Author
Out of 16 ratios tested, 14 were found signicant at least in one period at 90%
or more condence level. 8 ratios were found signicant in at least one period at
99% condence level. 5 ratios were found signicant at 99% condence level in
all three periods: Quick ratio, Current ratio, Net working capital to Total assets,
Liabilities to Revenues and Equity ratio.
Non-parametric test was used to validate results of parametric t-test. That
way, validity and reliability of results obtained by testing research hypothesis was
assured.
5. CONCLUSIONS
On the basis of conducted research and statistical testing, it can be concluded

that sucient evidence exist to accept research hypothesis (H1). There exist nan-
227
cial ratios with sucient information content for discriminating between companies that orderly repay debt from those that have signicant delays. These are
all ratios that were found signicant in periods (t-1) and (t) when delays of risky
companies were at their peak. Out of 16 ratios analyzed, hypothesis (H1) can be
accepted for following 12: Return on sales, Return on investment, Times interest
earned, Eciency of ordinary activities, Cash ratio, Quick ratio, Current ratio, Net
working capital to Total assets, Liabilities to Revenues, Equity ratio, Bank debt to
Assets and Equity to Fixed assets.
It was also found that there exist nancial ratios with sucient information content for predicting loan defaults. Hypothesis (H2) can be accepted for all ratios that
were found signicant in period (t-2), before loan is approved. These are following
8 ratios: Return on investment, Times interest earned, Current ratio, Net working
capital to Total assets, Liabilities to Revenues, Equity ratio, Bank debt to Assets and
Equity to Fixed assets.
Although sucient evidence was not found to conrm predictive power of Return on sales, Eciency of ordinary activities, Cash ratio and Quick ratio, it can be
concluded that they have certain discriminating power. Evidence was found that
Return on equity, General eciency, Indebtedness factor and Equity+liabilities to
Fixed assets have neither predictive, nor discriminating power.
Best predictive and discriminating power is conrmed for Net working capital
to Total assets and Equity ratio, which were found signicant at 99% condence
level in all three periods. Moreover, the distribution of these ratios mean value
dierences was found normal. Net working capital to Total assets and Equity ratio were found useful also for bankruptcy prediction purposes in a number of renowned studies, such as: Beaver (1966)18, Altman (1968)19, Deakin (1972)20 (used
analysis of variance methods), Ohlson (1980)21 (logit method), Zapranis i Gino-
18
Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3).
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy, Journal of Finance, 23 (4).
20
Deakin, E. (1972) A Discriminant Analysis of Predictors of Business Failure, Journal of Accounting
Research, 10 (1).
21
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy, Journal of Accounting Research, 18 (1).
19
228
glou (2000)22 (neural networks method), which additionally conrms validity of

this research results.
Using t-test it was found in 60% cases that ratios have either predictive or discriminating power (even higher proportion of 71% is found using Wilkinson test).
Therefore, hypothesis (H3) can be accepted. Financial reports companies deliver
to the bank provide sucient information for ecient estimation of credit risks.
However, due to vagueness of results in certain periods, it is advisable to use all
other available sources of business information besides nancial reports.
On the bases of this research results, following recommendations can be issued
to bank credit risk analysts in Croatia:
1. Best results in predicting delays in loan repayment for SMEs in Croatia can
be achieved using Net working capital to Total assets and Equity ratio. Return
on investment, Times interest earned, Current ratio, Liabilities to Revenues,
Bank debt to Assets and Equity to Fixed assets can be used to complement
them;
2. It is not advisable to use Return on equity, General eciency, Indebtedness
ratio and Equity+liabilities to Fixed assets ratio since they have neither predictive nor discriminating power;
3. Financial reports SMEs in Croatia deliver to the bank can be trusted in general, but it is advisable to use all other available sources of business information to complement them.
By accepting these recommendations, quality of loan decisions in SME segment
in Croatia can be improved, which could, consequently, reduce bank losses and
increase resource allocation eciency in Croatia.
This research results provide much needed theoretical underpinning for selection of ratios in further researches. According to some authors23, acceptable theoretical underpinning for ratio selection has yet to be developed. Furthermore, this
research results may be applied in multivariate studies and rating models used in
22
Zapranis, A. i Ginoglou, D. (2000) Forecasting Corporate Failure with Neural Network Approach:
The Greek Case, Journal of Financial Management and Analysis, 3 (2).
23
Kaminski, K.A., Sterling W.T. & Guan, L. (2004) Can Financial Ratios Detect Fraudulent Financial Reporting?, Managerial Auditing Journal, 19 (1), pp22.
229
banks, where it is essential to have predictive power assured before selecting ratios
for model development.
These research results leave certain open questions for future researchers to answer. It would be interesting to test these research hypotheses on a sample of large
corporates. Furthermore, it would be interesting to monitor the sample of risky
companies and investigate how many of them will eventually end up in bankruptcy
and how many will recover. That way, the prospective study could be developed,
instead of much used retrospective studies (retrospective studies are much more
used than prospective, even though it does not make much sense to use retrospective studies for the purpose of investigating predictive power of ratios).
Finally, it is necessary to emphasize that this research results should be interpreted with caution, due to ratios statistical properties, limited availability of research
data, sample selection method, research design and statistical method applied.
LITERATURE
Books
Mc Clave, J.T., Benson G.P. & Sincich, T. (2001) Statistics for Business and
Economics. New York: Prentice-Hall Inc., pp 888.
Kazmier, L.L. (2003) Schaums Outline of Business Statistics. New York: Mc
Graw Hill, pp 319.
Articles
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction
of Corporate Bankruptcy, Journal of Finance, 23 (4), pp 589-609.
Barniv, R. & Raveh, A. (1989) Identifying Financial Distress: A New NonParametric Approach, Journal of Business Finance & Accounting, 16 (3), pp 361383.
Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3), pp 71-111.
Deakin, E. (1972) A Discriminant Analysis of Predictors of Business Failure,
Journal of Accounting Research, 10 (1).
Fitzpatrick, P. (1934) Transitional Stages of a Business Failure, The Accounting
Review, 9 (4), pp 337-340.
230
Joy, M. & Tollefson, J. (1975) On the Financial Applications of Discriminant

Analysis, Journal of Financial & Quantitative Analysis, 10 (5), pp 725.
Kahya, E. & Theodossiou, P. (1999) Predicting Corporate Financial Distress: A
Time-Series CUSUM Methodology, Review of Quantitative Finance and Accounting, 13 (4), pp 323-345.
Kaminski, K.A., Sterling W.T. & Guan, L. (2004) Can Financial Ratios Detect
Fraudulent Financial Reporting?, Managerial Auditing Journal, 19 (1), pp 22.
Novak, B. (2003) Predvianje poslovnih tekoa banaka u Republici Hrvatskoj na
osnovi javno dostupnih nancijskih pokazatelja, Ekonomski Pregled, 2003 (54), pp
904-924.
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy,
Journal of Accounting Research, 18 (1), pp 109-131.
Zapranis, A. & Ginoglou, D. (2000) Forecasting Corporate Failure with Neural
Network Approach: The Greek Case, Journal of Financial Management and Analysis, 3 (2), pp 11-20.
Zmijewski, M. (1984) Methodological Issues Related to the Estimation of Financial Distress Prediction Models, Journal of Accounting Research, 22 (1), pp 59-82.
Laws, Decisions
Odluka o nacionalnoj klasikaciji djelatnosti NKD-2002. Narodne Novine
d.d., 13/2003, pp 161.
Zakon o raunovodstvu. Narodne Novine d.d., 146/2005, pp 2736.
Odluka o Klasikaciji Plasmana i Izvanbilannih Obveza Kreditnih Institucija. Narodne Novine d.d., 1/2009, pp 20.
Internet sources
http://www.snz.hr/test/test4/datoteke. Kujundi-Tiljak, M. i Ivankovi, D. (2006)
Multivarijatne Metode.
http://www. statsoft.com
MARKETING RESEARCH IN HEALTHCARE INDUSTRY
231

Kovai Nedeljko Public Health Center Donji Miholjac, [email protected]
Abstract
Any marketing eort will inevitably involve marketing research. The term marketing research, often used interchangeably with market research, encompasses
market, product, pricing, research and distribution research. Marketing research
is undertaken to identify the nature of the product or service to be marketed, the
characteristics of consumers, the size of the potential market, the nature of competitors and other essential parts of the marketing puzzle. Marketing research can
take a variety of forms and is not always a formal, expensive process. Any type of
information gathered on the marketplace constitutes marketing research. Research
can be conceptualized as a multistage process. The exact number of stages varies
from marketing analyst and from problem to problem. The steps in the marketing
research process are similar to those in other industries, although they may need
to be modied for use in healthcare. The nature of the research plan is a function
of the objectives of the marketing initiative. This work discusses the marketing
research process and its role in the healthcare industry.
JEL classication: H51, H75, I11
Key words: marketing research, product research, pricing research, promotional
research, distribution research, healthcare industry.
1. INTRODUCTION
The area of marketing has experienced its unheard of development in the 20th
century, which continues with no smaller intensity at the beginning of the 21st
century. During the last few decades, changes observed from the marketing point
of view, directly or indirectly refer to the implementation of marketing or have
been related to the concept of marketing1. Changes in this area have led to perma1
Meler, M. (2003) Nonprot marketing, Faculty of Economics and Business in the Osijek, p.10-15
232
Kovai Nedeljko
nent development of interesting events including the area of marketing research.

The scope of marketing research in the industry of healthcare reects as well as implementations of marketing in other industries. As healthcare workers have higher
expectations of marketing, from the simpler forms of marketing advertising, the
areas of marketing research have considerable widened. Researchers today are focused on issues which will consider their knowledge of dierent scopes of application. Furthermore, technological innovations of the 90-ties of the passed century,
such as the marketing database and the internet, have widened the possibilities of
feasibility for the marketing researcher.
Under the concept scope of application, the goals of a marketing researcher can
be in the span of replying to simple questions, all up to more complex forms of
research. From the marketing research in healthcare is expected to contribute to
the functioning of limited conducting surveys about the satisfaction of patients, up
to extensive denitions of the strategically functioning of health service facilities.
Examples of marketing research in healthcare include2:
The determining of an adequate location for the center of emergency medical
services
The recognizing and determining the needs of employees in medicine,
Determining the level of demand for surgeons and appropriate medical surgery supplies.
Valuating the satisfaction with the achieved healthcare plan,
The recognizing of the appropriate market nicha for smaller clinics on the
competitive market of medical services and similar services
The above mentioned list shows that areas of marketing investigation can also be
applied to healthcare industry. Marketing investigation in healthcare has considerably expanded in the view of their users. The users are in this context organization,
institutions which perform the marketing research and professionals which use the
results of the mentioned research. Marketing research, from the historical point of
view, has been limited to large hospital systems, clinical hospital centers, and some
prot-making health service facilities (in pharmacology). Recently, health service
facilities which directly carry out healthcare services, have been included in the
marketing research. Today, networks and IT connect almost all health service facilities, clinics, as well as emergency medical facilities and with the state department
2
Thomas, R. (2010) Marketing Health Services, Health Administartion Press, Chicago, p. 381-387
233
in the area of healthcare research, so that data which is obtained from marketing
research in healthcare, can be used.
2. DEFINITION OF MARKETING RESEARCH
A widely pointed out denition of marketing is suggested by the American

marketing society in 1985. in which stands that marketing is a process of planning
and realization of conception, prices, promotion and distribution of ideas, goods and
services in order to create the possibility to interchange which will satisfy single and organizational goals3. Furthermore, the denition has been modied 2004, it claims
that marketing is a function which allows creation, communication and delivery
of values to consumers and for managing the relationship with buyers in a way
that will satisfy the need of an organization and its owner. Therefore, a marketing conception demands the satisfaction of a customers needs, rather than making
maximum prot for an organization. In other words, an organization should be
oriented towards customers and should try to understand their requests and needs
so that they can be satised in an ecient manner for both customer and organization. This means that such an organization needs to get the necessary information
about the customers needs, in order to be able together with the knowledge of
marketing, help satisfy these needs. Research should be the basic tool for achieving
eciency and eectiveness.
Nowadays the market has become more complex, as are the decisions which
are made each day. This kind of dynamic sequence of marketing eects is continuous because of the changes in the external environment. Because of these constant
changes in the environment it is dicult for managers to make good decisions.
For example, exogenous factors of changeability of the character of the market,
growing concern for the quality of the environment, the appearance of activists of
consumer protection, growing competition, the growing deciency of raw materials, instability of political relationships, changes in technology and in international
relations contribute to the growing diculties while making quality-driven marketing decisions.
Marketing research species the obtained information, creates a model for gathering information, manages and implements the process of data acquisition, analyses the obtained information and informs of the results and their consequences.
3
Ibid
234
Kovai Nedeljko
Therefore, there are several characteristics which are very important for the understanding of marketing research such as its role in the understanding of the environment. rst of all, we must point out that marketing research is one of the most
important elements in the entire eld of marketing information. This means that
there are other elements that can help us in the process of decision making and the
marketing research and from which we can largely benet in the whole process of
marketing.
3. MARKETING RESEARCH AND DECISION MAKING IN HEALTHCARE
The greatest meaning of marketing research development in healthcare is its

signicant contribution to the process of decision making. Healthcare has become
market-driven and the data which generates from the marketing research is marketing directed. The importance of the market in healthcare could no longer be
neglected. More and more, the needs of the market have determined the types of
products and services which are oered in the healthcare industry.
Today, the encirclements in the healthcare industry request a more aggressive
approach to the market research. Researchers must constantly be ready for new
market possibilities and needs, at the same time they must be aware of the danger
which threatens health organizations who hold back market shares or nancial viabilities, before it is recognized as a problem.
The growing diversity and disparity of the consumer in the Republic of Croatia,
including the consumers of medical services, have induced the importance of marketing research4. Once the importance of the consumers is recognized in healthcare, they will be exposed to the same process of segmentation as are other groups
of consumers. In spite of envisaging in the past about the growing homogeneity,
today in the Republic of Croatia there is a growing racial and ethnic division the
regional diversity and unequal adjustments of ways of living additionally daunt
every researcher. As a result, the characteristics of product and service consumers
in the healthcare industry have changed signicantly, and their behavior is less
predictable.
Therefore, all factors which participate in the procedure of collecting marketing data are a signicant support for the decision making in healthcare. For health
service facilities high expenses can occur because of the inadequate location of the
4
Roberts, P. (2010) Healthcare Research, John Wiley & Sons, New Jersey, p. 39-52
235
facility, the wrong timing of the marketing initiative, neglect of the market or the
development of inadequate products. Costs which include the equipping with
medical supplies, implementation of marketing activity and the development of
products are growing and because of the losses which are related to the making of
wrong decisions, it can take years for the health institution to recover.
4. NEED FOR MARKETING RESEARCH5
Understanding the customer and more important nding out who they are,
what they wish in the sense of products, where and when they want them to be
available and delivered to them, and at what cost they want them are some of the
criteria which a manager must be aware of when bringing operating decisions.
However, because of the complete globalization and very complex forms of organization of branch oces, a disagreement can be created between the manager
and his, very widespread and scattered particular category of consumers. For this
reason, most managers are separated from their consumers, or individuals who
eventually determine the success or failure of the organization.
Organizations throughout the world loose half of their consumers every ve
years. But most of the managers do not succeed in understanding and recognizing
the reasons why this is happening. More than two thirds of organizations do not
succeed in satisfying the needs of consumers because they are not able to recognize
the perception of their consumers, or what they really want. This is not because they
do not care about the consumers needs, but because they are trying to achieve this
the wrong way and eventually with the wrong meaning. Very frequently, because of
this organizations initiate a research so that they can understand why they went in
the wrong direction. Because of this, they apply dierent kinds of research. Based
on all the above mentioned information, marketing research can help organizations
during the process of decision making which can be divided in two basic phases: a)
noticing the problem to research, solving the researched problem.
Noticing the problem to research is done so that it helps to notice a possible
problem which may be a latent danger in the future. On the other hand, problem
solving is done to get rid of certain problems which came up during research. This
kind of division of marketing research helps us to understand the theory which can
5
Thomas, R. (2010) Marketing Health Services, Health Administartion Health Press, Chicago,
p- 385-387
236
Kovai Nedeljko
be applied in practice. Still, between these two distinctive concepts there is no big
dierence. Research can enclose them both at the same time, the noticing of the
problem and its solution.
5. Phases of marketing research6
Marketing research can have many forms; the most important is the system
analyses. System analysis requires careful planning as a support to the research.
Marketing researches, as well as any scientic research are components of interconnected activities. Phases in the research process constantly coincide, and represent
a simplied state in which every project often follows a series of appropriate activities. In spite of this, marketing research often follows the general model. Phases in
research are: denition of the problem, setting up goals of the research, determining a plan of research, analyzing the data and coming to conclusions and preparing
a report.
Diagram 1: Phase of process of marketing research (Adjusted towards Zikmund, W., Exploring marketing
research, The Dryden Press)
Presentation
of result of
marketing
research
Defining
problem
Planing form
of research
Analyzing
Data
Data
collecting
Sample
planing
The above mentioned diagram shows six phases of the research process of marketing as a cycle process. The concept of circular sequences is used because the
completion of a research usually creates new ideas and problems which need to be
investigated. In practice, phases chronologically cover each other and are mutually
functionally connected, sometimes; later procedures in the research nish earlier.
6
Thomas, R. (2010) Marketing Health Services, Health Administartion Health Press, Chicago, p.
35-39
237
5.1. Dening the problem to research
The process of marketing research starts with the discovering of the problem.
Recognizing the problem is the rst step in discovering its solution. Generally we
can say, the term problem suggests that something is wrong. In marketing, this
term does not imply a new marketing possibility, because it exposes a new marketing segment. In reality, the task of research may explain the problem, determine the
possibility or monitor and carry out current activities. The conception of discovering and determining of the problem is used in a much wider context. It needs to be
emphasized that the initial stage discovers the problem rather than just determines
it. In the initial phase of research, it usually demands the general understanding of
the problem of the organization, its characteristics, products and services, as well as
the market surroundings. In usual research, literature usually refers to professional
magazines in which scientic substance is indexed. Unfortunately, in the healthcare
industry such scientic literature does not yet exist, as in other industries7. Literature about marketing research in the healthcare industry does not include expert
monthlies, but only bulletins, government reports, technical pieces, presentations
from scientic symposiums, annual reports and publications of professional associations (the chamber). Today, researchers can approach scientic databases as well
as other appropriate sources via the internet.
5.2. Setting up goals for research
Once a problem is noticed, research goals need to be set up. As a rule, these goals
need to determine the formation of the research process. The goal of the research is
to recognize the signicance of the problem or the opportunity to study and associate to other important factors. This research has characteristically a high degree
of exibility and usually it relies on data from literature, smaller surveys, unocial
interviews, debates and subjective evaluations of available data. The goals of this
type of research are to achieve an insight in the context of marketing and to gather
information which can limit the usefulness to other types of research.
5.3. Research plan
When the preceding processes are carried out, a plan of research is carefully
thought out. Concepts developed in previous steps need to be operationalized in
7
Mullner, P. (2008) Encyclopedia of Health Services Research, Sage Publication, London, p. 719723
238
Kovai Nedeljko
a research plan. Now that the conceptions have been implemented as to the data
type, a plan needs to be developed for the collection and analyzing of data for the
purpose of research. The categories of data which can be used, it means the collection of relevant data, indicators and analytical techniques, among others also the
characteristics, which have been included in the research plan. The research plan
classies a series in which the data collection and statistical analysis which need to
be carried out, the responsible participants, the right resources as well as time scale.
Considering that the data collecting supports the research, decisions must be made
using the primary data, secondary data or a combination of both. If the primary
research is viewed independently, it will limit the technique of collecting data and it
will be necessary to carry out procedures which refer to the forming of a questionnaire, sampling, training the examiner ect. in order to implement this process.
5.4. Data acquisition
Collecting information is getting unprocessed data which needs to be adjusted

to t into the information necessary for the marketing analysis. In the selection
for the best technique for the data collection to be used in the project, researchers
must determine dierent advantages and disadvantages of the dierent approaches
and consider only the ones that are going to be reliable and valid. The process of
collecting data usually includes the collecting of primary data, as well as the use of
secondary data. Secondary data is usually collected prior to primary data because
it doesnt demand big nancial expenditure. Primary research will be applied when
information can not be obtained from secondary research. Because of the great
amount of information that can be gathered about an unlimited number of topics, the researchers must allow for all the information to be at disposal, which are
related to the problem8. They must be especially careful, that the gathered data is
useable. In particular, the researcher must point out which are the questions that he
needs answered so that he can nalize the study. Furthermore, he should determine
the possible use of any information.
5.5. Analysis of data and the bringing of conclusions
The basic purpose of analyzing data which has been gathered is to carry out conclusions that refer to the problem of marketing research. The writing of conclusions
will be based upon the analysis which will be pointed out in the forming of the
8
Scoble, R.;The New Rules of Marketing & PR, John Wiley & Sons, New Jersey, 2007
239
research. Appropriately chosen techniques should produce useful results, whether

these results refer to the market share, the use of trends or the change in market
characteristics. These conclusions need to be ensured on base of a series of marketing activity. Some of them, in any case, become part of the solution which should
be indicated and conrmed through this process.
5.6. Presentation of the result of marketing research
The knowledge obtained through marketing research is useless, if it is not used

in form of presentation which allows decision makers to understand it and to undertake appropriate activities. If the corresponding target segment does not benet
from the research, then the eorts of the researcher were in vain. Regardless of the
quality of the research process, the precision and usefulness of the presented data,
the results of the research will not be used appropriately unless they are presented to
individuals who are making the decisions. Furthermore, many executive managers
can not easily establish the quality of the research, the questionnaires or experiments. Nevertheless, they can of course, recognize the quality of the report. Because
of this, the quality of the report is often used as an indicator of the quality of such
research. A successful presentation of the results of a research to health professionals
is a challenge of the research market in the area of healthcare.
6. CONCLUSION
Marketing investigating includes market research, product, price of promotion

and distribution. Healthcare professionals have become aware of the advantage
which is provided by marketing research in a positive sense, and as a result marketing research is used on a wide scope9. Requests for marketing research have become
highly demanding and illustrate the growing trend of miscellaneous users of this
data in healthcare. Mostly, opportunity costs of incorrect strategic decisions in the
strengthened competitive market encourage the growing demand. Marketing research should be a constituent part of the existing functions in healthcare service
facilities, and not just appear when it is considered that something should be done
without delay.
9
Medi, M. (2010) Notes with the lecture on Postgraduate Doctoral study Course Management,
Faculty of Economics Osijek
240
Kovai Nedeljko
Marketing research can acquire dierent forms and is not always a formal and
expensive process. Any kind of information which is gathered at the market is marketing research. Research can be conceptualized as a process that consists of several
steps. The real number of steps oscillates and depends on the researcher and the
problem that is investigated. The process starts with the noticing of the problem
and ends with a strategic decision. The steps in the process of marketing research
are similar to the steps taken in other industries, although they can be adjusted for
the purpose of the healthcare industry. The nature of the plan for research is in the
function of goals stimulating marketing. The majority of the market research projects include primary research and numerous techniques which can be used with all
their advantages and disadvantages. Qualitative techniques include observations,
testing and group focus. Quantitative techniques emphasize polling, which can be
done by post, over the telephone, personally or online.
Literature:
Kotler, P., & Lee, N.(2006) Marketing in the Public Sector, Wharton School
Publishing, ISBN 0-13-187515-9, New Jersey
Meler, M. (2003) Neprotni marketing, Faculty of Economics and Business in
the Osijek, ISBN 953-6073-79-X, Osijek
Mullner, R. (2008) Encyclopedia of Health Services Research, Sage Publication,
ISBN 978-1-4129-5179-1, London
Scoble, R. (2007) The New Rules of Marketing & PR, John Wiley & Sons,
ISBN 978-0-470-11345-5, New Jersey
Shukla, P. Marketing research, Ventus Publishing, ISBN 978-87-7681-411-3,
Brighton
Roberts, P., & Priest, H. (2010) Healthcare Research, John Wiley & Sons, ISBN
978-0-470-51932-5, New Jersey
Medi, M. (2010) Notes with the lecture on Postgraduate doctoral study
Course Management, Faculty of Economics and Business in the Osijek
http://en.wikipedia.org/wiki/Marketing_research (Access 14.3.2011.)
http://www.ijmr.com/Samples/Sample3.pdf (Access 14.3.2011.)
APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...
241
APPLYING THE AHP METHOD IN THE PROCESS OF

DECISION MAKING WHEN SELECTING THE LOCATION OF A
GEOTHERMAL WELL
Martina Bri, Ph.D. Candidate
Teaching Assistant
J. J. Strossmayer University in Osijek
Nino Bonjak, univ.spec.oec.
INA d.d. Zagreb
Jozo Krajina, Ph.D. Candidate
J. J. Strossmayer University in Osijek
Faculty of Teacher Education in Osijek
Abstract
Decision making is a process of evaluating the alternatives that satisfy a certain

group of set goals, i.e. criteria. As the situation described in this paper involves
multiple criteria, this is then a multiple criteria decision making. One of the most
important or probably the most important multiple criteria method is the AHP
method, i.e. Analytical Hierarchy Process. This method makes it possible to integrate and interpret both the quality and quantity criteria of comparison. A complex
problem comprising multiple criteria and alternatives was presented in this paper,
and inuence and relations among them were determined. A decision was made as
a result of recognizing the inuence among the factors.
JEL classication: O13, Q20
Key words: decision making, AHP Analytical Hierarchy Process, pairwise
comparison, alternatives, criteria, geothermal energy, wells
1. On geothermal energy
Below the earths surface there are huge reserves of heat energy - geothermal
energy. The word geothermal comes from the Greek words geo, meaning earth, and
242
Martina Bri Nino Bonjak Jozo Krajina
therme, which means heat. Geothermal energy is heat generated in Earths crust
by slow decay of radioactive elements, chemical reactions or friction in the movement of tectonic masses. The amount of this energy is so great that it can be almost
inexhaustible, and geothermal energy is therefore considered a renewable energy
source. The potential of geothermal energy is enormous; 50,000 times more energy
can be obtained from this source than from the oil and gas worldwide. Geothermal
resources are found in a wide range of depths, from shallow nds to several kilometres deep reservoirs of hot water and steam, which can be led to the surface and
exploited. Renewable energy, although still signicantly more expensive to use than
fossil fuels, already accounts for more than 10% of total world energy consumption with increasing tendency. Areas that have the largest number of geothermal
resources are at the same time those that are still geologically active. These include
the areas around the Pacic (Pacic Ring of Fire: the western parts of the United
States and Canada, Central America, the west coast of South America, New Zealand, Indonesia, Philippines, Japan and eastern Siberia), Central Atlantic Ridge
(Iceland and Azores Islands), mountain ranges such as the Alps and the Himalayas,
East Africa, Central Asia and some Olympia islands. Due to very high pressures
it would be possible to exploit the mechanical, thermal, and chemical energy, but
with todays technology it is still not considered viable.
The availability of geothermal energy in the Republic of Croatia from deep
wells suitable for economic use has been known for forty years. Geothermal water
has been used on the Croatian territory since ancient times mostly in spas. Major
studies of geothermal reservoirs were made in order to examine possible applications for a variety of purposes, not just health tourism. Sources of geothermal water
in Croatia are not adequately used for heating residential buildings, agricultural
production and industry and for the production of electricity. The National Energy
Programme, as a part of the project Development and Organization of Croatian
Energy Sector conducted by the Energy Institute, has proposed a more detailed
analysis of all deposits discovered during research of oil and gas by INA1. The use
of geothermal energy, which is a renewable and environmentally friendly source of
energy, will signicantly accelerate the accession of Croatia to the European Union.
One of the conditions for EU accession is harmonization of national legislation
regarding renewable energy, energy eciency and environmental requirements in
the selection of energy sources.
1
INA d.d. (public limited company), the national oil company of Croatia.
243
The entire area of the Pannonian sedimentary basin is characterized by relatively

high geothermal gradient. Numerous wells were drilled with water temperature
between 120 and 170 C at depths from 2000 to 2800 m, as well as those with
water temperature 68-96 C at depths from 1300 to 1900 meters. Today, when
new technical solutions have been developed and when renewable resources are put
under global view, some economic models will be used to reach the best decision
for investing in renewable resources sector. Figure 1 shows drilled geothermal wells
in Croatia.
Figure 1: Drilled geothermal wells in Croatia
Source: Energy Institute Hrvoje Poar, www.eihp.hr (accessed on February 24, 2011)
2. AHP Method - Analytical Hierarchy Process
Among multiple criteria methods, Analytical Hierarchy Process - AHP (Saaty,

1980) is one of the most important ones. It was developed some 30 years ago and it
has been in the focus of scientists attention since then. This method is popular due
to the fact that it is very close to the way of intuitive thinking of an individual, and
there are many software solutions supporting the work with this method.
244
The process of solving complex multiple criteria problems is based on their

decomposition to elements; goal, criteria (sub-criteria), and alternatives. These elements are integrated in a model with multiple levels; a hierarchical structure is
created. In the last phase the method treats the structure of MxN matrix (where M
stands for the number of alternatives and N for the number of criteria). This matrix
is constructed based on a relative importance of the alternatives with respect to each
criterion. Vector ( ai1, ai2, ..., aiN) for each i is the main vector of eigenvalues of the
reciprocal matrix NxN which is formed based on pairwise comparison of inuence
of M alternatives on i criterion. The aij values are dened in a specic way. The
starting point here is that all aij values are already known. In MxN matrix the aij
value presents a relative value of the alternative Ai with respect to the criterion Cj.
N
The sum
ij
in the standard AHP equals one. In the case of maximization, the
i =1
best alternative is the one with the highest value:

N
A * (AHP) = max
a w
ij
for i = 1, 2, ..., M.
j =1
One of the most important segments of the decision making process is the creative part determining the factors that are included in the hierarchy system. The
simplest way is to structure the problem as a three-level hierarchy: goal, criteria,
and alternatives.
Application of the method can be presented in the following steps (according to
Barkovi, 2009, p. 242):
1. The rst step in the process of nding a solution to a problem is to recognize
the request, i.e. dene what should be achieved (goal). It is also necessary to
determine the alternatives that best satisfy the set requests. Finally, priorities
of the request have to be dened to implement the alternatives and achieve a
higher, global goal. Therefore, it is necessary to develop a hierarchy model of
the decision making problem with a goal at the top, criteria (sub-criteria) at
lower levels and the alternatives at the bottom of the model.
2. In every node of the hierarchy structure parts of that node that are immediately below the node are pairwise compared by means of the Saaty scale,
and their local weights are calculated. Criteria are pairwise compared in the
process in relation to the number of times that one of them is more important
for achieving the goal than the other one. The alternatives are pairwise com-
245
pared with respect to each criterion, evaluating to what extent one of them is
in advantage of the other with respect to that criterion.
3. Local weights of the criteria and sub-criteria are calculated from estimated
relative importance of the parts of a corresponding level of the hierarchy
structure of the problem, and priorities of the alternatives are calculated at
the last level. Global priorities of the alternatives are calculated in the way
that their local priorities are weighted with the weights of all nodes to which
they belong, starting from the lowest level in the hierarchy model towards the
highest level, and then they are added up.
4. The so-called sensitivity analysis is carried out.
Dierent scales of values are used to compare parts of the hierarchy. The only
one that is of interest here is the Saatys scale of values (Saaty, 1980), according
to which elements are compared by means of verbal grades: equal, moderately
dominant, strongly dominant, very strongly dominant and extremely dominant. Verbal grades correspond to numerical values (1, 3, 5, 7, 9). The scale also
includes mid-values (2, 4, 6, 8) as well as reciprocal values to express the grades that
are opposite to the above ones.
AHP is a good way of structuring and explaining, and then mathematically solving a decision making process, i.e. a way of limiting improvisation and inconsistent
judgement of factors important for decision making. It determines the best of the
alternatives in a rational and intuitive way within a consistent procedure of evaluating all the alternatives with respect to criteria.
3. An example of making a decision by means of the AHP method
Practical application of the Analytical Hierarchy Process is shown below in an

example where a decision about the location of drilling a geothermal well is made
with respect to the set criteria.
Dening the project goal: production of electricity by using renewable source, i.e.
geothermal energy - the development of new technologies, increased price of fossil
fuels and encouragement by legal entities (the government, EU, various funds ) has
resulted in a positive economic environment for utilization of geothermal energy.
Utilization model: drilling of a geothermal well will result in production of
geothermal medium which will be used to power turbines for production of
electricity.
246
Decision about selection of the location for drilling of the well should be made
by means of the AHP. Based on available information and after processing all input
parameters, the outsourcing partner submitted three locations that are adequate for
drilling of a geothermal well. The entrepreneurial idea envisages investment into a
pair of wells for a start (a production well and an injection well). It is possible to
choose among three locations: location A, location B and location C, for which
there are ve criteria that will be considered in the process of selecting the best
location.
All three locations are situated in Croatia and their characteristics are given
below:
1. Location A; medium-temperature reservoir, 88C, with optimum production
4000 m3/day of geothermal medium, which could (by means of conventional
methods) generate 2.53 MWe and 13.5 MWt power.
2. Location B; medium-temperature reservoir, 120C, with optimum production 2000 m3/day of geothermal medium, which could generate 3.10 MWe
and 7.4 MWt power.
3. Location C; high-temperature reservoir with overheated steam, 140C, with
optimum production 1100 m3/day of geothermal medium, which could generate 4.82 MWe and 2.1 MWt heat power.
All three reservoirs are at the approximately 1980m depth and they have similar
thickness and properties. The selling price of both electricity and heat is equal for
all three locations.
As there is an array of criteria which can be used in the decision making process,
the ve most important are taken into consideration.
C1: Thermodynamic properties of the geothermal medium; temperature of the
medium on the surface as well as phase property (gas/uid) is a characteristic which
may signicantly inuence the eciency of electricity production. High-temperate
reservoirs with steam (overheated) are best for production of electricity.
C2: Re-injection of the geothermal medium; depending on the reservoir characteristics in a particular area, the possibility of injecting the produced geothermal
medium back into the reservoir may change. According to the legislation, the produced geothermal medium has to be returned back to the reservoir and it must not
come into contact with surface water. Therefore, in addition to production well it
is also necessary to have a injection well. The cost of re-injection of geothermal me-
247
dium may change depending on water properties (injection pumps, maintenance

works, cost of electricity used to power pumps, and costs of construction of injection pipeline)
C3: Utilization rate of heat resources in the produced geothermal medium; geothermal medium used for electricity production still has a great potential that can
be used in various technological processes (for heating, drying, processing industry,
pools, etc.). What is most interesting is that economic operators can use geothermal medium for heating, and if we succeed in using it, this could increase the level
of economic eciency to a great extent.
C4: Chemical properties of the geothermal uid: corrosion rate, toxic gas content (if any), water hardness, and presence of hydrocarbon require construction of
special stations and purchase of more expensive materials
C5: Attractiveness of the location; it is not that much important, it includes
infrastructure, vicinity of settlements, etc. It was used in this paper only to show
how a less important criterion can aect decision making.
The hierarchy of the problem is simple. As it is shown in Figure 2, there are
three levels. The highest hierarchy describes the ultimate decision, i.e. the set goal.
In many problems criteria can also have a hierarchical structure. However, in the
observed problem the criteria C1, C2, , C5 are all at the same level. The location
alternatives (A, B and C) are at the bottom level of the hierarchical scheme.
Figure 2: Structure of hierarchical processes

GOAL
C1
LOCATION A
C2
C3
LOCATION B
C4
C5
LOCATION C
248
The estimated ratio of criteria importance, which will be used as the basis for
ranking the locations for drilling of a well, is given in Table 1. The criteria were
compared based on the already mentioned Saatys scale. In the process of comparing the ve criteria it can be observed that the criterion C1 was highly preferred
in relation to the criterion C5 (number 8), while the criterion C4 was moderately
preferred in relation to the criterion C5 (number 2).
Table 1: Estimated ratio of criteria importance
C1
C2
C3
C4
C5
C1
1
0.200
0.333
0.143
0.125
C2
5
1
3
0.250
0.200
C3
3
0.333
1
0.200
0.167
C4
7
4
5
1
0.500
C5
8
5
6
2
1
The value score (priority) vector for the criteria will be found by solving the
eigenvalue problem (Saaty: 1980, 49-52) of the matrix consisting of the pairwise
comparisons to evaluate the mutual importance of the criteria (Table 2).
Table 2: Weights of criteria calculated from their estimated ratios

Thermodynamic properties of geothermal medium
Restoration of geothermal medium
Eciency of heat capacity of the produced geothermal medium
Chemical properties of geothermal medium
Attractiveness of the location
0.497
0.149
0.255
0.059
0.040
As it can be observed, the evaluation factor or relative weight for the criterion
C1 is 0.497, while it is lowest for the criterion C5, 0.040.
The consistency ratio (CR) is 0.093. As it is below 0.10, it is fully acceptable.
In the next step the ratios of priorities of the alternatives were estimated by
means of pairwise comparison with respect to each criterion, and priorities were
calculated (Tables 3-7).
Table 3: Priorities of the alternatives according to the criterion C1

C1
A
B
C
A
1
0.333
0.200
B
3
1
0.500
C
5
2
1
The consistency ratio (CR) is 0.004
Priorities
0.110
0.309
0.581

C2
A
B
C
A
1
7
5
B
0.143
1
0.500
C
0.200
2
1
Priorities
0.738
0.094
0.168

C3
A
B
A
1
3
B
0.333
1
C
0.143
0.250
C
7
4
1
Priorities
0.656
0.265
0.080

C4
A
B
C
A
1
0.200
0.143
B
5
1
0.333
C
7
3
1
Priorities
0.074
0.283
0.643
249
250

C5
A
B
C
A
1
0.250
0.143
B
4
1
0.333
C
7
3
1
Priorities
0.080
0.265
0.656
Local priorities of locations were calculated based on estimated ratios of priorities that can be found in the Tables 3-7. Global priority of a particular location is a
result of aggregated local priorities weighted with criterion importance.
Local priorities of all locations, criteria importance and global priorities of locations are given in the Table 8.
Table 8: Local and global priorities of the alternatives

Alternatives
C1
0.497
A
0.110
B
0309
C
0.581
Chart 1: Overview of all priorities
Criteria and their importance

C2
C3
C4
0.149
0.255
0.059
0.738
0.656
0.074
0.094
0.265
0.283
0.168
0.080
0.643
C5
0.040
0.080
0.265
0.656
Global priorities
of the alternatives
0.339
0.263
0.399
251
Based on the above it can be concluded that location C will be selected for production of electricity based on geothermal energy obtained from a geothermal well
and from production of geothermal medium.
4. Conclusion
As a method of multiple criteria decision making, Analytical Hierarchy Process

AHP has been in the focus of scientists attention since its rst appearance, as it
is close to the way of thinking of an individual. This method makes it possible to
structure and explain the decision making process, and then to solve it mathematically, thus limiting improvisation and inconsistent judgement about the factors
important for decision making. It rationally and intuitively determines the best of
the alternatives within a consistent procedure for evaluation of all alternatives with
respect to the criteria. One of many additional advantages of using the method
described above is also the fact that there are many software solutions facilitating
the work with the method. All of the above makes it possible for the AHP method
to be applied in almost all elds of human activities.
This paper provides an overview of practical implementation of the AHP method in the decision making process of selecting the location of a geothermal well,
taking into account the given criteria. The entire decision making process was presented, from problem denition to interpretation of results. Three possible locations of a well were assumed - location A, location B and location C. As there was
a whole set of criteria that could be taken into account when making the decision,
the 5 most important ones were selected. The decision was made that location C,
a high-temperature reservoir with overheated steam, would be selected for drilling
of a geothermal well to produce electricity from renewable source, i.e. by using
geothermal energy.
5. References
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Miljenko Brekalo Zvjezdana Penava Brekalo Gordana Kurtovi
254
SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING

Dr. sc. Miljenko Brekalo,1
Mr. sc. Zvjezdana Penava Brekalo,2 Mr. sc. Gordana Kurtovi3
Abstract
When planning or conducting celebrity marketing psychological aspects have

to be carefully taken into account. The results of the researches show that there are
strong emotional bounds being created in the interaction between a celebrity and
fans. These emotional bounds can be so strong that some fans compare them with
those they cherish for their family members or even their children. This becomes a
somewhat strange connection since there is mostly no true, real life interaction or
relationship between some celebrity and his/her fan. However there is a true feeling
of intimacy created with fans. The reasons for such behavior lie in the psychological
needs for identication with a celebrity.
Keywords:
commtiment
emotional
bounds,
psychological
needs,
identication,
The celebrities play an important role and have a strong inuence on the public
life, regardless whether we talk about art, music, lm, TV, sport, culture, politics or
even religion. These celebrities could be actors, athletes or singers, but also people of
no profession who are physically attractive and are regular visitors of some events.
The celebrity marketing refers to the people who are in public limelight, like in
culture, showbiz or sport. We talk about the people who would have their rating
enhanced with the professional marketing among certain group, or generally in
public, which would either promote them as individuals or the profession they are
1
Independent scientist, Osijek, the Republic of Croatia, [email protected]
II. Gimnazija u Osijeku, the Republic of Croatia, [email protected]
Credit risk menager, Hypo-Alpe-Adria bank, Osijek, the Republic of Croatia, gordana,[email protected]
255
in, as we can see in the case of the singers. With the right marketing they would sell
their CD better, their concerts would be more visited or in the case of actors, the
visitors would rush to the cinemas, likewise the famous athletes would have their
sport event more attended.
Since the marketing denition clearly states that marketing means an exchange
of one value for anther one, we should closely examine what is exchanged in the
case of personal marketing. In the conventional marketing, we talk about every
product which preferably should be also a brand and should dier from any other
products produced by the same company. This product is exchanged for certain
amount of money, meeting the needs of the consumers, and bringing prot. In
non-protable marketing we would usually have a service exchanged which would
appear under dierent name, depending on the activity, like theater repertoire,
museum exhibition, etc.
In the personal marketing, it is dicult to dene what the product is, since we
operate with non materialistic values that person might bring on the market and
which could meet certain social or psychological needs of targeted social group.
Some of these non materialistic values would include singing qualities, good acting,
high sport performance, attractive look of a model and they would be interpreted
as a success and suggesting a perfect life control, what would result with a fame of
a certain person. These values are then emotionally transferred from the celebrities
on other individuals in the targeted social group. As we could see, the personal
marketing is based on psychological characteristics and therefore dicult to be
precisely evaluated. However, the conducted studies have showed what connects
the fans and the groupies with their famous role model.4
Thomsons marketing survey has studied the relationship between an individual
and a celebrity who he calls a human brand. His study has showed that the fans
nourish a rather strong bond to their celebrity what could turn into a strong aection, since the examinees in the study describing the feelings they have toward their
celebrity, used words and expressions, which are widely used in the relationships
toward a partner or children. It is rather surprising because the relationship toward
a celebrity is a virtual one and most of the examinees have never met in person their
icons, although they might have attended their concert. Nevertheless their feelings
toward their celebrity are so strong and devoted like in a real love relationship, so
4
Ekman, P.: Emotions Revealed, Second Owl Book Edition, New York, 2007.
256
we are confronted with a rather strange concept of interaction. Namely, the fan and
his celebrity would almost never converse; they would not exchange their thoughts,
feelings and secrets like in a real life relationship. The fan would pretend as if the
celebrity addressed him personally in a televised interview, despite the fact that
the interview is watched by millions viewers worldwide. This feeling of intimacy
experienced by the fan toward his celebrity would not be aected by the physical
distance.
Thomson explains the psychological reasons for this type of emotional bonding and is the rst who mentions the interpersonal vulnerability or sensitivity of
a celebrity for the needs of the other person (somebody in the audience) and consequently the ability of the celebrity to meet the needs of his fans in the audience.
The key question is which of these psychological variables bring fans and celebrities
together and keep them emotionally bonded.
The rst variable would be a human wish to be independent, to express your
own personality and shape your own life. So, one famous person leaving an impression of someone who controls his life well and is highly respected because he can
express himself freely and makes good life decisions, would pass this message to
another one. We can say that independence, actually the personal autonomy is very
important and has strongly inuence on how the celebrity would be emotionally
perceived by the fans.
The second variable refers to attachment or a human need to be close to someone. If an examinee perceives a celebrity as a close person who would take care of
him emotionally, he would be strongly devoted and attached to his idol.
The third variable, observed in the study is a competence of celebrity which is
of no importance in the case of strong fan attachment, meaning that talent, qualities; skills of celebrity are irrelevant in emotional bonding between fan and his idol.
Even more they did not aect the fans feelings and there was no emotional transfer
toward a celebrity.
In his study, Thomson has come up with the following conclusions:
- An intensive personal relationship toward a celebrity, such as being attached to
the celebrity would turn them into so called human brands5. The celebrity
fans describing their emotions toward their idol would use the words normally
used to express love toward a love partner or a child
257
- The celebrity usually meets two basic needs of their fans; the rst one would be
the need to express your own personality and a feeling of having a control over
your life though identifying with the celebrity. The second need would be wish
to be close to someone, to be taken care of and be accepted for who you are.
- It should be pointed out that the fans do not satisfy the competence need of
their fans. The celebrities would be adored for their talent and abilities, but the
feeling of the competence among the fans would not turn into self admiration
or respect for self competence.
- The fans would be attracted to a celebrity who is rather authentic, trustworthy;
the fans are extremely sensitive if their idols are fake in the public and they
would eagerly condemn them for being so.
- the fan feeling of the attachment would have to be rewarded with a satisfying
and deep, devoted relationship of a celebrity toward his fans
- the celebrity market experts would have to come up with new way to stimulate a direct, real relationship between the celebrity and his fans in order to
strengthen the attachment among the fans5
The conventional marketing denition of the image means an emotional perception or an idea about a certain marketing item: product, company or a person.
So we could say that image is a compilation of beliefs, ideas, opinions, impressions,
stereotypes and prejudices about certain item, shared by marketing subject like
consumers or public in general. Image can be dened as a perceived picture about
a product, company, person, process or situation, created by an individual, based
on his previous experience, beliefs, opinions and prejudice which match more or
less the real product features.
In personal marketing, the image is dened as an emotional perception or picture which marketing target group or individuals might have about an item which
is presented on the market.6 Since a personal marketing means that an individual is
a marketing object, it is necessary to make a clear distinction between the marketing aspect of certain celebrity and his self image which would be a psychological
5
Cfr. Thomson, M.: Human brands:Investigating antecedents to consumers stronger attachements to celebrities,
Journal of Marketing, Volume 70 (3), p 23-34.
Cfr. Prema: Hunter, E.: Celebrity entrepreneurship and celebrity endorsement: Similarities, dierences and
the eect of deeper engagement, Jnkping International Business School, ARK Tryckaren, Jnkping 2009., p
17-25.
258
aspect. The personal image is an emotional perception, picture or opinion which a

person might have about another marketing exposed individual. Simply, it means
that a personal trait of a celebrity would be perceived as marketing quality either by
an individual or public.
Self image is an emotional perception which person has about himself. In the
further text, the self image, the image level, the image content and the forming of
the image would be discussed, as well as how the celebrities communicate their
image to the public.
The celebrities have their personality which makes them dierent when compared to the rest of the people and based on this personality in the public or in the
target group, the preferences are created, as well as positive opinions or avoidance.
There are three image levels which should be particularly looked into when an image is created:
1. The physical level which describes functional, physiological and sense appealing features, like: looks, manners, body language and etc.
2. The social level refers to targeted groups, appearance context and engaging in
social issues, etc.
3. the psychological level represents needs, wishes, emotions and conduct of
targeted audience or an individual7
The basic image structure is consisted of perception, identity and attitude. These
three psychological elements are essential to have an image successfully communicated to the public and have already been discussed within psychological terminology. Within this context, the perception means receiving, interpreting and
memorizing the verbal and non verbal communicative contents about some celebrity. Therefore the perception represents an important link between an outside
world, in this case celebrity, and psychological structure of a person who observes,
listens and fully experiences. It is obvious that this kind of perception can not be
compared to a simple or total sensory input of some stimuli, since people tend to
add or take away some characteristic from outside stimuli, depending on their own
expectations or motives.
The perception is a personal phenomenon, since every person chooses which
stimuli to notice and then have them organized depending on their psychological
7
Ibidem, p 31-35.
259
features. The interpretation of the stimuli is rather individual and based on the previous experiences and the expectations of the perceiver, convincing explanations,
his motives and interests at the time of perceiving. This is called a selective perception. To what extent the individual perception of the stimulus would correspond
to the reality, would depend on how clear the stimulus is, the past experiences of
the perceiver, his motives and interests at the moment of perceiving.
The denition of identity stands for all individual traits of a person which dier
him from the rest of the group. According to this denition, the identity describes
an individual which helps us to distinguish one person from the other. The attitude
however is an internalizing process of values and behavior patterns according to the
internal values of every person.8
Image is formed by many factors. It is a result of hierarchical systematizing and
factors evaluation, like a hallo eect or simple inference. Historically speaking,
hallo eect was used to describe situations in which the evaluation of one object or
person, with many dimensions was perceived based on one or just few dimensions
(for e. g. a man is described as a trustworthy and sophisticated, with good manners because he looks people in the eye when he talks). Hallo eect is misleading
generalization, or a tendency to evaluate isolated character features, based on the
general impression a person might leave. When we create an opinion about somebody based on one character feature, like; intelligence, social skills or looks, we talk
about hallo eect.9
Hallo eect10 was conrmed in the classical study, when the examinees were
given a list of a character traits like: intelligent, skillful, pragmatic, hard-working,
decisive and warm and then asked to evaluate the person who these traits would
refer to. They would describe this person as wise, with sense of humor, friendly and
imaginative. If the list of the traits was changed, for e.g. warm was replaced by cold,
the person was perceived dierently. The examinees, obviously, inuenced just by
one trait change, would perceive the person dierently. However, the tendency
to evaluate the person based on the hallo eect is not random. According to the
study, hallo eect would be more present, in the case when the personal characteristics suggest ambiguous behavioral pattern, when the characteristics raise moral
8
Sternberg, J. R.: Kognitivna psihologija, Naklada Slap, Jastrebarsko, 2005., p 19-21.
Cfr. Goleman, D.: Emocionalna inteligencija u poslu, Mozaik knjiga d.o.o., Zagreb, 2000., p 7-9, 21-33.
10
Ibidem, p 56-61.
260
issues and when the perceiver, evaluating the personal traits, lacks or has limited
experience.11
As previously stated, we could conclude saying that the rst impression, either in common interaction with people or with the celebrity, would inuence the
opinion about the person. Therefore, it is essential to pay close attention to the rst
impression and other previously mentioned psychological factors, since it would
determine the behavior (acceptance or rejection) toward a celebrity. Celebrities and
their managers/ marketers should be aware of the psychological aspects and create
the strategy to make the best out of that knowledge.
References:
Arnold, J.: Work psychology, Pearson Education Ltd., Essex, 2005.

Ekman, P.: Emotions Revealed, Second Owl Book Edition, New York, 2007.
Goleman, D.: Emocionalna inteligencija u poslu, Mozaik knjiga d.o.o., Zagreb,
2000.
Hunter, E.: Celebrity entrepreneurship and celebrity endorsement: Similarities,
dierences and the eect of deeper engagement, Jnkping International Business
School, ARK Tryckaren, Jnkping 2009.
Rowe, A. J.: Creative Intelligence, Pearson Education Ltd., New Jersey, 2004.
Sternberg, J. R.: Kognitivna psihologija, Naklada Slap, Jastrebarsko, 2005.
Thomson, M.: Human brands:Investigating antecedents to consumers stronger attachements to celebrities, Journal of Marketing, Volume 70 (3)
11
Supra note, br. 6, p 34-37.
IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS ON ERP EVOLUTION
261
IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS

ON ERP EVOLUTION
Mario upan dipl. oec.
Polytechnic of Poega
Abstract
Implementation costs of Enterprise Resource Planning (ERP) software are usually very high and require a lot of time and eort to put in. Even after the system is
up and running, Enterprises grows and changes, acquiring new business lines and
divesting themselves of others. Business processes are changing, some components
of ERP become unnecessary, so the costs of the adjustments continue to mount.
But today, Enterprises have a lot of alternative solutions when they choose ERP.
Choices are result of technology progress (Web service, SOA), innovative applications of existing technology (Cloud computing) and new licensing models based
on service, open source and free software licensing. All of the above, together with
Enterprise specics have an impact on their choice and also redene the meaning
of ERP.
This work will try to recognize new models of delivering ERP solutions, new
capabilities and disadvantages of ERP evolution, comparing with the capabilities
and deploying traditional ERP.
Keywords: Enterprise Resource Planning, Cloud computing, Software as a Service,
business processes, licensing model, cost, investment
1. Introduction
In December 2009 CFO Publishing Corp. has published research on annual

costs, spent by 157 US midsized Enterprises on modifying and updating their ERP
systems. As Picture 1. shows 52% of the respondents estimate internal costs alone
at between $100.000 and $500.000 per year. 43% of respondents estimate addi-
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Mario upan
tional external costs and maintenance and support fees to be in that range. Neither
time to complete change projects is not satised. 41% say that time to complete is
worse than expected and half of all respondents say that moderate modications
take more than 20 person-days of eort.
It is evident that costs and complexity of modication are the key factors which
should be taken into account while evaluating ERP oers. On the other hand,
quality ERP software is developing on the best practice and represents optimal
solution for specic business. So, adapting processes and procedure of the built-in
capabilities and strengths is more convenient than adapting the ERP system to own
business processes.
Croatian medium Enterprises size and IT budget denitely cannot be compared
with the US respondents because 48% of surveyed companies have annual revenue
from $100 million to $500 million. However, Croatian companies also have a need
for ERP upgrades that comes from security needs, legislative changes, changes in
accounting methods and other nancial management policies and practice, level of
entrepreneurial activity or mergers and acquisition activities.
Picture 1. Annual Costs of moding and updating ERP
Source: http://www.unit4.be/les/The_High_Cost_of_Change_of_ERP.PDF (Access: Feb 1 2011)
263
2. ENTERPRISE RESOURCE PLANNING ERP
Enterprise resource planning (ERP) is the method of integrating the dierent

functional activities of an organization into a unied structure or system by using
software and hardware applications (Glenn; 2008; 14). Enterprise resource planning (ERP) is a system that integrates information and processes of an organization
into a single database or unied system (Glenn; 2008; 21).
In the past, ERP systems were normally used by larger industrial types of companies. However, its purpose eventually have changed and become extremely comprehensive to any type of organization (Glenn; 2008; 17). Even more, it aects
reengineering of business processes correcting the wrong dened processes. In that
way, through the implementation process, Enterprises can learn how similar processes are seen by many dierent rms because ERP is mostly based on the best
practices.
Technically, modern ERP is a multilayer application. Its presentation layer
could be desktop graphical user interface or web interface (Picture 2.). It is composed of modules that follow business logic. Modules are connected, communicate synchronically and write into database calling SQL procedures. 20 years ago,
accounting department module as accounting information system was the main,
standalone application. Today, accounting information system is losing monopole
on accounting information and becomes integrated with other modules. Every user
sees accounting information from its own aspect. Sales department creates orders
from which put-away lists and invoices are generated. Cash management module closes paid invoices. System automatically posts in general ledger, according to
documents posting setup. During the invoice creating, users also have an access to
supplies or general ledger accounts connected to the customer.
As the time goes by ERP gets more and more modules and capabilities like
project management, intercompany posting and consolidation reports, XBRL taxonomies, intrastat journals. Microsoft Dynamics NAV ERP application has the
following basic modules: Financial Management, Sales & Marketing, Purchase,
Warehouse, Manufacturing, Jobs, Resource Planning, Service, Human Resources.
Compiere (product of the Consona Corporation, signicant and globally widespread open source rm) looks on the ERP system through slightly dierent set
of modules and capabilities: Standard reports, Business view layer, Manufacturing,
Purchasing, Material Management, Order Management, Global Financial Management, Sales. All solutions usually have capabilities of integration with other
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Mario upan
applications (Customer Relationship Management (CRM) or analysis tools), inhouse or third party. Planning is the part of every module (purchase, nance etc.).
Customizing reports are necessary as regulatory bodies heighten oversight and as
companies expand across the border. So, typical ERP solution supports customization, but the question is how quickly can adjustments be made and what stresses do
such changes place on the organization (CFO Publishing Corp.; 2009)?
Picture 2. Develop Web ERP Software using ASP.Net 3.5, C# & SQL Server
Source: http://www.vkinfotek.com/develop-erp-asp-software.html [Acess: Feb 7.2011]
Choosing right software depends on business specics of Enterprise, industry

specics, all together with the emphasis on specic business aspect of the ERP. It
also depends on user interface, ability of customization appearance and options
within software with the aim of reducing complexity, ability to integrate the data
stored within the other applications, own or partners.
3. CLOUD COMPUTING
A cloud is a type of parallel and distributed system consisting of a collection

of interconnected and virtualized computers that are dynamically provisioned and
presented as one or more unied computing resources based on service-level agreements established through negotiation between the service provider and consumers (Buyya, R. et al.; 2008). It is a service model delivered in real time, on demand,
independent of device and location. The term Cloud has been already mentioned
in the 60s of the last century, representing the Internet and the world of centralized servers without human intervention (Antonic, J.; 2009). As a revitalized term,
cloud computing today represents dierent application of existing technologies,
265
more than serious technological step ahead. It appears with decreasing cost per unit
of computer power and with the frequent rises and falls of business activities, so
investments in IT infrastructure and experts become uneconomical. Software and
hardware become subject of leasing which is more exible to a turbulence of business needs.
Cloud computing is based on virtualization. Virtualization means software
emulation of hardware, so one physical machine can emulate more virtual servers,
dierent capabilities assigned by virtualization software (VMware, for example).
Another precondition of cloud computing growth is a Web service which realize
Service-Oriented Arhitecture (SOA) design of system development.
Cloud computing is based on the fact that computers become exponentially
more powerful but less exploited. Six corporate data centers use just 10-30% of
servers power, desktop computers have an average capacity utilization of less than
5%. So, Gartner Research expects cloud computing to be $150 billion business by
2014. Small and medium businesses are expected to spend over $100 billion on
cloud computing by 2014 (Marston, S. R. et al.; 2009).
4. SOFTWARE AS A SERVICE SAAS
Cloud computing can take ve forms: Software as a service (SaaS), web service, utility or on-demand computing and Platform as a service (PaaS) (Kim, W.;
2009).
Focus of this work is on SaaS although SaaS ERP cannot operate without platform (Windows Azure operating system, for example) and it is more than obvious
that it is necessary to cooperate with some web service on Infrastructure as a Service
(IaaS).
SaaS comes with massive centralization to take advantages of economies of scale
in number of users, computing power, energy consumption, cooling and administration. Model is characterized with vendor control of application upgrading, paying for a month service according to a number of users,
SaaS is a web application that deploys on a server farm. Server farm can be a
vendor property or a third party property. Software upgrading is a vendor care. That
release Enterprises of any technical demands (hardware and software infrastructure
maintenance). But renting instead of buying, devoids Enterprises from any customizations or rewriting the software according to business processes needs. That
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Mario upan
may be a problem for large business subjects with well-dened processes (Panorama
Consulting Group; 2009). Low initial costs and simplicity could be attractive for
small businesses which do not have needs for integration with existing legacy applications, but cost eectiveness is a questionable on a long period as it is shown
with short cost analysis of Croatian ERP oer (Picture 2.).
SaaS demands live data transfers through the Net, which depends on bandwith
rate and carries some security risks. Traditional ERP exchange data through the
Local Area Network guaranted the stability of bandwith and security. On the other
hand, if if we are talking about dislocated departments like outsourced accounting service rm, than exporting and importing data on another database was the
regular procedure. That procedure carries a great risk of redundancy of two database. SaaS n-tier applications (Picture 2.) have an advantage against the traditional
way because all users write in the same database and SQL server is charged for
redundancy.
Spreading of the business software on a Cloud will have to catch with one
problem that is not technical. National and international privacy laws could be
the problem during tax inspections or investigating some illegal activities, if some
private data is stored in a country other than its owner. Which countrys privacy
laws would be followed by the clouds parent organization? (Marston, S. R. et al.;
2009)
Picture 3. Cost analysis of 2 Cloud and 1 traditional ERP systems through 10 years period of exploitation
Source: Author
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5. OPEN SOURCE LICENSING MODEL & ERP
Open source achieves great success in infrastructure software development but

what about the business software?
Majority of open licenses, General Public License (GPL) for example, allow
private customization of the software. GPL allows redistributing/selling own software, which include some other GPL software but only if all source of new work is
distributed. So, it does not mean free. Open source means that code is distributed
with the software and it is allowed to change it or use it. But it is the usually practice that open source based software rms oer its standard edition with no charge.
Compier, Inc., for example, has an ERP SaaS free edition, but full functionalities
are available in Enterprise Edition that costs $995 per year, per user. As Compiere
stated on ocial web site, costs of Enterprise Cloud Edition are still 64% lower
than the Microsoft midmarket ERP. Comparison is made for 3-year period and
includes implementation and training.
Open also means that system is developed on the open and free platforms
such as Linux, using Integrated Developments Environments such as Eclipse, connected with the open databases (MySQL, PostgreSQL), what results with the lack
of operating costs. Linux is well known as secure platform without viruses and with
the great performance even on slower machines.
Open source ERP solutions should provide a exible migration component, allowing import of data from multiple sources (txt, xml, xbrl, csv, excel les, database
les). In addition, they should provide a validation layer, acting as a gatekeeper,
stopping low quality data from entering the new system and an exception reporting tool.
Most open source solutions are free to download and use but require some
consulting service for customization. There is a long debate between supporters
of open source software and commercial software vendors over the question how
much does free, open source software, actually cost.
Open source solutions do not have the level of integration as commercial software, which uses the middleware for communications with other systems like mail
servers or ERP systems of partners. They usually use web service and xml les for
import/export data such as customer or product records.
An open source ERP solution diers in robustness and capabilities of modules,
user interface has to be intuitive with the context-based help and knowledge around
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Mario upan
product which is result of the implementation in similar organizations. New solutions could be great but without experienced consultants return on investment is
not so great. Because there is no such thing as installation wizard in a free open
source ERP, it generally rejects micro subjects without great knowledge of system
administrators in its rst steps.
The one who decides to base its business on open source solutions, must have
strong IT lifeware and in-house development. Even then adjustments should be
minimal (reports designing, for example). To change the core of the software and
to develop new modules it is more than necessary to become a member of development community and share that code to be accepted and incorporated in the next
version. That is the only way to avoid incompatibility of upgrading on a new version of the core.
ERPs are complicated and unique, because every business has its own needs, so
the core of the open source ERP must be understandable and simple for development, upgrading and adding modules, which enterprises should share freely or for
a charge. In that way will pick up the best things of in-house development which
is needed for the adjustments to the organization and the support of community
developers for the best practice implementation. ERP will naturally grow and the
best bug xes and modules will be in the repository.
OpenBravo, Compiere, ERP5, OpenERP, xTupple and Opentaps are names
mentioned by CIOs who do not care anymore for the fact that it is an open source,
mostly SaaS solutions. OpenBravo, for example, has started as a project in 2001,
received $6,4 million in venture capital funding in 2006.
6. OPEN SOURCE AND SAAS SITUATION IN CROATIA
Weakening of Croatian economic activity stops the IT investments, integrations

and digital data exchange between business subjects and even between subjects and
the government entities. Croatian small businesses mainly do not have demands
for management functions (planning, analysis) inside ERP, they only tries to satisfy
requirements set by state and acts. Also, there is no Cloud computing infrastructure (IaaS) public provider in Croatia. But Croatia has a few business Software as
a Service (SaaS) providers. N-Lab and DataLab software vendors have ERPs in a
Cloud which are rent for a month, per user (Picture 3Error! Reference source not
found..). Potential users have opportunity to explore high end application through
the online demos.
269
The only Croatian free open source ERP solution is a desktop application Spa-Erp
developed on Java platform, but without quality documentation, code comments
and strong community of developer and users it is not so reliable for adjustments
without parent rm. There are also no signicant eorts for Croatian localization
of global open source ERP projects, neither Corporate-sponsored nor independent
projects. OpenBravo, for example is localized in more than 50 countries.
Although academic environment, government and Association of Employers
work on elimination of complex administration and business obstacles, and introduce measures to simplify starting of a business and to strengthen entrepreneurial
activities, open source and free software projects are not recognized as part of a
strategy.
7. CONCLUSION
Despite the literature (Nesbit, T.; 2009) and vendors (Compiere, Inc.) dealing
with ERP Software as a Service (SaaS) highlight lower costs, that cannot be taken
as a premise, at least, for Croatian conditions. Croatian ERP vendor N-lab, for
example, oers traditional property license for 2.995 (5 users). They also have
the same product as SaaS and they rent it for 33 /month (5 users), plus 250 /
year for web application upgrading. Neglecting the advantages of SaaS, traditional
property license buying is still better option in a long term (Picture 3.). But small
businesses almost always outsource accounting function to accounting rms. Small
businesses could prosper through the exible contracts with the accounting rm
which has ERP SaaS in its oer. That may result with the savings through the exibility of labor division, ecient access to information and shared knowledge inside
of a common database.
There is no doubt that quality and capabilities of ERP SaaS will increase. It is the
golden age of Internet and mobile development, with lots of tools and technologies (MS ASP.NET, Java, a dozen of Ruby frameworks, Python frameworks,) and
Enterprises will prosper from that. Mobile devices already have lots of capabilities
as their operating systems progress and they already oer powerful and cheap client
for the SaaS ERP system.
So, why should not open source be used in combination with SaaS, when SAP
and Microsoft consulting rms need to implement propriety software anyway? Today, ERP implementation lasts too long even in a small and medium Enterprises.
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Mario upan
Why then rms dont choose the long term strategy of developing Know-how database based on mostly free open source projects?
Open source and SaaS are todays alternatives to a traditional licensing model.
But not for every organization. Open source ERP solutions are usually free but demand more eorts, learning and custom programming and servers. Servers could be
own or as a service, but denitely demand spending money. SaaS model facilitates
deployment and new releases, but it comes without customization options. Both
are Service-Oriented for easy interoperability with external or legacy application.
Business critical applications based on open source are not always so lower in
cost and exible in many ways. Open source solutions usually have a large
population of users who are always ready for support, but also demand greater
knowledge of IT department compared with legacy software adjustments. Open
source critics suggest that open source ERP systems cannot compete with the commercial competitors without long-term business strategy, full technical and professional support, training and partners programs.
ERP in Clouds presents the rst step to simplication. Complexity is not result
of volume of entries, but rather of how data is handled. The need for accurate information results with the volume and lots of complex queries sent to database. ERP
will become simpler for implementation, customization and usability, or it will be
less customizable but vendors will specialize in branches.
Cloud hosting of open source solutions have potentials to eliminate much of the
technical complexity.
Literature
Antonic, J. (2009) A Brief History of Cloud Computing

Available on: http://www.undertheradarblog.com/blog/a-brief-history-of-cloudcomputing/
Access: (Jan 4 2011)
Buyya, R. et al. (2008) Market-oriented cloud computing: vision, hype, and reality
or delivering it services as computing utilities. 10th IEEE International Conference
on High Performance Computing and Communications September 2008, Dalian,
China.
271
Available on: http://www.buyya.com/papers/hpcc2008_keynote_cloudcomputing.

pdf
CFO Publishing Corp. (2009) The High Cost of Change for ERP
Available
PDF
on:
http://www.unit4.be/les/The_High_Cost_of_Change_of_ERP.

Glenn, G. (2008) Enterprise Resource Planning 100 Success Secrets, Emereo Publishing, ISBN-978-098049718, Newstead
Kim, W. (2009) Cloud computing: Today and tomorrow. Journal of Object Technology, 8 (1), 65-72.
Available on: http://www.jot.fm/issues/issue_2009_01/column4.pdf
Marston, S. R. et al., (2009) Cloud computing: The Business Perspective
Available on: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1413545
Panorama Consulting Group (2009) SaaS ERP vs. on-premise ERP software: Six
key dierentiators
Available on: http://searchmanufacturingerp.techtarget.com/news/1350684/SaaSERP-vs-on-premise-ERP-software-Six-key-dierentiators
Access: (Feb 3 2011)
Nesbit, T. (2009) Web-Based Accounting Information Systems for Small Businesses: A Proposed Model. AFAANZ Conference, 5-7 July 2009, Adelaide, Australia
Available
on:
http://www.afaanz.org/openconf/2009/modules/request.
php?module=oc_program&action=view.php&id=224
Access: (Feb 3 2011)
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Marko ostar
DECIDOPHOBIA AS A LIMITING FACTOR OF MANAGEMENT

Marko ostar, Croatia,
[email protected]
Abstract
Management itself is a very complex category which includes planning, organizing, stang, leading and controlling. To make high-quality decisions, every manager have to possess intellectual capacity, ability to interpret information, not to be
limited, should know to plan, have ability to understand and communicate with
other people, have presentation skills, should be able to lead, motivate employees,
should be exible, informed, interested and should know how to control available
resources. During this process, every manager faces many challenges that must be
solved in a satisfactory manner by making right decisions at the right time based on
available information. This work was carried out of the research on Decidophobia
as a limiting factor of quality management of each company. In todays world of
rapid changes in the market economy, every business decision can have a dramatic
impact on the companys business, by irrational fear which leads us to making bad
business decisions and losing a step with the others. Modern Decidophobia appears in all aspects of our lives. It appears in various forms, in private and public
companies, manifesting itself in a special way, the way of the new era, in a form of
making wrong decisions due to pressures of political power. Decidophobia must be
treated as a long-term process of building a healthy environment in which we are
all equal and have equal rights and we dont have to make decisions based on fear
of mistakes, loss of social status or political harassments. One of the solutions is reected in the total elimination of evil of politics from private and state companies,
employing capable and not suitable, promising and motivating creative people and
transparency in every public enterprise, every spent Kunas and every and every
made decision to the public. Political and other pressures to the managers in the
companies should not be such as to aect business decision making.
Keywords: Decidophobia, management, company, politics, transparency
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1. INTRODUCTION
Decision making in management is obviously one of the most important aspects

of the management. Every manager should strive to improve their decision making
skills. We are often facing with situations in which managers have a fear of making
decisions. This type of phobia in management is called decidophobia. In this paper
we conducted a research to determine what types and forms of decidophobia appears in management in Croatia. The interview method was used on a sample of
54 business owners and managers.
2. FUNDAMENTALS OF DECISION MAKING IN MANAGEMENT
Management itself is a very complex category, and includes ve major (sub)

functions: planning, organizing, recruitment of employees, management and control. These (sub) functions are relating to all levels of management- highest, lowest
and middle management of the organizations in all businesses, information and
management functions of economic entities (Deeljin et al.; 1995, p. 37).
By planning we identify goals of an organization, formulate programs, policies
and strategies for its achievement, organizing and deciding which resources are
needed to reach the goals of the organization, creating working groups and providing them the necessary competence and responsibility for achieving objectives, including completion of employee selection, training , development, positioning and
managing employees within the organization, investing in its personal resources,
including management employees, which will lead to realizing what is expected
from them (Barkovi; 2009, p. 13-14).
To bring high-quality decisions, every manager must have an intellectual ability, the ability to interpret information, not to be limited, should know to plan,
the ability to understand and communicate with other people, presentation skills,
should be able to lead, motivate employees, should be exible, informed, interested
and should know how to control the available resources.
3. Decision making as a process

Making decisions as a concept is in a very wide use, so we can speak about the
decision-making in various areas of work and life, such as deciding on a personal
life, decision making in family, businesses, various organizations, institutions, etc.
Unlike by making decisions in personal or family life, in all other cases of decisionmaking, it is possible to speak in a certain way of business decision making, regard-
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less of whether the decision are in the company, bank, school, hospital, government
or the Croatian Parliament (Sikavica; 1994, p. 2).
The environment in which decisions are making can be safe, risky and uncertain. In a safe environment there is enough information to be able to predict the
consequences of each of the possible alternatives when they start to implement in
practice. In the risk environment we talk when the manager was not entirely sure
what are the consequences of dierent possible courses of action, but he is aware of
the likelihood of certain consequences. The uncertainty environment is when the
managers are missing information and they are not able to assess the likely consequences of certain alternatives. This one is the most dicult situation in which he
must rely on his creativity, and creativity of the group, in order to x the problem
(Rijavec & Miljkovi; 2001, p. 2-3).
When we talk about operational business decisions; their success depends on
managing with knowledge and information, the proper understanding of corporate
culture, fostering creativity and innovation, focusing on continuous improvement
of responsibility and mobilizing people, integration of operational decisions in the
overall strategy (Tomi; 2007, p. 98-99).
Decisions procedure can be classied into three types: oriented towards the
problem (to encourage understanding of the issues, develop solutions, evaluate
alternatives, prepare decisions, project formulation and process), oriented to the
power (defending own position, the implementation / realization of own interests,
activities by inuencing , the implementation of the project through the threat of
sanctions), consensus-oriented (elimination of resistance, conict resolution, facilitating consensus, strengthen readiness for rehabilitation / willingness to change)
(Barkovi; 2007, p. 16).
3.1. Programmed and non-programmed decisions
Dierent problems require dierent kinds of decisions. Thus, H. Simon diers

programmed and non-programmed decisions (Simon; 1960, p. 5).
Programmed decision-making is one of the ways of deciding what is used to
solve routine problems. So, in all situations of decision-making when the decision
maker is faced with the familiar, everyday, routine problems, he will use the programmed decision-making (Sikavica et al.; 1994, p. 84).
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Unlike programmed decision-making non-programmed decision is applied in

situations which are not regular and not repeated (Mescon et al.; 1985, p. 172).
For non-programmed decision-making, managers use a process of problem solving,
evaluation, intuition and creativity (Brookelf; 1987, p. 113).
Table 1. Comparison of programmed and non-programmed decisions

Decision type
Type of
problems
Methods
Examples
Programmed
Programmed,
routine
Standard
Rules of
operative
methods
Nonprogrammed
Complex,
new
Creative:
Troubleshooting
Job: Processing of vouchers

Faculty: The process of enrolment
Hospital: Preparing a patient for surgery
Government: Use of State motor vehicles
Job: Introducing a new product
Faculty: Construction of classrooms
Hospital: Reaction to the regional outbreak of inuenza
Government: Solving the spiral problems of ination
Source: Donelly, J., Gibson, J. L., Ivancevich, J. M.: Fundamentals of Management, BPI Irwin, Homewood, Illinois., str. 533
3.2. Phases of decision-making
Phases of decision making can be classied as follows: Dening problems

and objectives; Gathering information; Identifying alternative actions; Evaluation of alternatives; Selection of best alternatives; Application of selected alternative; Assessment of results (Barkovi; 2009, p. 48).
Dening problems and objectives relating to the process of accurate identication and clarication of the issues and opportunities facing the person who makes
decisions. It is necessary to rst dene the objectives to be achieved. Gathering
information is processing in order to determine the relevant facts relating to the
decision, which often reduces the search problem. Identifying alternative actions
expressed through creativity as a key in this phase of decision making. When decision makers gather information it is starting to crystallize possible alternative solutions. Evaluation of alternatives when the decision maker compares the elements
of the pros and cons of each alternative action. It is estimating costs and benets
and discusses its impact on organizational goals. Selection of the best alternatives
is classic point of decision. Decision-maker must be clear which alternative oers
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is the best solution. Based on the best personal assessment decisions are made. Application of selected alternative is when the decision maker runs the direction of the
activities involved in managerial tasks: planning, organizing, leadership, control.
Assessments of results are made on the basis of the achieved objectives.
3.3. Creativity in decision-making
Decisions of managers and other employees can be creative if they are creative,
they are continuously improving and developing their creativity, encouraging creativity within the company and overcoming obstacles to the organizational creativity. Creative people has folowing characteristics: they are exible and not prone to
the authority, are gifted, above-average intelligence is not a necessary condition,
they have a positive image of themselves, they refrain from expressing an opinion
before gathering all informations, they are more prone to thinking, are emotional,
sensitive to the world around them and have feelings for others people, they are
original in their thoughts, they are interested in the nature of the problem, they are
motivated on challenging with problems, they are often nonconformists and appreciate their independence, they have a constant need to be praised by the group,
they lead a rich, almost bizarre and fantastic life, they are interested in the meaning
and eect and not the small details, they tolerate ambiguity and complexity, they
have curiosity of young even they are older (Barkovic; 2007, p. 35).
3.4. Traps and mistakes in making decisions
Mistakes with which managers can meet are (Rijavec & Miljkovi; 2001, p. 28-41):
1. Ignoring the problem- we are talking about complacency and defensive avoidance, which may be in the form of rationalization, storing and transferring responsibility to another, 2. Accepting the rst solution- when a problem arises, we tend
to accept the rst solution that comes to mind, 3. Persistent use of old solutionswhen a problem arises, most people are trying with some solutions that worked in
the past. Sometimes this solution is successful, but sometimes a mistake, 4. Finding the perfect solution- some people are perfectionists and do not want to make
a decision while they are not fully satised, 5. Excessive security and optimism- it
is not secret that people tend to overestimate their knowledge, 6. Supporting an
already taken decision- people tend to stick to a taken decision even when it is
obvious that it has negative consequences, 7. Resistance beliefs- this is an error that
refers to the tendency to cling to our beliefs even when we are confronted with the
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evidence to the contrary. When a belief is formed, it is hard to change it, 8. Representativeness mistake- when we estimate the probability of something we compare
it with the mental representation of the entire category while neglecting the other
data, 9. Availability mistake- if we can easily recall something we assume that it is
something often and usual, and its good, 10. The manner of presentation- in these
cases, people do not make decisions based on information available to them, and
the decision aects with the way information are displayed. The most usual traps
are confusion in priorities, not consulting the others, not using the experience of
predecessor, not admitting the made mistakes, promising the impossible, regretting
for the taken decision, creating a crisis, not collecting and not checking the available information.
3.4. Theories and models in making decisions
Overall theory of decision making can be divided into normative and descriptive, bearing in mind that some authors propose the introduction of the third subset of decision theory, i.e. the distinction of normative, descriptive and prescriptive
theory. (Bell et al.; 1989, p. 9).
To make the decision acted in a manner that is satisfying, over the years researchers developed numerous models that contribute to making accurate decisions
with minimal errors as (Barkovi; 2009, p. 38-39): 1. Elements of decision making model- decision making with pure uncertainty, decision making with the risk,
decision making by purchasing of reliable information, a decision making tree, 2.
Decision making in safety- linear programming, graphical solution method, algebraic method, solving problems of carpenter on computer using program LINDO,
a linear integer optimization, assignment problem, the critical path in the network
plan, making the multiple objectives, 3. Game Theory- person game with a zerosum, game with a saddle, a game without a saddle, 4. The basic model of supplies, 5.
Tail theory- the basic elements of the model tails, combined arrivals and services
4. DECIDOPHOBIA IN MANAGEMENT
The word decidophobia was rst mentioned by Princeton University philosopher Walter Kaufmann in his 1973 book Without guilt and justice in which he
writes about the phobia in length. In Without Guilt and Justice, Kaufman describes
people with decidophobia as people who lack the courage or will to sort through
the dierent sides in disagreements to nd the truth. They would rather leave the
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deciding of what is the truth to some authority. This might be a parent or spouse.
It might be a church or university or a political party. Once the decidophobe has
relinquished authority to decide the truth then they will accept as truth anything
argued by that authority (Kaufmann; 1973, p. 273).
4.1. Causes of Decidophobia
The person coping with Decidophobia has experienced a traumatic, real-life

event. That experience is then automatically associated with making decisions.
Perhaps, as a child, the decidophobic individual was never encouraged to make
independent decisions that were well thought out. Maybe this person was consistently encouraged to simply go along with the majority or the status quo. Perhaps
the person coping with Decidophobia has made unwise decisions that have led to
devastating consequences. This individual may have knowledge of someone else
making decisions that resulted in severely negative consequences. Whatever the
cause, the decidophobic person can experience anxiety and emotional turmoil that
is completely disruptive to daily functioning (Duey; 2008, p. 1).
4.2. Symptoms of Decidophobia
The symptoms of Decidophobia are individual and will vary from person to
person. Some people, when confronted with their fear, may feel slightly uncomfortable, become nauseated or begin to perspire. At the opposite end of this spectrum, other people are so severely impacted by their fear of making a decision, that
they can experience full blown panic and/or anxiety attacks. Other symptoms of
Decidophobia can include: a dry mouth, heightened senses, breathlessness, feeling
dizzy, muscle tension, hyperventilation, trembling, rapid heartbeat, feeling out of
control, feeling trapped and unable to escape, and intense feeling of impending
disaster (Duey; 2008, p. 1).
4.3. How to diagnose and treat Decidophobia
The vast majority of cases of Decidophobia are self-diagnosed. The phobic individual realizes that their fear of making decisions is irrational and is severely
compromising their ability to function on a daily basis. The decidophobic person may speak to their primary physician about their phobia. Rarely would the
doctor diagnosis Decidophobia based on the initial discussion with their patient.
More routinely, after ruling out any physical reasons for the phobia, the doctor
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would refer the individual to a mental health professional for further evaluation
and assessment.
When the fear of making decisions becomes so intense as to disrupt an individuals
ability to function, there are a number of dierent ways to treat Decidophobia.
These can include: a referral from the primary physician to a therapist who
specializes in the treatment of phobias, traditional talk therapy that will teach
the person to recognize and control their phobia, hypnotherapy, exposure therapy,
self-help techniques, support groups with other people who are coping with this
specic phobia, cognitive behavioural therapy or desensitization therapy, relaxation
techniques such as deep breathing, in severe cases of decidophobia, anti-anxiety
medication can be prescribed.
Decidophobia is an intense, irrational fear of decisions. Sometimes that fear can
become so overwhelming as to completely halt a persons ability to maintain any
level of daily functioning. Unchecked, Decidophobia can become a debilitating
condition that interferes with an individuals social life, their personal life and job
responsibilities. Untreated, Decidophobia touches every aspect of an individuals
life (Duey; 2008, p. 1).
4.4. Impacts on Decidophobia
Research was conducted on a sample of 54 business owners and managers to determine what aects their decision-making. The study was conducted in the form
of interviews and the results showed that 42 respondents had some form of decidophobia, which is 78 % of all interviewed businesses.
Based on the research results we notice four forms of decidophobia in
management:
1. Fear of making decisions- managers in private companies
2. Fear of making decisions- the owners of private companies due to fear of
competition
3. Fear of making decisions- the owners of private companies due to the pressures of politics
4. Fear of making decisions- managers in public companies due to the pressures
of politics
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Fear of making decisions- managers in private companies; In todays world of

big changes every mistake is particularly observed. No one is irreplaceable and
managers of companies are changing very often. In this case we are talking about
managers and directors who are afraid to make specic business decisions for fear
of error. Rather they tend to go to a secure version without risk, although the risk is
minimal. Such a company should change the managers as soon as possible because
of the impossibility of progress in the market.
Fear of making decisions- the owners of private companies due to fear of competition; As we know, in many companies the key business decisions are not made
by employed directors, but business owners. Some owners have fear of errors and
losing of their position in the market from the competition. In this way, they bring
the wrong business decisions, always go to a safer version without risking and the
growth is insignicant. Such persons should be treated as soon as possible from that
fear, and in the meantime to employ a quality manager who will make the right
business decisions.
Fear of making decisions- the owners of private companies due to the pressures
of politics; Unfortunately, the political situation in Croatia is very poor, corruption and crime are on every step, and private companies are strongly inuenced
by unscrupulous politicians who want to extract the personal nancial gain. This
is Croatian reality, and nowadays many private companies does not making their
own decisions. Politics can do everything, and even destroy a successful company,
and it is evident that fear of the owner in making certain strategic decisions exists.
If you do not play how the politicians wants political power often aect other
companies to end cooperation with the disobedience and they do everything to
destroy that businesses. We are aware that this form of decidophobia manifest in
a strange way, through fear of the political structure which is entering the pores
of enterprises and creates fear of making dierent decisions, which disagrees with
the politics.
Fear of making decisions- managers in public companies due to the pressures of
politics; Public companies are the source of corruption, crime and business decisions which is shameful for Croatia. Public companies have become a retarding factor of development in Croatia. It needs to change the whole structure of politicians
who gives that pressure in order to avoid the public companies collapsing. Every
day we encounter in the media with various scandals of illegal money laundering
through these companies. Here we can see entirely dierent type of decidophobia.
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In these enterprises are working eligible people who work for politics. The way
the are employed, the same way they act. On the one hand, they have a fear of
making real decisions that are not in vertical and horizontal with the political
decisions, and on the other hand they do not want to make the right decisions.
Mostly these are people which enjoy a big support of the politics in illegal actions to
achieving personal nancial benets and benets for their supporters. Proof of such
facts show the current investigation in Croatia carried out against the top political
structures and relates on nancial crime.
5. CONCLUSION
In todays world of rapid changes on the market every business decision can have
a dramatic impact on business enterprises, whether privately or state owned. Making the right decisions at the right time is crucial for the survival in the competitive
environment and knowledge, experience and managerial skills are the key factor of
success. This way of thinking, each company would be willing to bear the burden
of this society more successfully than we can imagine. But the truth is somewhat
dierent, for several reasons. Various inuences, internal and / or external lead to
a situation that the companies fail or they went in foreign hands. Crime, bribery,
corruption, went into the pores of our society, and politics as one of the main leaders destroys the foundations of Croatian democracy.
Decidophobia, fear of making business decisions, must be treated with longterm process of building a healthy environment in which we are all equal and have
equal rights. The person is afraid to make specic business decisions because of
fear of mistakes, loss of social status or political harassment, which is quite normal
for the Democratic Republic of Croatian citizens. One of the solutions is reected
in the total elimination of evil policies from private and state companies, employing capable and not suitable, motivating creative people and transparency in every
public enterprise. Political and other pressures onto managers in companies should
not be such strong to inuence decision-making.
Croatian accession to the EU legislation and policies will have to adapt to the
community they expect to enter. Therefore we hope that there will be some changes
in society and that each company will be able to think healthy and plan their future
in a free European market. Detecting a variety of scandals linked to the large number of companies in Croatia show us how we can move from the dead spot where
we were for ages. Managers within the public and private companies should moni-
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tor changes and with lifelong learning and training be ready for everything and be
able to make key decisions for the company. They need to confront to their fears,
decisions should be made promptly with a certain amount of risk and ght with
their phobia at the beginning. Decidophobia as such is certainly curable, and quick
acting in the early stages is crucial to reduce decision-mistakes to the minimum.
The only question is whether manager wants to admit that he has a problem.
6. Bibliography
Barkovi, D. (2009). Menadersko odluivanje, Ekonomski fakultet u Osijeku,

ISBN 978-953-253-069-8, Osijek
Bell, D. E., Raia, H., Tversky, A. (1989). Decision Making: Descriptive, Normative and Prescriptive Interactions, Press, ISBN 978-0521368513, Cambridge
Brookeld, C. A. (1987). Developing Critical Thinkers: Challenging Adults
to Explore Alternative Ways of Thinking, Jossey-Bass, ISBN 0335155510, San
Francisco
Deeljin, R.D., Taylor, R.R., Ferrel, O.C. (1995). Management, Comprehesion,
Analysis, And Application, Irwin, ISBN 0256137846, 9780256137842, Chicago
Donelly, J., Gibson, J. L., Ivancevich, J. M. (1997). Fundamentals of Management,
BPI Irwin, Homewood, ISBN 978-025623237, Illinois
Duey, T. (2008). Decidophobia: The fear of making decisions, Available: http://
healthmad.com/mental-health/decidophobia-the-fear-of-making-decisions/, Accessed: (20-02-2011)
Kourdi, J., prijevod Tomi, S. (2007). Poslovna strategija, Masmedija, ISBN 978953-157-503-4, Zagreb
Mescon, M., Albert, M., Khedouri F. (1985). Management, Harper and Row,
ISBN 9780060444150, New York
Rijavec, M., Miljkovi, D. (2001). Kako rjeavati probleme i donositi odluke?,
Edicija Obelisk, ISBN 953-97820-5-8, Zagreb
Sikavica, P., Skoko, H., Tipuri, D., Dali, M. (1994). Poslovno odluivanje- teorija i praksa donoenja odluka, Impresum, ISBN 953-170-008-7, Zagreb
Simon, H. (1960). The New Science of Management Decision, Harper & Row,
ISBN 978-0060360009, New York
QUALITY MANAGEMENT IN THE SUGAR INDUSTRY
283

mr.sc. Branimir Kos, dipl.iur. [email protected]
Abstract
Market globalization, opportunity and competition increasing cause a necessity for achievement of better goods and services in all area of human operating.
Standards, quality, improvements, competitive advantage are the words which are
involved in a very big part of scientic and expert discussions.
Changes in a management philosophy have an inuence in all organization
levels. In a last few years, Total qualitymanagement TQM becomes popular in all
over the world. Denition of TQM is Philosophy of commitment and loyalty of
all organization to constant improvement in all areas.1 Management of Sladorana
d.d. recognized the importance of quality managing in a way of cost decreasing
and organization eciency increasing. Quality managing in a business processes
opened a possibility of entrance on the new markets. Standards and certicate,
which some markets insist, are becoming strategic orientation of the company.
Sladorana`s motive for systematic quality managing in its business strategy is entering to foreign market.
Keywords: quality, standardization
Introduction
The globalisation of markets, increased opportunities, as well as the increased

competition, cause the need to create increasingly better goods and services in all
areas of human activity. Norms, quality, improvement, competitive advantage, are
words that are nowadays present in many expert discussions.
Changes in the philosophy of management bring changes to all levels of organisation. In the last few years the Total quality management TQM has become
1
Bahtijarevi-iber. F, Management ljudskih potencijala, Zagreb, Golden marketing, 1999., str. 103
284
Branimir Kos
popular worldwide. The denition of TQM is philosophy of commitment and devotion of the whole organisation to the continuous improvement in all aspects.2
Management of the sugar factory Sladorana d.d. has recognized the importance
of quality management as a way of decreasing of expenses and increasing of the eciency of the organisation. Quality management in business procedures has opened
the opportunity for going to new markets. Standards and certicates requested by
some markets have become the strategic orientation of the company. Sladoranas
motive for the systematic management of business quality is going out on the foreign market.
Sladorana is an export oriented company that eectuates 65% of its revenues
on the foreign markets. Signicant is the anecdote whose actor was a Head of Sales
Service, where he was asked by a potential buyer from Italy in an advanced stage of
negotiation, when they had already agreed upon some essential stipulations of the
Sales contract: You, of course, already have the ISO certicate?!. It should not be
mentioned that when he heard a negative answer, their business failed.
At any time one should be aware of the fact that companies from the Republic
of Croatia are unknown on the EU market. This is even more radical in the case
of Sladorana, because the end buyer is being sold a consumable product, sugar, to
which every customer is extremely sensitive.
Very often is the certicated system of quality management a conditio sine qua
non for concluding of a Sales contract. The reason for this is that in this way the
foreign partner reduces or fully eliminates his own risk of purchasing a low-quality
product and achieves signicant savings on input control.
Therefore ISO 9000, HACCP, Halal and Kosher represent a necessity for a company which wants to consider itself a global player and compete on the market.
Knowledge and experience gathered over many years and generations, have been
summarised in the norms and standards which generally do not have mandatory
application, but which until now have been adopted by a large number of countries
in the world, including The Republic of Croatia. Establishing of an own company
according to the quality systems indicates to the buyer that the seller has accepted
the modern business organisation, that provides a good product quality.
2
Bahtijarevi-iber. F, Management ljudskih potencijala, Zagreb, Golden marketing, 1999, page
103
285
Benets provided by a quality management system are numerous. Here are

some of them:
- competitiveness through quality,
- better acceptance by buyers before signing a contract,
- international recognition of the applied system,
- reducing of technical testing at realisation of the contract,
- lower costs of poor quality,
- ensuring of constant and reproducible quality,
- more eective coordination of employees,
- less scrap and waste,
- less anxiety and haste,
- continuous improvement and training, of products as well as of work
procedures.
Considering all above mentioned it can be concluded that the quality management is a strategic aim of every company, as well as a condition without which the
further survival and development in the EU surroundings simply is not possible.
1. PROCEDURE SCHEMA
Procedural approach to management ensures primarily better understanding of

buyers needs and expectations, but also fulls their requests. The advantage of the
application of the procedural approach to management is exactly in breaking of the
xed slow bureaucratic hierarchy in organisations, which signicantly contributes
to reducing of costs and increasing of eciency of resources and procedures. It also
contributes to clearer division of responsibilities through the ownership of the
procedure and the recognition of procedure which do not create new values. The
procedural approach facilitates the individuals to identify their roles in the organization, enables the measuring of their contribution and strongly encourages the
motivation. The most important benet from the procedural approach is realized
precisely by eliminating of bottlenecks that can usually be found on the places of
connecting of two or more procedures, and by easier identication of internal buyers and suppliers.
Recognition of the ownership of the procedures should stimulate the budget
approach to planning of resources what would considerably increase the eciency
and decrease the costs of business activities as a whole.
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Branimir Kos
Procedural approach brings order into the organisation, assigning the most
important role to the main procedures with appropriate positioning of functions
representing secondary procedures, which become service to the main procedures,
and not the the reason of their existence.
With the help of the procedural approach overlapping of businesses can be reduced. In one facility an analysis of the health status of high school pupils has
been conducted. Due to individual approach the same data has been taken eight
times in dierent departments from each student. Obviously the procedure has
been multiplied. Some departments do not communicate properly. The aim of the
procedural approach is to turn from the existing classical vertical organisation to
horizontal organisation.
Procedures can be divided into three groups:
- main procedures,
- auxiliary procedures,
- management procedures.
Main procedures are these that represent the essential procedures for the organisation under consideration. They contribute to the increase of the product value.
The buyer is at the beginning and at the end of these procedures, and he is willing to pay to get the result of these procedures. The type of the main procedures
depends indeed on the type of production. These procedures can be procedures of
development, supply, production, assembling, after-sales services, etc. Depending
on the type of work they are practising, each organisation will have its specic main
procedures.
Auxiliary procedures follow the main procedures and are used for collecting of
data or for administrative procedures. These are, for example, management of suppliers, accountancy, etc.
2. STANDARDS, NORMS AND CERTIFICATES
TQM represents the next step to which this company wants to devote itself. Quality management related to products and production procedures in Sladorana has
already been adopted. Sladorana has the ISO 9000 certicate and is the rst Croatian
sugar factory that has introduced the HACCP. Moreover, the sugar produced in Sladorana has the Kosher and the Halal certicate. In the following part these norms
and certicates owned by Sladorana will be briey listed and described.
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2.1. ISO 9000
Series of international norms ISO 9000 for quality management and quality
assurance have been adopted by more than 120 countries and have been applied in
thousands of productive and service enterprises of the public and private sector.
One of the most successful series of norms in the history of the International
Organisation for Standardization (ISO), ISO 9000 arouse a lot of attention in public and made the name ISO widely known in the business community.
ISO 9000 is a norm among more than 110.000 international norms which have
been published by the International Organization for Standardization ISO since
the beginning of its activity in 1947. ISO develops and publishes norms for the following technical sectors: engineering, chemistry, metals, non-metals, construction,
agriculture, graphic and photography, health and medicine, information ows, environment, packing and distribution of goods.
ISO is a non-governmental International Organization for Standardization:
ISO is not an acronym, but a name derived from the Greek word isos, meaning equal; which is the root of the prex iso that is contained in many terms
like asymmetrical (equal measures and dimensions ) and isonomy (impartiality
of laws, i.e. equality of all people before the law). It is not hard to follow the ow
of thinking from the word equal to norm, which leads to the choice of ISO
as the name of the organization. In addition, the name ISO is used worldwide to
denote the organisation, avoiding in this way the excess of acronyms, which are the
result of translating of the full name International organization for Standardization into dierent national languages of the member states. In this way the short
name of the organization is always ISO.
All norms developed and published by ISO are voluntary. They are a result of
the needs of the market and are developed as an agreement, whereby the foundation on the consensus ensures a very wide application of the norms.
ISO 9000 is neither a label of product quality nor a quality warranty. When a
company has a certied managing system, this means that an independent assessor
has conrmed that the procedures aecting the product quality (ISO 9000) are
compatible with the corresponding requirements in norms.
2.2. HACCP
One of the most important aspects in food production and distribution is certainly its quality and safety. Each producer is obliged to put on the market quality food
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Branimir Kos
with certain nutritive and organoleptic properties, but at the same time hygienically
straight, safe food, which will favourably inuence the health of the consumers. The
Food and Objects of common Use Safety Act stipulates an obligatory control of the
health safety of food, which is based on the testing of nal products. Regardless of its
universality and rigor, this system is not able to prevent the appearance of accidents
and poisoning by food, microbiological, as well as chemical and physical agents. Also,
this kind of control is expensive, demands a lot of time and considerably slows down
the procedure of food production and distribution. This is a reactive approach and
less ecient than the proactive HACCP system, that is applied in the world.
HACCP represents an integrated food safety control system in all procedural
stages of its production and distribution. It is based on the preventive approach,
what contributes to the reduction of the risk to the health of the population.
HACCP (Hazard Analysis Critical Control Points) is a logical, scientically
based system of controlling of food production and distribution procedures, which
ensures:
- identication and assessment of all possible hazards,
- determining of necessary measures for their prevention and control,
- assurance of implementation of measures in an eective manner.
HACCP system is adjusted to all kinds of food and to all stages of production
and handling from the farm to the table.
HACCP is of great importance to food producers from the position of consumer protection, ensuring the production and marketing of healthy food. Its use is
widespread in the developed world, whereas it is legally binding in the EU (Council
Directive 93/43/EEC).
The ultimate goal of HACCP is a production of what is possible safer product
by using the safest procedures possible. This means that applying of HACCP does
not always ensure a 100% safety for users, but it also means that the company produces food in the best and safest way possible.
According to the provisions of the Directive, any individual who owns, manages, or works in food production in EU must introduce the HACCP safety system.
The application of this directive forces the importers to import only food products of higher quality and greater safety, but also to require continuous improvements in countries of origin.
289
2.3. Halal
- O people, eat from the earths products all that is lawful and good... Quran3,
2:168
Halal is to be understood in the linguistic, religious, cultural traditional and
health care context, and the word itself means permitted. Halal quality can be
conrmed only by the Islamic community or a certication company authorized
by the Islamic community. The Islamic community in Croatia has established a
specialized institution, the Center for Halal Quality Certication, with the following activities:
- education on Halal,
- certication of Halal products and services including the expert help in activities of implementation of the requests of the Islamic regulations and Halal
standards,
- scientic and expert researches,
- promoting of certied products and producers.
Halal can refer to dierent kinds of products (food, cosmetics, medicaments,
and objects of common use) and services (commerce, catering, banking). Characteristics of Halal products are: they are present in all dietary habits, acceptable for
all ages and members of other religions, healthy products, present in all areas of the
world, and additional control guarantees quality assurance.
Halal market is one of the most perspective markets. Despite the global crisis,
the global Halal market has increased for 40% in the last few years, and in the next
ten years its growth is expected to be 20 to 25%. Currently, the global Halal market is estimated at 635 billion USD. Halal market can be divided into:
1. Arab-Islamic market
2. Halal market EU
3. Regional Halal market
The most interesting market for the Sladoranas products is the regional Halal
market: Bosnia and Herzegovina, Serbia, Montenegro, Macedonia, Albania and
Kosovo. Kosovo has lately become the market that shows an increasing interest in
Halal products.
3
Holly book in Islam
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Branimir Kos
A good example of the size of the Halal market is the example of some Croatian companies which have, through certication of its products according to the
requirements of Halal quality and applying of the Halal quality sign to the packaging, raised its export up to 40% on the regional Halal market.4
2.4. Kosher
Kosher is based on the book of Torah5 which strictly denes what is permitted,
i.e. what is Kosher and what is not. Whereas the HACCP and ISO are dealing with
analysis of hazards and critical points control, as well as with self-control system for
ensuring of the food safety, kosher is engaged in the origins of the raw materials,
and respecting of various Jewish regulations on diet such as: the origin of the raw
material, strict separation of the meat products from the milk products, etc. Kosher
standard diers from the ISO, HACCP standards because it is based on Jewish
dietary regulations which are based on the divine revelation and it does not contain
only health and safety aspects. Therefore, an authorized rabbi, who is also an expert
for Kosher issues, has to supervise the input raw material, the manufacturing facility and the production procedure itself, to assure that everything is in accordance
with the requirements and regulations of the Laws on Kosher diet. According to the
valid legislation in the Republic of Croatia all with food dealing subjects in order
to assure the health safety of food are obliged to carry out the food production,
preparation and serving procedures that are based on the principles of the HACCP
system, whereby food production according to Kosher standards makes additional
upgrade with all its specicities. Kosher certicate can be issued by a rabbi who is
an expert in Jewish dietary rules. He visits the manufacturing facility, to check the
conditions of production, and give advice on how the production can be adapted to
kosher rules. Rabbi checks the list of all products, raw materials and suppliers, and
keeps all data which he becomes insight in as strictly condential
Conclusion
Setting quality as the supreme principle and priority of a company requires

fundamental changes in organizational culture, goals and daily operations. The
only way to adopt this is to move forward by small steps, each of which will be
made possible by success of the prior one. Persistence is the key to success: many
4
5
HGK (Croatian Chamber of Economy) County Chamber Split, Halal brochure

Holly book in Judaism
291
programs and project were due to initial discouragement, lack of the support of
management, confusion, cynicism and complacency, terminated before any progress could be observed. The established quality system allows the company more
ecient use of resources, resolving of long-standing problems and improvement of
the general state of the company.
In the past few years Sladorana has become a company that introduced the
norms and standards in its production procedures. The next step is the introduction of TQM.
TQM represents a necessity for sustainable development of sugar production
and the assumption of readiness for responses from environment. The soon entering of Croatia into the EU will be a test for both the management and all employees. The assumption is that the competitive advantages achieved through TQM will
be sucient for survival in the turbulent markets of the EU.
Literature
Bahtijarevi-iber. F, Managament ljudskih potencijala, Zagreb, Golden marketing, 1999.

Crosby, B. P, Kvaliteta je besplatna, Privredni vjesnik, Zagreb, 1989.
Glava G., Erceg A., Zadovoljstvo korisnika primarni cilj sustava kvalitete Zbornik
radova tree hrvatske konferencije o kvaliteti, Cavtat, 2001.
HGK upanijska komora Split, Halal broura, Split
Ignjac N., Sustavi kvalitete 2000, velika revizija normi ISO 9000 Oskar, Zagreb,
1999.
Juran, J. M. And F. M. Gryna, Planiranje i analiza kvalitete, Third Edition, MATE
Zagreb, 1999.
Klasinc A., Leki Z., Kako usvojiti i primijeniti procesni pristup u normi ISO 9001
: 2000, documents from the seminar, BVQI Slovenija, 2001.
Kondi ., Kvaliteta i pouzdanost tehnikih sistema, Tiva Varadin, 2001.
Skoko H., Upravljanje kvalitetom, Sinergija, Zagreb 2000.
http://www.ziljak.hr/tiskarstvo/tiskarstvo09/Clanci09web/ReparAgicKurecic/
ReparAgicKurecic.html, December 2010.
292
Branimir Kos
http://kvaliteta.inet.hr/t_pv3071b.htm, December 2010.

http://www.hrvatski-izvoznici.hr/?CategoryID=566&NewsID=7212&LanguageI
D=-1,Halal presentation
CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE CONDITIONS OF RECESSION
293
CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE

CONDITIONS OF RECESSION
Anita Kula, BSc, Assistant and Associate at the University of Applied Sciences of Slavonski Brod, at
the University of Applied Sciences of Slavonski Brod
Sanja Kneevi, BSc, Assistant and Associate at the University of Applied Sciences of Slavonski Brod
Abstract
One of the requirements imposed by globalization processes in the 21st century

is the transparency, apropos complete openness to the world. The world is possible
to observe from dierent levels, but this paper will be devoted to recent changes in
the business level caused by the recession.
The purpose of this paper is to discuss the corporate responsibility and activities
related to this area. Then will be discussed whether the social responsibility regulated and how. It will be discussed about socially responsible areas that companies
need to deal with in order to leave a good impression on the entire community.
This, primarily refers to the well-set core values of the company, then to concerns of
human resources, to the relation between market, to the environmental impact, to
community relations, and to respect for human rights. These areas of consideration
will be substantiated by survey results, conducted at the University of Applied Sciences of Slavonski Brod, direction Management.
Keywords: corporate social responsibility, recession, socially responsible areas
1. INTRODUCTION
One of the requirements imposed by globalization processes in the 21st century

is the transparency, apropos complete openness to the world. The world is possible
to observe from dierent levels, but this paper will be devoted to recent changes in
the business level caused by the recession. The purpose of this paper is to discuss
the corporate responsibility and activities, their legal regulation, socially responsible
294
Anita Kula Sanja Kneevi
areas that companies need to deal with in order to leave a good impression on the
entire community.
2. CORPORATE SOCIAL RESPONSIBILITY
Todays companies are subjected to continuous questioning of the public. It

is, therefore important that they take care of their impact on the entire community. That is very hard to achieve because the business world for several years have
struggled with the recession, which represented each decrease of the gross domestic product (GDP) for at least two quarters. Some companies can not take care
of everything, respectively of issues that are not necessarily associated with their
existence. This is the primarly task of the manager who manages the company. If
managers are socially conscious and familiar with all the possibilities provided by
corporate social responsibility should ,,...to inform all members of the organization about it. (Certo & Certo; 2008, p. 55). Only on this way workers will be
well informed with advantages which allows social responsibility and ethics. Ethics, its levels and its correlation with social responsibility will be mentioned in the
following.
2.1. Ethics in business
Ethics is actually a system of principles, values and norms of behavior, observed

from the perspective of fundamental values and criteria of correct or wrong, good
or bad. Attention will be devoted to business ethics, considering that the paper is
observed from an economic point of view. Business ethics can be dened as a system of fundamental values and rules of individual, organizational social behavior
associated to business and for the realization of its objectives and for judging the
consequences of business behavior and decision making for other participants in
the business environment. (Bahtijarevi-iber et al.; 2008, p. 533) According to
Bahtijarevi-iberu (Bahtijarevi-iber et al.; 2008, p. 532) business ethics can be
viewed from the:
- social level, which includes all the basic institutions of society, the position of
ethnic minorities, a fair allocation of resources, the role of government in the
market regulation, etc.
- level of interest group inuence, which includes all individuals and groups on
which can aect decision of the company (employees, customers, suppliers,
shareholders, partners, governments, media, etc.)
295
- level of internal policy, which includes the entire relatinship between the company and its employees, and
- individual or personel level, which includes every day life of the company,
openness and honesty among employees.
One of the main parts of the business ethics is managerial ethics. Managerial
ethics is a system of fundamental values, rules and criteria applied by managers in
decision making, in judgment of correct procedures and decisions, and in a wider
impact assessment of these decisions and their impact on other participants in the
business and the social environment. (Bahtijarevi-iber et al.; 2008, p. 534). It
can be seen from this that the manager should make such a decision that will please
everyone. It is no wonder that managers are often under pressure and that for every
manager is easier to work in a team, with the people who will help him in making
important decisions.
2.2. Corporate social responsibility activities
In the mid 20th century appeared the need for care about sustainable development. Sustainable development is the development that satises the needs of
today, without jeopardizing the needs of future generations. (Strategy for Sustainable Development of the Republic of Croatia, the Environmental Protection Act,
OG 110/07) So, corporate social responsibility got an important role and regarding
that, various organizations were established. The main goal of these organizations
is to encourage social responsibility activities. They set up specic initiatives and
standards that all companies should respect in order to be competitive in the future.
Social responsibility is an obligation and the duty of management to every important decision not only valorizes on the basis of its economic but also social eects
and to make decisions and to take only those actions that at the same time increase
the benet of society and organizations. (Bahtijarevi-iber et al.; 2008, p. 561)
Regarding the standards, initiatives and organizations related to this topic are
numerous and here will be mention only a few: Standard SA 8000 (SAI), Global reporting initiative (GRI), The Ethnical Trading Initiative base code (ETI), Account
Ability 1000 (AA1000) Foundation for social and ethnical responsibility, The Dow
Jones sustainability group index (DJSGI), The international ISO standard 14001,
etc. The Republic of Croatia (hereinafter: RC) has encouraged the development of
social responsibility accepted by the Montreal Agreement, Stockholm Convention,
ISO 14001, European Eco-Management and audit scheme and etc. The Croatian
296
government has in September 2010. made an adoption decision of the Code of

Corporate Governance-Trade associations in which the RC has shares, where one
of the principles is the corporate social responsibility. (The adoption decision of
the Code of Corporate Governance-Trade associations in which the RC has shares,
art2. Low on Government OG 101/98, 15/2000, 117/2001, 199/2003, 30/2004
i 77/2009)
It is important to emphasize that corporate social responsibility activities are not
required but voluntary. When a company conducts only activities determined by
law is not socially responsible. The analysis that follows shows the area which every
company needs to deal with if it wants to be socially responsible. Analysis is substantiated by survey results, conducted among employed and unemployed students
at the University of Applied Sciences of Slavonski Brod, direction Management, in
December 2010.
2.2.1. Company values
The fundamental values of the companies are mission, vision and objective. The
mission is the purpose of the existence of the company, vision is of what company
wants to achieve with the possibility of change, while the objective is of what the
company stands for and supports.
While making business decisions a company needs to take into account appointed mission and fundamental values of its company, aspiration of society (fundamental human values are universal, and applied in dierent cultures, religions
and nations), social standards and voluntary standards and best practice systems.
As company is more complex, it is dening its fundamental values more important because it is the only way to successfully manage risk (risk of losing the
condence of its business).
The following chart will demonstrate the most important values on which every
company should consider.
297
Chart 1 Mission and company values
Source: Made by authors
Chart 1 shows that approximately 50% of respondents considered listed values

very important, about 36% considered little important, while 14% considered not
at all important.
2.2.2. Concern of human resources
Human resources are the people who work for the organization. Skills they
possess and understanding an operating system for managers are priceless. (Certo
& Certo; 2008, p. 9) Human resources of the company are workers. A worker, in a
terms of the Labour low is a person employed to perform certain tasks for the employer. While the employer is a physical or legal person who employs workers and
for which the employee performs certain tasks (Labour low, OG 149/09) Labour
Low prohibits direct and indirect discrimination in the area of work and working
conditions, and terms of employment, advancment, professional directing, professional education, training and retraining. It is important that every company has a
good Human Resource Management, and refers to policies, practices and systems
that aect employees behavior, their attitudes, and work performence. (Noe et al.;
2006, p. 4)
Todays companies have realized that with the departure of employees, also goes
their intellectual equity in which company invested. In order to keep such employees, company needs to convince them of the existence of positive reasons for staying. These reasons are presented in Chart 2.
298
Chart 2 Human resource
Chart 2 shows that even more than 53% of respondents considered listed reasons little important, about 30 % considered very important, while 17 % considered not at all important.
2.2.3. Market relation
Considering that the market is a place where supply and demand meets, in this
paper companies and society, it is important that society has a positive thinking
about the company. The company can attract interested in various ways, based on
their function in the market, whether they are consumers, investors or business
partners.
Consumer is every physical person who concludes a legal business or operates on the market that is not in the scope of his business activities or performs
proesional activity. (Consumer protection act OG 79/2007) It is important for
consumers to purchase products from a company they trust and thats the reason
they remember a company that violates their rights or behaves irresponsible on the
market.
In the conditions of recession, consumer will in its product basket leave the
product of socially sensitive company and socially responsible company. Investors
are physical or legal persons that are interested in nancial investments in particular
companies. Many companies depend on investors because they provide companies
299
to improve their business. It is therefore important that the company takes care
about its corporate social responsibility activities.
The relationship with business partners and suppliers is important for every
company because one organization cannot operate itself, so neither the company.
Today, company has to take care of everything and do not make any wrong step.
Because, it is important company to collaborate with suppliers that follow the
value system of the company. The company with its market behavior directly and
indirectly aects on the entire supply chain, and so signincantly contributes to the
development and regulation of the market. Chart 3 shows how much is an important for respondents that the company takes care about the market.
Chart 3 Market
This chart shows that the distincion between respondents where the ratio is very
important (44%) and those whom is a little important (42%) is negligible.
2.2.4. Concern about environmental impact
The environment is of special interest for every country and it has its special
protection. Environmental protection ensures the complete preservation of environmental quality, preservation of biological and landscape diversity, rational use
of natural resources and energy on the best way for the environment, as the basic
300
condition of healthy life and a basis for sustainable development. (Environmental

protection act OG 110/07) The aim of this kind of protection is to prevent environmental hazards, to prevent the damage and/or pollution of the environment,
reduction and/or elimination of damage to the environment and return the environment to the state before the occurence of damage.
Although it is believed that the greatest polluters of the environment are mostly
large companies, it has been noticed that the proportion of small and medium-sized
companies signincantly exceeds proportion of large companies and they also need
to start specic environmental protection programs. Therefore, it is the duty of every
company timely to inform the public about the pollution, including information on
activities of dangerous substances and information about measures taken.
The negative environmental impact can be reduced by reducing noxious substances, by reducing the amount of waste produced and more rational use of expensive and non renewable resources. In this way companies can win the race against
competition. Chart 4 shows what respondents think about it.
Chart 4 Environment
This chart shows that corespondents considered that care about environment is
a little important (44%) while 37 % considered that fact very important.
2.2.5. Concern about community relations
All companies impact on the social, particularly on the local community in

which they operate and it is important to have a good relationship to it, because in
301
that way all participants will be satised. This relationship helps companies to improve their business functions (marketing, human resources, public activities, public relations). During the investment implementation in local/social community
must be careful on the way of implementation. As good implementation strengthen
and enhance the company, so bad or wrong implementation can negatively aect
the business. It is important that company shows a specic interest for the marginal
groups, consumers and the environment. Respondents also gave their opinion.
Chart 5 Community relations
Chart 5 shows that approximately the same numbers of respondents considered

the concern about community relations very important (43%) and little important
(41%).
2.2.6. Respect for human rights
The (European) Convention for the Protection of Human Rights and Fundamental Freedoms has many human rights and freedoms that are of extreme importance to every person. (Convention for the Protection of Human Rights and Fundamental Freedoms IA 18/97, 6/99, 14/02, 13/03, 9/05, 1/06, 2/10) To companies are important that human rights that are primarily related to employees. (The
Low on Gender Equality OG, 116/03), to community (Constitutional Law on the
Rights of National Minorities OG 155/02, 47/10, 80/10) and political order. The
following chart will demonstrate what respondents think.
302
Chart 6 Human rights
An equal number of respondents considered very important and little important

the importance of respect for human rights (37%). Unfortunately, 26% considered
not at all important.
3 CONCLUSION
Respecting the new rules for global market, Croatian companies should in their
development strategies increasingly involve social responsibility activities and recognize them as an opportunity to create competitive advantages. However, it is not
possible, because at the end of the rst decade of the 21st century business world
was hit by the recession which aected the Croatian economy. It is therefore naive
to expect companies to deal with something new while themselves struggling to
survive on the market, both global and national.
It is concluded from the survey that the Croatian society (respondents) is still
unaware of benets obtained by implementing social responsibility activities because their managers are still not suncieltly informed about this area.
4 REFERENCES
Bahtijarevi-iber, F. & Sikavica, P. & Poloki Voki, N. (2008). Suvremeni

menadment vjetine, sustavi i izazovi, kolska knjiga, ISBN 978-953-0-303478, Zagreb
303
Certo, S. C. & Certo, S. T. (2008). Moderni menadment, Mate, ISBN 978-953246-062-9, Zagreb
Kotler, P. & Lee, N. (2009). DOP Drutveno odgovorno poslovanje Suvremena
teorija i najbolja praksa, M.E.P. d.o.o., ISBN 978-953-6807-39-0, Zagreb
Krka, K. (2007). Uvod u poslovnu etiku i korporacijsku drutvenu odgovornost,
Mate, ISBN 978-953-246-036-0, Zagreb
Noe, R.A. & Hollenbeck, J.R. & Gerhart, B. & Wright, P.M. (2006). Menadment ljudskih potencijala: Postizanje konkurentske prednosti, Mate, ISBN 953246-012-8, Zagreb
Northouse, P.G. (2010). Vodstvo Teorija i praksa, Mate, ISBN 978-953-246066-7, Zagreb
Sikavica, P. & Bahtijarevi-iber, F. (2004). Menadment Teorija menadmenta
i veliko empirijsko istraivanje u Hrvatskoj, MASMEDIA, ISBN 953-157-455-3,
Zagreb
Letica, B. (2010). Doba odgovornosti Korporacijska drutvena odgovornost u
vrijeme svjetske nancijske krize, MATE, Zagreb
Ustavni zakon o nacionalnim manjinama NN 155/02, 47/10, 80/10
(06.12.2010.)
Zakon o radu, NN 149/09 (05.12.2010.)
Zakon o zatiti potroaa, NN 79/07 (06.12.2010.)
Zakon o ravnopravnosti spolova, NN 116/07 (06.12.2010.)
Zakon o zatiti okolia, NN 110/07 (28.11.2010.)
Strategija odrivog razvitka Republike Hrvatske, Zakon o zatiti okolia, NN
110/07
http://www.zakon.hr/z/364/(Europska)-Konvencija-za-zastitu-ljudskih-prava-i-temeljnih-sloboda (06.12.2010.)
http://narodne-novine.nn.hr/clanci/sluzbeni/2010_09_112_2965.html
(13.01.2010.)
Mirko Cobovi Berislav Bolfek Lena Sigurnjak
304
ANALYSIS FOR TIME-COST OPTIMIZATION OF

CONSTRUCTION PROJECTS IN REPUBLIC OF CROATIA
Mirko Cobovi, BSc, University of Applied Sciences of Slavonski Brod, Croatia
Berislav Bolfek, PhD, University of Applied Sciences of Slavonski Brod, Croatia
Lena Sigurnjak, BSc, University of Applied Sciences of Slavonski Brod, Croatia
Abstract
The construction sector is one of the largest and most signicant sectors in
Republic of Croatia. Business in this sector has largely declined in the past few
years as a result of the global economic crisis. Because the goal is to achieve a cost
leader strategy, a lot of attention has been focused on decreasing operating expenses
through the optimization of production planning.
This study examines linear and matrix planning methods. The most common
linear planning method is the Gantt chart, while CPM/PERT analysis is the most
common matrix method. Based on the use of these methods, the type of planning and project execution in the context of construction business is researched.
Analysis is based on testing which is conducted in large and medium construction
companies.
Results of this study indicate that linear and matrix planning methods are equally utilized in planning. Construction companies are more likely to use matrix planning methods when dealing with complex and long term projects where signicant savings can be achieved both in terms of time and expenses. Linear planning
methods are only used when dealing with smaller projects or for certain groups of
activities within large projects.
JEL classication: C51, L70
Keywords: construction sector, planning, planning method, optimization
1. INTRODUCTION
Construction contractors rely on a number of processes to prepare a project for

successful performance. These processes typically include bid preparation/tender-
ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION PROJECTS IN REPUBLIC...
305
ing, pre-construction planning, project execution and management, project control, jobsite management and project closeout. (Menches, L. et al; 2008, p. 853)
While all of these processes are essential, pre-construction planning is especially
important because it sets up the systems that are used to manage and control the
work during the project execution phase. In the rst part of the paper it is present
the theoretical point of view and meaning of models for time-cost optimization
and how to use them. In second part of the paper it is present results of research
conducted in construction companies.
2. MONITORING OF PROJECTS IN THE CONSTRUCTION SECTOR IN REPUBLIC
OF CROATIA
Construction project scheduling is a set of activities that are focused on construction of facilities. An important aim of project scheduling analysis is to develop
and evaluate alternative schedules and determine an optimum one, considering existing time constraints for project or subproject completion. (Medani, B; 1997.,
p. 36)
An objective is to optimize project duration and to develop a schedule that
leads to the minimum total project cost. Although construction project scheduling
represents a small percentage of the total project cost, it leads to reduction in the
range of possible project durations, optimization of resources that will be used, risk
reduction and achievement of desired levels of quality. Project scheduling enables
fast and ecient construction.
Minimization of the duration and maximization of the protability of construction projects are two vital objectives that often determine project success or
failure. Project scheduling should provide enough time for production of technical
documentation. Planned investment in improvement of documentation quality is
justied by savings of project total costs. The construction project is necessary for
all stakeholders that will participate in future project realization. For many projects,
additional information is needed to reduce risk and uncertainty to an acceptable
level prior to commencement of work. Planning is not just a necessity, its also an
obligation. Pre-construction planning involves, among other things, selection of
the project team, creation of the project documentation system, initiating the purchasing of materials, development of the schedule and milestones, and several other
activities that prepare a project for execution. Consequently, project planning is
306
critical to completing a project successfully. All project participants have to strictly

follow planning assignments.
3. MODELS FOR COST OPTIMIZATION ANALYSIS
There are many models and methods for planning and monitoring of projects.
In the next section, we will be present and explain main characteristics of linear
planning method and matrix planning method.
3.1. Linear planning method
Linear planning methods are the rst that emerged in the development of planning methods. They are based on one-dimensional graphs of activities. This group
includes the following methods: Gantt chart, transplants, the line of balance - LOB,
Gary Kidd algorithm, Ciklogram. At the beginning of this century H.L.Gantt introduced the application of line graphs. Gantt chart is an eective tool for product
planning or business planning with a small number of activities that are not in a
complex interdependence. Advantages of Gantt chart are: visibility, simple and easy
to produce (for a small number of activities), and a simple application of readiness.
Line charts are suitable for a smaller number of activities, although it is still used
in planning of the activities in the construction industry. However, if the construction procedure has a number of activities and if the project is planned in a larger
number of line diagrams it becomes complicated and immense.
3.2. Matrix planning method
Development of matrix planning methods arose from graph theory, modern algebra and mathematical statistics. Today there are many methods of network planning, but most used are CPM and PERT. PERT (Program Evaluation and Review
Technique) and CPM (Critical Path Method) is a vital technique used in scheduling construction projects. These techniques are very common and currently used in
the processes of project planning and control within the construction industry. The
most recent software for planning and scheduling construction projects, is based
mainly on PERT/CPM. (Omar; 2009; p. 30)
Need for project planning of hundreds, sometimes thousands of activities, puts
linear planning methods in the background. In developed countries, methods of
matrix planning have become essential in the analysis of commitments during the
contracting process and for obtaining loans for business, to control execution dead-
307
lines, and for monitoring and analysis of costs and resources. The time required for
completing an activity in a project depends on many factors, including the following: resources, methods, technology, weather, and regulations. The main benets of
applying matrix planning methods are: they are easy to understand and include a
clear plan of development, and they uniquely represent the logical ow of work and
interdependence of activities. The matrix diagram is a picture or graphic presentation of ideas on the preparation of production and manufacturing. There are two
basic variants for displaying network diagrams: network diagram oriented toward
activities and a network diagram oriented toward events.
3.3. Croatian construction industry
Tradition of construction in Croatia is characterized with rich experience and

workforce skills in using state-of-the- art equipment, materials and organizational
concepts. Croatian construction companies work on building sites globally, where,
by constructing the most complex of buildings, they have demonstrated their capacity to meet all demands made upon them by investors. Croatian construction
companies have earned an enviable reputation by meeting deadlines and high standards in performing various tasks and constructing a variety of buildings: geotechnical engineering, industrial plants, power facilities and hydraulic structures,
transport infrastructure, residential and commercial buildings.
According to Table 1. annual gures from 2009, the total of performed construction work amounted to HRK 30,714,772,000 or 4,193,472,000 (according to
the CNB exchange rate). This indicates a 10.40 % drop in comparison with 2008
(34,915,314,000 HRK). The year 2002 marked the beginning of positive trends in
construction industry in Republic of Croatia, which is reected in the continuous
growth of all three indicators analyzed until 2008: the value of construction work,
number of employees and productivity. The beginning of 2009 marked a fall of the
sectors activities. In 2009 employment dropped by 9.94% compared with 2008,
while productivity per employee dropped by 4%. This change is a consequence of
the global economic crisis that inuenced the whole economic system and construction industry, which is one of the most prosperous Croatian industries.
308
Table 1.: Value of construction project carried out in the country, number of employed persons, productivity
and share of GDP 2002 2009
Year
2002.
2003.
2004.
2005.
2006.
2007.
2008.
2009.
Value of projects Construction industrys

(EUR )
share of GDP
1.553.852.670
4,5
2.140.572.890
5,4
2.254.686.052
5,7
2.406.335.517
5,6
2.926.470.432
5,9
3.312.308.079
6,0
4.766.970.000
6,2
4.193.472.000
7,0
No. of employed
persons
71.788
78.276
81.893
85.025
93.297
99.257
108.260
97.503
Productivity per employee

(EUR )
21.645
27.346
27.532
28.302
31.367
33.371
44.032
43.008
Source: http://hgk.biznet.hr/hgk/leovi/19299.pdf (accessed 15.02.2011.)
4. ANALYSIS OF SAVINGS IN CONSTRUCTION COMPANIES THROUGH TIME

COST OPTIMIZATION MODEL
Research and analysis of savings were conducted in six successful construction

companies in Republic of Croatia. Questions were based on models that rms can
use in planning, monitoring and control of projects, in achieving success of the
compliance deadlines, and the possibilities for project optimization and possible
savings. Also, there were questions which model for time cost optimization is most
used in business, and how achieve through these models keep on project deadlines
and how to achieve savings.
First assumption is that there is a positive correlation between companys size
and use of models for time-cost optimization to respect deadlines of construction
projects. It means that the larger enterprises are more common to use models for
time cost optimization. Second assumption in this paper is that there is no correlation between company size and use of linear and matrix planning method.
4.1. Characteristics of the analyzed companies in the construction sector
According to Croatian law acts, a classication of small, medium and large enterprises exists. Small businesses are those that do not exceed two elements from
Criteria 1 from Table 2.
309
Table 2.: Criteria for determining the size of the company

Total Asset (kn)
Criteria 1
Criteria 2
32.500.000,00
130.000.000,00
Average number of employees during the current

year
65.000.000,00 50
260.000.000,00 250
Total Revenue (kn)
Source: Made by authors (based on our own research)
Medium enterprises are those that exceed the two conditions from Criteria 1,
but do not exceed two of Criteria 2. Large enterprises are those that exceed the two
conditions of Criteria 2.
The analysis was conducted on two construction companies with headquarters
in Zagreb, and four construction companies in Slavonski Brod, while the projects
are performed on the entire Croatian area. Companies C1 and C4 are from Zagreb.
The characteristics- total asset, total revenue, average number of employees in scal 2010, number of construction sites per each company in 2010, average project
duration expressed in months- of construction rms are shown in Table 3.
Table 3.: Characteristics of construction companies

Company Total Asset (kn)
C1
C2
C3
C4
C5
C6
131.135.000,00
133.285.000,00
98.156.000,00
130.125.000,00
58.481.000,00
54.456.000,00
Total Revenue
(kn)
265.546.000,00
252.350.000,00
189.215.000,00
232.378.800,00
122.318.000,00
112.012.000,00
Average number of employees in 2010.

534
330
170
280
120
70
The number of
construction
sites in 2010.
20
15
10
12
20
8
Average project duration

(months)
15
12
11
10
10
6
According to law acts three of six companies are large, and three are classied
as medium size. Research was conducted through research papers and interviews
with competent people in each company who gave information about company.
Although, business in this sector has largely declined in the past few years as a result
of the global economic crisis. It is expected to restore the positive trend of doing
business during 2011 and 2012 year, because crises ended in most western European countries. Sample of companies in this paper are also aected by the crisis
310
and suered huge nancial and human resource losses. The aim is to reduce costs
through more rational use of resources, pre-construction planning, and timing the
procurement of various construction sites in order to achieve a more favorable purchase price. Although the goal is cost reduction, quality of the works should not be
questionable.
4.2. Application of models in companies
Research instrument used in this study was surveys. According to a survey conducted, the professional representatives of construction companies had the opportunity to express the level of implementation methods scores of 1 to 5. Level values
are: 1 - Never; 2 - Rarely; 3 - Sometimes extent; 4 - Implement, 5 - Conducted
in a fully satisfactory way. Companies are marked with C1, C2, C3, C4, C5, C6
because of condentiality of individual rms. Results of research are presented in
Table 4.
Table 4. Results of the extent of optimization models

Company
C1
C2
C3
C4
C5
C6
Linear planning method

Gantt chart
Transplan
Balance Line
5
2
2
5
2
2
4
2
2
5
3
5
4
2
1
4
1
1
Matrix planning method

CPM
PERT
3
3
4
3
2
2
3
3
2
1
1
1
Table 4. shows that most construction companies apply linear methods in their
business which are simpler than the network method. Almost in daily use and
implementation is Gantt chart. Transplan and the line of balance are used to a
lesser extent. Network diagrams in relation to the line are rarely used in businesses.
Linear planning methods are only used when dealing with smaller projects or for
certain groups of activities within large projects and matrix planning methods are
used when dealing with complex and long term projects. Because of economic crisis, the goal is to achieve a cost leader strategy, because attention has been focused
on decreasing operating expenses through the optimization of production planning
in construction rms.
311
Figure 1.: Linear planning method

5
4
C1
C2
C3
C4
C5
C6
0
Gantt chart
Transplan
Balance Line
Figure 1. presents the results of our research of linear planning method use in
companies with three types of charts: Gantt chart, Transplan, and Balance Line.
There are plenty of other linear planning methods, but these three are the most
present in everyday business. Results show that Gantt chart is common and the
most frequently used in all six companies. The reason is its simplicity, the fact that
it is easy to understand to all participants of project, and it does not require much
time to create. In small projects, there may not be enough activities dening the
project duration to make the assumption of a normal distribution for the project
duration. Medium companies usually use only linear planning methods because
they dont have complex projects like large companies. Other two methods arent in
frequent use and most companies use them only sometimes.
Figure 2.: Matrix planning method

5
4
C1
C2
C3
C4
C5
C6
0
CPM
PERT
312
According to Figure 2. only large companies permanently use matrix planning

methods - CPM and PERT. Medium ones use those models only sometimes depending on the situation. The reason why the matrix method are usually not
used by medium businesses is because they are complex and require a lot of time,
knowledge, extensive planning. Matrix methods require much more information
that must be provided by the planners.
4.3. Dependence of the methods and performance of implementation of construction projects within the given
Research conducted on a sample of six companies, two large and four medium,
in the area of Zagreb and Slavonski Brod clearly illustrate the dependence of the
methods for time cost optimization and performance of works within given deadlines. Large enterprises use linear planning methods for smaller projects or activities inside larger projects. Use of linear and matrix methods enable cost reduction
because of complex planning structure which includes almost any element that can
aect the cost structure. Pre-construction planning ensures better project organization which leads to cost restrictions and performances within deadline. Besides
resources and cost control, company should avoid idle time, and implement the
possibility of adverse weather conditions. If companies use these models they will
achieve better business results, savings and what is most important, it will all be
done within deadline.
5. Conclusion
Time-cost analysis is an important element of project scheduling, especially for

lengthy and costly construction projects, as it evaluates alternative schedules and
establishes an optimum schedule considering existing deadlines for project completion. In order to develop realistic time-cost curves for such projects, typical activity
and project characteristics, such as generalized precedence relationships, external
time constraints, activity planning constraints, and bonuses/penalties for early/
delayed project completion should be modeled. In this study, a project schedule
optimization model is presented that takes into consideration scheduled cost components of all resources including time. A project scheduled by these models would
have an optimal duration and resource use through linear and non-linear/ matrix
cost functions.
313
Matrix methods do not guarantee the continuity of work in time, which may
result in crews being idle. There is an uncertainty in every construction project.
Uncertainty has become one of the major factors that inuence a projects performance and ultimate success. Despite general awareness of the consequences of
uncertainty on a project, little attention has been paid to its eect on construction
management, particularly on the planning aspect. The conventional models for
time cost optimization are very common and widely adopted management tools
being used in project planning and control. Models are used for resource allocation, and as an alternative for reducing costs without causing negative impacts on
project duration.
According to the performed analysis the conclusion is that the rst assumption
is correct, and that there is a positive correlation between companys size and use
of models for time-cost optimization to respect deadlines of construction projects.
It means that the larger enterprises are more common to use time models for cost
optimization. Medium businesses commonly used linear method. The reason why
the matrix method are usually not used by medium businesses is because they are
complex and require a lot of time, knowledge, extensive planning. Matrix methods
require much more information that must be provided by the Planners.
References
Barkovi, D. (2001.) Operacijska istraivanja, Ekonomski fakultet u Osijeku,

Osijek, ISBN 953-6073-51-X
Hyari, K.& El-Rayes, K, (2006.) Optimal Planning and Scheduling for Repetitive,
Construction Projects Journal Of Management In Engineering ASCE, p. (1119), DOI: 10.1061/ASCE 0742-597X 2006 22:1
Medani, B (1997.) Management u graevinarstvu, Osijek, ISBN 953-96691-2-X
Menches, L. & Russell, J.: (2008.) Impact of pre-construction planning and project characteristics on performance in the US electrical construction industry, Construction Management and Economics 26, p. (853867), ISSN 0144-6193
Vila, A; Leicher, Z (1983): Planiranje proizvodnje i kontrola rokova, Zagreb,
Omar, A (2009) Uncertainty in Project Scheduling - Its Use in PERT/CPM Conventional Techniques, Cost Engineering Journal Vol. 51 No 7, AACE International, 2009, p. (30-34), ISSN 0274-9696
314
Senouci, A. & El-Rayes, K (2009.) Time-Prot Trade-O Analysis for Construction Projects, Journal Of Construction Engineering And Management ASCE,
2009, p. (718-725), DOI: 10.1061/ASCE, Co.1943-7862.0000031
Zakon o raunovodstvu, Narodne novine 109/07
http://hgk.biznet.hr/hgk/leovi/19299.pdf (accessed 15.02.2011.)
HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...
315
HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS

INDUSTRIES BUSINESS CASES IN THE BANKING, TOURISM
AND SECURITY SERVICES
Ivica Zdrili, Ph.D. student
Adriatic Security Ltd., Zadar, Croatia
[email protected]
Milan Puvaa, Ph.D. student,
Or Ltd., Osijek, Croatia
[email protected]
Dinko Roso, Ph.D. student,
Jet Osijek Ltd., Osijek, Croatia
[email protected]
Abstract
Today, in conditions of globalization, when the world has become a small village accessible on the palm, reinforced with enormous technological progress and
development that is accessible to all, the question is; what brings competitive advantage to companies?
Human resource management theory and organizational behaviour suggests
that usage of employees knowledge and experience improves organizational excellence. Also, a large number of scientic studies show a signicant interdependence
between human resource management and organizational performance. Others,
however, show the relationship between human resource management (training,
wages, and opportunities for development) and business excellence.
In this paper we made an analysis of four Croatian corporations that operate
in three dierent industries: banking, tourism and security services. The testing
was done on the basis of polls, a set of 36 questions addressed to company directors or human resources managers, with which we wanted to determine facts and
opinions.
316
Ivica Zdrili Milan Puvaa Dinko Roso
With business cases in the banking, tourism and security services the aim of the
paper is to show how theoretical knowledge is used in practice, and whether industry has an impact on the implementation of adopted theory into practice.
Keywords: Human resource management, business excellence, competitive advantage, human capital, knowledge
1. RESEARCH OF THE CASE STUDIES IN BANKING, TOURISM AND SECURITY
SERVICES
Research methodology
The analysis was conducted in four Croatian companies operating in three different industries: banking, tourism and security services. The analysis was done
based on a questionnaire consisting of 36 questions directed at company directors
or human resource managers1, and answers were lled in to determine the facts and
attitudes. Questions used for this purpose were closed questions with suggested intensity answers (ve intensity levels). A discretionary scale was used in answers, which
is considered the best solution when developing such questionnaires also in theory.
(Zelenika, 1998, p. 371). The results were presented in tables. If answers from the
two security companies were in two immediate scale levels, then the lower value
was presented in the table, and if the dierence between the levels was higher, then
the average level was taken into account.
Basic data on companies in the analyzed case studies
Banking
According to its size, the bank presenting the banking sector in this paper occupies the seventh position on the Croatian banking market. The total value of its
assets amounts to HRK 12.87 billion. The bank employs about 1,000 people in
over 100 branch oces all over Croatia and works with over 400,000 clients in
both retail and corporate banking sector.
Tourism and hospitality industry
The company analyzed in this paper represents the diversity of the Croatian
tourism oer on a small scale. It employs 50 people throughout the year and ad1
Interviews were conducted in the rst half of 2010.
317
ditional 150 people in the tourist season. It operates throughout Croatia in several
tourism facilities, with bed capacity about 1,100.
Security services
Two companies were analyzed; the seventh and the ninth security company in
Croatia, ranked by size. Companies employ 550 and 480 employees respectively.
Both companies have gone through signicant expansion in the past 10 years.
2. STRATEGIC APPROACH TO HUMAN RESOURCE MANAGEMENT
The importance of human resource management in achieving organizational excellence could be presented in the following relation (Briggs, 1999, p. 451):
Work plan - (dened strategies) = business results
Dened strategies include: product strategy, marketing, quality, nancing and
human resource management strategy. The last one is expressed by relations among
employees, their development, work plan, management characteristics and pay and rewards system for employees.
Figure 1: Human resource management practices
Source: (Noe, Hollenbeck, Gerhart, & Wright, 2006, p. 4)
Empowering employees, i.e. increasing their authorities and responsibilities,

oering opportunities to present own ideas and creations based on their knowledge, skills, experience and motivation for organizational development will help
organization to increase its own organizational potential, thus increasing its own
competitiveness. Therefore it is necessary to make continuous investments into
own employees and to encourage them to changes by allowing them to participate
in all changes, using all their resources. The theory of human resource management
provides excellent guidelines on how to systematically and strategically develop human potentials.
318
An overview of management practices in Croatian companies will be given in

the paper, aiming to determine the dierences in practices of the industries (banking, tourism and security services), with an overview of deviations from theoretical
knowledge.
3. HUMAN RESOURCE PLANNING
The process of human resource planning consists of forecasting, goal setting and
strategic planning, programme implementation and evaluation.
Table 1: Human resource planning by industries

Questions
No
Mostly no
Do you envisage stang requirements?

Do you use methods of statistical planning?
Do you pay more attention to human resource
planning for management positions?
Do you have employment strategy in written
form?
To some
extent
Mostly yes
Yes
Legend: - Banking - Tourism - Security services

Source: Results of analyzed case studies
The results show that banking industry has best planning, followed by security
industry and tourism. Considering the number of highly educated people in banks,
but also competition within this industry, such results were expected.
4. RECRUITMENT
Recruitment activities were formed in such a way as to inuence: (1) the number
of people applying for a position, (2) type of people applying and/or (3) likelihood
that people applying for the position will accept the job oered. (Breaugh, 1992)2
The key aspect of the whole companys recruitment strategy refers to the sources
from which the company recruits potential employees. It is important that the
company chooses between internal or external sources, i.e. whether it will allow
2
Quote in (Noe, Hollenbeck, Gerhart, & Wright, 2006, p. 160)
319
promotion of the existing employees or hire new employees; whether recommended candidates will be employed, whether the company will advertise vacancies in
newspapers, use the Croatian Employment Bureau or private agencies and universities, if looking for highly educated people.
Table 2: Ways of recruiting human resources

To some
No Mostly no
Questions
extent
Is a recommendation of great importance to you?

Do you advertise vacancies in newspapers?

Do you use employment agencies?

Do you advertise on the web?
Mostly yes
Yes

Vacancies are advertised through the Croatian Employment Bureau and web
portals, very often also in daily newspapers. The recruitment process is best implemented by banks. This can be explained by the fact that a large number of unemployed people are looking for their future job in banks, then in tourism, and then
in security service industry, because security industry is often considered to be an
industry of workers with low qualications and very low average salaries, which is
to a great extent true. On the other hand, jobs in nancial institutions are very desirable nowadays, so that supply greatly exceeds the demand. Besides, tourism and
security industry are industries with a great deal of seasonal oscillations (especially
tourism), considerable sta turnover and a large number of jobs for a limited time
period, which makes these industries less desirable.
5. SELECTION
Selection is a process of selecting future employees of the company. The following ve generic standards have to be met in each new selection process (Noe, Hollenbeck, Gerhart, & Wright, 2006, str. 180): Reliability, Validity, Generalizability,
Utility, and Legality.
320
Table 3: Selection of human resources by industries

Questions
No
Mostly no
Do you use interviews in the selection process?

Is CV important for you during selection?

Do you carry out personality tests?

Do you carry out tests with work tasks?

Do you carry out integrity testing?

To some
extent
Mostly
yes

Yes
Research showed that selection methods in banking industry are more sophisticated than those in tourism and security industry.
6. TRAINING AND DEVELOPMENT
Good implementation of human resource management implies correct positioning of an employee within an organization in circumstances of accelerated
development of science, technical science and technology. This means that employees have to be continuously trained and prepared for traps of a particular job.
Besides, employees should be oered additional education so that their own potentials
could be developed.
Table 4: Training and development by industries

Questions
No
Mostly
no
Do you have a written training strategy?

Do all employees have at least two weeks of training per year?
Do you often use a classroom as a training method?

Do you use simulations of virtual reality as a training method?

Do you keep written records after the training?

Are there any written plans for development of trainees within

a one-year period?
To some
extent
Mostly
yes

Yes

321
The above case studies show that employees do not have much inuence on
decisions about additional education, and that additional education is more available to employees at higher hierarchy levels than to those at lower levels. The bestdeveloped procedures for monitoring training and development of employees were
found in the bank.
7. REWARDING
Postolov (Postolov, 2008, p. 80) concluded that the easiest way to achieve employee
satisfaction with the purpose of achieving organizational excellence is by providing them
with adequate nancial income. In todays global environment there are three basic principles on which employee rewarding is based. These are (Postolov, 2008, p.
80):
1) Higher ratio between salaries at dierent levels within a company. This dierence between two levels (for example, the rst and the second level) may be
200-400%, i.e. two or more times higher salary at the higher level in relation to
the lower level salary;
2) Motivation for achieving team work; and
3) Rewarding knowledge.
In relation to salary structure, changes are made to result in higher motivation,
which leads to organizational excellence. The fact is that employees are the most
important link in this chain providing organizational excellence. Salaries based on
performance are preferred. This should provide realization of strategic goals of an organization, strengthening of organizational standards, motivation of employees, and
dierentiation between good and poor performances.
The highest level of exibility is found in tourism, especially during the season,
which is often used. The largest limitation in tourism currently is that it is impossible to reward a good, successful and diligent seasonal worker with a permanent
job. Reward schemes in banks are well-regulated, and there are dierent ways of
rewarding. Due to specic qualities and xed arrangements in the security industry
where it is not possible to nd additional sources of income, it is also not possible
to provide as wide a range of rewards as in other companies. A large proportion of
employees cannot be rewarded because it is not possible to achieve prices for better
and more successful employees.
322
Table 5: Ways of rewarding by industries

Questions
No
Mostly no
Do you have a written reward scheme?

Do you publish the names of rewarded employees?

Can any employee receive a monthly reward?
Do you provide nancial rewards?
Do you reward employees with days o?
Do you reward employees with trips?

Do you reward employees with shares?

Can monthly reward reach the amount of basic salary

(100% stimulation)?
To some
extent
Mostly
yes

Yes

8. EXCELLENCE MANAGEMENT
The goal of the performance measurement system is to achieve the set business
plans of the company, i.e. to meet strategic goals. Further, the system will provide
relevant foundation for further steps toward rewarding of employees, and in the
end it will assist in developing the employees who are ecient in their jobs.
To establish a good system, it is necessary to determine performance criteria,
and use this as the base to prepare models (approaches) of performance measurement. Finally, it should be determined which model of performance measurement
will be successfully used as a source of performance measurement.
Table 6: Excellence management by industries

Questions
No
Mostly no
Do you have elaborated performance criteria for all jobs?

Do you think that your current performance criteria are fair?
Do you follow trends in performance measurement?

Do you use outside consultants to create performance mea
surement system?
Are successful employees promoted sooner than others?

To some
extent

Mostly
yes

Yes
323
Being highly protable nancial institutions, banks have all the possibilities for
excellence management. Banking industry is very concentrated, because the rst
eight banks hold almost 80% of banking assets, so that competition is very erce.
In tourism it is dicult to manage excellence, because successful and good employees often cannot be kept due to the number of permanent employees that is too
high in relation to the needs in the period from November to March.
Employer-employee relations
The necessary requirement for development of good employer-employee relations is development of organizational culture. Organizational culture (Skoko, 2000,
p. 100) consists of core values and beliefs accepted by all members and it is a uniting
factor for all organization members. Organizational culture is a wide-spread model of
activities, interactions, standards, feelings, opinions, beliefs, approaches, values and
processes in an organization. Unfortunately, many managers want to ignore the culture. Therefore one of the most dicult tasks of top management is to understand
the impact of changed culture on their strategies.
Organizational culture (Bahtijarevi-iber, 1999, p. 706) is that segment of an
organization which sends signals to employees on what is desirable and what is undesirable behaviour, and what is appreciated and valued in a specic organization.
Table 7: Organizational culture and relation development by industries

Questions
No Mostly no
Are all your employees familiar with the companys mission and vision?
Do all employees know about long-term plans of the

company?
Do you systematically take care of relations among em
ployees within the company?
Do all employees know exactly what is expected of them?
Do employees view the company as a desirable company
within its industry?
To some
extent
Mostly
yes
Yes

A bank as a large organization has problems with so-called functional walls.

It often happens in practice that employees are closed according to organizational scheme into departments or sectors, which at some moment start acting
324
as companies within the company. This is a consequence of frequent changes of

organizational scheme, which causes shocks among employees, and justied fear
for their jobs. During privatization, banks made a signicant number of employees
redundant and changed their organizational schemes several times. In tourism and
security industry it is dicult to develop organizational culture and direct it toward
all employees, because these industries have high level of sta turnover. In tourism
it is caused by seasonal character of business, while in security industry it is caused
by low price of services which then lead to low labour costs.
10. CONCLUSION
The results of this brief research in dierent industries clearly show that human
resource management in Croatian companies is at lower level than in developed
countries of the Western Europe, USA or Japan. This is partially due to the long
transition period lasting almost 20 years.
When industries are analyzed more closely (banking, tourism and security services), a dierence can be observed. As a developed industry in Croatia banking
has higher level of human resource management in relation to tourism and security industry. This is mostly due to the fact that more than 90% of banking assets
are owned by foreign companies with high level of human resource management
in their home countries. Upon entering our market they brought their rules and
procedures from their countries (know-how) and implemented them in Croatia.
As labour supply in Croatia is still larger than demand, these rules and procedures
are used up to the extent that is suitable for owners who do not want to implement
them in full volume and functionality. However, even such limited implementation
provides an advantage to the banking industry in relation to tourism and security
industry.
On the other hand, tourism has been also going through the privatization process, but the dierence is that investors into Croatian tourism are primarily foreigners whose main areas of interest are land and real estate. Tourism development
is less important, which then results in lesser interest in development of human
resources within companies. Human resource management thus becomes a less important part of the strategy, i.e. key manager positions are important, while vertical
development of human potential is often left out.
Security industry is often considered a lower class industry. Work of a security
guard is often described as sitting on a chair and staring at the walls. Security
325
industry has not started its development yet. Development will start upon entering the EU and market liberalization, because current Croatian regulations do not
allow a foreign security company to operate in Croatia, whether owned by another
company or a physical person. Security industry in developed countries has developed many other forms of work in addition to physical protection, for example,
technical protection systems, occupational safety, re-ghting, transport of money
and other valuable possessions, and services of processing and storing cash for banks
and other nancial institutions. The expansion of such activities in Croatia will create the need for accelerated development in human resource management, because
a considerable need for good and highly educated people in security industry will
arise. Therefore it is no wonder that not much attention is paid to human resource
management in security industry, especially considering the fact that the two analyzed companies are leaders in development of human resources in this industry.
11. REFERENCES
Bahtijarevi-iber, F. (1999). Management ljudskih potencijala. Zagreb: Golden

marketing.
Breaugh, A. J. (1992). Recruitment: Science and Practice. Boston: PWS-Kent.
Briggs, S. K. (1999). Integrating human resource strategy and strategic planning to
achieve business cxcellence. Total Quality Management , 4/5 (10), 440-459.
Cartin, J. (1999). Principles and Practices of Organizational Performance Excellence.
Milwaukee (WI): ASQ Quality Press.
Drucker, P. (2003). The New Realities. New Jersey: Transaction Publishers.
Kneevi, B. K. (2007). Znanje o poslovnom okruenju kao temelj za unaprjeenje
kvalitete donoenje stratekih odluka u trgovakim poduzeima. Poslovna izvrsnost,
2 (2), 9-27.
Noe, A. R., Hollenbeck, R. J., Gerhart, B., & Wright, M. P. (2006). Menadment
ljudskih potencijala. Zagreb: Mate.
Skoko, H. (2000). Upravljanje kvalitetom. Zagreb: Sinergija.
Zelenika, R. (1998). Metodologija i tehnologija izrade znanstvenog i strunog djela.
Rijeka: Ekonomski fakultet u Rijeci.
Slobodan Stojanovi Ivan Penava
326
LIQUIDITY MANAGEMENT IN SMALL COMPANIES

Slobodan Stojanovi1, Ivan Penava2
1
University of Applied Sciences Lavoslav Ruika in Vukovar,
Croatia, [email protected]
2
High-school of Economics, Vukovar, Croatia, [email protected]
Abstract
Liquidity management is one of the main nancial management tasks of the

companies, which must be executed eciently and methodically in everyday business environment. The liquidity can be dened as the ability of an asset or its part
to be converted into cash, quickly and without any price discount, in the amount
sucient to fulll company due liabilities. The importance of the liquidity position is especially noticeable in todays business circumstances where eects of postglobal nancial crisis are still widely felt. Managing and maintaining favorable and
optimal liquidity situation in order to realize main business objectives is particularly important for small enterprises that are confronted with strong pressures on its
protably and existence from bigger companies and other competitors alike.
Due to their size, small companies dont have nancial strengths and sucient
reserve funds that could be tapped to overcome negative and unplanned business
developments over the long run. Therefore, dierent factors that are inuencing
their business activity, such as sudden particular and/or general fall in products
and services demand, an increase in uncollected receivables, inationary pressures,
price increases of specic raw materials and other inputs, frozen credit markets
and other unfavorable business conditions, results in negative cash ow dynamics,
thus threatening liquidity and survival of the company.
In order to avoid negative liquidity trends, small companies must pursue strong
liquidity management, which in turn requires strict and systematic nancial planning of cash ows in certain period of time. Eective cash ow management should
secure the ability of the small company to pay its liabilities on time as well as to
recognize potential nancial risks in the future period and prepare adequate measures to react accordingly. There are dierent methods and tools that can be used
327
in liquidity management and planning, such as cash budgeting, management of

net working capital, cash-gap management and others. Usage of these liquidity
management techniques would help and support small company business operations as well as prevent adoption of poor decision that could have lasting negative
consequences, especially in economies faced with not so positive prospects. Therefore, the aim of this paper is to present basic liquidity management techniques
that small companies have at their disposal and their implementation in everyday
business operations.
Keywords: liquidity and cash management, small enterprises, cash budgeting
1. INTRODUCTION
Maintaining adequate liquidity is one of the main nancial management tasks

in any company. Its importance is especially noticeable in todays business circumstances where eects of post-global nancial and economic crisis are still widely
felt. Managing favorable and optimal liquidity situation along with realization of
the main business objectives is particularly important for small enterprises. Due
to their size, small companies dont have nancial strengths and sucient reserve
funds needed to overcome negative market developments and crisis periods over the
long run. Dierent unfavorable factors, such as sudden particular and/or general
fall in products and services demand, an increase in uncollected receivables, raising
prices of specic inputs, frozen credit markets and similar, have negative impact
on cash ow dynamics, thus threatening liquidity and survival of the company.
The importance of cash, which is the ultimate liquid asset and only suitable one
for fulllment of due liabilities, is reected in todays cash positions of corporate
America. According to the Federal Reserve, nonnancial companies held $1.8 trillion in cash and other short-term assets at the end of March 2010. Cash accounts
for 7% of company assets, which is the highest level in nearly 50 years. Due to the
fact that Cash is king, small companies must use dierent methods and tools in
utilization of liquidity and cash management and planning.
2. THE ROLE AND IMPORTANCE OF SMALL AND MEDIUM ENTERPRISES
The sector of small and medium enterprises (SMEs) is of great importance for
overall growth and development of any modern market economy. Due to signicant exibility and adaptability to rapidly changing circumstances in todays busi-
328
ness activities, the SMEs are one of the major contributors in terms of number of
registered companies and employees. Furthermore, the sector strongly participates
in an increase of overall level of production and exports, as well as in creation of
added value realized by business in certain regions. Thus, SMEs contribute to more
than half of the total value-added created by businesses in the EU. According to
European Union Annual Report on SMEs (EIM, 2010:15), there were over 20 million companies in 2008, of which only 43000 were large companies, meaning that
99.8% of all enterprises in the EU are SMEs that employ almost 68% of the total workforce. Additionally, within the non-nancial business economy enterprise
population, almost 92% are micro enterprises having less than 10 employees and
employing almost 30% of the total workforce, while small scale companies account
for almost 7% of all enterprises and employ 21% of the workforce. On average,
micro scale enterprises employ 2 persons and SMEs, as a whole, 4.3 persons, which
clearly indicate their importance in the overall economic activity.
European Union denes small and medium enterprises using three quantitative
and nancial criteria in accordance with Commission Recommendation (Ocial
Journal of the EU, 2003/361/EC). Those criteria are (1) number of employees, (2)
annual turnover and (3) annual balance-sheet total. The criteria for SMEs are summarized in table 1.
Table 1. Classication criteria for SMEs in the EU

Enterprise category
Micro scale
Small
Medium-sized
Number of
employees
< 10
< 50
< 250
Turnover
2 million
10 million
50 million
or
Balance sheet total

2 million
10 million
43 million
Source: European Commission Recommendation (2003/361/EC)
The ocial denition of SMEs in Croatia is provided by the Small Business Development Promotion Act (Ocial Gazette, 29/02, 63/07). The law distinguishes
also between micro, small and medium-sized enterprises using the same three criteria as EC Recommendation, but with amounts adapted to local conditions (see
table 2).
329
Table 2. SMEs classication in Croatia

Enterprise category
Micro scale
Small
Medium-sized
Number of
employees
< 10
< 50
< 250
Turnover
14 million HRK
54 million HRK
216 million HRK
or
Balance sheet total

7 million HRK
27 million HRK
108 million HRK
Source: Small Business Development Promotion Act, Ocial Gazette 29/02, 63/07
The importance of SMEs in Croatia can be seen in data presented in table 3. According to the Croatian Chamber of Economy, in 2009 SMEs as part of the small
business sector make 99.5% of all registered enterprises and employ 66.01% of the
total workforce in Croatia. Furthermore, their share in total prot is almost 58%,
of which about 42% was realized by small sized companies. All observed indicators
show an increase in 2009 when compared to 2007, which clearly indicates an ever
growing inuence of small business activities in the overall market.
Table 3. Indicators of small business sector for 2007 and 2009 in Croatia
Enterprise category
Small sized
Medium sized
Small business in total
Number of
enterprises
2007 2009
81,467 89,438
1,590 1,446
83,057 90,884
Share in no. of
Number of
Share in no. of
enterp. %
employees
employees %
2007 2009 2007
2009 2007 2009
97.5 98.0 410,103 422,720 44.6 47.52
1.9 1.5 181,214 164,515 19.7 18.49
99.4 99.5 591,317 587,235 64.3 66.01
Share in prot
in %
2007 2009
35.0 41.90
18.7 15.82
53.7 57.72
Source: Small and Medium Enterprises, Croatian Chamber of Economy, Industry and Technology Department (2008 and 2010)
The importance of SMEs sector is further stressed when presented numbers are
analyzed in the context of global nancial and economic crises of 2007/2009, which
negatively inuenced all economic trends and conditions in the whole world. The
companies were faced with simultaneous problems of strongly reduced demand
and consumer consumption on one hand and frozen credit markets and luck of
liquidity on the other, thus making double blow to companies bottom line. Especially micro and small-sized enterprises have been subjected to negative developments in relation to their liquidity position due to their individual size. Generally,
their cash reserves are small and cannot sustained prolonged period of unfavorable
market conditions. Due to limited resources and their size, micro and small sized
enterprises are regularly under the strong pressure to maintain and achieve su-
330
cient liquidity and adequate cash ows that support their everyday business operations. Therefore, in order to avoid negative liquidity trends, small companies must
pursue strong liquidity management, which in turn requires strict and systematic
nancial planning of cash ows in certain period of time.
3. REASONS OF ENTERPRISES FOR HOLDING CASH BALANCES AND CASH
MANAGEMENT
Although every business must maintain adequate liquidity, small enterprises are
even more compelled to undertake appropriate liquidity measures due to their size.
The liquidity can be dened as the ability of an asset or its part to be converted into
cash, quickly and without any price discount, in the amount sucient to fulll
companys immediate liabilities. Cash is the most liquid asset and only with cash a
company can fulll its obligations. Therefore, cash and liquidity management aims
at maintaining suitable liquidity position of the company in order to minimize its
risk of insolvency. There is s trade-o between liquidity and protability. Protability refers to ability to make an adequate return on capital and assets invested
in the business, while liquidity relates to having an adequate cash ow that allows
the company to make necessary payments and ensure the continuity of operations
(Reider; 2005, 15). The objective of cash management can be dened as maintaining investment in cash at a minimum level while securing ecient business operations (Vidui; 2006, 327). Liquidity position is visible in companys balance sheet
in items such as cash on hand and demand deposits, as well as cash equivalents
and marketable securities. Every company must have certain cash balance in order
to operate eciently reconciling optimal level of protability and liquidity at the
same time.
Generally, the rms hold cash for reasons of transactions, compensations, precautions and speculations, thus creating transactional, compensating, precautionary and speculative cash balances (Brigham & Houston; 2003, 698). Transactional
balance is associated with routine payments and collections. Receipts and payments
are rarely perfectly synchronized both in time and amounts, so the business generally needs to hold certain stock of money to meet current expenditures. The
amount of cash needed depends on the nature of business and varies from industry
to industry. Compensating balance must be often maintained by the company in
order to compensate the bank for providing loans and services. Banks may require
the customer/borrower to hold some minimum deposits at the bank as a sort of
protection and a tool for better assessment of clients credit risk. Precautionary bal-
331
ance is associated with cash held by the company in reserves for random, unforeseen uctuations in cash payments and disbursements. This safety stock needs to be
larger if companys cash ows are less predictable and vice versa. Additionally, if the
company can easily borrow on short notice, the precautionary balance can be reduced. Speculative cash balance is held by the company in order to take advantage
of any bargain purchases and prot making situations that might arise. Speculative
reasons are especially important in times of nancial crisis when the rise of interest
rates and decline of security prices are expected. Companies today are often using
combination of cash balances, marketable securities and excess borrowing capacity
for speculative purposes.
4. LIQUIDITY AND CASH MANAGEMENT TECHNIQUES
In order to achieve optimal level of liquidity, companies must pursue strong

liquidity management, which in turn requires strict and systematic nancial planning of cash ows in certain period of time. Eective cash management is essential
to the success and survival of the business. Eective cash management must maximize cash generation for the business by applying basic principles and liquidity
and cash management methods and techniques of which some are presented in
following text.
4.1. Cash budget
The cash budget (CB) details the expected cash receipts and disbursements for
a designated period of time, which helps avoid the problem of either having idle
cash on hand or suering a cash shortage (Shim & Siegel; 2009, 78). It is one of
the basic and most comprehensive tools for cash planning, management and control. Basically, the CB is a forward-looking management chart showing supply and
demand for liquidity within the company (Vernimmen; 2005, 942). Cash budgeting is especially important tool for small companies with insucient reserve funds
to maintain liquidity position over the long period. At the same time, many small
companies do not have educated and experienced sta able to deal with the task of
nancial planning, which is usually, along with accounting, outsourced to outside
contractors. As a result, data on ow of revenues and expenses, cash inows and
outows and their interrelations are not sucient, as well as they are accompanied
with poor degree of interpretation (Markovi & Stojanovi; 2009, 75). According
to size and type of operations, the company should choose time horizon to forecast
332
future sources and uses of cash. In many cases, quarterly cash budget can be suitable
for small enterprise, although shorter period of time, e.g. month or a week, can be
used as a basis. Producing CB in small enterprises does not require complex models
and calculations. A simple spreadsheet programs will suce. No matter of methods
used, there are three common steps in making the cash budget: (1) forecast the
sources of cash, (2) forecast uses of cash, and (3) calculate cash surplus or decit in
analyzed period (Brealey et al.; 2001, 177). Cash inows mostly originate from the
sale of goods and/or services. Therefore, accuracy and objectivity of sales forecasting
is the precondition for making usable CB. Number of factors, both external and
internal, must be taken into consideration, such as overall market and economic
situation, competitors inuence, price level of products and services, marketing
eorts, credit policy, etc. In determining cash inows, the structure of sales must
be dened. Goods sold on credit become accounts receivables, while cash inows
come from cash sales and collections on accounts receivables. Generally, the aim
of the rm in this area should be speedy conversion of achieved sales into the cash
receipts. Other sources of cash, such as proceeds from xed assets sale, tax refunds
and similar also make cash inows. Cash outows usually can be determined more
precisely than inows because the expenditure structure is well-known and elaborated for the small company. There are basically three categories of cash uses: (1)
payments of accounts receivables (cost of goods sold) for dierent production inputs, (2) operational expenses, such as labor, sales, administrative, and other regular
business expenses, (3) capital expenditures, and (4) interests and loan repayments,
taxes, dividends and similar (Brealey et. al.; 2001, 179). Costs must be structured
according to time and payment methods. Only costs that are simultaneously cash
disbursements can be part of the CB. In order to minimize cash outows, the company must insist on tight monitoring and cost control while maintaining normal
business operations. General scheme of preparation and calculation of cash budget
is summarized in table 4.
333
Table 4. General scheme of cash budget calculation

No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Description
Cash balance at start of period
+ Cash inows during period
= Cash at disposal before current funding
- Cash outows and minimum operating cash balance
= Cash surplus or cash shortage
+ nancing of cash shortage
- repayment of loans out of cash surplus
- investing of cash surplus
= Final cash balance
Amounts (in HRK)
Source: Gulin et al. (2004), Poslovno planiranje, kontrola i analiza, 61-66
Dierence between cash inows and outows determines the cash balance. Depending on positive or negative cash balance, the company undertakes steps in
terms of investing a surplus or short-term nancing to cover cash shortage. To
avoid zero cash balance at the beginning of the period, the minimum operating
balance is introduced, which allows for absorption of unexpected cash ows. Shortterm nancial plan is a result of cash budgeting process. It depicts liquidity position
of the company and prepares it for necessary decisions. The company can react in
advance, thus preventing negative liquidity developments.
4.2. Net working capital management
The dierence between current assets and current liabilities is dened as net
working capital (Ross et. al.; 2006, 22). The liquidity position is better if value of
net working capital (NWC) is higher. Positive NWC means that part of current
assets is nanced with long-term nancial sources. By managing working capital,
the company must strike a balance between protability and liquidity, i.e. between
costs of maintaining current assets and costs incurred from their shortages. Constituent parts of NWC management are management of receivables, management
of short-term liabilities and inventory management. Each management segment
consists of dierent procedures and tools that support decision making in order
to achieve desired level of liquidity. Management of accounts receivables includes
measures that aim at maximizing sales and collection of receivables. The objective
is to increase credit sales without endangering business operations, as well as to
shorten average accounts receivables period, which is dened as a period between
334
product sale and collection of receivables. Position of receivables is strongly inuenced by existing credit policy of the company. Credit policy which is too restrictive or too lax has negative eects either on protability or liquidity. Four elements
make credit policy: (1) credit period, i.e. time given to buyers for paying goods
bought, (2) discounts given for early payment, (3) credit standards that dene acceptable credit customers, and (4) collection policy, which determines procedures
used in collection process (Brigham & Houston; 2003, 714). Small enterprises
especially must insist on adequate payment and collateral instruments, thus making collection more predictable and secure. All credit policy elements must be in
agreement in order to achieve optimal results. Inventory management covers three
types of inventories, i.e. materials, unnished production and nished goods. Efcient inventory management implies management of all inventory segments.
Generally, the company must decide on quantity and ordering dynamics of inventory. The key is to achieve a balance between variable carrying costs associated
with costs of space, insurance, losses, etc., and order costs associated with xed
handling and delivery expenses charged for by supplier. Company would minimize inventory costs by determining the economic order quantity (Novak; 2001,
122). Assuming the sale is perfectly predictable and new order is delivered in full
when inventory reaches zero and without delays, EOQ can be calculated as follows:
EOQ =
2 sales cost per order

. Presented model is usually the rst step in
carrying cost
dening more elaborate inventory policy. In order to eciently manage inventory,

eciency indicators must be followed, such as inventory turnover ratios and inventory periods. Management of short-term liabilities includes dealings with suppliers
and short-term lenders. The structure of accounts payable reveals time schedule
and future cash disbursements. Comprehensive analysis should indicate what type
of activities to undertake in order to get favorable terms of sales from suppliers,
such as payment prolongations, bigger discounts and other benets. Sometimes,
company is using stretching accounts payable technique, deliberately not paying its bills on time, thus decreasing cash outows. However, if unselectively used,
the company might be branded as slow payer and not trustworthy for business.
Careful planning and selection of short-term nancing sources in terms of selected
banks, lending institutions, credit types, interest rates and similar, contribute to
minimizing of costs and achieving of needed liquidity positions.
335
4.3. Cash gap (cash conversion cycle) management
Cash gap (CG) is closely related to NWC management. CG or cash conversion

cycle is dened as the number of days between a businesss payment of cash for
goods and services bought and the receipt of cash from its customers for goods or
services sold. CG increases when inventory and receivables periods are longer while
it decreases with the duration of accounts payable. Liquidity position is improving
when CG is shorter because cash inows are accelerated while outows are delayed.
Additionally, shortening of cash gap directly decreases the cost of nancing through
reduced interests and other costs. CG indicator provides company with a powerful
tool for liquidity and cash management. Tradition and the nature of the business
often set the typical CG in a given industry. Some industries have inherently higher
cash gaps than others.
5. CONCLUSION
Liquidity management is one of the main nancial management tasks, which

must be executed eciently and methodically. Companys inability to fulll its
obligations results in insolvency and subsequent discontinuation of business operations. The liquidity and cash management is especially important for small enterprises that cannot sustain prolonged periods of negative cash ows. Insucient
liquidity (cash) reserve funds of small companies require ecient management of
cash receipts and disbursements in order to survive. Therefore, strict and systematic
nancial planning of cash ows must be implemented. Eective cash ow management would secure the ability of small companies to pay liabilities on time as well
as to recognize potential nancial risks ahead and prepare adequate response measures. However, lack of professional and experienced sta prevents many small enterprises in proper using of dierent liquidity and cash management methods and
tools, thus endangering their business survival. Presented management techniques
should contribute to and support decision making process in relation to liquidity
issues and must be integrated in everyday business operations. After all, the company can miss earning targets and survive, but it can only run out of cash once.
REFERENCES
Brealey, R. et al. (2001). Fundamentals of Corporate Finance, McGraw-Hill, ISBN

0-075-53109-7, USA
336
Brigham, E. & Houston, J. (2003). Fundamentals of Financial Management,

South-Western College, ISBN 0-324-17829-8, USA
EIM Business & Policy Research (2010). European SMEs under Pressure Annual Report on EU SMEs 2009, Available on: http://ec.europa.eu/enterprise/
policies/sme/facts-figures-analysis/performance-review/pdf/dgentr_annual_report2010_100511.pdf , Access: (09-02-2011)
Gulin, D., Tuek, B. & ager, L. (2004). Poslovno planiranje, kontrola i analiza,
HZRiFD, ISBN 953-648-066-2, Zagreb
Markovi, B. & Stojanovi, S. (2009). Financijsko planiranje kao nain optimizacije novanih tokova u malim poduzeima. In: Zbornik radova Financije i
raunovodstvo u zatiti hrvatskog gospodarstva od recesije, Gulin, D. (ur.), str.
72-80, ISBN 978Novak, B. (2001). Odluivanje u nancijskom upravljanju, Ekonomski fakultet u
Osijeku, ISBN 953-6073-63-3, Osijek
Reider, R. (2005). Understanding eective cash management, Journal of Corporate
Accounting & Finance 17, 7-15, ISSN 1097-0053
Ross, S. et.al. (2006). Fundamentals of Corporate Finance, McGraw-Hill/Irwin,
ISBN 0-071-25450-1, USA
Vernimmen, P. et al. (2005). Corporate Finance: Theory and Practice, John Wiley
& Sons, ISBN 0-470-09225-4, England
Vidui, Lj. (2006). Financijski menadment, RRiF, ISBN 978-953-6121-85-4,
Split
953-277-028-5, HZRiFD, Zagreb
Shim, J. & Siegel, J. (2009). Schaums Outline of Financial Management, McGrawHill, ISBN 0-071-63531-9, USA
Small Business Development Promotion Act, Ocial Gazette 29/02, 63/07
METHODS AND TECHNIQUES FOR CALCULATING A PRICE - MARKETING MIX OF ...
337
METHODS AND TECHNIQUES FOR CALCULATING A PRICE MARKETING MIX OF TOURISM PRODUCTS
MSc Mario Banoi
Vukovar-Sirmium County
Department for International Cooperation and Regional development
Division of regional and tourism development
upanijska 9, 32000 Vukovar
Tel: +385(0)98 792 869; e-mail: [email protected]
Abstract
Marketing as a social process engages peoples needs and nding ways to satisfy their needs and desires. Marketing activities are expressed and took the form
by elements of the marketing mix which is a combination of controlled marketing elements. Some business subjects use this combination of marketing elements
to achieve the required level of sales and the achievement of goals on selected
markets.
This paper will be present the price from aspect of stakeholder who oering tourism programs on the tourist market, as one of the most important elements of marketing mix. Specically, development of the tourism market has impact on growing
interest for methods and techniques to calculating price of tourist operators. That
has signicantly inuence on the formation of tourist programs, operating costs of
all tourism subjects in the destination or the correction of prices that are already established on the market. When stakeholders who oering tourist programs create a
price often has it base in the market prices and try to inuence on tourism subjects
in destination to reduce their costs, in order to make lower and acceptable prices
on the market. Tourist product price has formed to cover total cost of all subjects,
but that doesnt mean that it height can be well accepted on the market, especially
when we talking about tourist destination that are not recognized on the market.
Also, tourist product price formed as favorable doesnt mean that it will oer or accomplish consumers perception and satisfy their needs and desires.
338
Mario Banoi
Certainly its very important how much the tourist program provider or travel
agency on the market will be interested in the crating of tourist product prices for
which sales will be responsible.
JEL classication: E31, L83
Keywords: marketing mix, price, tourist product, destination marketing
1st Introduction
Generally, international and national literature accepted fact that the denition
of marketing mix consists of four key elements: Product, Price, Distribution and
Promotion (4P, product, price, place, promotion), which businesses entities use to
increase own business results on the target markets. Also, business entities how are
oriented to the target market must adapt their marketing mix to needs, attitudes,
perceptions and beliefs of their consumers. Every single element of the marketing
mix deserves a special approach to its creation and placement of product in order
to fully leave the satisfaction of needs and desires consumers.
2nd Denition of Price as element of marketing mix of tourism product
The basic elements of any market are market subjects, object exchange and price.
(Ruzic, 68, 2007) Interactions of these elements in time and space, ie the relation
between supply and demand (subject), products (services) as objects of exchange
and price as the monetary value of the expression show certain peculiarities in certain markets, regardless to what every market in freight economy general can be
dened such the completeness of relations between supply and demand.
As in the introductory part indicated, the classical concept of marketing, marketing mix includes four basic elements 4P: product, price, promotion and place.
According to Ph. Kothler (Kothler, 2001, 38), Marketing mix is a combination of
controlled marketing variables used by the company to achieve the required level of
sales in the target market. There is literally a number of elements marketing mix.
Other authors in the marketing mix include more elements, Bittner and Booms
(Booms, Bittner, 1981, 49) suggest additional 3P: people, physical evidence,
processes.
339
Figure 1st Marketing Mix 7P
Made by author
Marketing mix is based on the 7 P(product, price, place, promotion, people,

physical evidence, process):
Determining tourists needs and desires in order to develop tourism product;
Pricing of tourism products;
Deciding on the best place to sell tourism products;
Deciding on how best to promote the tourism product;
Decisions of the people that create tourist attractions;
Physical evidence, the presentation of quality tourism products;
Decisions about the types of processes.
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Mario Banoi
The tourism product is a central part of the tourist marketing mix, and consists
of certain elements. The element of the tourism product can be oered directly to
tourists, or in a combination with other elements as an integral tourist product.
Authors in the international literature prefer integrated tourism product, because
it represents (Uskokovic, 2001, 18) the right mix of material and immaterial elements of the supply (of goods and services), which meet the needs of tourists.
For tourism product are characteristic two marketing strategy, dierentiation
and diversication. Strategy dierentiation of tourism product consists on the formation of the product, which according to a number of characteristics, dierent
from the competitive tourism product. Implementation of this strategy comes to
the fore when creating an integrated product, i.e. adding an immaterial part of the
tourism product. Strategy diversication of tourism product should be based on
more tourism products which are oered in the tourist destination, also which are
carried out in multiple markets or more potential segments in exist market.
(Kothler, 1989, 510) For services is characteristic hers internal (immanent)
properties (inseparability from natural resources, impossibility to cover, etc.), the
service is impossible to store, but must be sold together with the momentum of
production . Also, for some services there are no substitutes.
There are opinions, and also practice has shown how on the dierent markets
and depending on the situation favored certain elements of marketing, compared
to the other. The prevailing opinion is that price and promotion are more eective
tourism marketing mix elements, because they are adaptable to possible changes
on the tourist market, and that their use is eective in the short term. However,
the price must be set up on something material, while the purpose of promotion
is to promote the facility, or specic characteristics. In both cases, the price and
promotion depend on the products, because they are based on the product. Price
immediately produces the total income, so it can be concluded that price is a key
element of marketing mix.
Determining a certain price, tourist operator decides which of the marketing
goals wants to pursue (Kothler, 2001, 496): the survival of the tourist operator on
the market, the maximization of collecting of cream on the market, maximization of current prot, maximization of current income, maximization of sales and
leadership in quality of products and dierent prices goals.
341
Price is a very important factor in determining the position of tourism products

in comparison to competitive. (Dibb, 1995, 514) Most of the factors how have
inuence on decisions to determining the price can be classied into one of eight
groups as shown in Figure 2nd:
Figure 2nd Factors which inuence on the decision to determining the price
Made by author
In practice exists many dierent methods for determining the price. No matter which of these methods for determining the price tourism subject will select,
ultimately he must make the nal decisions, what is the price that will compete on
the market. In the same time he must providing compatibility of price with other
elements of marketing mix.
When tourism subject take decision about access on the tourism market, he determining the price on way that he can cover the total costs during creation tourist
product, but also achieve a certain prot. (Datar, 2008, 429) In determining the
price of their product, the tourism subject can be focus on several factors:
customers or market
competition
costs
While determining the price it is necessary to take into consideration eect of
a large number of factors, which a signicant part is outside of the control from
tourist subjects. (Ruzic, 2007, 230) The specic conduct of pricing policy as an
element of marketing mix, it is important to determine which factors operate, how
they work and whether and to what extent can predict.
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3rd METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST

PRODUCT ORIENTED TO THE MARKET
Starting from the generally accepted fact that tourists are the most important
person in tourism, the tourism is concentrated on the market, i.e. the decision
on the settlement price is made from the viewpoint of consumers. Also, it is very
important to accept the fact that too high a price can tourists turn to competitive
markets. In the same time too low price can take wrong impression about the quality of tourist attractions. The low price oered tourist product on the market can
reduce possibility for potential income.
There is two methods for determining the price of the product or service, and
they oriented to the market (http://web.efzg.hr/):
method of pricing according to demand,
method of the lowest prices.
Table 1st Review of methods for determining the price tourist product oriented to the market
METHOD OF PRICING ACCORDING TO DEMAND
METHOD OF THE LOWEST PRICES
The method is applicable in cases when tourist subject

want take strategy dierentiation of price.
The main precondition for the eectiveness of the
method is carried out research on the potential demand
in the tourist market.
Lack of method is when the provided demand is lower
than actual, because a certain price is too high. Otherwise it may happen that the price is set low, and the
provided demand also did not reect in the planning
volume.
Method can be used when tourist subjects create

tourism product, and then must be good coordination
between all stakeholders at all levels, regardless on the
level distribution of tourism products.
The basic goal is that the holder of a tourist oer determines the lowest price, and that price will be equal in
all markets. Tourist subject at the local level can only
increase price (depending on the objectives, market
opportunities, competition and business costs).
Made by author
4th METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST

PRODUCT ORIENTED TO THE COMPETITION
The competition is an important factor in the environment of tourism subject,

and it is necessary to be vigilant and monitor their activities, as well as the price of
the product. For example, lowering prices by one tourist subject in destination may
reduce the demand for tourist products of another tourist subject. In this case, each
tourist subject was forced to reduce prices, which may result that tourist subjects
343
may not cover the costs of the period. Another possible case is the existence of only
one tourist subject in destination, where he is able to impose their own price, who
is usually too high.
Methods for determining the prices that is focused on competitors (http://web.
efzg.hr/):
Method of determining the price below the price level of competition,
Method of determining the price above the price level of competition,
Method of determining the price on the same price level of competition.
Table 2nd Review of methods for determining the price tourist product oriented to the competition
METHOD OF DETERMINING THE
PRICE BELOW THE PRICE LEVEL OF
COMPETITION

PRICE ABOVE THE PRICE LEVEL OF
COMPETITION

PRICE ON THE SAME PRICE LEVEL OF
COMPETITION
With this method tourist subject

seeks to reduce prices to the lower
level than the price of competitors,
or to leave price at the same level no
matter what competition increase
own price.
With this approach, the holder of
tourism seeks to increase the sales
of tourism products and attract
tourists to the destination, while the
weakening or eliminating competition from the market.
In cases where the tourist operators

oering on the market specic tourism products, the possibility exists
that they are valued very highly
priced. It may arise from activities of
branding a tourism destination.
Because of the pronounced specic
destinations, tourists will stay in the
destination and allocate a higher
amount, no matter what the other
tourist subjects in the same destination has formed the lower price.
At each destination exist tourist

subject who is emerging as a leading because of its specics (size,
traditions, business, organization)
that can be an excellent base for
determining price to other tourist
subjects in the destination.
The impact of the leading tourist subject is signicant for other
tourism subjects in the destination.
Determine the prices at the level of
price competition. Pricing is left to
the leading tourism operator.
Made by author
5th METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST

PRODUCT ORIENTED TO THE COSTS
Already be mentioned that the price must be high enough that income from the
sale cover all costs and made some gains. In business, incomes are product of subject,
but the gain / loss is always own product. In other words, incomes are the result a split
of circumstances on the market, and gain is own ability in the management of available resources. (Crnkovic, 2006, 322) It is the result of the economic equation:
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Mario Banoi
Figure 3rd Economic equation for gain/loss
Made by author
Transparency cost of sales is especially important for marketing planning. It

should be aim a clear classication of costs, i.e. a clear delimitation between the
cost, just a grouping of homogeneous elements, and the classication of expenses
by type, and not according to holders like in most cases in the tourism industry.
There are four methods of determining prices for products that are focused on
costs:
Cost-plus method,
Method of adding a prot margin,
Method of equal price,
Method of target return.
Table 3rd Review of methods for determining the price tourist product oriented to the costs
COST-PLUS METHOD
The holder of the tourist
oer must rst determine
total cost, and then
specify a certain size or
percentage of total costs,
which will increase these
costs.
The advantage of this
method is reected in the
constant realization of
prots if the cost is exactly
and precisely estimated.
The disadvantage of this
method is recklessness by
competition and market,
particularly by tourists,
because tourist subject no
need rationalize costs.
Made by author
METHOD OF ADDING A
PROFIT MARGIN
Is similar like cost plus

method, but in this
method percentage of
increase costs is based on
expected sales.
Typically, the rate of prot
that applied is variable
depending on the tourism
product by the holder of
tourist oers, using a xed
rate of prot for individual
tourism products greatly
accelerates and makes it
easy determine the prices.
METHOD OF EQUAL PRICE
METHOD OF TARGET
RETURN
Applying this method,

the holder of tourist
oer, wants to achieve a
unique price his products
in all markets where it
appearance.
methods widely ignore
the competition and
market conditions where
oer the product, considering that the established
price in accordance with
the coverage of costs and
the state of the domestic
market.
Holders of tourist oer

use this method after
investing in infrastructure,
equipment, vehicles, additional promotion on the
market or any other forms
of investment, trying to
achieve cost-eective
return on investment.
The method of target
return need a time, time
in which tourism subject
wants to recover invested
funds.
345
6th CONCLUSION
A method does not exist to be one selected and blindly used. Rather, with their
application at the same time will be observe the essential signals to management in
tourism, the potential adverse events.
Based on only three factors, like the basis for determining the prices, there are
nine methods arising from them. Each is dierent, reason is in dierent assumption, and each is focused to achieve dierent goals. For example, a tourist subject
or a holder of the tourist oer, when looking at situation on the market during
determining a price, has two options: attempt to most accurately predict demand,
in order to properly set the price, or a single rate (or lowest) price in all markets.
The methods which are focused on competition are nothing more than election
strategy for performance on the market. Denitely, the selection depends about
type of tourist product which tourist subject oering on the market. Even if it is
tourist product accepted on the market, holder of tourism oer cannot aord highcost ranking of products. However, if tourism product does not have any specics
(such as tourism product of our coast, sun and sea), holder of tourism oer can
decide to set the price lower than the competition (more attractive to consumers)
or on the same level as competitors.
Methods for determining prices, which are the most interesting to holders of
tourist oers, related to costs. Each holder of tourist oer rst will be decide that
the costs will be cover, and then select whether to be operating on a certain prot
on the total costs.
Price is an extremely important factor in the business of tourism subjects, and
the is necessary to pay attention on the all possible factors that have inuence
(either internal or external), because the unit price of products will depend on the
determination of operating income. Higher product prices for tourist subjects will
mean a higher amount of income generated from operating activities, and therefore
higher gain.
7th LITERATURE
Booms, B.H., Bitner M.J. (1981) Marketing Strategies and Organizational

Structures for Services, American Marketing Association, Chicago, ISBN 9780877571483
346
Mario Banoi
Crnkovi L., Mesari J., Martinovi J.(2006), Organizacija i primjena raunovodstva,

Sveuilite J.J.Strossmayer u Osijeku, Ekonomski fakultet u Osijeku, Osijek, ISBN
953-253-015-0
Datar S. M., Foster G., Horngren C. T., Ittner C., Rajan M. Cost Accounting: a managerial emphasis. New Jersey: Pearson Education, Inc., 2008. ISBN:
0135046343
Ekonomski fakultet Zagreb, Katedra za marketing, (2007.), Cijene, http://web.
efzg.hr/dok//mar/kolegiji/marketing/predavanja/MKT-08-Cijene.pdf Pristupano
07.03.2011.
Kotler Ph,(2001): Upravljanje marketingom: analiza, planiranje, primjena i kontrola, 9. izdanje, Mate, Zagreb, ISBN 953-6070-65-0
Kotler Ph.(1989): Priciples of Marketing. Englewood Clis: Prentice Hall, ISBN:
013708059
Meler, M.(2005), Osnove marketinga, Sveuilite J.J.Strossmayera u Osijeku,
Osijek, ISBN 953-6073-94-3
Rui D.(2007), Marketing u turistikom ugostiteljstvu, Sveuilite J.J.Strossmayer
u Osijeku, Ekonomski fakultet Osijek, ISBN 978-953-253-022-3
Sally Dibb, Lyndon Simkin, William M. Pride, O. C. Ferrell; (1995) Marketing,
Europsko izdanje , MATE, Zagreb, ISBN: 953-6070-13-8
Uskokovi B.(2001): Marketing - menadment u turizmu Crne Gore.Ekonomski
fakultet, Institut za drutveno - ekonomska istraivanja, Podgorica
A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND
347
A HOLISTIC APPROACH TO CORPORATE

IDENTITY AND BRAND
Dinko Juki, univ.spec.public. admin.
School of merchant Davor Milas in Osijek
Ph.D. candidate
Faculty of Economics
Boica Dunkovi, univ. spec. public. admin.
Agency for Development
Osijek-Baranya County in Osijek
Ph.D. candidate
Faculty of Economics
Abstract
The brand is a very complexed symbol. Corporate brand creates a great number of associations to the consumers that are used in positioning. The brand is a
promise made by the company and it must be fullled. A key element in creating the corporate image category is the brand personality. Links between internal
branding, corporate image and employees and the performance benets of brand
is found in corporate reputation. The interaction with the consumer is important
for internal corporate image building, but also because of the relationship with
the consumer. Corporate branding is the basic assumptions of holistic marketing
because it encompasses the essence of an integrated perspective that is desperately
needed. Corporate brand excels through its existence and operation, and reects
the values and employees actions, both individually and collectively.
Keywords: brand, corporate branding, corporate image, corporate identity,
customer
1. INTRODUCTION
Brand is a very complex symbol. The strategy of building brand begins whit
a clear understanding of what brand represents to producer and consumer
348
Dinko Juki Boica Dunkovi
(Keller;2008,35). Brand strength is based on a good brand positioning, its most

important components: consumer associations. Since the association of consumers
can be seen from the point of metaethics(Juki;2010), we can conclude that the association analyzed in terms of emotional and rational impressions according to the
brand. Positioning as the act of creating brand superiority in the consumers mind,
greatly depends on associations and perceived brand image. To build a brand equity
there are three key components: identity, image and brand personality. Only creating a brand indicates creating dierences (Kotler & Keller;2008,275).
In the postmodern marketing consumption becomes the primary in shaping
the consumers awareness of others and their own ideas. An abstract code of consumption diers objects as characters, not as an expression of individual needs and
pleasure. The concept of inner devotion includes internal branding, organization,
corporate image, employee interaction and protability of the brand as ideas. Positioning refers to the perception and associative components of consumer brands.
Brand reputation may results from judgments according to the corporate brands
(Dowling;1995), and usually includes three categories: perceived quality, credibility and attraction. To create a holistic approach to corporate branding the crucial
are: image, symbol and identity.
2. CORPORATE BRAND
Corporate brand, according to Balmer is one of the most fascinating phenomena in the business environment of 21st century. According to the model, which
Baudrillard calls ambient consumer (Baudrillard; 2001), the importance of branding as a social phenomenon that interacts with consumers is a form of manipulation of symbols. Signs (brand) in his being are perceived as an exchange and use
value. However, analysis of the characters refers to the two levels, ie, the signier
and the signied. Brand itself is, by denition (Bennett, 1995:85), a static segment
of products in its integration of images, characters and symbols exceeds the present, postmodern understanding the brand as a phenotype. A new concept of brand
management does not observe the brand as a way of marking products. Often the
buying decision are emotionally based (Milas; 2007:41). The consumer with that
kind of purchase is actually built up a picture of themselves, regarding, symbolic
purchase exceeds the utilitarian criterion. Corporate brand in the consumers mind
establishes a number of valuable associations that can be used in positioning. Pre-
349
cisely because of this, the key element in creating the corporate image category is
the brand identity.
Brands are therefore an integral part of social and everyday consumer. Brands
in the broad sense can be viewed as a manufacturer, private and corporate. Corporate brands dier from one manufacturers brand in several key factors. First
of all, it diers in strategy management of marketing and strategy of marketing
communications. To satisfy the consumers needs or desires, it is necessary to make
market research and according to him plan the production program (Kotler &
Armstrong; 2006). Because of importance of four components in a holistic marketing, namely: relationship marketing, integrated marketing, internal marketing and
socially responsible marketing, priority is given to internal marketing. Therefore,
we conclude that the three categories are important for building a corporate brand:
personalization, integration and internalization.
2.1. From product brands to corporate branding
Corporate branding we must observe rst from the aspect of the brand itself, so
the promise set by the brand and the relationship between producers and consumers. The center of each brand is its vision (de Chernatony; 2002,19) of providing
a clear sense of direction on how this will bring a better perspective. One of the
main segments of the development vision for the brand in the culture of employees
who believe in a certain vision and brand managers who have, along with sta, the
mental model of how the market works. Therefore, the focus in corporate marking
is placed on the internal branding, ie relations between employees and consumers. In fact, corporate branding is the very essence of holistic marketing because it
brings together management, brand, consumers and the community. However, this
means that organizational behavior can be seen at all levels, especially in interaction with consumers. With such a holistic understanding of corporate branding,
where the relevant employees attitude and a promise that sets the brand, are actually healthy aspects (Balmer;2001). Precisely this dierence between the products
(brands) and corporate branding represents a shift in brand management.
350
Table 1. The dierence between product and corporate brand

Product brand
Focus on the product (middle manager)
Customers
Marketing communications
Functional importance
Consumer Loyalty
Living in the present
Corporate brand
Focus on the company (CEO)
Multiple stakeholders
Relationship marketing (CRM)
Strategic importance
Consumer and employee loyalty
Living in the present and future
Source: author
Dierences between product brand and corporate brand are reected in terms
of attracting and support. While brands target to consumers, corporate brands also
include consumers, but also contribute to the formation of images of the entire
organization and community. Consequently, corporate branding including suppliers, investors, partners and other interested parties. Understanding this we can
conclude that a corporate brand represents the realization of the basic settings of
holistic marketing (Kotler et al, 2006). In this communication, instead of appealing to consumers, corporate branding includes all participants. Corporate brand
increases the companys visibility, recognition and reputation.
However, corporate branding also requires much more strategy and organization unlike the brand (Balmer, 2001). A successful corporate brand is formed on
the relationship between strategic vision, brand image and organizational culture
(Hatch & Schultz, 2003.1045). Corporate branding requires the integration of
internal and external communication, ie, is in the region of brandsphere (Juki &
Dunkovi; 2010) that examines the cognitive value of brands. The rst factor that
inuences the development of brandsphere (de Chernatorny; 2006,185-222) is
certainly corporation itself that directly aects consumers and other participants.
Brand is seen as part of the added value that enables the distinction. The unquestionable values, the very essence of a brand, makes up 80% of success, and at the
same time, the expenses make up 20% (De Chernatony & McDonald; 2005).
Therefore, employee and customer loyalty is only the initial segment of corporate
branding, because we nd the key to success in the corporate image.
3. CORPORATE BRANDING
The success of the brand is closely associated with the employees behavior (Motion et al; 2003.1081), where uninterested sta resulting gap between the expectations of their customers and the brand promise. This process is called internal
351
branding and includes the role of motivation of sta with a vision of the brand and
its promise that is given. Employees are linked to the performance of the organization and they are marketable (Meier, 2005), especially in services and their interaction with customers is considered a very important factor. There are several denitions that are relevant to internal branding, such as knowledge, behavior and skills
of employees, but the main categories derived from three elements: cognitive, aective and connotative. Cognitive elements include a functional level of the employee
or involvement in decision making, aective are the working conditions or psychological contracts while the connotative elements include communication skills and
cultural dierences. Brands are closely associated with employees, especially when
viewed through the nonprot marketing (Meler; 2003,65), as well as providing services in a wider sense. Achieving brand promise in services largely depends primarily on the companys employees (de Chernatony & Segal-Horn;2001,645-669) and
the organization must ensure that employees are delivered brand promise that it
oers. Corporate brand reects the corporate personality(Keller & Richey; 2006)
and unlike from characteristics of the brand (Keller et al; 2008,420) develop a kind
of corporate performance, ie employee.
The concept of corporate brands from a holistic point of view can be seen through
two approaches: focus on customers and focus on the company. If the concept of
corporate brand development viewed through the concept of focus on the consumer, then the brand image and brand identity imposed as the most relevant settings.
If we look at the concept development through focus on business, priority is given
to the corporate image(Kotler & Pfoertsch; 2006,73-91) and internal branding.
The employees role is crucial in fullling the promise set by the brand. In such an
environment of internal branding that emphasizes the corporate image, identity
and reputation, there is the concept of corporate marketing mix (Balmer;1998)..
The concept developed by Balmer (Balmer;2001b) in order to show the properties
of the so-called corporate brands CCIT(cultural, commitment, intricate, tangible,
ethereal) model best illustrates the characteristics of the brand.
Table 2. The characteristics of corporate brand

Cultural
Intricate
Tangible
Ethereal
Commitment
Corporate brand tend to have strong cultural roots

Impact on stakeholders
All tangible value
Intangible values, consumer emotional component
From all personnel
Source: Adapted from Balmer (2001b)
352
Internal marking depends on employees. Such implications warn us of the importance of human capital management (Punjaisri & Wilson; 2007), which means
that management must pay attention to employee values that are in synchronicity
with the corporate values (de Chernatony; 2002,20) and corporate image. The
concept of corporate branding must be observed multidisciplinary, combining elements of strategy, communication and culture (Balmer;2001a), and is understood
by the context, of vision, culture and image(Knox & Bickerton;2003). Therefore,
corporate branding is based on the interaction of three elements:
a) strategic vision is the central idea of a company that incorporates and expresses the managerial aspirations
b) organisational culture the internal values, beliefs and assumptions that
make up the company and communication skills
c) corporate image - a common impressions of the company which include
consumer, public, employees and shareholders aspects
Figure 1. The elements of corporate branding
Source: author
3.1. Brand image, corporate image and corporate identity
Positioning of the brand marks a place that brand occupies in the market. Positioning is not just a product as such, but rather what think of him the target market
customers. Brand awareness in the consumer obtains a certain position and gets his
353
image. Consumers are sensitive to properties of brand and the perception created
by the promotion. Product position is the result of the perception of consumers
that is inuenced by corporate image (Keller & Richey; 2006,75) and depends on
the internal branding (Dowling;1995). Positioning of the brand observed through
the context of brand as a symbol of where it is, according to the strategy of creating
a brand, divided into ve factors:
a) properties - qualitative allusions
b) value - the perceptual allusions
c) cultures - qualitative and prestige allusions
d) personality - the essence of the brand.
The term super brand alludes to the concept of corporate reputation (Dowling;1995,379). Dowling distinct corporate identity that represents a symbol and
a sign, actually very similar to the denition of trademark, which the organization uses to identify. Corporate image, as a subordinate concept of identity, includes consumer beliefs and emotions, so the overall impressions. And nally,
corporate reputation presents image evaulation which is maintained in the consumer. Using the de Chernatonys and Segal-Horns settings (de Chernatony &
Segal-Horn;2001,665-669), external branding requires a balance between internal
branding to achieve a vision of the brand. Corporate brand reects the corporate
personality and develops properties of the corporation.
However, Kotler and Keller dene positioning as an act of forming supply and
corporate image so that it takes a special place in the minds of consumers in the
target market (Kotler & Keller; 2008,310). Kellers model of development of brand
strength (Keller et al; 2008,57), Customer-Based Brand Equity (CBBE) which includes the brands personality, image and brand identity, a way in which knowledge
of the brands aected by the reaction of consumers in relation to the presentation
of the brand. Brand image, as the last part of Aakers model of brand positioning,
always reects the current perception of the brand, therefore, includes three distinctive features of communication:
a) extended image
b)increased and used image
c) soft and extensive image.
354
Extended image indicates a situation where the brand identity does not match
the brand image, which is usually the case in demographic segmentation. In this
case, brand identity, its visual elements and symbolism, they must expand associativity under the condition not to disturb the existing core brands. In contrast to
the extended image, amplied and used image includes a specic added association
that consumers are developing. However, the brand image should not be assigned
a position in the market. Increased image enhances the brands personality (Aaker;
1997,347-357). Soft and extensive image is actually the opposite of increased and
used image and the occurrence of mixing segments of the consumer tells us that
brand image is not always well integrated into marketing communications. Such
transfer of consumer categories in the post-modern marketing is actually normal,
because the consumer trends change, so accordingly, and brand image must be
adjusted.
Brand identity includes a message which brand transmits through the name,
visual and audio elements, and advertising. Brand identity is not the same as brand
image, because image includes the beliefs and feelings toward specic brands and
consumer impression. The very essence of brand identity is based on three levels (Kapferer; 2008,42-47): the core brand, brand style and branding issues. The
brand core is the very essence of the brand , and its fundamental genetic code
(Smith;2003,99) that eventually builds and repairs. Brand style indicates culture
of brand transmitting the totality of brand value, personality and brand image and
its reection on the consumer. Brand topic includes how to communicate through
advertising, physical appearance, reection and the relationship.
There is a key dierence between corporate branding and corporate identity. The
concept of corporate identity refers to the dierent properties of the organization.
However, corporate identity is necessary dependent on corporate brands (Balmer
& Gray; 2003,980). Corporate identity also includes a message transmitting by
corporate brand and he is, looking at it in terms of brand performance, constantly
developing, unlike the corporate brand. Also, the focus of corporate identity is
based on external stakeholders, unlike the internal stakeholders. Core of corporate brand is an explicit covenant between an organisation and its key stakeholder
groups, including customers(Balmer; 2001a). This covenant can be viewed as a
promise that sets the brand (Kapferer; 2008) or so called. brand mantras(Keller;
1999,43).
355
Table 3. Usporedba korporativnih i proizvodnih karakteristika marke

Corporate
brand
Organizational
identity
Product
brand
Corporate
identity
Brand
identity
Corporate
image
Brand
image
Brand identity
Visual
All elements
Association
Association
Cultural mix
Marketing
mix
Goodwill
Symbol
Business
identities
Brand
essence
CCITE model
CBBE model
Corporate
reputation
Corporate
image
Perceived
quality
Brand image
Corporate
Brand
personality
personality
Corporate
Brand culture
culture
Corporate
Marketing
communication communication
Source: author
4. CONCLUSION
Corporate brand, as it enters the sphere of management, can provide sustainable competitive advantage to companies, if understood as a form of organizational
identity that transcends the setting of brand management. However, in order to
achieve corporate branding it is necessary to to pay attention to organizational
behavior which is evident at all levels, especially in interaction with customers,
clients and stakeholders. A successful corporate brand is formed on the relation between strategic vision, brand image and organizational culture (Hatch & Schultz;
2003,1045). The concept developed by Balmer in order to show the properties
of so called corporate brand CCIT is a mix of corporate marketing and corporate communications. In corporate reputation we nd links between the internal
branding, corporate image and employees and benets of brand design themselves.
The interaction with the customer is important for internal corporate image building, and relationship with the consumer
The concept of corporate branding must be considered multidisciplinary, combining elements of strategy, communication and culture (Balmer;2001a), and is being realized through the context of the vision, culture and image. The success of the
brand is closely associated with the employees behavior, and corporate reputation
(Motion et al;2003,1081),represents image evaluation that is retained in consumer.
Corporate brand is characterized through its existence and activity, and reects
the values and actions of employees, both individually and collectively. Corporate
branding is a holistic approach to creating brand personality, corporate reputation,
356
image and identity that reects the society. Or simpler, Vultus est index animi (The
expression on ones face is a sign of the soul). (Balmer & Gray;2003,991).
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STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT - CONTEMPORARY MODELS ...
359
STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT CONTEMPORARY MODELS OF SOURCING STRATEGIES1

Davor Dujak, M.Sc., Faculty of Economics in Osijek
[email protected]
Abstract
Sourcing is one of four key groups of activities in the modern supply chain
management (Plan - Source - Make - Deliver) whose signicance is growing each
day due to todays highly variable economic conditions and even more unpredictable demand. Sourcing activities are seen through a phases of strategic sourcing
process as a key process of supply chain management. The most important stage of
the strategic sourcing process is the selection of sourcing strategies that will aect
all other activities at the rm. In the last twenty years there has been development
of numerous variations of sourcing strategies that reach the full range of complete
insourcing to complete outsourcing of a manufacturing or service processes.
The goal of this paper is to highlight the growing importance of choosing proper
sourcing strategies, and to oer for consideration contemporary models of sourcing strategies, their main advantages and disadvantages, and recommendations for
implementation.
Key words: sourcing, supply chain management, sourcing strategies models,
insourcing, outsourcing
1. INTRODUCTION
Development of collaboration with business partners is essential for success in

performing todays contemporary business activities. Supply chain management
(SCM) is managerial conception built on collaboration in activities of improving
1
this paper is part of project Retail trade in value chain of food, 010-0000000-3353, funded by
Ministry of science, education and sports of the Republic of Croatia
360
Davor Dujak
ow (physical, informational, value) that are taking place between supply chain
members. Hill gave a comprehensive denition of SCM as activities required to
manage the ow of materials, information, people, and money from the suppliers suppliers to the customers customers. SCM is the integration of and coordination between a
number of traditional business functions, including purchasing, operations, transportation/distribution/logistics, marketing/sales, and information systems (Hill; 2010, 314).
Sourcing is one of four key groups of activities in the modern supply chain management (Plan - Source - Make - Deliver) whose signicance is growing each day
due to todays highly variable economic conditions and even more unpredictable
demand. Sourcing activities are seen through a phases of strategic sourcing process.
The most important stage of the strategic sourcing process is the selection of sourcing strategies that will aect all other activities at the rm. This paper is aimed to
highlight the growing importance of choosing proper sourcing strategies, and to
oer for consideration contemporary models of sourcing strategies, their main advantages and disadvantages, and recommendations for implementation.
2. SOURCING IN SUPPLY CHAIN MANAGEMENT
Certainly one of the most important steps in establishing a successful supply

chain management are sourcing activities. The term sourcing is often equated
with the term procurement. But in principle, two dierent approaches to relation
of these two concepts are:
1) sourcing as an umbrella term that implies a broader process than procurement (wider view), and
2) sourcing as a process which precedes the procurement (narrower view), and
is a part of Supplier Relationship Management (SRM).
First view is much more expanded and according to numerous authors (mostly
from areas of supply chain management), sourcing has a wider scope of procurement. Sourcing is the entire set of business processes required to purchase goods and
services (Chopra & Meindl; 2010, str. 392). In the literature the concept of strategic sourcing is widely used (Ray, 2010; Lambert, et al., 2008; Ayers & Odegaard,
2008; Da Rold & Berg, 2003). In their denition, Ayers and Odegaard emphasize
a broader look at sourcing than just the orientation on the purchase transaction,
and state that strategic sourcing is the use of the overall acquisition function as a tool
for strategic improvement rather than one focused on transaction only. Involves both cost
reduction from better purchasing and eective partnerships across the supply chain (Ayers & Odegaard; 2008, 392).
361
Sourcing can also be seen from the angle of the SRM. Sourcing is a part, and
signicant factor of SRM (Ray; 2010, 220-221). Specically, as is evident from
Figure 1, strategic sourcing, procurement and nancial arrangements are constitutional parts of SRM.
Figure 1. Dierence between purchasing, procurement, strategic sourcing and Supplier Relationship Management
Purchasing
(Transaction)
Procurement
(Transaction and
Post Transaction)
Strategic Sourcing
(Pre Transaction)
SRM
(Pre Transaction,
Transaction and
Post Transaction)
Research: analysis
spend, market
Purchasing
Transaction to
buy product
/services
Materials
management
i.e. goods
receipt, quality
inspection
Develop sourcing
strategy
Supplier qualification:
identification and
evaluation
Supplier negotiation
Strategic
sourcing
Procurement
Financial
Settlement
Contract management
Manage and develop
suppliers
Collaborative design
Source: (Ray; 2010, 221)

It is important to emphasize that according to the author, the act of purchasing
applies only to the period of the transaction, procurement (as a broader term) applies to the period of the transaction, and after the transaction, while sourcing is responsible for what happens before the transaction. Consequently, SRM includes all
activities in relations with suppliers that occur before, during and after the transaction (Ray; 2010, 220). Lambert et al (2008) also involve sourcing in SRM strategic
and operational sub-processes. This is of special signicance because precisely SRM
and CRM (Customer Relationship Management) are key SCM processes that form
critical relationships that connect companies in supply chain.
From the above-mentioned dierent views it can be concluded that sourcing
are all activities of organizations that aim to nd, select, and provide long-term
sources of specic products and/or services necessary for transformational
process.
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Davor Dujak
3. STRATEGIC SOURCING DECISIONS
There are several classications of sourcing processes/activities, but they all encompass same area that is divided into dierent number of elements (Ray, 2010,
224; Chopra & Meindl, 2010, 393; Da Rold & Berg, 2003, 7; Monczka, Handeld, & Giunipero, 2009, 230). Common phase to all classications is the decision
(or decisions) of whether a product or service (or his / her part) to provide internally
(within the rm) or externally from the supply chain partners. These strategic decisions are made on high-level of organization, often for a long period and called
sourcing decisions. Sourcing decision are also known as make or buy, insourcing or
outsourcing, in-house or outsource decisions. Sourcing decisions signicantly impacts
the competitiveness of companies and if they are taken too quickly and without
sucient consideration of all possible consequences, can lead to company business
failure (e.g. loss of core competencies or because of outsourcing activities to a supplier who cannot meet the requirements of our customers). That is a reason why
cross-functional teams are needed to make sourcing decisions, that will take into
account dierent considerations from long-term business strategy of a company to
in-depth cost analysis, as much as numerous other factors (Handeld & Nichols;
2002, 117 - 118).
Very notion of outsourcing, simply denes Professor Hill as buying products
and services from a supplier that is not owned by a rm (Hill, 2010, 220). What appears as a major issue in outsourcing is why the company would buy the product
or service outside of their company from a third party? The answer is because the
third party increases the value for the company and for the supply chain more than
they could do themselves! Increasing value is not only through decreased price, but
also through enhancing dierent quality aspects, cycle speed or other characteristics important for customer, company and whole supply chain. Dierent ways of
growing the surplus (other through increasing value or decreasing cost) in supply
chain are aggregation of capacity, inventory, transportation by transportation intermediaries or storage intermediaries, aggregation of warehousing, procurement,
information, receivables and relationships (Chopra & Meindl; 2010, 394-397).
We should bear in mind that the value companies receive from outsourcing to a
third party, is depending on (Chopra & Meindl, 2010, str. 398):
a) scale of product or service outsourced - third party will provide a higher value
if the volume (quantity) of outsourced products or services is smaller,
363
b) uncertainty of company needs - third party always provide a higher value

through outsourcing for the company if the demand is less predictable (and
less secure).
c) specicity of assets required by the third party - if a company seek for extremely specic goods that do not require other companies, third party will
provide a lower value because it actually holds only the quantity of goods
(services) that company seeks.
In real situations companies should take into account all three factors that may
simultaneously aect the outsourcing of an item and weigh the value that third
party provides.
The decision on outsourcing of some functions is not made only at the start
of operations of a company. This decision may be also initiated in the following
situations (Handeld & Nichols; 2002, 118-121):
a) development of new product - usually it is a technology or process with
which the company is not familiar and is part of a new product or service
(does not possess the machinery and / or know-how so they outsource it);
b) strategy development - new directions for the company determined by its
top management may require some outsourcing (for example, the decision to
focus on the most cost-eective);
c) poor internal or external performance - new decision whether to outsource
can result from poor achievement of certain suppliers or some internal part
of company (they do not meet the target achievement);
d) changing demand patterns - if there is a signicant decrease in demand for
certain products / services, the company will consider outsourcing to specialized third party, and vice versa;
e) shifting technology life cycle - if the life cycle of technology (from the perspective of users of the same this is time from the introduction to the moment when it is no longer viable and must be replaced with a new improved
technology) is a relatively long2, for company is worth investing in it because
company expect that it will return the investment in it. But if the technology
life cycle is short, usually it is better to outsource to specialized third party
long life cycle of technology is enabled by low rate of technological change in industry, while the
short life cycle is characterized by high rates of technological change
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Davor Dujak
In all these cases of deciding whether to outsource it is necessary to know what

the company cannot give in outsourcing. These are core competences. Core
competences are dened by Coyne, Hall and Cliord as combination of complementary skills and knowledge bases embedded in a group or team that results in
the ability to execute one or more critical processes to a world-class standard3. Core
competence is not a product or service, but rather the processes, abilities, and unique
attributes that allow the organization to develop and deliver dierentiated core products (Hill; 2010, 74). What is also interesting is that the core component capability of a company can change over time, and usually has to be changed in response
to the environment (primarily competition) which is also constantly changing in
order to achieve better results.
4. SOURCING STRATEGIES
After making insourcing or outsourcing decision, company must develop sourcing strategy. Sourcing strategy is the set of scenarios, plans, directives and decisions that
dynamically denes and integrates the internal and external resources and services required to continuously fulll an enterprises business objectives (Da Rold & Berg; 2003,
7). Sourcing strategy is actually a further development of sourcing decisions where
company selects the best of many alternatives. These alternatives are dierent combinations ranging between insourcing and outsourcing decisions. Two important
classications of sourcing strategies and one map of sourcing opportunities will be
discussed.
Most common classication of sourcing strategies is based on the number of
suppliers to whom company outsource its product or service related process. Handeld and Bozarth recognize four major sourcing strategies (Bozarth & Handeld;
2006, 302-304):
a) single sourcing,
b) multiple sourcing,
c) cross sourcing,
d) dual sourcing.
3 Coyne, K.p., Hall, S.J.D., Clifford, P.G.(1997): Is your core competence A MIRAGE?,
McKinsey Quarterly, 1, 40-54 citirano prema (Hill; 2010, 74)
365
When starting outsourcing, company can decide on the strategy of buying almost all of a particular product or service from only one company and that strategy
is called single sourcing. If the buying company decides to purchase the same product or service from multiple vendors, then we are talking about multiple sourcing.
An interesting choice is cross sourcing strategy, because in this case the company for
a specic part or service is using one supplier (single) in one area of businesses, and
other supplier with equal opportunity for a similar part or a service in another area
of business. Each supplier is rewarded with a new job (new orders) on the basis of
its achievements thus creating incentives for both suppliers. A simpler version is the
dual sourcing strategy in which to purchase the same product or service company is
using two suppliers. One does have the advantage, and from him company acquires
70% of the required amount, while another supplier receives orders for about 30%
of the required amount. This will ensure constant readiness and vigilance of main
supplier (because he knows that there is competition that blows to the neck),
while also encouraging supplier companion in the best achievements in order to
obtain a greater percentage of orders.
Second classication is made by Gartner, Inc., worlds leading information technology research and advisory company. Basis of their classication is combination
of number of suppliers and portion of outsourced product or service in the total
volume of products needed. In excellent Gartner research, the authors observed a
shift from the past when companies who wanted to outsource used only full outsourcing, to the present practice that has created various transitional models, so
companies usually uses so called selective outsourcing. As a result of their study,
the authors state that sourcing is a much more complex decision, and identify eight
sourcing models, which they say are actually models of relationships, and are therefore applicable to dierent business and IT processes (Da Rold & Berg; 2003, 8).
Each of these models shown in Figure 2 represents a dierent balance of relations
between the service recipient (client) and service providers (regardless of whether
he is inside or outside the company).
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Davor Dujak
Figure 2 The sourcing strategies space and the sourcing models

(Demand management and sourcing governance)
Multiple players /
open market
Multisourcing
Brand service
company
Competition level
Prime
contractor
Best-of-breed
consortium
Joint venture
Single player /
captive market
Internal
delivery
In-house
Insourcing or
shared services
Build vs. Buy
Full outsourcing
Outsourcing
Source: (Da Rold & Berg; 2003, 9)
As stated earlier, these models are developed in relationship to two signicant

organizational variables, that are also axis of coordinate system constitute sourcing
strategies space. Ordinate shows the level of competitiveness, i.e. the number of
suppliers for outsourcing. On the abscissa is Build or Buy (Make or Buy) decision,
which represents the level of organization will to outsource (portion of outsourced product or service in the total volume of products needed). Basic description
of these eight sourcing strategies models can be found below (Da Rold & Berg;
2003,12-13):
1. Internal delivery all services and products are provided through internal
organization, and their new projects. This is most exible model but with limited
opportunities for economies of scale and acquiring new knowledge
2. Multisourcing or selective outsourcing, where companies look for bestof-breed services and products to establish contract for, mostly IT sourcing
367
3. Insourcing or shared services, is creating new separate but organizationowned business unit that will provide parent organization with services according
to semiformal contracts, service-level agreements or similar arrangements
4. Joint venture in collaboration with a market provider, organization builds
a separate service company and shares it with him. Usually, this partner (external
service provider) gets majority of joint venture shares that allows him managing of
new company.
5. Full outsourcing or classic outsourcing model is done with only one
external service provider for majority of services. One long-duration contract is
usually signed (ve to ten years).
6. Best-of-breed consortia consortium of external service providers that arises
when one providers capabilities cannot satisfy client requirements. Usually one of
external service providers takes the role of main contractor
7. Brand services company this model is similar to insourcing model, but
newly establish service company serves as certain intermediary between a large organization or even a group of companies, and lot of external service providers on
the market. This company selectively outsources part of their services to the best
external service provider, ensuring best services for their parent organization, or for
other clients on the market.
8. Prime contractor this is a company that manages multiple external service
providers and integrates their dierent services into one tailor service for its client
It is necessary to point out that there is no one perfect model (a perfect sourcing strategy) for the company, which will permanently solve the problem of sourcing decisions. As the market situation changes, and thus the market power of companies which decides changes, and in line with its overall business strategy it is
necessary to review, adapt and use these sourcing models / strategies.
An interesting model is provided in an article published in Harvard Business
Review (Gottfredson, Puryear, & Phillips; 2005). The authors propose using this
model to decide which function or process to outsource. By putting it in relation
to the proprietary nature of the process or function (feature on the ordinate), and
the uniqueness of the process or function of the market (mark on the abscissa) they
construct sourcing opportunities map.
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Davor Dujak
Figure 3 Sourcing opportunities map

High Priority:
Not
proprietary
Strong outsourcing
candidates
functionprocess
of
nature
Data are
proprietary
Medium Priority:
outsourcing opportunities dependent
on industry and company dynamics
Business process
is proprietary
Profit model is
proprietary
LowPriority:
Proprietary
Captive sourcing candidates
Unique to self
Common across
industries
Uniqueness of business process or function
Source: (Gottfredson, Puryear, & Phillips; 2005, 138)
With this map it is possible to determine the potential of business functions or

processes, and thus decide which functions or processes, and what proportion to
keep under their own control. The function will be better candidate for outsourcing if the companys ownership stake is smaller, and if it is more common in the
market (less unique).
4. CONCLUSION
Under constant pressure of dynamic market and ever changing customer requirements, sourcing strategies are becoming more and more important issue for
collaboration in SCM. As companies are turning to outsourcing as a solution for
most eective way of doing business, they face dierent issues related to potential number of suppliers (third parties), amount (or portion) of product or service
to outsource, and type of relationship with a third party. To successfully navigate
through sourcing process, key factors are truly exploring of the possible alternatives
369
(sourcing strategies) in the implementation of outsourcing and their positive and

negative sides. Companies could use dierent sourcing strategies to nd winning
combination, and they shouldnt stop doing it as long as they are on the market.
Bibliography
Ayers, J. B., & Odegaard, M. A. (2008). Retail Supply Chain Management. New
York, London: Auerbach Publications, Taylor & Francis Group., ISBN 978-08493-9052-4
Bozarth, C. C., & Handeld, R. B. (2006). Introduction to Operations and Supply
Chain Management. Upper Sadle River, New Jersey: Pearson Education, Inc. ISBN
0-13-944620-6
Chopra, S., & Meindl, P. (2010). Supply Chain Management : Strategy, Planning,
and Operation (4th Edition ed.). Upper Sadle River, New Jersey, USA: Pearson
Education, Inc., Prentice Hall., ISBN 978-0-13-608040-4
Da Rold, C., & Berg, T. (2003). Sourcing Strategies: Relationships Models and Case
Studies, Strategic Analysis Report. Gartner, Inc. Gartner Research., available at
http://www.gartner.com/DisplayDocument?doc_cd=113035&ref=g_fromdoc (accessed 11-06-2010)
Gottfredson, M., Puryear, R., & Phillips, S. (2005). Strategic Sourcing - From Periphery to the Core. Harvard Business Review , 132-139., available at http://web.ebscohost.com.oyd.lib.umn.edu/ehost/pdfviewer/pdfviewer?hid=119&sid=ac55b4112c2f-47af-9a6f-977c22890f99%40sessionmgr111&vid=3 (accessed 11-03-2011)
Handeld, R. B., & Nichols, E. L. (2002). Supply Chain Redesign : Transforming
Supply Chains into Integrated Value Systems. Uper Saddle River, New Jersey: Financial Times Prentice Hall., ISBN 0-13-060312-0
Hill, A. V. (2010). The Encyclopedia of Operations Management - 2010 Edition : A
eld manual and encyclopedic glossary of operations management terms and concepts.
Clamshell Beach Press., ISBN 978-0-9793105-2-2
Lambert, D. M., Garcia-Dastugue, S. J., Croxton, K. L., Knemeyer, M. A., Rogers, D. S., Goldsby, T. J., et al. (2008). Supply Chain Management. in D. M.
Lambert, S. J. Garcia-Dastugue, K. L. Croxton, M. A. Knemeyer, D. S. Rogers, T.
J. Goldsby, et al., & D. M. Lambert (Ed.), Supply Chain Management : Processes,
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Partnerships, Performance. Sarasota, Florida: Supply Chain Management Institute.,

ISBN 978-0-9759949-3-1
Monczka, R. M., Handeld, R. B., & Giunipero, L. c. (2009). Purchasing and Supply Chain Management (4th Edition ed.). (J. W. Calhoun, Ed.) South Weastern,
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Ray, R. (2010). Supply Chain Management for Retailing. New Delhi, India: Tata
McGraw Hill Education Private Limited., ISBN 978-0-07-068210-8
CHANGE MANAGEMENT IN ACADEMIC INSTITUTIONS PROS AND CONS OF THE ...
371
CHANGE MANAGEMENT IN ACADEMIC INSTITUTIONS

PROS AND CONS OF THE BOLOGNA PROCESS
Dr. sc. Kata Ivi
Abstract
Globalisation processes and the wealth of information have become a part of

our daily life and work, thus resulting in the general occurrence of knowledge and
information society. The existing educational programmes at the secondary and
especially higher education level can no longer meet the growing needs of science
and education. An educational reform and the development of a new education
paradigm have become a necessity. The Bologna process has become one of the answers to the challenges of the new education paradigm in Europe. Reorganisation
and restructuring of academic institutions, universities and faculties in Europe has
been systematically carried out as the Bologna process. Nevertheless, this ongoing
process is neither unambiguous nor without problems. This process of a continuous knowledge and educational process management has put forward certain hypotheses of competitive advantages of knowledge acquisition, the creation of new
organizational advantages in knowledge management, as well as the highest level of
ecacy in implementing new ndings.
Knowledge management requires all stakeholders (teachers and students) to use
economic categories in the educational process. Intellectual capital represents the
totality of knowledge and abilities of teachers, scientists, experts and students in
academic institutions. Intellectual capital is simultaneously the initial step in the
educational process and the factor that can eectively contribute to the creation
and development of new competitive advantages of an academic institution, university or faculty. Financial capital, without which it is impossible to organise the
process of higher education, is at the heart of each economic activity. In the Bologna process, it guides the successful implementation of the new higher education
paradigm. The reform of the existing knowledge is always a challenge how to
eectively transfer new knowledge into a new organisational structure.
Keywords: change management, Bologna process, higher education, academic
institutions, university
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Kata Ivi
1. Introduction
Being under pressure of overall changes in general as well as their own attitude toward future, academic institutions, universities and faculties are building
a unique system of higher education in Europe. By uniting Europe according to
the principles of positive viewpoints of the European Union, European academic
institutions follow the set goals for building of united Europe and reform of higher
education cycle. The Lisbon strategy published in 2000 was preceded by the Sorbonne Declaration in 1998, the Bologna Declaration in 1999 and the latest one,
the Prague Declaration, was published in 2001. Although not all of the strategies
and policies of the European Union related to higher education were successful, in
the end they have still produced some positive results. Changes cannot be stopped,
but accepting changes and good change management as well as cohesion policy
in the European area contributes to new adaptations to changes on a daily basis,
successful dealing with the global economic crisis, creating better condition for innovation, research and scientic work, and building of additional education levels.
The Programme of the Lisbon Treaty Strategy includes higher education, research,
innovation, social policy, market and competitiveness, environmental protection,
etc.
Good information links, i.e. networking and successfully organized communication in every academic community, internally at rst, but also externally, at the
level of environment, is a prerequisite of successful implementation of new organizational changes.
A relatively new paradigm of knowledge management leads us to the source of
information and new determinants of intellectual capital.
Transformation of the existing, acquired knowledge is always a challenge for a
new, more successful organizational form, which can be expressed by hypotheses
based on:
- Knowledge management
- Competitive advantages
- Building of a unique higher education system.
Knowledge management from the viewpoint of academic institutions is analyzed and understood as a process of continuous knowledge management. There
were some more determinants that have contributed to building and implemen-
373
tation of the Bologna process in European academic institutions, institutions of

higher learning.
The knowledge management system can be identied as a process of gathering
and analyzing of gathered data with the purpose of good planning, making and
implementing decisions as well as ecient and successful organization of academic
activity. One should here bear in mind the specic qualities owned by intellectual
capital. Power of knowledge is here reected in integrated approach of identication, management and exchange of all information possibilities, including classic forms of information (all sorts of documents, series and monographies, and
similar), electronic information in the form of databases; studies (expert opinions),
and, what is very important in academic life experience of eminent professors,
scientists, participants in the process of academic education and organization of
academic life for years.
2. Intellectual capital the starting point of academic process
Intellectual capital has always been the primary unavoidable factor in organization of an academic process. Changes accepted within the Bologna process in academic activities had to respect, among other, the market value of an institution, as
follows: nancial capital, i.e. material values that academic community possesses.
On the other side there is an intellectual capital, which is recognized as capital of
knowledge and experience owned by holders of academic education (professors,
scientists, experts) on one side; and organizational structure within which the institution realizes its activity on the other side. According to Figure 1, organizational
capital may be analyzed as the process capital and the innovation capital. Innovation
is a key lever which contributed to development and acceptance of entirely new hypotheses of development and organization of academic life and work. Participants
in the new process, along with initiators and strategy makers, are in the middle, as
well as those who are implementers of the planned reform of academic education.
The 20-year long period of reform and reorganization of European universities offers possibilities, but it also creates the need for certain analyses of academic life and
work in conditions of Bologna Declaration implementation. This is also an opportunity to observe not only positive, but also negative phenomena which follow the
process of implementing the determinants of the Bologna Process.
In light of the Bologna, market and organization of academic institutions that
respect the market patterns as well as supply and demand patterns are mentioned
374
Kata Ivi
increasingly often. The market value of an academic institution has two types
of capital: nancial and intellectual. As Croatian universities are nanced from
government funds (Ministry of Science, Education and Sports), only additional
programmes in the process of higher education can have impact on the increased
nancial capital of an academic institution. However, it is intellectual capital that
gives undreamt opportunities to development of academic institutions. According
to the proposed organizational scheme, intellectual capital can be analyzed as human resources, i.e. capital owned by employees of academic institution together
with students, and structural capital which includes organizational structure and
capital which lies in the needs of those who are stakeholders of the academic institution. In addition to the process capital, the capital which has been invested into
organizational structure is an important part of innovation capital. It is the intellectual capital which is invested into nding new, better solutions for academic
community as a whole. Intellectual property, intellectual capital and overall nonmaterial assets of an academic institution have always been the driving force of the
entire university, academic life and work. Implementation of the Bologna process
nowadays in terms of competitiveness and mobility of participants having higher
education gives additional signicance to both intellectual and nancial capital.
Figure 1. Division of a rms market value
market value of a firm

financial capital
intellectual capital
human capital
structural capital
organizational capital
process capital
customer capital
innovation capital
intellectual property
intangible assets
Source: ater, T.: Knowledge Management as a Means of Developing a Firms Competitive Advantage; u: Management, Vol. 6, 2001,
1-2, p. 144, ISSN 1331-0194
375
Although the proposed scheme has been envisaged for economic operators, it
is still of some value for institutions of higher education as well. The main determinant of the market value is also signicant for academic institutions, considering the intellectual capital as an important determinant of successfulness of a new
higher education system.
3. Bologna process implementation and challenges
(advantages and disadvantages)
Implementation of the new education system in the European Union and other
European countries introducing a new organizational higher education scheme
has been going on for years. This process also brings in its implementation many
new challenges and advantages, but also a range of deciencies. The content of a
complex process such as Bologna is demanding, multileveled, multilayered, and its
implementation into higher education is neither simple nor limited in time; it is
a long-term and complex process. The current European school system, including
also our, Croatian system, still has elements of the traditional, former system of
higher education. However, in implementation of the Bologna Process some positive determinants of the system can be observed. We experience that system not
only as our own turning point, but also as transformation into a new, more ecient
and mobile system of higher education. The process of implementing the Bologna
Declaration has been gradually developed. The initial steps of the Bologna process
are reected in the signed Magna Charta Universitatum in 1988 in Bologna, which
was signed by rectors of most of the European universities. It was followed by the
Erfurt Declaration on University Autonomy in 1996 and the University Charter for
Sustainable Development signed in Geneva in 1994. Reconstruction of European
universities, i.e. higher education system started with the signing the Sorbonne
Declaration in 1998 (Joint Declaration on Harmonization of the Architecture of
the European Higher Education System). The Bologna Declaration emphasized
the need for strengthening intellectual, cultural, social, scientic and technological
aspects of European society, i.e. for establishing a Europe of knowledge. Priorities
that have been placed before higher education system in Europe are:
- social dimension: equitable access and completion,
lifelong learning,
employability,
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Kata Ivi
student-centred learning and teaching mission of higher education,

education, research and innovation,
international openness,
mobility,
data collection
multidimensional transparency tools,
funding.
The implementation of the Bologna process in countries participating in the
Bologna reform has brought certain progress, but there are also numerous diculties. The main issues in the work plan and programme of the Bologna process for
the period 2009-2012 are:
- Social Dimension
Qualications Frameworks
International Openness
Mobility
Recognition
Reporting on the Implementation Bologna Process
Transparency Mechanisms(4)
Continuity of processes and application of the Bologna process has been implemented in an increasing number of European countries. According to Figure 2, the
Bologna process is implemented into an interactive process in institutions of higher
education involved in reorganization of institutions of higher education. Change
management has positive impact not only on institutions within the system, but
also on the development of cultural, social and economic determinants as well as
the transparency of the process in terms of harmonization of academic education
process in participating countries.
377
Source: High Educ (2008) 56, p. 500 (5)
According to the National Council for Higher Education, the Bologna process
in the Republic of Croatia does the following:
- Proposes and encourages measures for the development of higher education;
- Proposes a network scheme of public higher education institutions;
- Approves the conditions of the Rectors Conference and the Council of Polytechnics and for obtaining academic-educational, artistics-educational and
educational titles;
- proposel to the minister of education rules on standars and criteria for establishment and evaluation of new higher education institutions and study
programs;
- Appoints reviewers and advises on the establishment of new higher education
institution and programmes of study;
- Evaluates institutions and programmes of study and proposes the issuance of
licences to the Minister.
Introduction of a radically new system into a centuries-old European tradition
of universities and higher education always brings dilemmas and questioning to
the participants of the process (to professors and assistants, and even more to students). However, it is unquestionable that advantages of implementing the Bologna
process have multiple meanings and they cannot be immediately seen as a whole.
Resistance toward the new European university system has acquired negative connotations on many European universities. According to critics, the negative features of the Bologna process are:
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Kata Ivi
- The traditional university has been brought to the level of professional and
vocational courses,
- New programmes have been imposed on the universities (for example, 3+2
system)
- Democratization and emancipation of the university has ultimately proved as
simple manoeuvres leading the university into the situation with no way out,
- Higher education institutions require additional funds and conditions which
are not present at our universities (seminar halls, material resources for a larger
group of students, etc.),
- grading system based on ECTS points which still allows grading as it was done
in the past (1 5),
- mobility (of students and teaching sta) which has been accepted according to
the Bologna process, but not fully implemented,
- The tragedy that happened owing to ideologization and politisation in the
past century repeated now, considering its economization but as a farce.
Large words that follow establishing of European high education space cannot
provide comfort with that farce. But it could happen at the end of the Bologna process the farce becomes a social and political as well as educational and
political tragedy again.7
Structural changes of introducing a new system of higher education in form
of the Bologna process demand constant care about achieving the quality of intellectual work at all organizational levels within academic community. What is
recognizable in the process of achieving certain quality is the respect for an individuals creativity (professors and students), and proper evaluation of individual
(intellectual) work. The Bologna process demands us to build a new and an entirely
independent evaluation system. Unfortunately, organizational design of academic
institutions according to the determinants of the Bologna process, cannot work
without obstacles and organizational problems. Constant adjusting and partially
falling behind the development guidelines should be made up by applying a certain
work plan for more ecient implementation of the Bologna process. Several work
groups have been established with certain tasks for the period 2009-2012. They are
in charge of implementing tasks according to: social circumstances, qualication
framework, international openness and mobility of participants in the Bologna
process.
379
4. Conclusion
Advantages of implementing a new system in institutions of higher education

and universities are subject to much criticism. Bologna process, regardless of the
long European academic and university tradition, organizes a new educational
process in three cycles: undergraduate study, graduate study, postgraduate study.
Doctoral study is an additional programme whose implementation at universities
adds new quality to higher education. Lifelong learning as an integral part of the
programme emphasizes continuity in building and enrichment of intellectual capital. Intellectual property, intellectual capital and entire non-material assets of an
academic institution have always been the driving force of entire university and
academic life and work. Advantages of implementing the Bologna process have
multiple meanings and they cannot be immediately seen as a whole. Resistance
to a new European university system has gained negative connotations at many
European universities. Implementation of the Bologna process today in terms of
competitiveness and mobility of participants in higher education provides additional importance to capital, both intellectual and nancial. Implementation of
the Bologna process in countries participating in the Bologna reform brings certain
progress, but there are also numerous diculties.
References
1. ater, T.: Knowledge Management as a Means of Developing a Firms Competitive Advantage; u: Management, Vol. 6., 2001, 1-2, p. 144, ISSN 1331-0194
2. prema Poli Bobi, M.: Poetak i tijek Bolonjskog procesa, Roenje Europe
znanja, http//docs.google.com (8.3.2011.)
3. http//www.ehea.info/article-details.aspx (3.3.2011)
4. isto (3.3.2011.)
5. Heinze, T.& Knill, Ch.: Analysing the Dierential Impact of the Bologna Process: Theoretical Considerations on National Conditions for International Convergence, u: Higher Education, 56. 2008. 493-510. ISSN 0018-1560
6. Orosz, A.: The Bologna Process in Croatia, u: European Education Vol. 40, No.
2. 2008 56., ISSN 1056-4934
7. Liessmann, K. P. (2008.) Teorija neobrazovanosti, Zablude drutva znanja, Jesenski i Turk, Zagreb ISBN 978-953-222-285-2
GENERAL
ECONOMICS
PERSPECTIVE OF THE TOURISM DEVELOPING IN ISTRIA REGARDING GLOBAL TENDENCIES
383
PERSPECTIVE OF THE TOURISM DEVELOPING IN ISTRIA

REGARDING GLOBAL TENDENCIES
Zoran Jeremi, univ.spec.oec.
Visoka poslovna kola Vinjan
[email protected]
ankarlo Milokanovi, bac.oec.
Visoka poslovna kola Vinjan
[email protected]
ABSTRACT
Tourism represents one of the most important economy activities in the region of
Istria.A long-term tourism development in Istria has to take a lot of facts into consideration and the global tendencies in the world tourism is one of the most important
fact. As all other industries tourism was hardly aected due to global nancial crisis
and economic recession. But international tourism has recovered faster than expected
and will have a good future in the next period. Also, there are some new tendencies
in the tourist market request such as tourism of the motivation, travelling with lowcost companies, make more short travels during the year etc. This article deals with
all these facts and their impact on the tourism development in Istria.
JEL classication: L83, R11
Key words: tourism, Istria, development, global tendencies, tendencies
1. INTRODUCTION
For many areas in the world tourism is one of the most important economy
activities. The same case is with Istria, which is the most important and most developed tourist region in Croatia. Given this importance of tourism to the overall
life in Istria, for his long-term stable development it is necessary to closely monitor
global trends in the development of world tourism. This section applies in particular to tourism demand, which is very elastic, heterogeneous, mobile and extremely
seasonal. Like all other industries, tourism industry was badly hit by the global nancial crisis and economic recession in the world. However, international tourism
384
Zoran Jeremi ankarlo Milokanovi
has been able to recover faster than expected time, proved his resilience in the crisis
and it is expected to be one of the worlds major industries in the future. Also, there
are some new trends in demand tourist market such as tourism motivation, more
frequent trips with low-cost airlines and more short trips during the year. All these
facts also apply to tourism in Istria, because it is an integral part of international
tourist ows. It is therefore necessary to study and research in detail all these new
elements. Also it is very important to incorporate these elements into the development concept of the Istrian tourism in order to stay the leading tourist region in
this part of Europe. This article deals with all this elements.
2. GENERAL AND GLOBAL TENDENCIES IN THE TOURISM
For further discussion about tourism in the world it is necessary to dene the
general settings of the term tourism, determine the global tendencies of development and research the changes in tourist demand.
2.1. General settings of tourism
Tourism is one of the most progressive and dynamic social processes and one
of the most important economy branches in the World. Travel and tourism have
grown today in the worlds largest industry in which many countries see the possibility of solution of problems of growing unemployment, increase exports and
stimulate investment (Bartoluci & avlek, 2007, 1). These claims are supported by
the following graph on the movement of international tourist arrivals worldwide:
Graph 1: Trends in international tourist arrivals worldwide in the period since
1995. by year 2010.
385
Source: World Tourism Organitation (UNWTO), http://www.unwto.org/facts/eng/barometer.htm( 24.02.1011.)
The graph shows that the tourist trac in the world reached a gure of 935
million international tourist arrivals in year 2010. The conclusion is that million of
people deal daily with phenomenon of tourism and therefore the denition of tourism is not so easy. There are not so many terms in use so often such as terms a tourist and tourism (Duli, 2002.3). World Tourism Organization (WTO) denes
tourism as follows: ... tourism is a set of activities of people during their travel and
stay outside his place of habitual residence, without interruption, and no longer
than one year, and for leisure or for business and other reason. From these denitions it follows that tourism comes from the phenomenon of movement of seeing
and experiencing the world. Tourism as a social phenomenon and a special social
relationship, can be the simplest and also the most fully dened as a set of relationships and phenomena arising from the travel and stay of a visitor canter if the team
room is not based as a permanent residence and, if such a room is not connected
to any of their economic activity (Duli, 2001.38). This denition is expressed
in all the complexity of tourism as a social phenomenon, and it can be concluded
that tourism will in future be one of the most important drivers of global economic
levers. Based on this denition of tourism there can be observed global trends in the
development of world tourism that must be applied on the Istria tourism as well. .
2.2. Global trends and tendencies in the World travel & tourism industry
For modern tourism it is important to note that it is rapidly spread to an increasing number of participants, both tourists and the countries that receive and
386
provide tourists. (Rui,2005,4). Tourism is, due to its specicity and distribution, in constant dynamic change and as such it has a very large role in the global
marketplace. Its strength inuence on the process of globalization is particularly
expressed by rate of exchange of economic and cultural impact between tourists
and local communities (Maga, 2003,7). Based on these processes of globalization,
global tendencies and trends are perceived in travel and tourism industry which
have been shown in the following chart:
Chart 1: Global trends and tendencies in the World travel and tourism industry
Global trends and tendencies in the World
travel & tourism industry
Environments quality become most important factor
in choosing of the tourist destination
Globalization of tourism business
Increase of the population mobility
Increased number of low-cost airline
Better connection between tourist destinations
Changes in the travel art often and shorter travel
Increase of travel to mega-events
Increase of internet booking
Changes in consumer perception about travel value
Integration of service providers
Increase of traveling with special interests
Increase of motivation tourism

Segmentation of tourist markets will become more
Increase of last-minute booking
diverse
Source: composed and rearranged according to Grgona & Senei, 2006, 306-308, and Razrada master plana turizma za grad
Rovinj-Rovigno, 2010,18.
From the graphic of the global tendencies and trends in the travel and tourism industry it is evident there are lot of changes and lot of diversity in tourism
demand. Consumers in tourism (tourists) are very inhomogeneous group (Grgona
& Senei, 2006, 14). On this basis, tourist oer of Istria has to build its position
on the global tourism market and the next chapter takes into consideration the correlation between touristic demand and tourist oer.
387
3. TOURISM DEVELOPING IN ISTRIA REGARDING GLOBAL TENDENCIES
As the Croatian and Istrian tourism markets are integral parts of the global
tourism market, of course that the above trends and tendencies have a big impact
on relationships and the functioning of the entire tourism industry in our country.
Therefore, it is necessary to research these inuences on the tourism in Istria.
3.1. Basic information about Istria tourism
Istria is the most developed and the most important tourist region in Croatia,
which is clearly concluded from the data of tourist trac in Croatia and Istria for
the year 2010. The share of Istria in the total tourist trac in Croatia is also clearly
visible from the following graphs:
Graph 2: Share of Istria tourist arrivals in the total Croatian tourist arrivals for year 2010.
Source: made by authors
Graph 3: Share of Istria tourist overnight in the total Croatian tourist overnight for year 2010.
388
The graphs shows that from a total of 10.604.116 tourist arrivals recorded in
Croatia in year 2010, Istria recorded 2.627.918 tourist arrivals, which amounts to
24.78% of the total number. Also, the number of tourist overnights in year 2010 in
Croatia totalled 56.416.379 while Istria accomplished 17.731.881 stays overnight,
which amounts to 31.43% of the total number (Istria tourist board1,2011). The
next important component of tourism in Istria is the schedule of emissive countries
that have shown in the following table:
Table 1: Number of tourist arrivals and overnight stays by country in 2010.year

COUNTRY
GERMANY
SLOVENIA
ITALY
AUSTRIA
NETHERLAND
CZECH
RUSSIA
POLAND
DENMARK
GREAT BRITAIN
HUNGARY
FRANCE
SWITZERLAND
BELGIUM
SWEDEN
SERBIA
CROATIA
NUMBER OF THE
VISITORS
594.267
417.227
394.775
344.612
138.724
99.660
69.481
54.936
38.790
42.726
54.224
50.989
37.042
27.008
27.017
18.760
164.702
NUMBER OF THE
OVERNIGHTS
5.363.404
2.606.117
2.091.809
2.031.186
1.496.535
647.562
698.015
392.825
345.058
301.159
296.449
239.544
229.542
210.196
177.375
124.839
881.868
% OF THE TOTAL OVERNIGHTS

28,39
13,80
11,07
10,75
7,92
3,43
3,70
2,08
1,83
1,59
1,57
1,27
1,22
1,11
0,94
0,66
4,67
Source: Tourist board Istria, http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)
The table shows that the German market is the most important tourist market
for Istrian tourism, because 28.39% of tourists come from there and therefore it
can be called strategic tourism market. Besides, key tourism markets for Istria are
those of Italy, Austria and Netherlands, and markets with high or medium potential for Istria are those of: Russia, France, Great Britain, Slovenia, Scandinavian,
Czech, Hungarian, Poland and Serbia.
Source of data: http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)
389
Graph 4: Schedule of arrivals and overnight stays per month in Istria for year 2010.
The next important information about Istrian tourism is shown above in the
Graph 4 and it is the schedule of arrivals and overnight stays per months for year
2010.(Istria tourist board2,2011). The graph shows the greatest aiction of Istrian
tourism, which is too pronounced seasonal tourist trac because most of the tourist trac is made in summer months (54.57% of tourist arrivals and 63.50% of
tourist overnight).
3.2. Impact of trends and tendencies of the World travel and tourism industry
on the tourism in Istria
Istrian tourism operates in the global tourism market and therefore all trends
and tendencies of the World travel and tourism industry (set forth on the Chart
1) have a big impact on the development of Istrian tourism as well. This impact is
taken into consideration as follows:
The quality of the environment and ecology will become the most important
factors in choosing tourist destinations, which means that modern tourists are
choosing a destination denitely considering these factors. A growing awareness of the need to care for the environment will aect the planning policy and
the tourism demand (Jeremi & Mei, 2007, 117). Istria with its preserved
beaches, clean air and sea may well compete in the global tourist market.
Globalization of world tourism business has directly aected the business activities in tourism sector in Istria. These changes are primarily manifested in
2
Source of data: http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)
390
the ever more present tendency for consolidation in the agency business and
hospitality industry. It is associated with the grouping and linking providers
vertically and horizontally. From the worlds leading corporations in the Istria
region currently operate Sol Melia, TUI Group and Kempinski Group.
Increase of the population mobility and increasing number of low-cost airlines
are also signicantly contributing to the development of tourism in Istria. A
large number of low-cost airlines like Ryan Air and Germanwings are ying
from Pula airport, but the big problem is that those ights are mainly concentrated in the period of high tourist season.
Better connection between tourist destinations is also a very important factor.
The construction of Istrian y road made Istra good connected with main
road corridors in Europe. The railway infrastructure is totally neglected and
does not provide international connectivity. Pula Airport is connected with
relatively small number of destinations, especially in the o-season period.
Changes in the art of travelling the tendency to make more frequent but
shorter trips is favourable because Istria has a good geographic position due
to the proximity of large emissive markets such as northern Italy, Austria and
southern Germany and others.
Increase of travel to mega-events such as World and European football championships, Olympic games, Formula 1, etc. has more negative impact on the
Istrian tourism, because tourists from emissive countries are occupied with
these manifestation.
Increase of internet booking brought many positive changes in speed and
realization of the tourism business. This tendency is also in connection with
the increase of last-minute booking. In this domain Istria follows the global
tourism trends. There are operating tourist companies web-sites, booking sites
and destination travel sites such as web-sites of tourist boards, municipalities,
cities and tourist board of Istria as the main organization of tourism in Istria.
Changes in the perception of consumers about the value of travel are also becoming an important factor in choosing holiday destination. Value for money
has become a critical factor for guests satisfaction and there are some new
products that have a very specic relationship within the principle value for
money and form a separate culture products, distribution, communication
and commercialization. Istria with its tourist resources has the potential to
develop such products.
391
Segmentation of tourist markets is becoming more diverse and one of the

dominant trends in contemporary tourism. World tourism market is not a
homogeneous entity, but it is necessary to recognize that the market consists
of a group of buyers who dier in their needs, habits and behavior. Common
forms include market segmentation: geographic, demographic, and psychographic segmentation based on consumer behavior. This is very important
because the possibility of segmented specialization can signicantly extend
the season in Istria.
Increase of travelling with special interests and increase of motivation tourism have also a large part in the World tourism. In this segment Istria has a
lot to oer. Istria is recognized as a destination with a rich gastronomy, wines
and olive oils. Also, Istria oers rich sporting facilities such as bike-tours, tennis, diving, hiking trips, extreme sports, riding and more. Unfortunately, golf
oering with the existence of only one true golf courts in Istria is not enough
and oer in this segment is quite small. Istria has ideal conditions for the development of cultural tourism because of its rich history, culture and cultural
monuments. Mild climate and clean environment oer ideal conditions for
the development of health tourism as well. It is also important to note that
one of the leading publishers of tourist brochures, Lonely Planet published a
list of top cities, regions and countries should be seen in 2011 year and on the
list about regions Istria took a second place.
CONCLUSION:
Tourism will continue to be one of the major industries of the World. Like all
other industries, tourism has gone through a dicult period of global nancial crisis and economic recession in the World, but it managed to recover faster than in
the expected time and proved his resilience in the crisis. It was due to the fact that
the modern tourism has been expanding rapidly including an increasing number of
participants, both tourists and the countries receiving and providing tourists. Tourism is due to their specicity and distribution in constant dynamic change and has
a very large role in the global marketplace. These dynamic changes are reected in
the form of global trends and tendencies in the travel and tourism industry. Those
changes need to be particularly considered in order that the tourist destination is
competitive in the global tourism market. Istria is the Croatian most important
tourist region and all these trends and tendencies have also a signicant impact on
the development of tourism in Istria. These trends and tendencies have an impact
392
on tourism in Istria in the growing globalization of the tourism business, increasing population mobility, increasing number of low-cost airlines, better connections between destinations, changes in travel, increasing travel to the mega-event,
an increase in internet bookings, increase in last-minute bookings, changes in the
perception of consumers in relation to value for money during the travel, increasing travel to special interests, rise of tourism motivation and diverse segmentation
of the tourism market. Istria as a modern tourist destination, is trying to respond
to all these trends and tendencies in order to remain competitive in a demanding
international tourist market.
REFERENCE:
Bartoluci, M. & avlek,N(2007).Turizam i sport razvojni aspekti, kolska knjiga, ISBN 978-953-0-30-32-3, Zagreb
Duli, A.(2001).Upravljanje razvojem turizma, Mate, ISBN 953-6070-77-4,
Zagreb
Duli,A.(2002). Nautiki turizam i upravljanje lukom nautikog turizma, Ekokon,
ISBN953-98920-0-7, Split
Grgona,J. & Senei,J.(2006).Marketing menadment u turizmu, Mikrorad, ISBN
953-6286-74-2, Zagreb
Jeremi,Z. & Mei,A.(2007). Strategic management of the tourist destination
Istria, Zbornik radova Interdiscplinary Management Research III, Barkovi, D.
& Runzheimer, B. (ur), str. 112-122, ISBN 978-953-253-026-1, Pore, 2527.09.2006, Ekonomski fakultet u Osijeku & Hochschule Pforzheim University
of Applied Sciences, Osijek
Maga, D.(2003).Management turistike organizacije i destinacije, Adami, ISBN
953-6198-39-8, Rijeka
Rui,P.(2005). Ruralni turizam, Institut za poljoprivredu i turizam, ISBN 95397050-3-7, Pula
http://www.unwto.org/facts/eng/barometer.htm(24.02.2011.)
http://www.mint.hr/default.aspx?id=976(08.03.2011.)
http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)
Razrada master plana turizma za grad Rovinj-Rovigno(2010)
MICROECONOMICS,
MACROECONOMICS
AND
MONETARY
ECONOMICS
ECONOMIC SYSTEMS AND DEVELOPMENT
395

Octavian Jula
Department of Economics
Faculty of Economics and Business Administration
Babes Bolyai University
Cluj Napoca, ROMANIA
Abstract
The paper aims to stress if a certain economic model can lead towards economic
development. We will try to understand and explain if certain economic measures
taken by well developed countries can be used by emerging countries.
We will take into consideration along the public policies also the inuence of
foreign trade into development of dierent countries.
Is it possible that one country to have economic decrease and in the same time
to have an important increase in the international trade? Seems like the answer in
the case of certain Eastern European Countries to be yes.
Even so it is a matter of reestablishing importance of dierent elds in national
economies in order to use the outcome in increasing the level of well-being of
individuals.
Can we create a public policy that will support the development using the vehicle of exports? Can this be the solution for decreasing decits and be a start for a
new development even in conditions of economic crisis?
JEL classication: O1, P10
Keywords: Economic systems, development
1. Public policies
What is more important in the development of one country? What should be

the nal goal? Our opinion is that the most important thing is the level of wellbeing of all citizens within a geographical and economic space.
396
Octavian Jula
This being said the next step that we should take into account is the size and
shape of the economy dened as public or private sector. For sure if it would be to
dene the type of economy that will probably determine the highest benet of its
citizens the answer cannot be 100% public or 100% private. From the experience
of the countries that are the most developed in the matter of the well-being of its
citizens we can say that the wealthiest countries and the countries with the highest
living hope are experiencing a mixture of public and private economy.
Of course the percentage of the national economy for those two major parts is
very dierent from country to country. But what can be very obvious if we analyze
the top economies is that the ones to have the minimum percentage of the public
spending policy will direct those public investments exactly to those sectors of the
national economy onto which the beneciaries of this public sector are the highest
in number.
We can make a comparison between the percentage of public spending in GDP
and the real GDP per individual and also the living hope and the result will be
striking.
For instance if we need to make a comment on the evolution of the public sector as percentage of GDP we can easy say that, with the exception of the periods
in which the world has experienced the two World Wars the public sector has a big
and huge increase into the last 100 years.
You can see below the example of UK public spending as percentage of GDP.
The analysis is providing the proof that the public sector basically doubled from
20% to 42-43% in 2010. This is also valid for USA. Why have I taken into account
those two countries?
Well let me say that between the countries to have the highest living standard
the two countries are considered to be the most liberal countries in organizing the
economy
In the graphs below you can see the development of the public sector.
397
Graph 1
UK Public Spending as % of GDP 100 years
Source: CIA factbook
Graph 1
US Public Spending as % of GDP 100 years
And if we take into account only the last 10 years the increase is even higher.
Why this happened?
398
Octavian Jula
Maybe from the need of governments to nance the budget decits or maybe in
order to try to try a new path of the national economies, a path that will lead to a
higher dependency of the individuals to the national entities and also to ensure the
power of national governments in respect to the irreversible process of globalization.
Graph 3
UK Public Spending as % of GDP 10 years
Graph 4
US Public Spending as % of GDP 10 years
399
What about government failures? Can one government failure in public policy
to redirect the investments into certain emerging countries? Our reply is yes. For
instance if the public policy regarding education is not in close link with the labor
force market that a public failure will occur. Usually the education eld is one of
the most conservative elds and this is why the link between the education and
labor force market has a gap of at least 4-5 years. From where this gap comes? Well
rst we need to say that only a few countries have a national policy regarding education and only a few countries are trying to connect the education with the request
of the economy. This is happening because the labor force market reacts quite rapidly at the changes of the economy. The companies, employers are requesting what
is necessary and useful. Why the educational eld reacts with a small gap? Because
the specialization of individuals can take from 4-5 years and even more so we can
speak about educational cycles.
Can this gap be decreased? Yes one possibility is to produce national educational
programs even if this can seems a limit of the liberty of individuals. It is only a plan
to reduce unemployment due to the linkage of education to economy.
So if this is an example of governmental failure what can we put in balance in
order to strive the economic development? Here can be the inuence of scal public policies in sustaining the development of the national economies and one the
possible ways is the policies in link with foreign trade.
2. International trade a tool to decrease/increase decits
International trade is maybe the most important tool to increase or decrease

decits. The international trade policy is usually inuenced by the public and scal
policies inside one economical area (national area).
If we analyze the worlds area in which the international trade is having the highest impact on GDP we for sure might say that also those countries are experiencing
a high degree of economic development. Also in respect to the public sector those
countries are having high degrees of public decit.
400
Octavian Jula
Graph 5
International trade as percentage of GDP
Levels of gray
45% or more; 35.044.9%; 20.034.9%; 15.019.9%; Less than 15%; No
data;
There are situations in which a positive situation in respect to international
trade can occur from the point of view of trade balance. It is possible to have a
positive trade balance and still economic decrease. How this can be possible? Well
in the situations of goods that have maximum imposed prices onto the domestic
market, they are imported from the producers with a low cost and then re-exported
to other countries in which the prices for those types of products are oating free.
This is the case of medicines for example. What will happen with the prot taken
from this business? It will be send to the mother company so that the added value
to economic development of that specic country will be basically 0.
The costs and benets of international trade also depend on factors such as the
size of a countrys domestic market, its natural resource endowment, and its location. For instance, countries with large domestic markets generally trade less. At
the same time, countries that are well endowed with a few natural resources, such
as oil, tend to trade more. Think of examples of countries whose geographic location is particularly favorable or unfavorable for their participation in global trade.
Despite the risks, many countries have been choosing to globalize their economies
to a greater extent.
401
And this led to economic dependency in link with development and/or economic
decrease. This is why so called new countries, emerging countries, have dwelt with
the biggest problems in the last 2 years. If in the period of economic development the
linkage with the most developed countries from the international trade point of view
is a tool of economic increase for themselves, in the period of economic decreases this
gap does not narrow but increase. And this because usually those countries to have
such a large domestic market tend to develop rst the domestic consumption with
the domestic production and only after to extend again to other areas.
If we take into account the development of international trade in the last 10
years we are able to conclude that it will be an important tool for the future possible
economic development and the globalization process of the last and future years
will be the cause of increasing role of trade.
Graph 6 International Trade to GDP ratios dierence 1998-2008
Source OECD Factbook 2010: Economic, Environmental and Social Statistics
How international trade can be used in order to decrease the public decit and
what is the link with the public sector? In order to reveal the possibilities of using
this vehicle of decreasing public decit we must say that policies of investment into
exactly those elds of economics that are destined to have the most important role
in international trade must be made with priority.
One of the possible solutions can be either the public spending policy to create
jobs in the elds that are providing goods with a high degree of manufacturing and
402
Octavian Jula
also goods that are requested for export or some scal or environmental policies to
diminish the amount of imports. This can became an important solution to equilibrate the trade balance and maybe for a short period of time to have also a trade
balance surplus.
Of course increasing international trade is not always a positive solution for the
future and sustainable economic development. If the goods that are exported are
mainly material raw for a short period of time it is possible to equilibrate the trade
balance, but in future this will lead in the end at a very high degree of dependency
with other economies exactly onto those economic elds that have exported previously the material raw. So this is why our proposal was goods and services with a very
high degree of manufacturing and to limit the imports, if possible, to material raw.
What we can outline also in the bases of the graphs presented above is that
the countries to have the highest rate of economic development and well-being of
theirs citizens are those to have a high percentage of international trade in the GDP.
Of course it is not the only cause for economic development but it can be called the
top of the arrow of the increase.
3. Decits and economic development
Can we make a link between public decits and possible economic development? In the days that we are live in there are two main paths that economies are
following. There is the situation in which on country is deciding to cut down expenses in order to decrease public decits and they are considering this as the best
tool to ght economic decrease. But there are a few other countries to consider that
increasing decit and public spending higher than before will be the starting engine
of the economic development.
We need to stress that the economic development of the future cannot be similar with the economic development that came after the big economic crisis from
1929-1933. First let us say, on the basis of data presented above that we had a
period 1940-1944 with a huge spending from the public sector, coming not from
economic but other reasons, so that the periods cannot be similar.
There two ways to understand this matter.
One is the Keynesian way that stresses that governmental spending leads to economic development and also it is one of the causes, and the other economists that
are presenting the case vice versa. In their opinion the economic development will
403
make the government to spend more than in early days. Our proposal is a mixture
of those two ideas.
The public spending policy should represent a solution for the future economic development. Governmental expenditure is composed of current expenditure
and development expenditure. The current expenditures of the government are to
maintain basic services that the government provides to the public including the
payment of salaries to the civil servants (this is the largest component of current
expenditures). Therefore, these expenditures not only facilitate growth prospects
but in part promote growth as well. The development expenditures on the other
hand are allocated by sector to provide basic infrastructures (such as roads, railways,
bridges, ports and airports) to facilitate movement of goods and services across the
country. During the early stages of economic growth, these expenditures increased
in tandem with economic growth. However, in the 90 s, the development expenditures in particular increased signicantly to generate the growth of the economy.
What can we use as a public policy in close link with the development?
Some macroeconomic policies and investment-friendly policies are necessary,
although not sucient in todays world of increasing competitiveness in attracting
investment. The crucial role for the host Government is to create conditions as well
as be proactive in developing these new drivers to attract international production
and services in the light of the fact that contract manufacturing has grown rapidly
to take advantage of dierences in costs and logistics.
Well one possibility is to make the national economy much more competitive
using the scal policy. If it is possible a solution of lowering taxes and holding wages
down, it might be possible to boost prots and therefore encourage private investment. But the rate of return of capital is equally dependent on the productivity of
the input factors that enter the production process. Since what mainly determines
gross protability is the productivity of the input factors, taxes can be high insofar
as productivity remains high enough to deliver the highest net prots (compared to
other places) to capital. Capital will always prefer a country where taxes are high, as
long as productivity is very high, to a country where both taxation and productivity
are low. As a matter of fact, and in sharp contrast to the prediction that higher levels
of internationalization lead to lower levels of public spending, a highly inuential
model of public expenditure in political economy has positively related the level
of government intervention to the degree of openness in the economy. In order to
conclude we can say that the Eastern European case is one of the most striking in
404
Octavian Jula
this matter. Even if the inow of foreign direct investment was one of the greatest,
also the rate of growth was important but also the percentage from GDP of public
spending policy was increasing. The Eastern European Economies have developed
and also have opened to globalization.
Government spending grows in open economies as a mechanism to compensate
for the adjustment costs of trade openness. Small and open countries, which are
aected intensely by world business cycles from which they cannot easily insulate
themselves through standard macroeconomic policies, choose to maintain high levels of public consumption and transfers to protect workers in their losing economic
sectors. High levels of spending are therefore understood nearly as a functional
requirement for the maintenance of internal stability and peace. Moreover, high
levels of government intervention are seen as a way of overcoming market failures
in the provision of skills and infrastructures: they ease the transition of the unemployed to the more dynamic areas of production in countries that need to compete
in world markets to survive.
4. Conclusion
Is it possible that one country to have economic decrease and in the same time
to have an important increase in the international trade? Seems like the answer in
the case of certain Eastern European Countries to be yes. What should be the solution? An analisys of the international trade in close link with the public deficit and
also woth the economic sectors of the economy is necessary.
Public policies that will drive the production and trade, national or internationa, with goods that will be
Even so it is a matter of reestablishing importance of different fields in national economies in order to use the outcome in increasing the level of well-being of
individuals.
Can we create a public policy that will support the development using the vehicle of exports? Can this be the solution for decreasing deficits and be a start for a
new development even in conditions of economic crisis?
The reply should be denitely yes. The problem is the mean by which we can
make this.
The public policies should be driven towards those elds that will be start engines for the future economic development. Our proposal is that those public poli-
405
cies that right now have as beneciaries individuals to experience decrease in their
incomes should be left on the last place and to increase the governmental spending
in the elds that will create jobs and economic outcome. We have as an example
the public policies taken by Ronald Reagan in USA and we can be inuenced by
that. Maybe the investment into production of public goods can be a solution but
also the investment on production plants to sustain also the increase of jobs and in
the meanwhile an increase in the aggregate supply and not in the end an increasing
competition on domestic markets.
Yes public goods production is important but maybe the number of individuals
to benet from such an activity is quite less than the beneciaries of a production
plant or even public services. It can be the case of a public stadium in comparison
with public transportation. We must have the decision not only deciding by using
the social outcome for the society but also considering the economic outcome, such
as possible prot and jobs created.
Governments should take into account, and leave for the period of time after
the economic development, to diminish the spending for social benets and to
increase the spending for investments in public sector. Of course this solution will
not have the public support, maybe it will not have the same image impact in the
society, but for sure it will have a higher impact of the economics of that society.
Also the way that taxes and subsidies are considered right now should be changed.
Taxes on property must increase in the same time with decreasing taxes on production and direct labor. Yes the rst ones are the most sure but they will not generate
economic outcome. The solution can seem both liberal and social. Our proposal is
to have a liberal solution for production and public eld investment and a social
solution for social problems of society. If there is an agreement between economists
that public and private economy can and will live together maybe in future we will
reach the conclusion that also liberal economics and social economics can be a part
of the same market and for a single market.
The debate should not be whether to have a higher degree of public intervention
or a lower one, but the debate should be what the benets of the public policies
are.
In the problem of international trade we should take as a help and inspiration
the classical economy promoted by Smith and Ricardo. Globalization as a process
comes hand in hand with international trade and highest degree of dependency
406
Octavian Jula
between national economies of today. If in the rst moments, on short term, the
degree of openness of one economy can harm it for sure it will provide a higher
degree of economic development in future.
5. Bibliography:
Books:
Colander (2004), Economics, ISBN 0-07-254902-5, New York
Afxentiou, PF (1982), Economic development and the public sector: An evaluation, OI: 10.1007/BF02300192, Atlantic Economic Journal
Allen F., D. Gale (2007), Understanding Financial Crises, ISBN-13: 9780199251414,
Oxford University Press
Articles:
Allen, Franklin and Gale, Douglas M., An Introduction to Financial Crises (August 14, 2007). Wharton Financial Institutions Center Working Paper No. 07-20.
Available at SSRN:
http://ssrn.com/abstract=1008311
Babus, Ana, Carletti, Elena and Allen, Franklin, Financial Crises: Theory and Evidence (June 8, 2009). Available at SSRN: http://ssrn.com/abstract=1422715
Gorton H., L. Huang (2004), Liquidity, Eciency and Bank Bailouts, American
Economic
Review 94,
(05.01.2010)
455-483,
http://c.wharton.upenn.edu/c/papers/02/0233.pdf
Gonzalez-Paramo, Jose Manuel (2009), Financial market failures and public policies - a central bankers perspective on the global nancial crisis, http://www.bis.
org/review/r090210e.pdf (05.03.2010)
Trichet, J.C. (2008), International Interdependencies and Monetary Policy: A
Policy Makers view, Speech at the Fifth ECB Central Banking Conference, Frankfurt am Main, http://www.ecb.int/press/key/date/2008/html/sp081114.en.html
(28.02.2010)
407
*Committee on the Global Financial System (CGFS) (2008), Central bank operations in response to the nancial turmoil, CGFS Publications No. 31, http://www.
bis.org/review/r090210e.pdf (05.01.2010)
Sites:
http://thinkexist.com/quotation/it_is_just_as_important_that_business_keep_
out_of/195403.html (25.02.2010)
http://www.indexmundi.com/ (28.02.2010)
Economic Crisis In Europe: Causes, Consequences and Responses
http://ec.europa.eu/economy_finance/publications/publication15887_en.pdf
(25.02.2010)
Onaran, O, 2009, Global crisis and global reaction in Western and Eastern European Union, http://www.internationalviewpoint.org/spip.php?article1797
(28.02.2010)
Salzmann, M, Deepening Economic Crisis in Eastern Europe, 2009) http://www.
wsws.org/articles/2009/nov2009/euro-n24.shtml (05.03.2010)
http://samvak.tripod.com/nm05.html (01.03.2011)
http://www.ukpublicspending.co.uk/uk_20th_century_chart.html (15.12.2010)
http://www.crei.cat/files/filesOpuscle/20/090429182029_ENG_op5ang.pdf
(15.12.2010)
http://www.unescap.org/pdd/publications/apdj_10_2/kumar.pdf(18.12.2010)
Flavius Rovinaru Mihaela Rovinaru Liviu-Daniel Deceanu
408
THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE.

STUDY CASE: ELECTORAL CYCLES IN ROMANIA
Flavius Rovinaru
Mihaela Rovinaru
Liviu-Daniel Deceanu1
Faculty of Economics and Business Administration, Babes-Bolyai University
Cluj-Napoca, Romania
[email protected]
[email protected]
Abstract
The economic crisis proved to be an omnipresent subject nowadays. In order to

understand the phenomena, it is necessary to master the concepts related to crisis,
to have them very clear in your mind. That is why we considered opportune to
study the economic crisis as a key element of the economic cycles.
In order to support our theoretical approach, we will be analyzing the electoral
cycles in Romania, and try to emphasize the relation between the spending made
by governmental sector, the budgetary decit and other macroeconomic indicators.
Generally speaking, the periodicity of the electoral process inducing eects in the
economic environment gave birth to a new type of economic cycle, known under
the name of electoral cycle.
The central idea that revolves around this particular species of business cycles
is that in the modern democratic society, the dynamics of the electoral process
strongly inuence the economic activity.
In the particular case of Romania, we have identied the following time intervals corresponding to election cycles: 1990 - 1992, 1992 - 1996, 1996 - 2000,
2000 - 2004, 2004 2008, 2008 2012.
1
Ph.D Candidate, Faculty of Economics and Business Administration, Babe-Bolyai University, Cluj-Napoca, Romania, Ph.D. scholarship, Project co-nanced by the SECTORAL OPERATIONAL PROGRAM
FOR HUMAN RESOURCES DEVELOPMENT 2007 2013.
THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE. STUDY CASE: ELECTORAL ...
409
At the present time, we are interested in a survey of ination, and the current
paper continues the chain of studies that we began last year with the electoral
cycles-unemployment relationship analysis. Taxation will also be taken in consideration by a future paper.
JEL Classication: H12
Keywords: Cyclicity, economic cycle, electoral cycle, ination, disination, economic policies, government, uctuations, economic crisis.
The economic life is undergoing a continuous process of creation and development. Human needs can not be dissociated from the evolution of the human society and the economic life, as the needs are permanently stimulating the circulation
and distribution of goods.
The temporal existence of the human societys economic performances, although ascendant and continuous, can not be perceived as linear because phases of
prosperity are succeeded by economic setbacks, so it might be said that the evolution of the society is undergoing cyclical developments. Along with the industrial
revolution, because of the unprecedented growth in production and circulation of
goods, business cyclicity becomes a reality more and more common, manifesting
itself in various forms, intensities and consequences, in dierent periods of time
and locations.
In general, an economic cycle underlines the results achieved by the human
society in a certain period of time, cyclicity being a specic evolution of economic
activity, characterized by successive alternation between the states of economic expansion and economic contraction. The economic expansion-contraction alternation generates a wavy revolutionary motion at the macroeconomic level, growth
periods are followed by lower ones, stagnation or even regression ones.
Economic cyclicity dierentiates itself from random uctuations of the economic activity. Its induced eects and manifestations are aggregated and cumulative, the contraction or the expansion of a particular area spreads to others, following the links and dependence between variables and real ows and monetary or
nancial ows. All these lead to the conclusion that the evolution of the economic
phenomena and processes is non-linear, but it is developing in a wavy manner, cyclical, implying a repetition of the state of the economy every now and then.
410
The economic cyclicity is the result of the interaction of a multitude of natural,

technical, psychological, economic, social, political, cultural and even religious factors. We underline the fact that the economic cyclicity is a reality most seen in the
case of the production of goods. In the absence of goods production, we can not
speak of economic cyclicity, as it has, rst of all, causes and manifestations that
can be rationally explained only using categories of values. This feature is put in
evidence only when the recession is triggered, as it can not be noticed during economic expansion.
If we were to represent the economic activity at macro and mondo economic
level using a line, we would obtain an ascending, but not a right one, because the
expansion is interrupted occasionally by periods of reduced economic performance,
booms and depressions, regression, ecc.
All these economic uctuations are part of the economic dynamics characterized
by alternative phases of growth, decline and slowdown of the economic activities.
They are an expression of the uneven amplitude of the economic activity, generated
by a series of exogenous or endogenous factors: socio-political events, technological events, innovation, economic scarcity, ecc. They evolve under the action of the
dominant trends on the long term, including seasonal uctuations.
This graphical representation of the economic life evolution in time indicates
that it is subject to cyclical developments. We can see that the phases of economic
boom are followed by recession, and the maximum of economic activity is followed
by minimum points. We underline here that the overall economic life is an upward
trend, but tortuous.
The level of economic activity
maximum
minimum
maximum
minimum
Time
t1
t2
t3
t4
Fig.1 General evolution of the economic life

The ciclycity of the economic life is a specic evolution of the wavy economic
life characterized by the temporal regeneration in a certain sequence and regularity
of features, of its own state. The study regarding economic cyclicity allows conclud-
411
ing that the evolution of the economic life is wavy, stages of economic expansion
being followed by periods of economic recession. Its considered a form of normal
development of the economic activity, being the result of interdependence of natural, technical, economic, socio-political and psychological factors.
Cyclicity represents a whole made of economic phenomena and processes,
and it can only be studied in a uniform manner. Non-linear evolution of the economic life can be accounted to the phenomena which aect it negatively - these
are the economic crises. But we have to ask: Do economic crises have a key role
on cyclicity? In order to answer to this question, we consider Arthur Spiethos [1]
opinion regarding the economic cyclicity. Starting from the work of Clement Juglar, Spietho has focused his eorts on highlighting three axioms about cyclicity:
1. When explaining the cyclicity, the exclusive study of crises and overproduction is not relevant; only a unitary analysis, of the whole system, of the cycling
uctuations, is considered relevant
2. In explaining the economic cyclicity the primary role should be granted to the
study of capital investments
3. The economic boom - and the economic depression can not be accepted as
accidental elements of the economic life, but must be understood as being the essential form of life of the capitalist society.
The causes of cyclicity and crises are either endogenous or exogenous. In the
present paper we intend to capture the validity of the inuence of the endogenous
political factors on the performance of the national economy, with a case study on
Romania.
The Romanian history after 89 began with a change of the political regime,
with a shift from a totalitarian-centralized regime to a democratic regime. One of
the rules of democracy is linked to the existence of an electoral process, conducted
with a certain periodicity, which is intended to allow free choice for people with
voting rights (those considered to have the ability to represent their interests).
The periodicity of the election process has given birth to a new type of economic
cycles, specically the electoral cycles.
The central idea that revolves around this special species of economic cycles is
the fact that in the modern democratic society and especially in the contemporary
one, the evolution of economic activity as a whole is aected sometimes in a
412
visible manner by the dynamics of the electoral process. In Romania, we have

identied the following time intervals that correspond to electoral cycles: 1990
1992, 1992 1996, 1996 2000, 2000 2004, 2004 2008 and 2008 2012.
Although the electoral cycle is the result of political factors that interact on three
distinct levels: ination, unemployment and taxation, in this paper we will study
only the rst factor ination. The electoral cycles-unemployment relationship
was analized in a precedent paper, while taxation and its impact will be studied in
a future study.
Ination, from the etymological perspective comes from the Latin inatio
which means to increase, to iname. The using of the term in the economic vocabulary is perfectly normal and correct as ination seen as an economic phenomenon is characterized by an imbalance in the overall economy manifested through
the increasing cleavage between the existing money supply in the economy and the
actual goods supply, compared to a situation that has previously existed.
Analyzed from the perspective of the economic process, ination generates two
major interrelated trends: a decrease in the purchasing power of money combined
with a generalized increase in prices.
The nature and causes of the ination are varied, but contemporary ination has
a few general characteristics: it aects all national economies but to varying degrees,
its causes are both internal and external, and are usually sustainable (durable).
In studying this phenomenon, what its being used are the so called inationary institutionally agreed methods for its determination and development, its size,
based on a price index. This is nothing but a weighted average of prices of a number
of goods and services. In this regard the following indexes may be considered: the
consumer price index (CPI), GDP deator (or GNP), the cost of living index, price
index of capital goods, the lowering of the purchasing power of money ecc.
Out of these the most used index to measure the ination is the consumer price
index by using it, we will try to determine a link between electoral cycles and the
possible inuence of ination induced at the end of such a cycle.
Methodologically speaking, the consumer goods price index is determined using
the bodies empowered for that purpose based on a basket of goods (materials and
services) which includes consumer goods, household and goods for personal use,
durable, transport services, cultural, health goods [2] ecc. In Romania, the ination
measurement is done using the Laspeyres type consumer price index (CPI):
413
n
p 0i
p 0i
1i
IPC =
i =1
n
100
0i
i =1
Legend:
q = quantity of goods
p = unitary prices
i = the share each category of goods has in the family budgets of the employees
0,1 = current period
Ination rate= CPI- 100
The Laspeyres index shows which was the inuence of prices provided in order
to maintain the quantity constant in the current period. The index enables comparability over time indicating the upper limit of the relative changes of prices,
which means that it shows with how many percentage points have increased at
most or decreased the least the prices [3]. Using the Laspeyers Index we have
sketched the temporal evolution of the inationary phenomenon in our country
for the period 1990 to 2010 [4].
Inflation rate (%)
350
300
295.5
250
228.8
199.2
200
151.4
150
100
50
61.7
37.3
56.9
27.8
40.6
54.8
40.7
30.3
17.8
14.1
9.3
8.6
6.6
4.8
5.9
5.6
7.9
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fig.2 Ination rate in Romania, 1990-2010.
414
It has been noticed that since 1990 Romania has experienced a long inationary process on a larger scale than in all the countries in transition. This has various
causes such as the rigid price system promoted until 1989; the decision adopted
in 1990 to establish a xed exchange rate at 21 lei (Romanian currency) / dollar,
given that on the free market the exchange rate was about 80 lei / U.S. dollar. That
resulted in the collapse of exports and unprecedented increased imports [5]. This
has facilitated the depletion of the currency reserve. As a consequence a large scale
economic recession has been triggered for a period of approximately two years
between 1990 and 1992, with ination rates of three digits. These high rates of
ination are in matter of fact met in all countries in transition.
The next interval, 1993 1996, was characterized by an increase of the domestic
production combined with a decrease in ination, factors that have led to some
improvements in the overall macroeconomic climate. It should be noted that this
period has been marked by the diculties arising from external debt, more exactly
the many problems involved by its nancing.
The year 1997 sits under the sign of the problems generated by the nancing
of the external debt, the National Bank reserves had dropped to about 700 million
U.S. dollars, which will reverberate negatively in the economy, again. Next, a new
period of economic decline, which resulted in reducing the populations income
and the standard of living, with an ination rate of 151.4% in 1998.
In 1999, we can see an improvement in the general economic climate, this year
being considered to have fostered the relaunch of the Romanian economy, although
growth has exceeded GDP by only 1.8%. The process began in 1999 and continued in 2000; basically, this was the moment when sustainable economic growth
begun to consolidate, having as starting point the reduction of the ination rate.
From 2000 until the second period of 2008, following the developments in the
ination rate, we can say that ination has followed a descendent trend with only
small breaks [6].
If we were to take an overview of a period of approximately a decade (1990
2000), we can summarize some conclusions:
the liberalization of prices began in 1990 and was largely completed by the
end of 1998;
415
the depreciation rate combined with the liberalization of prices and lack of
restructuring in the real economy led to high rates of ination, the maximum
was recorded in 1993;
three-digit ination rate has characterized several countries in transition;
the 1998 ination rate entered a downward trend.
The interval between the years 2000 2004 shows a clear decrease in the rate
of ination, which culminated in 2004 with a long-expected performance: the rate
of ination of a single digit (9.3%), which has exceeded with only 0.3 percents
the forecasted target. The ination rate recorded for 2005 exceeds the range of
variation ( 1%) established by the National Bank, the recorded value was 8.6%
higher, clearly exceeding the projected target of 7.5% [7]. The year 2006 is the year
with the most notable developments in the process. The ination rate recorded was
4.87% and was below the target: 5.0% due to the fact that the economic growth
has exceeded the most optimistic forecasts.
The year 2007 brings back into focus an upward trend of the ination rate, the
accounted value being of 6.57%, with 2.57 percentage points above the target proposed by the National Bank, virtually marking an interruption of the deationary
process.
The unfavorable trend was continued in 2008, 2009 and 2010, the ination
rising to 8.63%, over the initial target of 3.5%, and then to 7,9%, at the end of
2010. This was due mainly to the international economic situation, which was in
a process of degradation due to the nancial crisis triggered in the United States.
This brief picture made on the ination rate for the 1990 2010, combined with
the electoral moments in Romania, whishes to establish a possible link between the
populist politics present at the end of the electoral cycle and the negative eects
induced at the macroeconomic level, seized using the ination rate.
Thus we recall the periods of electoral cycles, until today, in Romania:
1990 1992;
1992 1996;
1996 2000;
2000 2004;
2004 2008;
2008 2012.
416
In order to determine a possible correlation, well make a graphic representation

to underline the ination rates during the 1990 2010 period, and consider the
start or the end of the electoral cycles in Romania.
Inflation rate (%)
350
300
295.5
250
228.8
200
199.2
150
151.4
100
61.7
50
0
37.3
56.9
54.8
40.6
40.7
27.8
30.3
17.8
14.1
9.3
8.6
6.6
4.8
5.9
5.6
7.9
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fig. 3 Economic and electoral cycles linked to the ination.

The mechanisms of the appearance and evolution of the electoral cycles have
few moments in common, general for all cases studied, or that may be subjected
to analysis. After the election polls a clear power structure is authorized for a given
time to govern the country. During the rst phase of the mandate thus obtained,
the elected tends to implement the most important part of their own election goals,
more precisely parts of the electoral promises on which they have assured their access to governing. In particular, the measures pursued are those that aect important categories of the population, in areas such as employment, taxation, ination.
In general, the application of a package of measures of electoral inspiration in
the rst part of the mandate leads to an improvement of the economic situation,
the eects reverberating on the target. Still these measures generate a growth of the
decitary spending caused by the authorities, spending that will later be corrected
through a series of measures and policies that in the short term will be negatively
417
perceived by the population (decrease in the share of public spending in GDP, review of tax policies aimed at increasing taxation, ecc.)
However, the elected seek to generate long-term benecial eects in the economy, eects which are meant to be felt on the eve of a new election moment, which
would result in the possibility of maintaining the position held, if the electorate is
aware of the benecial eects induced thereby.
Starting from these considerations, we will try to establish a correlation between
electoral cycles in Romania and possible inuences associated with them at macrolevel, concentrating on ination.
In the rst electoral cycle (only two years) from 1990 to 1992 we are facing
high rates of ination, whose value can be explained by the fact that the period
coincides with the end of a type of political regime (totalitarian) and its replacement with another (democracy). Moreover, we deal with a shift in the organization
of the economy, passing from the centralized planned economy to a free market
economy.
But an evolution of the inationary phenomenon can be noticed, that complies with the practical-theoretical correlation between the running of the electoral
process and a possible distortion of the ination rate. In the rst half of the 1990
1991 electoral cycle, ination growth was accelerated, registering a growth of
191.5 percentage points. The second half of the cycle 1991 1992 doesnt follow
the same tendency, when we are dealing with a distinguishable deationary process,
resulted in a dierence of - 29.6 percentage points (see Fig 2, the interval from
1990 to 1992).
For the second electoral cycle 1992 1996, it is notable that with the completion of the electoral process the negative trend of ination is not being kept, but
instead, again there is an increase in the rate of ination during 1992 1993 with
a positive dierence of 96.3 percentage points. From 1993 to 1995, a new deationary process is distinguishable, of - 238.6 percentage points, being in fact the
most important of the entire analyzed period (1990 to 2008). The approaching of
the elections is accompanied by recurrence of the inationary phenomenon, the
ination rate in 1996 increases by 29.1 percentage points compared to the corresponding ination rate of 1995. The tendency will be kept after the elections, and
during the next cycle.
418
Thus, the third electoral cycle considered, 1996 2000, starts with a clear inationary trend: the ination in 1997 was 151.4%, with 94.5 percentage points
higher than in 1996. From 1997, a deationary process runs almost continuously
for a period of almost 10 years, until 2008.
The fourth studied cycle, 2000 2004, falls on the same deationary coordinates
and it is impossible to establish a correlation between the electoral phenomenon
and the appearance of the inationist one. This is a fact, because in our opinion the
general economic climate changed, the performance of the economy has improved
considerably. Moreover we underline again that the analysis on the relationship
between the electoral cycles the induced eects in the national economy can
only be complete by studying several aspects of ination, employment, taxation,
budget decit. The present paper analyzes only the rst component of the general
analysis.
In order to prove this through an example, we mention the introduction in
2004 of the at tax, which had negative eects on the amount of money cashed
by the state budget.
The next electoral cycle: 2004 2008, due to the international economic situation that generates exogenous negative inuence on the Romanian economy, reenters the general pattern of shown correlations between the electoral cycles ination. After a period of a decade of almost continuous disination (except 1999),
2008 (an election year) is marked by the resurgence of the inationary phenomenon, ination in 2008 was 5.9%, higher by 1.1 percentage points that the one in
2007 [8].
For the last two years, some remarks can also be made: the infusion of money
from the IMF, in order to maintain the exchange rate, was accompanied by a direct
intervention on the ination rate, all done for political reasons. Policies aimed at
restricting consumption resulted in an apparent rate stability, in the context of a
possible accession to the eurozone.
In this context, we believe that the promoted economic policy is inappropriate;
it is rather suitable to overheating phases and not to the phase of recession, when
consumption should be stimulated. From this perspective, we can mention the
case of Hungary, whose growth - even inationary - lead to an apparent wealth in
the society, contributing to the socio-political aspirations. We emphasize here that
419
social cohesion shows great importance in the case of eastern Europe economies,
now member states of the EU.
An overview of the interval 1990 2010, allows us to establish a possible link
between the electoral process and the development of the national economy, noticed through the analysis of some phenomena (factors) of importance, in this case
the ination. For the rst two cycles 1990 1992, 1992 1996 and the rst part
of the third 1996 1997, the causal relationship between the electoral process
ination is conrmed. This relationship is also conrmed by the last period of the
2004 - 2008 electoral cycle, and the rst part of the 2008 to 2012 cycle.
In our opinion, the analysis of all proposed components: ination, employment (unemployment), taxation, budget decit, will be intended to give us a full
picture of the problem. This study is intended as a rst step in the general study
proposed.
ACKNOWLEDGMENTS
The authors wish to thank for the nancial support provided from the program
co-nanced by THE SECTORAL OPERATIONAL PROGRAM FOR HUMAN
RESOURCES DEVELOPMENT, Contract POSDRU 6/1.5/S/3 DOCTOR
AL STUDIES, A MAJOR FACTOR IN THE DEVELOPMENT OF SOCIO
ECONOMIC AND HUMANISTIC STUDIES.
References
Arthur August Kaspar Spietho (1873-1957), representative of the German School

of History, assistant of Gustav von Schmoller, later universitary teacher of Economic sat the University of Prague (1908) and Bonn (1918). Among his elds
of interest and studies we encounter economic cyclicity and its causes, in the following papers: Die wirtschaftlichen Wechsellangen: Aufschwung, Stockung, Krise,
Zurich, 1955
Popescu C., Gavril, I., Ciucur, D., Teoria economic general, vol. 2, Ed. ASE,
Bucureti, 2005, p. 616
Baron, T., Statistic teoretic i practic, Ed. Didactic i Pedagogic, Bucureti,
1999, p. 357
The source for the ination rates values: www.insse.ro and www.bnr.ro
420
Money Channel,
http://www.tmctv.ro/articol_26006/raport__esecurile_si_realizarile_economiei_
romanesti_intre _1990___2007.html, May 2008
These small breaks prove to be fundamental for determining a correlation between
the business cycles and the possible eects induced al microeconomic level.
Among the factors that caused the interruption of the deationary process, the following are worth being nominated: the growth of the price for gas (petroleum) on
the international markets, the insucient supply for fruits and vegetables caused
by unfavorable meteorological conditions (low temperatures, storms, oods), the
implementation of a new stage of taxation for matching the level of excise taxes at
EU level, with a result of growth in taxes for gas, cigarettes, and tobacco.
The tendency is kept in 2009 also, the forecast on ination being negative
General papers:
Angelescu, C., Ciucur, D., Dicionar de Economie, Ed. Economic, Bucureti,

2001.
Bcescu, M., Bcescu Crbunaru, A., Macroeconomie Intermediar, Editura
Universitar, Bucureti, 2004.
Bernanke, B., Woodford, M., Ination targeting, Princeton Universitz Press, Princeton, New Jersy, 2006.
Bernard, Y., Colli, J.-C., Vocabular economic i nanciar, Ed. Humanitas, Bucureti,
1994.
Bodea, G., Sistemul economic, ntre dezechilibru i dezvoltare, Ed. Dacia, Cluj-Napoca, 1999.
Bodea, G. (coord.), Economie Politic, sistematizri i aplicaii, Ed. II, Risoprint,
2004.
Bremond, J., Gelean, A., Dicionar economic i social: 100 articole tematice, 1500
deniii , Ed. Expert, Bucureti, 1995.
Cioarna, A., Haiduc, C., Economie, Ed. Servo-Sat, Arad, 1998.
Ciobanu, Gh. (coord.), Macroeconomie, Editura Risoprint, Cluj-Napoca, 2009.
421
Enache, C., Lazr, C., Gorincu, Gh., Economie, Editura International University
Press, Bucureti 2003.
Iordache, S., Lazr, C., Curs de Economie Politic, Editura Economica, Bucureti,
1999.
Kiriescu, C., Dobrescu, M. E., Bncile. Mica enciclopedie, Ed. Expert, Bucureti,
1998.
Lua, M., Clea, S., Economie European, Ed. Imprimeria Ardealul, Cluj-Napoca,
2005.
Moroianu, N., Inaia Contemporan, Ed. Economic, Bucureti, 2003.
Ploae, V., Economie Politic Macroeconomie, Editura Ex Ponto, Constana, 1999.
Popescu C., Gavril, I., Ciucur, D., Teoria economic general, vol. 2, Ed. ASE,
Bucureti, 2005.
Postelnicu, Gh., Economie politic vol. 2, Litograa UBB, Facultatea de tiine Economice, Cluj-Napoca, 2000
web References:
ASECIB, http://www.asecib.ase.ro/Roman/am/cap6.pdf
Banca Naional a Romniei, www.bnr.ro
Banca Central European, http://www.ecb.int/home/html/index.en.html
Euroactiv, www.euroactiv.ro
Euromoneda, http://www.euromoneda.ro/default.asp
Eurostat, http://epp.eurostat.ec.europa.eu
Infoeuropa, http://www.infoeuropa.ro/jsp/page.jsp
Institutul Naional de Statistic, www.insse.ro
Money Channel, www.tmctv.ro
Wikipedia, http://ro.wikipedia.org/wiki/Pagina_principal%C4%83
422
Ana Udovii
SMALL AND MEDIUM ENTREPRENEURSHIP SME IN

CROATIA AS AN IMPORTANT COMPONENT FOR ECONOMIC
GROWTH
Ana Udovii univ.spec.oec
Abstract:
Entrepreneurship in Croatia represents a huge potential for the economic growth

and overall economic improvement due to the high unemployment rates and economic ineciency in Croatia. SME sector provides possibility of implementation
of modern practices and solution by following the examples of developed countries
on which those countries have built their economic strengths and competitiveness.
Developed counties are concerned with modern technology transfer, importance of
research and development investment, continuous innovation, easier adjustment to
market changes and the most important, the growing present of the entrepreneurship spirit that has a main role in crossing boundaries of economy of the entire
county. This paper explores the possibilities and pitfalls of the Croatian entrepreneurship and denes the unique features of the SME sector in Croatia.
JEL classication: D23, L25
Keywords: entrepreneurship, economic growth, SME, entrepreneurship
economy
INTRODUCTION
Large numbers of developed countries in EU as well as the other modern developed countries have embraced entrepreneurship as a leading force which can
bring prosperity for economic system and can enhance the competitiveness of a
certain county. Modern world is motivated with the ideas and entrepreneurship is
perceived as a leading force toward innovations. SME sector provided possibilities
of implementation of modern solutions led by successful examples of the developed
countries. Entrepreneurship has a positive eect on employment rate; it enhances
the eectiveness, the quality and competitiveness of the economy system and it
SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS ...
423
enhances the export and adjusts the system to the modern world market. But with
the globalization process the position of small and medium enterprises become
more complex with the growing competition and more complex and demanding
customers.
Croatian economy is still in a process of transition toward an entrepreneurship oriented system but this system represents a huge potential for the economic
growth together with the economic improvement. Croatian economy is still characterized with the high unemployment rate, overall economic ineciency, lack of
innovations and technical support, privatization problems, lack of government
understanding of need for businesses, insucient government tax incentives and
insucient employment initiatives. Even though, Croatia has to nd solutions
in resolving the mentioned problems by enhancing the economic eectiveness of
small and medium enterprises, with the investment in technical equipment, investment in research and development, investment in innovations, and enhancement
of employment together with the managerial expertise.
1. CHARACTERISTICS OF SMALL AND MEDIUM ENTREPRENEURSHIP IN
CROATIA
Due to the long and complex path of resolving the problems concerning the effects of War (1991-1995) together with the transitional and privatization problems,
Croatia has neglected the needs and requirements of the small economic sector. In
2002 Croatia started the process of making the legal regulative where the small and
medium companies can nd their base for further business activity. The key step
was publication of the Small Business Development Promotion Act (The Ocial
Gazzete- NN 29/02, 63/07). This Act has arranged the basics for the implementation of the economy politics incentive measures oriented toward development,
restructuring and market adjustment together with the foundation of the Croatian
Agency for Small Business (HAMAG) (Kersan-kabi & Bankovi; 2008, 59).
The dened goals for small economy development were (Kersan-kabi &
Bankovi; 2008, 59):
1. Growth of employment possibilities,
2. Increasing export and adjustment to the world market,
3. Increasing eciency, quality and competitiveness of small economy,
424
Ana Udovii
4. Research, development and implementation of modern innovations and

technology,
5. Increasing the number of subjects in small economy,
6. Encouraging the business activities which are environment friendly.
Small business economy in Croatia includes more than 78.000 trades associations and makes 99, 5% registered business subjects in Croatia. SME sector keeps
generating the larges and fester growth concerning the numbers of entrepreneurship and the number of employees, revenues and prots. SME become the sector
which stimulates and motivates the overall national economy (Kersan-kabi &
Bankovi; 2008, 60).
But the situation in Croatia is far from ideal. The reason is layering between
the economic activities. Over the time, entrepreneurs have concentrated just in
few economic activities in which they have recognized the potential of market expansion together with the encounter of the minimum barriers on the path for
their nal goal achievement. An example is the most expanded sector of retail and
wholesale trade which represents 35% of the total entrepreneurship amount while
the electric energy supplies represent only the 0.16% (Kersan-kabi & Bankovi;
2008, 60).
The statistics has shown that the 80.55% of the overall number of entrepreneurs
are concentrated in four business activities: already mentioned retail and wholesale
trade (35%), real-estate business (22%), processing industry (13, 2%) and architecture (10, 35%) (http://hgk.biznet.hr/hgk/).
%
2009.
%
0,5
436
0,5
1,6
1,446
1,5
97,7
89.438
98,0
99.5
90.884
99.5
99,5
99.884
99.5
http://www2.hgk.hr/en/
Number of Employees
Companies
2003.
%
2004.
%
2005.
%
2006.*
%
2007.
%
2008.
%
2009.
&
Large
375.081 47,1
386.980 47,7
391.219 48,1
305.263 35,2
328.856 35,7
315.117 33,7
302.161 33,97
Medium-Sized
158.971 19,9
156.407 19,3
159.746 19,6
172.345 20,0
181.214 19,7
170.038 18,2
164.515 18,49
Small
262.844 33,0
268.389 33,0
262.797 32,3
388.275 44,8
410.103 44,6
448.803 48,1
422.720 47,52
Total
796.896 110,0 811.776 100,0 813.762 100,0 865.883 100,0 920.173 100,0 933.958 100
889.396 100,0
Small businesses
421.815 52,9
424.796 52,9
422.543 51,9
560.620 64,8
591.317 64,3
618.841 66,3
587.235 66,01
*structure of entrepreneurs based on their size changed signicantly in 2006, compared to 2005 and previous years due to amendments to criteria for determining the size of enterprises in accordance with new Accounting Act which makes these criteria similar those to EU. Implementation of these criteria has caused the number of big and medium-sized enterprises
to mote than halve, while the number of small enterprises has increased.
Source: FINA; Compiled by: CEE
Source: Ocial web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SMs); page 5.; available at: http://www2.hgk.hr/en/
depts/industry/Malo_gospodarstvo_10_web.pdf
Table 2. Number od Employees according to size from 2003 to 2009
Companies
2003.
%
2004.
%
2005.
%
2006.
%
2007.
%
2008.
Large
889
1,3
962
1,4
1,074
1,5
441
0,6
475
0,6
453
Medium-Sized
2.597
3,8
3.692
3,9
2.969
4,1
1.480
1,9
1.590
1,9
1,396
Small
64.698
94,9
65.327
94,7
67.760
94,4
76.588
97,5
81,467
97,5
87,807
Total
67.295
98,7
68,019
98,6
70,729
98,5
76,068
99,4
83,057
99,4
89,203
Small businesses
67.295
98.7
68.019
98,6
70.729
98,5
78.068
99,4
83.057
99,4
89.203
Source: Ocial web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SMs); page 5.; available at:
depts/industry/Malo_gospodarstvo_10_web.pdf
Number of Entrepreneurs
Table 1. Number of Entrepreneurs according to size from 2003 to 2009
425
426
Ana Udovii
In accordance with the employment rate, above mentioned four business activities still dominate with the slightly change in percentage (trade holds 28.8% and
processing industry holds 22,45%) (Kersan-kabi & Bankovi; 2008, 60).
SME economy in Croatia is characterized also by regional layering with the
large dominance of the Town of Zagreb (33% of the overall SME economy by
the overall registered companies). The percentages of the registered small and medium companies in other Croatias counties are: Split-Dalmatia County 10, 9%,
Primorje-Grski Kotar County 9,4%, Istra County 9,2%, Osijek-Baranja County
4,3% and Zagreb County 6%. Other 15 Counties hold 27,2%. Dominance of the
Town of Zagreb is present in other SME economy indicators in revenues, prot,
lost, import, export, investments and employment rate (Lozi, 2007, 7).
2. DEVELOPMENT OF THE CROATIAN ECONOMY WITH THE SIGNIFICANT OF
ENTREPRENEURSHIP
Entrepreneurship signicance for the Croatian economy development includes

the same settings as in remaining European countries or the countries in the rest
of the world (krti & Miki, 2006, 200). In Green book1 Entrepreneurship in
Europe the European committee outline the following social entrepreneurship
signicance (krti & Miki, 2006, 200):
a) Entrepreneurship supports and helps the job creation and economic growth
New job opportunities are created in small new companies rather than in large
companies. Countries which have realized a meaningful entrepreneurship increase
have a signicant unemployment rate. During the 12 years period (from 1994.
until 2006.), Croatia has ensured around 77 000 new working places which is extremely important in the terms of the 18% unemployment rate.
b) Entrepreneurship has critical meaning for the competitiveness
Productivity is increased with the new entrepreneurship initiatives which motivates new company or redirects the existing one. These incentives strengthen the
competiveness pressure, encourages the rest of the companies to respond with the
improvement of the eciency or implementation of innovative solutions.
The Commissions Green Paper is the most recent of a series of Reports from the European Commission designed to encourage entrepreneurship; whole document available at: http://www.publications.
parliament.uk/pa/ld200203/ldselect/ldeucom/142/142.pdf
427
c) Entrepreneurship develops personal potentials

Individuals have dierent criteria concerning the career, as safety, level of independence, variety of task and the level of interests. Individuals can nd satisfaction
if they decide to embrace the entrepreneurship activity while for the others the
entrepreneurship activity is result of the economic need.
d) Entrepreneurship develops general social interests
Entrepreneurs are motivating strength for the market-oriented economy and
their results bring prosperity for the society, create new job opportunities and ensure the wider choice for the consumers. Small and medium enterprises have embraced a more informal entrepreneurship responsibility spirit together with layering the frames and base for many other communities.
Table 3. Businesses in 2009.

Description
No. of
Entrepreneurs
Share in no. of
entrepreneurs
%
No. of
employees
Share in no. of
employees %
Share in prot
in %
Small Entrepreneurs (S)*

89,438
98,0
422.720
47,52
41,90
Medium sized Entrepreneurs (M)*
1446
1,5
164,515
18,49
15,82
Large Entrepreneurs (L)*
436
0,5
302,161
33,97
42,26
Entrepreneurs-Total
91,320
100,0
889,396
100,00
100,00
Small Business (S+M)
90,884
99,5
587,235
66,01
57,72
Source: P.T.L. FINA, CBS _ Compiled by: CCE
*companies-legal entities
Source: Ocial web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises
(SMs); page 5; available at:
http://www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf
According to Peter Drucker2, the essence of entrepreneurship is consistent in

creation of new organizations capable for protable business with the possibilities
self-maintenance. Entrepreneurship is concerned with business practices done at
dierent way but not doing something better which is already done. Trough this
context the basics of entrepreneurship behavior is dened as a constant search for
2
One of the most inuential writer on the subject of management theory and practice in 20.
Century.
428
Ana Udovii
changes, reaction on changes and using changes as new possibilities (Krui, 2007,
172).
Small and medium enterprises today are perceived as a major force that can enable fast and valued change of economic structure in a certain national economy.
Croatian small and medium economy represents a possible economic development
and employment generator with its innovations, exibility and economic eectiveness. In this moment of economic development, Croatian small and medium enterprises drastically lag for economic eectiveness of small entrepreneurship of EU
countries, the European Union represents a vital chance for Croatian enterprises
(krti & Miki, 2006, 202).
In collaboration with the enterprises situated in some of the EU countries, Croatian entrepreneurship can and must use its individuality, creativity and business
spirit. Small and medium enterprises in Croatia have to reduce their business costs,
enhance quality, invest in new products and service and explore new markets and
new channels of distribution in order to come close to the business practices and
business results as those in enterprises in EU countries (krti & Miki, 2006,
202).
Table 4. Small Business in Croatia and the EU (According to denition)*

Criteria
Micro scale companies in Croatia
Small Economic
Entity in Croatia
Medium sized
Economic Entity in
Croatia
Micro EU
Small EU
Medium
sized EU
Number of
<10
<50
<250
<10
<50
<250
Employees
Total annual
< 50
turnover up to
14 HRK
54 HRK
216 HRK
<2 EUR < 10 EUR
EUR
(mil.)
Fixed assets
value up to
7 HRK
27 HRK
108 HRK
<2 EUR <10 EUR <43 EUR
(mil)
Business independence If other are not the owners of more than 25% ownership share or power of decision-making in the
small economic entity, individually or jointly, and are not, small economic entities themselves
*Small Business Development Promotion Act (The Ocial Gazzete- NN 29/02, 63/07)
Source: Ocial web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises
(SMs); page 5
2.; available at: http://www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf
429
3. CHARACTERIZED BARRIERS FOR SME IN CROATIA
Despite the global recession, small businesses are still the most dynamic segment
of Croatia economy. Small businesses are one of the most important impetuses
of overall economic development which stimulates private ownership and entrepreneurship, employment growth and signicantly contributes to an increase of
production and exports (http://www2.hgk.hr).
The main problem and the most important problem in Croatia (as well in EU)
is complex and very slow administration. This is the main reason why Croatia
has implemented a series of continuous measures of simplication. Croatia has an
imperative to establish the simplication of establishment of business subjects in
order to motivate a larger number of entrepreneurship activities (it takes 7-10 days
in Croatia for business registration while in the most of the EU countries it takes
1-7 days for business registration) (Kersan-kabi & Bankovi; 2008, 65).
Main areas in Croatian economic system that are in need for improvements are
(Kersan-kabi & Bankovi; 2008, 67):
Poorly functioning of the legal state, high corruption index which discourages the entrepreneurship since it enhances the risk, uncertainty and business
expanses,
Dawdle of jurisdiction,
Uncoordinated government politics for creation of favorable entrepreneurship
environment
Undeveloped nancial market for satisfaction the SME needs.
Croatian economy is still in a transition process towards the entrepreneurship
trade system. It is crucial to establish and maintain an eective corporation between small and medium enterprises with the high education institutions and other
scientic and professional institutions in order to enhance the development and
trade exchange of the scientic results as a hypothesis for development of the new
structure of the economic and scientic system (Zeki & Bukovac, 2008, 107).
Croatia has to enforce and enable institutions to use the funds available form
EU and needs to enforce the small and medium entrepreneurs to enhance the competitive strength and corporation in order to maintain the system of SME (Kersankabi & Bankovi; 2008, 67).
430
Ana Udovii
CONCLUSION
Entrepreneurship in Croatia represents a huge potential for the economic

growth and overall economic improvement due to the high unemployment rates
and economic ineciency in Croatia. Croatia has fully embraced the concept of
entrepreneurship during the 2002. Since then, government has introduced a number of legislative and tax incentives in order to promote and to help the SME. These
incentives are perceived as insucient since a large amount of entrepreneurs have
failed in maintaining a positive balance and successful business activities. Croatian
businesses still has major problems with administration and with the large corruption index. Entrepreneurship is concerned with the innovations and with the
constant search for something new and improved. Entrepreneurship has a positive
eect on employment rate, enhances the eectiveness, quality and competitiveness
of the economy system, enhances the export and adjusts the system to the modern
world market
Croatia has to invest in innovations and research together with the investment
in employment and managerial expertise in her path of becoming a member of the
European Union.
Bibliography
Krui, D. (2007.) Poduzetnitvo i ekonomski rast: reaktualiziranje uloge poduzetnitva u globalnoj ekonomiji, Ekonomska misao Praksa Dbk. 2, (167-192), UDK/
UCD: 65.012:330.34
Kersan-kabi, I. & Bankovi, M. (2008.) Malo gospodarstvo u Hrvatskoj I ulazak u Europsku Uniju, Ekonomska misao Praksa Dbk. 1, (57-76), UDK/UCD:
339.92
Lozi, V. (2007.) Prevelika dominacija Zagreba, Lider, 13. July 2007., p. 7-9.
krti, M. & Miki, M. (2006). Gospodarsko znaenje hrvatskog poduzetnitva
anse I zamke, Zbornik radova Ekonomskog fakulteta u Zagrebu, 4, (191-203),
UDK: 338:65.012(497.5)
Zeki, Z. & Bukovac, B. (2008.) Tehnoloki parkovi agensi poduzetnikog razvoja Hrvatskog gospodarstva, Ekonomska misao Praksa Dbk. 1, (105-116), UDK/
UCD: 65.012.001.6
431
Ocial web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SMs); pages 1- 5; available at: http://
www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf
Retrieved: (21-02-2011)
http://hgk.biznet.hr/hgk/)
Retrieved: (01-03-2011)
The Commissions Green Paper is the most recent of a series of Reports from the
European Commission designed to
encourage entrepreneurship; whole document available at: http://www.publications.parliament.uk/pa/ld200203/ldselect/ldeucom/142/142.pdf
INTERNATIONAL
ECONOMICS
IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...
435
IMPACT OF THE CREATION OF NATIONAL CURRENCY ON

BUSINESS TRANSNATIONAL COMPANIES IN THE WESTERN
BALKANS
Hoo, Jasmin
onlagi Denan
School of Economics and Business Sarajevo
E-mail: [email protected]
Tel: 387 61 13 64 63
Acknowledgements
This paper has not been possible without the enormous help Jasmina
Osmankovi.
Abstract
The current situation regarding the euro and the dilemmas Will the Euro survive the current crisis opens questions common currency or national currency? In
parallel with the process of creating a common currency and the abandonment of
national currencies in the European Union, on the Western Balkans unfolded took
process abandoning the common currency and variation of national currencies.
Both processes oer experience and lessons. Ex Yugoslavia had a common currency
the Yugoslav dinar. It was the currency area with over 22 million inhabitants. In
the early nineties, countries that have made the dissolution of Yugoslavia, inter
alia, monetary sovereigns establish their national currencies and took control of its
monetary policy. Dissolution of Yugoslavia was accompanied by leaving Yugoslav
dinar as a common currency and the creation of national currencies. In this paper
we tested the hypothesis that the existence of national currencies has negative effects on business of the Trans national companies. The theoretical framework is
the theory of optimum currency areas (Beyoumi, 1994, Honhan & Lane, 2003,
Levin, 2000, Krugman, 2009). The focus is on companies Tondach experience in
the Balkans. Period is 2004 2010. The basic method is case method. Research
includes the Republic of Slovenia, Croatia, Bosnia and Herzegovina, Serbia, and
436
Jasmin Hoo onlagi Denan
Macedonia. We used panel 5 x 7 x 5. (Five years, seven countries, ve variables:

income, investment, exports, imports, exchange rate)
JEL classication: E42, F23
Key words: common currency, national currency, transnational companies
INTRODUCTION
In parallel with the process of creating a common currency and the abandonment of national currencies in the European Union, on the Western Balkans unfolded took process abandoning the common currency and variation of national
currencies. Both processes oer experience and lessons. A number of papers, books,
contributions and publications have been written on the position and role of
transnational companies and foreign direct investment (Young, 2004; Lall, 1974,
Barnet,& Muller, 1975; Korten, 2001; Todaro & Smith, 2006; Hoo : 2010.;
Krugman&Obstfeld, 2009). As with most issues in economics, opinions vary and
range from extremely armative to extremely negative in terms of the contribution of foreign direct investment and transnational companies to the host countrys
economy. The paper checks the transnational companies contribution to economic
development of transition countries on the example of contribution by Tondach
Company to the development of countries formed by dissolution of former Yugoslavia in the 1990s, including Bosnia and Herzegovina, Croatia, Serbia, and Macedonia. Primary research pertains to the research of Tondach Company documentation, while secondary one involves the use of ocial statistical and other publications. The hypothesis is tested by means of relevant statistical methods. The testing
procedure uses the following data set exchange rate Croatia Kuna HRK per 1 EUR,
Serbia Dinars RSD per 1 EUR, Bosnia and Herzegovina C Mark BAM per 1 EUR
and Macedonia Denars MKK per 1 EUR last ten years,: income, investment, and
Tondach Companys exports and imports for the 1996-2008 period in Croatia,
1997-2008 in Bosnia and Herzegovina, 2000-2008 in Macedonia, and 2003-2008
in Serbia respectively.
The paper is organized in three main parts, including: introduction, test and
conclusion. Paper has for part: case Croatia, Case Serbia, Case Bosnia and Herzegovina and Case Macedonia. The spatial, time and topic framework of the paper
is presented in the introduction, The second part deals with testing the postulated
hypothesis by analyzing data set (exchange rate, total revenue, investment, exports,
437
imports) for each analyzed country from the companys entry to 2008. Finally, the
conclusion provides an overview of the test results.
TEST
In parallel with the process of creating EUR like common currency and the
abandonment of national currencies in the European Union, on the Western Balkans took process abandoning the common currency and variation of national currencies. Both processes oer experience and lessons. Slovenia and Montenegro have
EUR. Croatia established Croatia Kuna HRK. Serbia founded Serbia Dinars RSD.
Bosnia and Herzegova has Bosnia and Herzegovina C Mark BAM, and Macedonia
has Macedonia Denars MKK. Further in the text, results of the research exchange
rate national currencies, total income, total investment, and the value of exports
and imports of companies from the Tondach system, followed by cumulative values
of exports, investment in the analyzed countries are provided.
Case Croatia
Tondach Company has been present in Croatia since 1996. National currency
in Croatia is Croatia Kuna HRK. Figure 1 shows exchange rates Croatia Kuna
HRK per 1 EUR.
Figure 1 Croatia Kuna HRK per 1 EUR 2001-2011
35.000
Source:
http://www.xe.com/currencycharts/?from=EUR&to=HRK&view=10Y
30.000
25.000
The total income increased eight times. In 1996, its income was 4 million Eu20.000
ros, while in 2008 it amounted to 32.2 million Euros. Figure 1 shows the trend of
1 5.000
total income growth.
1 0.000
5.000
Figure0 2 Tondach Company income in Croatia, 1996-2008 (EUR, thousands)

1 996
1 997
1 998
1 999
2000
2001
2002
2003
2004
2005
2006
2007
2008
438
Total income growth is due to expansion through acquisitions, modernization

of existing manufacturing capacities, green eld investment at akovo site, and
inter-company exchange. Total investment of Tondach Company in Croatia for
the 1996-2008 period amounted to about 70 million Euros. The largest investment
was made in 1997, in the amount of ca 19 million Euros. The investment of almost
the same amount was also made in 2006.
Figure 3 Tondach Company investment in Croatia, 1996-2008 (EUR, thousands)

25.000
20.000
1 5.000
1 0.000
R = 0,31 83
5.000
0
1 996
1 997
1 998
1 999
2000
2001
2002
2003
2004
2005
2006
2007
2008
From 1996 to 2008, products in the value of 32 million Euros were exported
from Croatia. The biggest part of this amount, 52%, was exported to Hungary and
32% to Bosnia and Herzegovina, while the remaining part was exported to other
countries. Figure 3 shows the increase in the value of exports for the 1996-2002
period, followed by the stagnation over the following couple of years. In 2008,
though, a signicant increase in exports was registered.
Figure 4 Tondach Company exports from Croatia, 1996-2008 (EUR, thousands)
439
In the 1997-2008 periods, products in the value of over 8 million Euros were
imported to Croatia. Out of this amount, 54% was imported from Hungary, 38%
from Slovenia, and the rest from Serbia, Czech Republic and Romania.
Figure 5 Tondach Company imports to Croatia, 1999-2008 (EUR, thousands)
Figure shows the increase in the value of imports to Croatia. The key years
are 2002, 2004, and 2007. In 2008, Tondach achieved a record result in Croatia.
Market acceptance of large-sized roof tiles from akovo plant was excellent. As
early as after the second year, more than the amount of annual production was
sold. Thus akovo II contributed to the signicant growth of total income in its
second year already. It was the rst time in Tondach history that such a fast success
was registered. The success of this investment also shows that Tondachs strategy
was correct. Products at the latest and highest technology level, manufactured in
state-of-the-art, highly-productive plants are the basis for the companys long-term
successful and progressive development. Dispute between Russia and Ukraine early
in the year had an adverse eect, which indicates the signicance and gravity of
global crisis.
Case Serbia
In October 2003, upon obtaining 92.7% shares of Kanjia-based Potisje Kanjia

enterprise at Belgrade Stock Exchange, Tondach Company entered the very promising Serbian market. In 2004, company income amounted to 21.3 million Euros.
In 2008, it grew 1.6 times. After 2006, the company registered a signicant income increase. National currency in Serbia is Serbia Dinars RSD. Figure 6 shows
exchange rates Serbia Dinars RSD per 1 EUR.
440
Figure 6: Serbia Dinars RSD per 1 EUR 2001-2011
Source: http://www.xe.com/currencycharts/?from=EUR&to=RSD&view=10Y
Income growth in Serbia is due to investment in new technologies and increase

in production capacities. Tondach Company manufactures 65 million pieces of
clay tiles.
Figure 7 Tondach Company income in Serbia, 2004-2008 (EUR, thousands)

35.000
33.000
31 .000
29.000
27 .000
25.000
23.000
21 .000
1 9.000
1 7 .000
1 5.000
2004
2005
2006
2007
2008
Tondach Company started to modernize manufacturing plants (Potisje Kanjia).

The total value of investment in 2003 was 38 million Euros. Figure 6 shows the
trend of change in investment value from 2003 to 2008.
441
Figure 8 Tondach Company investments in Serbia, 2003-2008 (EUR, thousands)

40000,000
35000,000
30000,000
25000,000
20000,000
1 5000,000
1 0000,000
5000,000
0,000
2003
2004
2005
2006
2007
2008
From 2004 to 2008, products in the value of 15.1 million Euros were exported
from Serbia. Bosnia and Herzegovina was the main export market for Serbia-made
products. About 86% of the mentioned amount (of 15.1 million Euros) ended up
on the roofs of B-H houses, 9% in Romania, and the rest in other countries of the
region. Figure shows the increase in the value of exports, with a particularly signicant growth in 2005.
Figure 9 Tondach Company exports from Serbia, 2004-2008 (EUR, thousands)
In the observed period, products in the value of 1.1 million Euros were imported to Serbia. Out of this amount, 40% was exported from Croatia, 32% from
Hungary, 27% from Slovenia, and the rest from Romania and Macedonia. Figure
shows the linear increase in imports to Serbia from 2004 to 2008.
442
Figure 10 Imports to Tondach Company in Serbia, 2004-2008 (EUR, thousands)
In 2008, imports were signicantly higher than in 2004. The most part of imports includes products from akovo-based plant in Croatia. This plant manufactures large-size roof tiles in dierent colours, which are not manufactured in Serbia.
In Serbia, the investment in Potisje Kanjia valued at 65 million Euros was successfully completed in 2008. Trade increased by 18% compared to the previous year.
The positive trend was, however, decreased by the increase in energy sources. For
instance, average cost of gas in Serbia is higher than average cost of gas in Austria.
In the moment of acquisition, in October 2003, the gas price amounted to about
50% of Austrian level. Due to the Euro-based nancing, unstable dinar contributed to great losses as a result of exchange rate dierences.
Case Bosnia and Herzegovina
Tondach Company has been present in Bosnia and Herzegovina since 1997.
In the period to 1998, the total company income increased almost 20 times (from
0.5 million Euros in 1997 to 9.8 million Euros in 2008). Figure shows the linear
trend of total income growth, with a signicant income increase in 2002, 2005,
and 2008 respectively. National currency in Bosnia and Herzegovina is Bosnia and
Herzegovina C Mark BAM. Figure 11 shows exchange rates BAM per 1 EUR.
443
Figure 11: Bosnia and Herzegovina C Mark BAM per 1 EUR
Source: http://www.xe.com/currencycharts/?from=EUR&to=BAM&view=10Y
In the 1997-2008 period, 469 thousand Euros were invested in the company.
Figure 12 Tondach Company income in B&H, 1997-2008 (EUR, thousands)

1 2.000
1 0.000
8.000
6.000
4.000
2.000
0
1 997
1 998
1 999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Tondach Company does not have a plant in Bosnia and Herzegovina, and therefore the value of investment is exceptionally high compared to the other observed
countries.
444
Figure 13 Tondach company investment in B-H, 1997-2008 (EUR, thousands)

1 40
1 20
1 00
80
60
40
20
0
1 997
1 998
1 999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Investment was mainly related to the acquisition of xed assets (cars, computing equipment). In the 1997-2008 periods, products in the value of 21 thousand
Euros were exported from Bosnia and Herzegovina to Macedonia (2005). This
amount is the only Tondach Companys exports from Bosnia and Herzegovina to
another country in the 1997-2008 periods. In the 1997-2008 periods, products
in the value of about 32 million Euros were imported to Bosnia and Herzegovina.
Out of this amount, 40% was imported from Serbia, 32% from Croatia, 26% from
Hungary, and the rest from Slovenia and Hungary.
Figure 14 Imports to Tondach Company in B&H, 1997-2008 (EUR, thousands)
Figure shows the linear trend of the increase in the value of imports to Bosnia
and Herzegovina. The key years are 2002, 2005, and 2008 respectively. Tondach
signicantly increased the total income compared to the previous year. Products
445
from akovo II plant are now particularly well-established in the market, and thus
the product portfolio as well.
Case Macedonia
Tondach Company has been present in Macedonia since 2000. In the period to
2008, the company income increased by about three times (from 3 million Euros
in 2001 to 9 million Euros in 2008). National currency in Macedonia is Macedonia Denars MKK. Figure 15 shows exchange rates MKK per 1 EUR.
Figure 15: Macedonia Denars MKD per 1 EUR
Source: http://www.xe.com/currencycharts/?from=EUR&to=MKD&view=10Y
446
Figure 16 clearly shows the linear increase in income from 2001.
Figure 16 Tondach Company income in Macedonia, 2001-2008 (EUR, thousands)

1 0.000
9.000
8.000
7 .000
6.000
5 .000
4.000
3.000
2.000
1 .000
0
2001
2002
2003
2004
2005
2006
2007
2008
The income growth is due to the reconstruction and modernization of manufacturing plant on Vinice site, capacity increase from 12 to 20 million pieces of
roof tile, and increase in sales both in the local and international markets. After the
initial investment in improving the dated machinery, more signicant investment
started in 2003 and ended in 2004. In the observed period, the company invested
about 16 million Euros. Figure shows the changing trend in the investment value
in the 2000-2008 periods.
Figure 17 Tondach Company investment in Macedonia, 2001-2008 (EUR, thousands)

7 .000,000
6.000,000
5 .000,000
4.000,000
3 .000,000
2 .000,000
1 .000,000
0,000
2 000
2 001
2 002
2 003
2 004
2 005
2 006
2 007
2 008
The value of exported products amounts to 18 thousand Euros, out of which

89% was exported to Bosnia and Herzegovina and the rest to Serbia. In the 20012008 periods, products of the value of about 468 thousand Euros were imported
to Macedonia. Out of this amount, 59% was imported from Hungary, 22% from
Slovenia, 10% from the Czech Republic, and the rest from Croatia, Serbia and
Bosnia and Herzegovina. Figure reveals the signicant increase in imports in 2003,
and decline from 2005.
447
Figure 18 Tondach Company imports to Macedonia, 2001-2008 (EUR, thousands)
The increase in imports in the observed period is due to reconstruction and

demand for certain products (tiles for roof tops and wedges). Tondach plant in
Macedonia achieved excellent results four years in a row. Product sales increased
signicantly both in the local and international markets.
CONCLUSION
We provided the creation of national currencies had impact on business transnational companies in the Western Balkans on the case Tnodach Company. We
research of exchange rate national currencies Croatia, Serbia, Bosnia and Herzegovina and Macedonia during the last ten years per EUR, and we research investment,
income etc., on the example of Tondach Company in Bosnia and Herzegovina,
Croatia, Serbia and Macedonia. Company invested over 150 million Euros in the
four analyzed countries Bosnia and Herzegovina, Croatia, Serbia and Macedonia,
directly generated over a thousand jobs, and exported about 50 million Euros. It
invested into the facilities reconstruction and modernization, and into the introduction of new technologies. The exports, valued at about 50 million Euros, had
favourable repercussions to the countries balance of payment. In 2008, all legal obligations to budgets were paid on the achieved income of about 65 million Euros.
Thus, generating tax revenues is also obvious.
448
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Francisko
Krugman, R. P. & Obstfeld, M. (2006). International Economics Theory &
Policy. Seventh Edition, Pearson International Edition, Boston
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INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION
475
INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY

IN TIME OF RECESSION
Katarina Arnold Brati, dipl.oec
Mirko Pei, mag.oec
ABSTRACT
At the threshold of accession to the European Union the task of Croatia is to

improve standard of living and to enable its economy the appearance in the international economy market. Therefore, various development policies, rules and strategies are created as well as other social important processes that inuence a building
of national economy competitiveness.
Accordingly, the aim of this paper is to provide a review on factors that inuence national economy competitiveness as well as how to increase competitiveness
of Croatian economy on international level.
JEL classication: D40, F12
KEY WORDS: competitiveness, international competitiveness, national economy, recession
1. INTRODUCTION
The global economic crisis did not happen overnight. Thought announced as
a possibility, the economic crisis has come in the middle of 2008 as a great surprise for the countries all over the world, attacking rst the most developed countries and afterwards Croatian national economy as well. The appearance and rapid
growth of the crisis pointed out the cohesion and interdependence of national and
regional economies worldwide and thereby broke down the theory of neoliberal
capitalism.
The Croatian economy was completely unprepared for the recession. After a
long time since the establishment of Croatia as a country, all investments in national economy with the aim of increasing the standard of living and accessing the
476
Katarina Arnold Brati Mirko Pei
European Union begun to stagnate. The rst sign of the crisis has been noted in
export when demand for the products and services was reduced on the international market. Surprised by that fact the Government of the Republic of Croatia
has reacted by various strategies and recommendations in order to preserve and
increase the level of international competitiveness of national economy and thus
remain a part of the market game. When observing world economic trends in the
21st century, Croatia is at the turning point, so it is important to estimate its own
position and ability of propagating on global competitive scale. Therefore, Croatian economy requires greater attention as well as investment in order to become
as competitive as possible in international market and thereby create preconditions
for the accession to the European Union.
This paper denes the term of competitiveness and the models of measuring it,
analyses the position of competitiveness of Croatia in the time of recession and suggests some of steps necessary to increase the competitivness of Croatian economy.
2. DEFINING COMPETITIVENESS
The national economy competitiveness in a modern economy is the central

point for consideration in developed and less developed countries, since the future
brings more complex process of globalization and sharper international competition. Therefore, in the last couple of decades a special attention has been paid to
competitiveness as to one of the most analyzed terms.
There are dierent interpretations by dierent authors concerning national
economy competitiveness. The development of the contemporary term of competitiveness, that has a historical meaning, begins already with the economist Adam
Smith who spoke about the international exchange. However, todays global economy is to complicate to be explained by the traditional theories. According to a
new competitiveness theory the national prosperity is not inherited but created by
strategic choices. He also believes that the international competitiveness is based on
export and investing in other markets based on abilities and resources built in once
own country (Porter, 1998). All his ideas of competitiveness Porter encircled in one
model, so-called Porters diamond. One of the possible denitions of international competitiveness is the countrys ability to maintain and enhance a share of national economy on the world market by implementation of international standards
(Velloso, 1991). OECD denes competitiveness as a measure of countrys ability to
produce products and services in free market conditions, which can pass the test of
477
international market, remaining at the same time long-lasting enhancement of the

actual inhabitants income. Therefore, based on various denitions and opinions,
the competitiveness can be dened as a countrys ability of utilization of its own
resources, presenting them on the international markets by implementation of international standards with a view to enhance the life standard. Strictly speaking, the
term competitiveness represents the countrys ability to export its products to the
international market, whereas generally speaking the emphasis is on productivity
that results on the foundations of macroeconomic indicators and life standard.
In globalization processes the attention is paid to the cohesion of dierent national economies in trading goods and services and capital movement. Consequently the enterprises develop a need to compete with various competitors worldwide.
Therefore, each economy must develop its own competitive advantages, if it wants
to retain the position on the worlds competitive scale.
3. THE COMPETITIVENESS OF CROATIAN ECONOMY IN THE INTERNATION
AL ARENA
The competitive scale can be taken into consideration and analyzed from different aspects and by numerous methods of various international institutions. The
aim of the analysis is to represent a real condition of national economies towards
the indicators of competitiveness and to provide the decision-makers with information of main strengths and weaknesses for specic countries.
The evaluation of researches concerning position of a specic competitive indicator is based on methodology implemented to get results of the competitiveness
rate, which should be seriously considered, because they are used as a frame for the
next moves with the aim of productivity enhancement and economy competitiveness. The researches of international institutions concerning the rate of competitiveness can be classied into two groups; the one that analyses competitiveness
according to the development of business activities implemented by World Bank,
the other according to the role of the state, institutions and economic system researched by World Economic Forum (WEF) and International Institute for Management Development (IMD). While some of these researches use the term competitiveness in their title, such as WEF Global Competitiveness Index (GCI), other
methodologies use the term such as economic freedom, improvement in transition
or in business conditions (Lovrievi, Mikuli, Rajh, 2008). Those methods are
also called the methods for determination of competitiveness, thought they do not
478
have the term competitiveness in their title. Among the most sophisticated models
for measuring of competitiveness, the GCI is the prominent and includes micro
and macroeconomic factors of national competitiveness, implemented by WEF,
giving comprehensive situation report of competitiveness worldwide. This method
consists of twelve pillars of national competitiveness, classied into three groups of
factors, which may be implemented to the life cycle of economic system undergoing through them depending on a particular phase.
The economy based on basic factors includes four basic pillars (institutions, infrastructure, macroeconomic environment, health and primary education) that have
undeveloped countries with the largest weight in the nal index of 30 50 %. This
factor takes the institutional environment into consideration or the quality of the
institutions, respectively, which is manifested in legislative measures within which
the individuals, companies and the government mutually have inuence on each
other in order to create and enhance the economic growth. The ecient and developed infrastructure is important for the functioning of economy, and the indicators
are transport and communication-infrastructure network, which is a precondition
for less developed countries to be able to connect the basic economic activities. The
stability of macroeconomic environment represents the evaluation of national economy, and is estimated by the government budget balance, national savings rate, ination, interest rate spread, government debt, and country credit rating. The health
and primary education represent the fourth pillar of basic factors of competitiveness
(business impact of HIV/AIDS, malaria incidence, tuberculosis incidence), since
poor health and lower education level has a great impact on business activity.
The largest weight of eciency of the 2nd factor (higher education and training, good market eciency, labor market eciency, nancial market development,
technological readiness, market size) are the characteristics of the middle-developed
countries. Nowadays economic globalization requires high educated people that are
ready to adjust to the rapidly changes in the market, and so the total quality and
level of investment in educational system is measured on the level of competitiveness of higher education and training. The sixth pillar is focused on production
and trade of products and services on the market dictated by the rules of supply
and demand. The goods market eciency is evaluated by market size, total tax rate,
foreign investment, buyer sophistication and degree of customer orientation, customs procedures and other procedures required to start a business. The next level
of competitiveness evaluates market exibility (female participation in labor force,
cooperation in labor-employer relations, rigidity of employment, hiring and ring
479
practices, and brain drain). Especially in a time of economic crisis, the important
role for economic activity goes to sophisticated nancial market as the eight pillar
of competitiveness with the analysis of condence in banking sector, protection of
investors, ease to access to loans, availability of nancial services. However, in order
to evaluate economy as successful, the banking system must be transparent and
reliable, whereas nancial markets have to have the list of investors protection and
others in economy in general. Information-communication technology is becoming increasingly a relevant element for the economic prosperity and competitiveness. Availability of latest technologies, rm-level technology absorption, FDI and
technology transfer, Internet users, broadband Internet subscriptions and Internet
bandwidth are relevant economic components of the total level of technological
readiness of the national economy. Not less important level of competitiveness is
the market size, since in the era of globalization the international markets have
become a substitute for domestic markets, especially for small countries. Market
access considered as variable of competitiveness is specic for economic growth, because the increasing of buying quantity of goods among countries results in growing demand.
Besides the importance of the rst two factors; basic requirements and eciency
enhancers, the third innovation factor (business sophistication and innovation) has
a signicant weight principally characteristic for less developed countries. The pillar of business sophistication evaluates the quality of total business network in the
country as well as the quality of specic companies and strategies. The last evaluated pillar consist of innovations, investment in research and development, quality
of scientic research institutions, university-industry collaboration, and intellectual
property protection, that ensure long term enhancement of life standard of the
population. While less developed countries improve their productivity by adopting
already existing technologies, developed countries have to create and develop highquality products and processes to maintain and increase competitive advantages.
By this method for calculating competitiveness WEF gives a report for better
understanding of key factors that determinate economic growth and reveal the
reason for some countries to be more successful than other.
3.1. Comparison of competitiveness of Croatia and selected countries
In the last years since the recession began so suddenly and staggered the world
economies, the consequence was repositioning of countries on international mar-
480
kets and thus enhancement of creating a new order of competitiveness. Analyzing

a position of the level of competitiveness of Croatia, the most competitive countries, new EU member, and transitions countries during the period from 2008
till the last Global Competitiveness Report in 2010/2011, according to the above
described methodology, the expected changes on the world scale have been noticed
(according to the last Global Competitiveness Report the ranking of top 10 most
competitive countries in the world is as follows: Switzerland, Sweden, Singapore,
United States, Germany, Japan, Finland, Netherlands, Denmark, Canada).
According to the research data (Global Competitiveness Report 2008 2011),
after a longer period of time being the most competitive economy in the world,
the USA loses its position and moves to 4th position of competitiveness in 2010,
primarily due to the crises that aected world economy. Switzerland takes over the
position of the most competitive country in the world that was spared by recession,
and therefore reaches the best position of competitiveness in almost all pillars of
competitiveness. Some of the numerous factors of competitiveness of this country
are: almost unexisting corruption, strong property rights protection, perfect developed infrastructure, quality of educational system, satisfying macroeconomic
environment, nancial market development, and enviable technological readiness.
The heaviest fall in the rst ten most competitive countries experienced Denmark
that falls 6 places, concerning its high 3rd position in 2008, immediately after USA
and Switzerland. Other developed countries slowly overcome the economic crisis
and slowly come back to the market game of competitiveness. The exceptions are
Sweden and Singapore, which used their potentials during the crisis and improved
by 2 places.
Table 1 Comparison of competitiveness of new EU and transitional countries

Country
Rank 2010
(out of 139)
Rank 2009
(out of 133)
Rank 2008
(out of 134)
Estonia
33
35
32
-1
Czech Republic
36
31
33
-3
Slovenia
45
37
42
-3
Hungary
52
58
62
+ 10
Romania
67
64
68
+1
Change 2008 - 2010
481
Bulgaria
71
76
76
+5
Croatia
77
72
61
- 16
Serbia
96
93
85
- 11
Montenegro
49
62
65
+ 16
Bosnia and Herzegovina
102
109
107
+7
Source: The Global Competitiveness Report 2008 - 2011, www.weforum.com

(5.3.2011)
The recession stroke the new EU member fast and unexpected, however those
countries have also a faster economic recovery (Table 1). Positive examples of such
economies are those in Romania, Bulgaria, Slovenia, and especially in Hungary
which according to the researches and statistic indicators had not highly experienced
the crisis, and so improved by ten places in the ranking of global competitiveness.
The best ranking transition country Estonia is at the high 33rd position according to the last Report, with a high productive economy and which was almost
spared by recession. Other transition countries feel greatly the consequences of economic crisis, especially Croatia which recorded a dramatic fall in ranking of competitiveness, as well as the neighboring Serbia, whereas Bosnia and Herzegovina
and Montenegro recorded unexpected positive trend of movement.
The global economic crisis reected greatly also Croatian economy. Fist signs
of crisis concerning export decrease have been noted in the middle of 2008, when
Croatia was placed at 61st position according to The Global Competitiveness Report. With further deterioration of macroeconomic indicators, Croatia falls 11
places. The negative trend continued in the following year 2010, when we fall additional 5 places. This negative trend is not only a consequence of the recession but
also of domestic problems. The results of this year are alerting to the highest fall in
goods and labor market eciency, nancial market development, and business
sophistication. On the other hand, we have better results in infrastructure, technological readiness and higher education and training.
3.2. Evaluating the position of Croatia
The process of globalization had a great impact to world markets, developing

requirements for mutual competition. Therefore, it is important for each country
to create strength of competitiveness and ensure the best possible and higher position in ranking of global competitiveness.
482
Analyzing the positions of Croatia of international competitiveness, we note

not only weaknesses but also strengths which we can use to compete with many
countries in the world (Table 2).
Table 2 Strengths and weaknesses of competitiveness of Croatia 2010 - 2011

STRENGHT
HIV prevalence, business impact of
malaria
Business impact of HIV / AIDS, business
costs of terrorism
Mobile telephone subscriptions, Internet
bandwidth
RANK
1
14
WEAKNESS
Cooperation in labor-employer relations,
burden of government regulation
Extent and eect of taxation, agricultural
policy costs
RANK
136
134
20
Extent of sta training
128
Quality of math and science education
22
Eciency of legal framework in settling

disputes and challenging regulations
126
Fixed telephone lines
24
Brain drain
122
Quality of roads, infant mortality
31
Wastefulness of government spending,

rigidity of employment
121
Utility patents per million population
35
Intensity of local competition
114
Quality of primary education
37
Buyer sophistication
113
Business costs of crime and violence,

Internet users
40
Prevalence of foreign ownership
110
Internet access in schools, life expectancy
44
Venture capital availability
108
Source: The Global Competitiveness Report 2010 - 2011, www.weforum.com (5.3.2011)
The greatest strength of Croatian economy is in the pillar of health and primary
education where we record high positions in the ranking of competitiveness, especially concerning HIV prevalence, malaria incidence, business impact of HIV/
AIDS, rst of all because those diseases do not have high rate of development in our
country. Moreover, we are good evaluated concerning infant mortality, and life expectancy, which is the result of higher life quality in Croatia. The quality of primary
education is at the high level of competitiveness and more than satisfying, which
has afterwards a great impact on higher education in the eld of quality of math
483
and science education, Internet access in schools, as well as more Internet users in
general. The competitiveness of economies is growing because of various scientictechnological patent and intellectual properties high standards. In a framework of
infrastructure, which is a key for connection and establishing communication, the
economy competitiveness strength is proved in quality of built roads and in high
number of telecommunication network users. Croatia is relatively safe country
with almost low costs for business costs of terrorism, crime and violence, which is
proven with a high position in the ranking of competitiveness.
There are numerous weaknesses of competitiveness. Beginning with institutional
indicators, Croatia is poorly evaluated concerning rst of all complex bureaucracy
regulations, which are a burden for business freedom for entrepreneurs, and efciency of legal framework in settling disputes and challenging regulations. In the
goods market that should be free, competitive and ecient for business start-up
there have been recorded high weaknesses in intensity of local competition, weak
distribution of foreign capital, high agricultural policy costs, and low level of buyer sophistication, which repulses the investors. Moreover, the nancial market is
poorly evaluated in section of ease of access to loans, which is crucial for economic
activities. The largest weakness of labor market is cooperation in labor-employer
relations, for instance outstanding salaries in private sector for several months. On
the other hand, presently there is a rigidity of employment resulting in higher
number of unemployment at employment oce, and thus brain drain as one of
the largest problems of the economy. One of the states struggling problems is also
a high number of employees in civil services resulting in crowd and ineectively
state institutions on the one hand, and on the other hand the trades union makes it
impossible to reduce a number of employees. The paradox is that we have too many
employees in public administration, while work productivity is at minimum, which
makes contra eect, since there is yet no attempt of development or application of
business model in public administration which could enhance work eciency.
Extent and eect of taxation is too high for the life standard in Croatia, and with
tax rate of 23% for value added tax higher consumption cannot be stimulate.
Thereby, Croatia can be evaluated as typical national economy in transition between two phases, one eciency-driven and the other innovations-driven. In the
development phase with respect to eciency factor its competitiveness is high lightened in quality of higher education and training, market size, and ability of using
available technologies which have high positions, whereas slightly weaker evaluated
are goods and labor market eciency, and nancial market development in the
484
ranking of global competitiveness. Since Croatia is still developing, the increasing

standard is resulting in increasing personal income, and thereby it comes near to the
level of development with innovations, ability of creating new and unit products as
well as with application of up-to-date technologies and technological processes.
4. CONCLUDING REMARKS: SELECTED POLICY SUGGESTIONS
The recession which occurred at the world market has gravely disturbed regular
ows of functioning of national economies both in world economy and in Croatian economy, leading to structural changes in the ranking of global competitiveness. The international competitiveness of national economies represents countrys
own ability to enable international exchange by means of various factors, conditions, stimulations, and thus to increase the life standard, build competitive spirit
among countries, and as lager as possible comparative qualities through the pillars
of competitiveness.
Croatia is a small country with exceptionally large and rich potentials which have
to be utilized and emphasized in the world market game. Accordingly, a state and
various institutions have to take various measures and stimulations to ensure competitive advantage of national economy. One of the largest potentials of Croatian
economies, but not the only one is tourism that requires long-term investments. The
building of elite tourism requires implementation of new activities, attracting world
hotel chains, investment promotion of domestic and foreign investors to set up new
trends and thereby extension of the tourist season in order to put Croatia to worlds
top tourism destinations. Promotion of tourism development manifests through
investment in agriculture with a special emphasis on organic food production which
shall not only enhance the health and wellbeing of the population, but also inuence
directly the enrichment of gastronomic oer of Croatian original products. Every
reform requires instructions of our entrepreneurs, how to invest and manage, but
rst of all to promote development of small and medium-sized economies by means
of various stimulations and tax reliefs, and by cutting taxes and other state deductions and excise duty. The higher education which came with Bologna process is very
important for instruction of entrepreneurs. The modernization of higher education
and further investment in science and education increase the number of specialists
and scientists which will use the acquirement and skills in their work in creating
macroeconomic policies, resulting as an extraordinary contribution for enhancing
the competitiveness of Croatian economy on the international level. Moreover, there
485
is a necessity for large investments in researches, and intellectual property protection

that contributes to the development of the society on higher level.
The urgent priority for Croatia is to dene national strategic goals, and to implement a line of structural reforms in order to enhance factors of competitiveness,
that inuence enhancing the productivity and competitiveness of economy with
the aim of accessing the European Union as soon as possible.
Literature
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Porter, M. E. (1998), The Competitive Advantage of Nations, New York: The Free
Press: pp. 543-573
Porter, M. E. (2008), On Competition, Boston, Hard Business School Press: pp.
123-133
Stubbs, R., Underhill, G.R.D. (2006), Political Economy and The Changing Global Order, 3rd edition, Oxford: Oxford University Press: pp. 42-68
Baleti, Z. (2009), Kriza i antikrizna politika, Ekonomski pregled, Vol. 60, No. 1-2:
pp. 99-106 http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=52410
(7.3.2011.)
Luminita, C.D. (2007), Recent Advances in Territorial Competition and Competitiveness Analysis http://papers.ssrn.com/sol3/papers.cfm?abstract_id=963286
(5.3.2011.)
Kuli, S. (2001), Drutveni obzor hrvatskog gospodarstva, Ekonomski pregled, Vol.
52 No. 9-10: pp. 1113-1125 http://hrcak.srce.hr/index.php?show=clanak&id_
clanak_jezik=45152 (26.2.2011.)
Lovrievi, ., Mikuli, D., Rajh, E. (2008), Usporedba metodologija mjerenja
konkurentnosti nacionalnog gospodarstva i poloaja Hrvatske, Ekonomski pregled
Vol. 59 No.11: pp. 603-645 http://hrcak.srce.hr/index.php?show=clanak&id_
clanak_jezik=53080 (1.3.2011.)
The Global Competitiveness Reports 2008-2011, http://www3.weforum.org/docs/
WEF_GlobalCompetitivenessReport_2010-11.pdf (1.3.2011.)
FINANCIAL
ECONOMICS
A CRITICAL EVALUATION OF MICROCREDITING IN BOSNIA AND HERZEGOVINA
489
A CRITICAL EVALUATION OF MICROCREDITING IN BOSNIA

AND HERZEGOVINA
Saa Vuji, Ph.D.
University Vitez Travnik, Bosnia and Hercegovina
kolska 23, 72270 Travnik
[email protected]
[email protected]
Slobodan Vuji Ph.D.
University Vitez Travnik, Bosnia and Hercegovina
kolska 23, 72270 Travnik
[email protected]
VB Leasing BH, Director
Fra Anela Zvizdovia 1, 71000 Sarajevo
[email protected]
ABSTRACT
This aim of this paper is to use academic research to analyse and critically evaluate micronance in Bosnia and Herzegovina. Although micronance has been
present in BiH for about ten years, there is some dierence of opinion as to its
justication. While there have been negative criticisms of its results in BiH, the
work of microcrediting organizations and their results have also received positive
assessment.
A serious critical evaluation of the results of micronance means gathering and
analysing data from loan recipients. We present our scientic research into and
analysis of the impact of micronance on: self-employment, job creation, small
business start-up, small business development and success, increased income from
small businesses, poverty reduction amongst loan recipients, and the costs of micronance the interest rate and the high percentage of microbusiness failure.
490
Saa Vuji Slobodan Vuji
Based on the results of our survey of micro-credit recipients, we draw secure

conclusions as to whether and to what degree micro-credits have a positive or negative impact in Bosnia and Herzegovina.
The aim of this study is a critical evaluation of the justication for developing
micronance in Bosnia and Herzegovina and for supporting the micronance sector generally.
JEL classication: E51, H81
Keywords: micronance, poverty reduction, self-employment, small business.
1.INTRODUCTION
The emergence of microcrediting is conditioned by attempts to alleviate negative eects of various natural, economic and social disturbances and accompanying
consequences. In Bosnia and Herzegovina, microcredits1 and microcredit organizations (MCOs)2 rst emerged in 1995, after the war in B-H and unspeakable economic and social disturbances caused by war activities. In the post-war period, state
and population faced enormous problems of poverty, devastated economic capacities and destroyed material and human potentials. Microcredit organizations base
their goals on the combination of banking and social causes.3 According to a report
by Federal Reserves Bank of Dallas, institutions that approve such loans are the socalled Grameen banks, a term which derives from Bengali word for village. These
banks also expanded to countries such as India, Mexico, Philippines and USA in
order to approve credit to individuals ghting for their lives.4 World Bank started
a microcrediting project named Local Initiative Project LIP 5 with the following
1
Law on Microcredit Organizations, Ocial Gazette of FB-H, issue 59/06, Art. 15

Microcredit organizations (MCOs) in B-H are registered as non-prot and non-governmental
organizations that do not take deposits, and the basic activity of which is porviding microcredits for
socially neediest population, for the purpose of entrepreneurship development
3
Vuji mr. Saa,(2008) Mikrokreditne organizacije i mikrokrediti, Ekonomski fakultet Sarajevo,
ISBN 978-9958-25-014-9, COBIS BH-ID16804358, pp. 40. - 42.
4
Peter S. Rose i Sylvia C. Hudgins, (2005),Bankarski menadement i nancijske usluge, 6. izdanje,
ISBN 86-7478-009-1,COBIS ID 120805644 Datastatus, p. 730.
5
LIP I and LIP II are World Bank projects implemented in FB-H and RS, through LOIN foundation in the Federation and Republika Srpska (LIP I), and through Micronance units of OdRAZ
Sustainable Development Foundation in the Federation and Micronance unit of Development and
Employment Fund in Republika Srpska .
2
491
goals: (1) to allow access to credits for entrepreneurs to needy population (poor
citizens), (2) to encourage the development of independent, nancially sustainable
micronance institutions that would continue to provide access to such loans, and
(3) to creates proper legal framework for providing credits and other nanical service to low-income entrepreneurs. As opposed to microcredit organiations, banks
are for-prot organizations6 involved in providing loans under accurately dened
conditions, which are typically not met by poor population.
Microcredit organizations (MCOs) development and microcredit supply have
signicant positive eects both on credit users, i.e. their material (economic) position and, indirectly, on the development of society as a whole. Another dimension
of positive eects is strengthening of the purchasing power of both credit users and
their families, alleviating eects of poverty and low incomes.
2. CAUSES OF MICROCREDIT DEVELOPMENT
Economic problems and poverty aected the orientation of international nanical institutions (World BAnk and others) and local government to start, or support
the development of microcredit sector in order to reduce poverty. Most complex
social problems involve many stakeholders with dierent goals, concerns, interests,
needs and viewpoints. The list of stakeholders may include organizations that represent dierent sub-groups, some of which suer from problem consequences, then
sub-groups of experts and professionals who work on solving the problems. 7 World
Bank criteria on poverty level are:8
- General poverty line, dened by annual consumption of 2,198 KM per person, or 6.02 KM a day,
- Extreme poverty line, dened by annual consumption of 760 KM per person,
or 2.08 KM a day.
Rose Peter, (2003.), Commercial Bank Menagment,ISBN 953-6070-66-9, MATE, The Mc

Graw Hill, p. 6.
7
Joel L. Fleishman, (2007),The Foundation : a great American secret:how private wealth is changing
the world, ISBN-13:978-1-58648-411-8. , by Public Aairs, p. 205.
8
Razvojna strategija BiH - PRSP, (2003 2007.), May 2003 Vijee ministara BiH, p. 2., Poglavlje:
1. Siromatvo u BiH.
492
Data show that in BOsnia and Herzegovina9:

- 19.5% population live under the general poverty line (16% in FB-H and 25%
in RS, respectively),
- 30% population are immediately above the general poverty line, which implies that even slightest economic disturbances may push them bellow the general
poverty line.
A survey on living standard measurement in B-H was conducted by three statistical organizations in B-H.10 The described survey (LSMS - Living Standard
Measurement Survey in Bosnia and Herzegovina) was conducted on a randomly
selected sample of 5,400 households across B-H. The survey conrmed a high level
of poverty and its spread in all regions and among various population categories.
Economic trends after 2001 reveal a slight increase of the situation, i.e. a sloweddown growth of the number of people in the poor category, although this problem
is still prominent.11 Besides war activities and economic capacity destruction, the
major cause of poverty in B-H is unemployment. The number of jobs in B-H
barely reached 60% of the pre-war number of working population. According to
ocial statistics, the number of jobs has been stagnating in the post-war years,
while the unemployment has been growing steadily, which can be seen from the
following table.
Dec. 1998.
Dec. 2000
Dec. 2002.
Dec. 2007.
Dec. 2009
Dec.
2010
FB-H
Employed
407.047
411.305
390.201
413.000
431.131
426.556
Unemployed
Unemployment rate
256.487
38,7%
261.773
38,9%
290.715
42,7%
317.000
43,0%
338.643
44%
347.146
45%
234.713
266.000
259.417
235.100
RS
Employed
9
244.267
227.748
Razvojna strategija BiH - PRSP, (2003 - 2007.), maj 2003. godine, Vijee ministara BiH, str. 2.
Poglavlje: 1. Siromatvo u BiH.
10
Anketa o mjerenju ivotnog standarda u BiH, published by: Three statistical organizations in B-H,
371 pages.
11
Agencija za statistiku BiH, Federalni zavod za statistiku i Zavod za statistiku RS: ankete o mjerenju
ivotnog standarda u BiH.
493
Unemployed
142.009
153.264
134.990
203.000
133.074
142.350
Unemployment rate
36,8%
38,5%
36,5%
43,0%
33,90%
37,7%
Table 1.: Ocial unemployment rates, by Entities

Source: Statistical reports of FB-H and RS for the listed years.
Besides the incomplete ocial statistics, data from various international institutions that include data on jobs in the grey economy in their analysis are also used
in B-H, which then aects the correction of numbers on the employed upward,
and those on the unemployed downward. Although B-H statistics do not provide
accurate data on the number of employed and unemployed (or truly employed/
unemployed), it is not crucial for microcredit sector development. The conviction
on the necessity of developing the microcredit sector rests n the fact that numerous B-H citizens do not have certain permanent source of income, and that selfemployment using microcredits is the only solution for such persons. All the organizations should focus on building capacities of their overall organization if they
want to maximize their social impact.12 Besides, employment in micro-business
secures jobs for members of the family of microcredit users who start their business,
a family business.
Early in 2009labout 50 microcredit organizations were registered in B-H, with
some 200,000 clients.13 However, twelve microcredit organizations are dominant
and cover 98% market. In 2008, US magazine Forbes published part of a study
and ranked fty most successful microcredit institutions across the world. Five
microcredit organizations from B-H were ranked among the fty best microcredit organizations in the world. The reason for high ranking of B-H microcredit
organizations derives from their achievement of set goals: employment, increase of
household income, poverty reduction, business start-ups, etc.
Venture Philanthropy Partners by McKinsey and Company, Eective Capacity Building in

Nonprot Organizations, Venture Philanthropy Partners, 2001, P. 27.
12
13
Gorana Tinjia, Head of Operations department of World Bank for B-H, Interview in INFOKOM
magazine, Sarajevo, February 2009.
494
3. ANALYSIS OF CLIENT SATISFACTION WITH MICROCREDIT ORGANIZATION
MCO cedit users were asked multiple choice questions, so that the client could
select and circle the appropriate answer. The research produced the following
results:14
a) Most responses to the question as to which sector your business activity belongs to pertained to retail trade 25.0%, then manufacturing 22.1%, service
activity 14.2%, wholesale 10.7%, agriculture 9.2%, tourism 4.8%, etc.15
b) MCO credit users responses to the question as to what they did upon taking the credit are interesting since they show how the resourced obtained through
microcreidting were allocated. Most microcredit users allocated the resources to
expanding the scope of business 30.6%, then they bought or improved the equipment 25.3%, developed a new business 14.3%, decreased costs 11.6% etc.
c) The question as to what were their earnings in the past month indicates
whether the microcredit was given successfully and whether the set microcrediting
goals, i.e. self-employment and household income increase have been achieved. Responses indicate that clients material positions have been improved. Thus 64.0%
responded that they earned up to 500KM in the previous month, 26.7% earned
from 501-1,000 KM, 6.6% earned between 1,001 and 2,000 KM, while 2.7%
earned more than 2,000 KM.
d) Clients point out that positive sides include easier guarantees 29.0%, then
permanent source of working capital 24.7%, training or technical support
22.2%, methodology 19.0%.
e) According to clients, the most important negative side with MCO is high
interest 32.7%, then transaction costs for client 23.1%, too short or too long
credit cycle 16.4%, too low initial credit amount 14.0%, troublesome methodology (group or individual) 8,3%, etc.
14
15
Vuji S. (2010), Research results, own data collection

495
Overview 1: Annual interest rates
25,00%
21,60%
20,00%
14,40%
13,20%
15,00%
10,00%
5,00%
0,00%
OD 1996 2000
OD 2001 2005
OD 2006 2009
Source: Vuji S. (2010), Own data collection
Research into clients social status provided the following results16:

a) To the question as to whether the client is employed, 42.9% clients responded with yes and 57.1% with no. It is obvious that clients who are unemployed
want to use the credit to start a business and achieve self-employment. However,
reasons for taking a credit among the employed include business expansion, rather
than self-employment.
b) The question as to whether the client was employed based on the MCO
credit was answered armatively by 37.4% clients, and negatively by 62.5%. Still,
it can be claimed that a great number of clients achieved self-employment owing
to microcredits.
c) 37,4% clients responded that no household member was employed when they
started taking microcredits, which suggests that the microcredit was a starting point
for self-employment and starting ones own business. There were 59.6% responses
with one employed, and a small number with two or more employed. There were
2.5% responses with two employed, and only 0.5% with three employed.
16
496
CONCLUSION
The analysis of the position and possibilities of microcredit organizations, results of their activity in the past period, and eects that microcredit utilization had
on their users, their nancial situation and employment leads to the conclusion
that microcredit organizations, among potential clients and credit users, can aect
the increase in the scope and duration of cooperation with credit users, since they
allow small business start-ups, self-employment and achievement of own income
and reduction of poverty.
MCO credit users suggest that they allocated the resources to the expansion of the
scope of business, purchasing or improving equipment. Microcredit users responses
indicate that clients improved their nancial position. The most important negative
sides in MCOs include high interest rate, transaction costs, and too long or too short
credit cycle. Reasons for taking a credit by those that are already employed are business expansion, rather than self-employment. The research suggests that the Microcredit was a starting point for self-employment and starting ones own.
Primary and secondary17 data reveal a positive trend in the social and economic
position of clients who use microcredits. In this way, individuals interests t into
the overall interests of the recovery and development of whole B-H. Microcredit
utilization has a direct eect on the improvement of individuals/users position.
The positive eects is expressed through the increase of income per individual and
whole household, increase in employment, new business start-ups, investing into
business activity, poverty reduction, eect on the increase of business activity registration, and reduction of unemployment through self-employment and starting
ones own business.
Based on the above described, it is necessary to act in the direction of launching
and distributing positive information on real value and signicance, and the role
microcredit organizations have for credit users. According to data by Micronance
Information Exchange (MIX) 18, in 2008 as many as seven B-H microcredit organizations were ranked among the rst hundred microcredit organizations world
wide19. By the number of microcredit organizations, B-H shares the second place
with Ecuador, while India is ranked rst with nine MCO sin the best hundred.
17
Dunu Elizabeth, May 2005, Final report LIP II, Sarajevo, p. 15.
Micronance Information exchange (MIX) is a leading provider of business information and service
data for microcredit sector.MIX head oce is in Washingtonu D.C., USA.
19
In 2007, according to 2007 MIX Global: Micronance institutions report, four B-H MCOs were
ranked among the rst hundred world wide.
18
497
References
Agencija za statistiku BiH, Ankete o mjerenju ivotnog standarda u BiH

Elizabeth Dunu, (2005), Finalni izvjetaj LIP II, Sarajevo
Federalni zavod za statistiku, Ankete o mjerenju ivotnog standarda u BiH,
http://www.fzs.ba/
Global: Micronance institutions
Joel L. Fleishman, (2007),The Foundation : a great American secret:how private
wealth is changing the world, ISBN-13:978-1-58648-411-8. , by Public Aairs.
Micronance Information exchange (MIX) , Washingtonu D.C. SAD.
Peter S. Rose i Sylvia C. Hudgins, (2005),Bankarski menadement i nancijske
usluge, 6. izdanje, ISBN 86-7478-009-1,COBIS ID 120805644 Datastatus.
Rose Peter, (2003.), Commercial Bank Menagment,ISBN 953-6070-66-9,
MATE, The Mc Graw Hill
Tinji G., Operativni odjel Svjetske banke za BiH, Intervju u asopisu INFOKOM,
Sarajevo, (2009)
Venture Philanthropy Partners by McKinsey and Company, (2001),Eective Capacity Building in Nonprot Organizations, Venture Philanthropy Partners.
Vijee ministara, (2003) , Razvojna strategija BiH - PRSP, (2003 2007),.
Vuji mr. Saa,(2008) Mikrokreditne organizacije i mikrokrediti, Ekonomski
fakultet Sarajevo, ISBN 978-9958-25-014-9, COBIS BH-ID16804358
Vuji S. (2010), Rezultati istraivanja,vlastito prikupljanje podataka
Zakon o mikrokreditnim organizacijama, Slubene novine FBiH, broj 59/06,
lan 15
Zavod za statistiku RS, Ankete o mjerenju ivotnog standarda u BiH
http://worldbank.org/
http://pa.gov.ba/
498
DILEMMAS OVER FINANCIAL INNOVATION DEVELOPMENT.

THE CASE OF CREDIT DERIVATIVES.
Izabela Pruchnicka-Grabias, Ph.D. Warsaw School of Economics, Poland
Abstract
The author analyses the virtues and drawbacks of nancial innovation over the
last 15 years to show that from one point of view it plays a positive role in the development of the world economy, however from another point of view it creates
many fears concerning it. It is done by the analysis of the derivatives development
from their early stages known as standard products up to the complex structures
called exotics which are dicult both to value and to hedge.
To prove the above mentioned thesis, the author analyses data that show the
dynamic rise of chosen derivatives turnover up to the world nancial crisis of 2007
2009 and a slowdown caused by it. The paper leads to the conclusion that nancial innovations should be developed, however they should be monitored by the
suitable law and institutions in order not to get out of control.
JEL classication: F36, G15, O16, P34
Key words: nancial innovation, standard derivatives, exotic derivatives
Introduction
It has often been stressed in the literature that innovations are necessary for the
economy to develop. However more and more often can it be observed in practice
that although they have by no means many virtues, they also threaten the stability
of the economy. That is why the author decided to provide the literature review of
innovations together with looking at the practical aspects of these process via the
analysis of credit derivatives markets.
DILEMMAS OVER FINANCIAL INNOVATION DEVELOPMENT. THE CASE OF CREDIT ...
499
Denition, kinds and causes of nancial innovations
Financial innovation like innovation elsewhere in business is an ongoing

process whereby private parties experiment to try to dierentiate their products and
services, responding to both sudden and gradual changes in the economy.1
Financial innovations can be grouped as new products (e.g. adjustable rate
mortgages; exchange traded index funds); new services (e.g. on-line securities trading, internet banking); new production processes (e.g. electronic record-keeping
for securities, credit scoring); or new organizational forms (e.g. new type of electronic exchange for trading securities; Internet-only banks). Of course, if a new
intermediate product or service is created and used by nancial services rms, then
it may become part of a new nancial production process.2
If one looks into the literature on nancial innovation, it can be divided into
the following parts:
Innovation is the core of the development of the economy and inuences it in
the positive way (f.e. Garbade and Silber examined securities price dierentials
before and after the establishment of the telegraph in the 1840s (U.S.) and before
and after the trans-Atlantic telegraph (1866) and came to the conclusion that the
introduction of the telegraph led to a signicant decrease in price dierentials3)
Innovation gives no net gains for the development of the economy (Van
Horne4 and Mayer express their fears that innovations cause that more transactions are conducted in the markets, which in turn makes them churning,
however they make markets of securities instable and let take greater risks, especially when they are used by subjects that do not have enough of knowledge
to take advantage of such instruments.5)
P. Tufano, Financial Innovation, a chapter in: G. Constantinides, M. Harris, R. Stulz, The Handbook of Economics of Finance, Harvard Business School, June 16, 2002, p. 2.
2
W.S. Frame, L.J. White, Empirical Studies of Financial Innovation: Lots of Talk, Little Action?,
Working Paper Series, Federal Reserve Bank of Atlanta, July 2002, p. 4 5.
3
K. Garbade, W. Silber, Technology, Communication, and the Performance of Financial Markets,
Journal of Finance, No. 33, June 1978, p. 819 832.
4
Van Horne, Of Financial Innovations and Excesses, Journal of Finance, No. 40, July 1985, p. 621
636.
5
C. Mayer, Financial Innovation: Curse or Blessing?, Oxford Review of Economic Policy, No. 2,
December 1986, p. i-xix.
500
Innovation can be both protable and harmful for the economy, so it must be
controlled (f.ex. R.C. Merton notices that innovations in derivative products
can be implemented unilaterally and rather quickly. In contrast, changes in nancial infrastructure must be coordinated and therefore take longer to implementIt is possible that at times the cumulative imbalance between products
and infrastructure development could become large enough to jeopardize the
very functioning of the nancial system, however the author stresses at the
beginning of the paper that he wants to look at nancial innovations like at
the driving force of the economy, not a pathology.6).
P. Tufano summarizes the causes of innovation in the following points:7
Innovation completes inherently incomplete markets. For example, D.G.
Black stresses a link between a new contracts viability (measured by its trading
volume) and its ability to make markets more complete (measured by its lack
of correlation with high and insurable risk).8 M. Grinblatt and F.A. Longsta
come to the conclusion that investors make new nancial market instruments
(he studies treasury zero-coupon bonds) to complete markets.9
Innovation persists to address inherent agency concerns and information asymmetries. It is understood as conicts of interest between capital providers and
managers, as well as asymmetric information that lead to issuing of securities.
These issues are analyzed by M.Harris and A.Raviv10 or F.Allen and D.Gale11.
Innovation exists, so parties can minimize transaction, search or marketing
costs. The existence of transaction costs is one of the reasons for the nancial
6
R.C. Merton, Financial innovation and the management and regulation of nancial institutions,
Working Paper No. 5096, National Bureau of Economic Research, April 1995, p. 6, 22 23.
7
P. Tufano, Financial Innovation, a chapter in: G. Constantinides, M. Harris, R. Stulz, The Handbook of Economics of Finance, Harvard Business School, June 16, 2002, p. 1 26.
8
D.G. Black, Success and failure of futures contracts: Theory and empirical evidence, Salomon Brothers Center for the Study of Financial Institutions, Monograph Series in Finance and Economics,
1986, p.1.
9
M. Grinblatt, F.A. Longsta, Financial innovation and the role of derivative securities: An empirical
analyssis of the Treasury STRIPS program, Journal of Finance 55(3), 2000, p. 1415 1436.
10
M.Harris, A.Raviv, The theory of capital structure, Journal of Finance, No. 46(1), 1991, p. 297
355.
11
F.Allen D.Gale, Financial Innovation and Risk Sharing, MIT Press, Cambridge, MA, 1994.
501
intermediaries to appear on the market, which is discussed by R.C. Merton12.

Besides D. Madan and B. Soubra analyze how these nancial intermediaries
try to maximize their revenues thanks to creating dierent products addressed
to many investors.13
Innovation is a response to taxes and regulation. The most famous proponent
of this view is M.H. Miller who keeps repeating that the major impulses to
successful innovations over the past twenty years have come, I am saddened to
have to say, from regulation and taxes.14
Innovation is induced by increasing globalization and risk. For example C.
Smith, C. Smithson and D. Wilford show the relation between the riskiness
(understood as the volatility of interest rates, exchange rates or commodity
prices) and the scale of nancial innovation.15
Innovation is stimulated by technological shocks. L. J. White emphasizes that
such intellectual technologies like derivative pricing models contributed to the
dynamic growth of this market.16
It is worth emphasizing that from one point of view globalization creates innovation, however from another point of view, it is innovation that lets countries globalize. So these two processes inuence each other. The same rule applies
to taxes and regulations or technological shocks. Taxes and regulations encourage
market participants to avoid them and create innovations that let do it and at the
same time increasing innovations require introducing new regulations in order to
prevent the economy against their bad inuence on it or new taxes if new kinds of
transactions are conducted. The same can be observed for technological process.
12
R.C. Merton, On the application of the continuous time theory of nance to nancial intermediation and insurance, Geneva Papers on Risk And Insurance, No. 14(July), 1989, p. 225 262.
13
D. Madan, B. Soubra, Design and marketing of nancial products, Review of Financial Studies,
No. 4(2), 1991, p. 361 384.
14
M.H. Miller, Financial innovation: The last twenty years and the next, Journal of Financial and
Quantitative Analysis, No. 21(4), 1986, p. 459 471.
15
C. Smith, C. Smithson, D. Wilford, Managing Financial Risk, Harper Business, New York 1990.
16
L.J. White, Technological change, nancial innovation, and nancial regulation in the U.S: the
challenge for public policy, in: P. Harker, S. Zenios (ed.),Performance of Financial Institutions, Cambridge University Press, Cambridge, UK 2000, p. 388 415.
502
The idea and application of credit derivatives
Derivatives can be treated as new products and their virtue is that they give the
possibility to transfer the credit risk (credit derivatives) or other types of risks (for
example currency risk), which helps a company to concentrate on its main activity
no matter what the market situation is. The main kinds of credit derivatives are:
Credit swaps in which one party pays a premium at regular time intervals,
whereas another party makes payment that depend on the occurrence of a
credit event.
Total return swaps in which one party makes cyclical payments based on an
underlying asset market, whereas another party makes payments based on
costs of nancing.
Credit spread options that are options whose underlying asset is the credit
spread that is the dierence between the interest rate of a lender (on the credit
or bond market) and the interest rate of treasury bills with the same time to
maturity. One can name two types of credit spread options:
- Call option on credit spread that entitles its holder to buy the credit spread
at the agreed price, which means that it lets generate prots when the credit
spread is reduced (credit risk is lower)
- Put option on credit spread that entitles its holder to sell the credit spread
at the agreed price, which means that it lets generate prots when the credit
spread widens (credit risk is higher).
The most often applied and as a result, the most liquid of the instruments named
above are credit swaps. S. Das emphasizes the nine following key terms of the credit
default swap:17
Reference entity: This is in eect the reference obligor the occurrence of a
credit event in respect of which triggers the payout under the swap. The concept of reference entity is unique to credit default swaps. In the case of both
total return swaps and credit spread transactions, a reference asset is needed.
In contrast, in the case of a credit default swap, a reference entity concept is required. A reference asset is only required where there is cash settlement (based
17
S. Das, Credit derivatives and credit linked notes, John Wiley & Sons, Singapore 2000, p. 32
34.
503
on the post-default price of the bond and loan)or physical settlement. It may
also be needed to determine materiality.
Reference asset: The relevant traded bond or loan asset issued or guaranteed
by the reference credit must be nominated. The initial price of the asset must
be agreed between the parties as at the commencement of the transaction.
This is particularly important where the default payment is based on the postdefault price of the security. The initial spread to US$ LIBOR on an asset
swap basis is also agreed to enable determination of materiality where this is a
condition of the transaction.
Transaction dates: The key transaction dates include:
- The trade date on which the eective terms of the transaction are agreed between the buyer and seller of protection
- The eective date (usually 3 5 business days after the trade date) when the
transaction becomes eective
- Termination date when transaction ends.
The eective date is important in that credit protection is only valid commencing from the date and any credit event that occurs prior to that date is not covered.
Termination is usually after the agreed period of credit protection or where there is
a credit event prior to the scheduled maturity, the date of the credit event.
Credit event: The occurrence of the credit event triggers the obligation of the
seller of default protection to make the default payment to the purchaser of
default protection.
Materiality: The default event is usually linked to some concept of materiality
to avoid an unintended triggering of a credit event.
Publicly available information: The existence of a credit event is usually
determined on the basis of publicly available information. This is required
because it is assumed that either seller or buyer of protection has a contractual
relationship with the reference entity, and, therefore, will only become aware
of the occurrence of a credit event from public sources of information.
Default payment: Following a credit event, the buyer of protection is compensated by the receipt of a payment from the seller of protection designed
504
to match the erosion of value in the underlying bond or loan arising from the
credit event.
Payment timing: The settlement timing varies between the dierent default
payment structures.
Payment for credit/default protection: The buyer of default protection pays
a premium. This premium is usually structured as an annual fee paid quarterly
or semi-annually.
Among the main ways of applying credit derivatives one can name:18
The credit risk reduction the consequence of using a credit derivative by
a subject that wants to hedge is the reduction or elimination of credit risk.
However, credit risk is eliminated only if one uses instruments like bonds with
credit options that is such instruments that assume that amounts that are to
hedge a subject against the credit risk are paid in advance. The rest of credit
derivatives create the credit risk of a counterparty. It means that a subject
hedges itself against the credit risk of a reference entity and at the same time
takes on the risk of a counterparty.
Taking the long position in the credit risk this way of generating prots
has some virtues compared with the classical purchase of assets. First, it doesnt
require incurring costs of possessing a balance sheet asset. Second, taking positions in credit risk instead of buying assets lets take on the credit risk only,
instead of taking on additionally other kinds of risks like interest rate or currency risk.
Credit portfolio management many theoretical papers stress that the most
important application of credit risk is this eld. Banks still have many geographically and industrially concentrated portfolios of credit liabilities.
Alternative for liquidity reserves J.T. Moser19 presents credit derivatives as
an alternative for holding liquid stock or risk-free securities in order to manage liquidity shortages resulting from potential losses on credit risk.
18
See further: K. Jackowicz, Pochodne instrumenty kredytowe (II). Zastosowania pochodnych instrumentw kredytowych i zwizane z tym problemy, Bank i Kredyt, April 2001, p. 33 45.
19
J.T. Moser, Credit Derivatives: Just-in-time Provisioning for Loan Losses, Economic Perspectives,
Federal Reserve Bank of Chicago, Fourth Quarter 1998, p. 2 11.
505
The management of costs of nancing the activity often the aim of using
credit derivatives is to arbitrage costs of capital20.
Besides, from the global point of view, swap curves let forecast the condition of
both the economy and companies. It means that they can be treated as a barometer
of the economy. If the risk associated with a subject is higher, risk premiums are
higher, so swap curves go up. It is interpreted as higher probability of defaulting in
the future. To be exact, swap curves reect the term structure of spreads on credit
swaps markets. Their shape is determined by the supply and demand of hedges
against credit risk and shows the credit quality of reference subjects. The majority
of swap curves is rising, because investors expect a higher compensation for giving
a hedging for longer periods of time, because usually the probability of default is
rising together with time. However, other shapes are also possible. Swap curves for
a few banks are depicted in chart 1, chart 2, chart 3 and chart 4.
Chart 1. Fluctuations of swap curves for Santander Consumer Bank from May 2007 to December 2010.
Source: prepared by the author using the data from Bloomberg.

20
See also: J.M. Tavakoli, Credit Derivatives: a Guide to Instruments and Applications, John Wiley
& Sons, Inc., 1998, p. 121 124.
506
As it can be concluded on the presented charts, risk premiums measured as

credit spreads for credit swaps are rising in the examined period of 2007 2010.
Chart 2. Fluctuations of swap curves for Societe Generale from May 2007 to December 2010.
507
Chart 3. Fluctuations of swap curves for Deutsche Bank from May 2007 to December 2010.
In April 2007 the dierences between risk premiums for these four banks were
not as high as in 2010, when Spain was endangered with crisis, which was reected
with higher risk premiums for Spanish institutions like Santader Consumer Bank.
Besides, in 2010 there started speculations on the fact that France can be the next
country to fall into the budget crisis, which was also reected by risk premiums. At
the same time swap curves for such nancial institutions as UBS the biggest Swiss
bank or Deutsche Bank (based on German capital) did not go as high as here. These
data prove that swap curves are a barometer of the economy, which means that by
their observation one can conclude on the situation or the expected situation of a
country or of a reference company.
508
Chart 4. Fluctuations of swap curves for UBS from May 2007 to December 2010.
Chosen risks concerned with credit derivatives
All discussed ways of using credit derivatives let treat them as an ecient hedging tool, however they can also be used for arbitrage and speculation. It is mainly
the speculation that is supposed to be harmful to the economy.
It is not only after the global nancial crisis of 2007 2009 when credit derivatives started to be treated as a thread to nancial stability. In 2004 rating agencies
warned against credit derivatives. For example, the report prepared by Fitch Ratings
Agency emphasized that investors who to a large extent rely on data concerning
credit spreads as the main indicator of the default risk, play a dangerous game. In
the meantime Standard&Poors stressed that credit derivatives did not help banks
avoid large losses in the current credit cycle.21 These also market regulators to raise
concerns about the credit risk transfer which may result in the risk concentration at
the nal users of credit derivatives.22
21
N. Patel, F. Haddow-Allen, Rating agencies debunk credit derivatives misconceptions, Risk, January 2004, p. 9.
22
M. Crabbe, Central banks seek more data on credit derivatives, Risk, June 2004, p. 16.
509
Besides, The European Central Bank pays attention to the information asymmetry concerning credit swaps prices and it stresses that the information on prices
is limited, because prices for dealers are set bilaterally and they are not possible
to be achieved for non-dealers. Some data are released by commercial providers
continuously or at the end of the day, however they do not include information on
parties of transactions or turnovers.23
N. Instefjord shows that nancial innovation in credit derivatives can increase
bank risk, especially in these banks, which operate in extremely exible segments of
the credit market. Thus, credit derivatives trading is a potential thread for a bank
stability, even if banks apply these instruments only for hedging purposes or securitization of credit exposures.24
Moreover, credit derivatives let transfer credit risk, however in return for it a
party of a transaction, takes the credit risk of a counterparty (see gure 1). It derives
from the fact that credit derivatives are traded over the counter. The good news is
that there are legislative works conducted which aim at creating the institution that
is to be responsible for credit derivatives transactions settlement and most of all
that will guarantee transactions. It is one of the virtues of the world nancial crisis
of 2007 2009.
Figure 1. The idea of credit derivatives from the point of view of main kinds of risk transfer.
W

W
Source: prepared by the author.
23
Credit Default Swaps and Counterparty Risk, European Central Bank, August 2009, p. 62.
N. Instefjord, Risk and hedging: do credit derivatives increase bank risk?, Journal of Banking and
Finance, vol. 29, iss.2, February 2005, p. 333 245.
24
510
To sum up, one cannot say that credit derivatives inuence global nancial markets only in a positive or in a negative way. In my opinion, any innovative product
can have a positive inuence on the economy if together with its development,
suitable regulations are created. However, from another point of view, it is worth
emphasizing that too strict regulations and control induce the creation of further
innovations that can have a negative impact on the nancial market stability. Thus,
from one point of view regulations are necessary to limit the bad inuence of credit
derivatives on the market and from another point of view, one cannot make the
market to be over-regulated because it will result in launching new innovations that
may make the nancial system unstable.
Bibliography:
Allen F., D.Gale (1994), Financial Innovation and Risk Sharing, MIT Press, Cambridge, MA.
Black D.G. (1986), Success and failure of futures contracts: Theory and empirical
evidence, Salomon Brothers Center for the Study of Financial Institutions, Monograph Series in Finance and Economics.
Crabbe M. (2004), Central banks seek more data on credit derivatives, Risk, June.
Credit Default Swaps and Counterparty Risk (2009), European Central Bank,
August.
Das S. (2000), Credit derivatives and credit linked notes, John Wiley & Sons,
Singapore.
Frame W.S., L.J. White (2002), Empirical Studies of Financial Innovation: Lots of
Talk, Little Action?, Working Paper Series, Federal Reserve Bank of Atlanta, July.
Garbade K., W. Silber (1978), Technology, Communication, and the Performance
of Financial Markets, Journal of Finance, No. 33, June.
Grinblatt M., F.A. Longsta (2000), Financial innovation and the role of derivative securities: An empirical analysis of the Treasury STRIPS program, Journal of
Finance 55(3).
Harris M., A.Raviv (1991), The theory of capital structure, Journal of Finance, No.
46(1).
Horne Van (1985), Of Financial Innovations and Excesses, Journal of Finance, No.
40, July.
511
Instefjord N. (2005), Risk and hedging: do credit derivatives increase bank risk?,
Journal of Banking and Finance, vol. 29, iss.2, February.
Jackowicz K. (2001), Pochodne instrumenty kredytowe (II). Zastosowania pochodnych instrumentw kredytowych i zwizane z tym problemy, Bank i Kredyt,
April.
Madan D., B. Soubra (1991), Design and marketing of nancial products, Review
of Financial Studies, No. 4(2).
Mayer C. (1986), Financial Innovation: Curse or Blessing?, Oxford Review of Economic Policy, No. 2, December.
Merton R.C. (1995), Financial innovation and the management and regulation
of nancial institutions, Working Paper No. 5096, National Bureau of Economic
Research, April.
Merton R.C. (1989), On the application of the continuous time theory of nance
to nancial intermediation and insurance, Geneva Papers on Risk And Insurance,
No. 14(July).
Miller M.H. (1986), Financial innovation: The last twenty years and the next,
Journal of Financial and Quantitative Analysis, No. 21(4).
Moser J.T. (1998), Credit Derivatives: Just-in-time Provisioning for Loan Losses,
Economic Perspectives, Federal Reserve Bank of Chicago, Fourth Quarter.
Patel N., F. Haddow-Allen (2004), Rating agencies debunk credit derivatives misconceptions, Risk, January.
Smith C., C. Smithson, D. Wilford (1990), Managing Financial Risk, Harper
Business, New York.
Tavakoli M. (1998), Credit Derivatives: a Guide to Instruments and Applications,
John Wiley & Sons, Inc.
Tufano P. (2002), Financial Innovation, a chapter in: G. Constantinides, M. Harris, R. Stulz, The Handbook of Economics of Finance, Harvard Business School,
June 16.
White L.J. (2000), Technological change, nancial innovation, and nancial
regulation in the U.S: the challenge for public policy, in: P. Harker, S. Zenios
(ed.),Performance of Financial Institutions, Cambridge University Press, Cambridge, UK.
Cornelia Pop Maria-Andrada Georgescu
512
ROMANIAN MUNICIPAL BOND MARKET

Prof. Dr. Cornelia POP,
Faculty of Business, Babes-Bolyai University, Cluj-Napoca, Romania,
[email protected]
Lecturer Dr. Maria-Andrada GEORGESCU
Faculty of Public Administration, National School of Political Studies and
Public Administration, Bucharest, Romania
ABSTRACT
During 1998 Romanian regulations regarding municipalities underwent changes that allowed county and local authorities to alternative nancing sources, mainly
for medium and long term investment projects, through bond issuing.
At the end of November 2001, a secondary market for municipal bond trading
was launched at Bucharest Stock Exchange and the exchange also oers a platform
for the announcement and subscription to municipal bond public oerings. During the past 9 years, the market for Romanian municipal bonds grew steadily, but
had a relative limited success. While the number of issuers grew from 2, as of October 2001, to currently 35, the turnover of municipal bonds represent less than 1%
of Bucharest Stock Exchange total turnover and only about one third of the total
bond market segment.
The present paper will present the municipal bond market segment at Bucharest
Stock Exchange, further it will investigate the factors that inuenced the current
stage of development of Romanian bond market. Within the paper a trial will be
made to identify those weak factors that could be eliminated, enhancing the factors
that could strengthen the Romanian municipal bond market and could transform
it in a powerful market segment that can provide a true alternative solution for
nancing ecient investment projects at local and regional level.
JEL Classication G12, H74, O16
Key words: bond, municipal, market, Romania
513
Introduction
The European debt market foundation was oered by the introduction of euro
(January 1st 1999) which generated the denomination of the existing European sovereign and sub-sovereign. The euro-area debt market became comparable with US
treasury market in term of size and issuance volume (Galati and Tsatsaronis, 2001).
The growth continued and, by 2006, the European sovereign bond market became
the worlds largest market for debt securities, exceeding the size of the U.S. sovereign
bond market with an aggregate value of 3,000 billion EUR (Dunne et al.2008).
Debt securities issued by public authorities form the most important segment of
European debt market, followed by debt securities issued by nancial institutions;
bonds remain one of the main instruments of governments (central, regional and local) to nance their budget decits, as highlighted by De Han et al. (2009, pp.77-78)
The core of European debt market is dominated by euro-area issuers (De Haan
et al.2009, pp.77-78), but the diversity increased starting with 2004 and continuing
during 2007 and was due to the total of 12 new member states that joined the European Union (EU). The new member state debt markets are not all comparable in
size and issuance volume with the developed EU countries; however analyses of the
respective domestic debt markets provide a complex image of the enlarged European
debt market.
The development of debt market in Central and Eastern European Union countries has as main objective to encourage their respective central, regional and local
governments to consider bond nance as an important way for regional and local
project investments. Also, a closer relationship between the local/ regional/ central
authorities and the capital markets could enhance the quality and the eciency of
nanced projects and encourage long term nancial planning.
The support for a liquid, transparent and ecient debt market in Central and
Eastern European Union countries can also prove to be part of the solution for ongoing developments of national capital markets which face long-term sustainability
challenges give the growing integration process of nancial markets within Europe
and the rest of the world, as highlighted by Berglof and Boltan (2002). By oering
a place for domestic government institutions to raise capital mainly from domestic,
smaller investors that cannot aord to be present in multiple markets, national
capital markets prove to be valuable (Andritzky 2007; Stulz 2009) and in many
cases, local capital markets remain an important source of nancing for central,
regional and local governments (Iorgova and Ong 2008).
514
A brief review of literature
During 2001 and 2002 the academic literature was preoccupied by the impact
of euro on Europes nancial markets, including debt markets (Santillan et al.2000,
Galati and Tsatsaronis 2001), and continued by Pagano and Von Thadden (2008).
The trend change by the mid of the 2000s toward integrated volumes publishing
studies researching various aspects of European xed income market like the one
edited by Batten et al. (2004) completed with complex studies made by Dunne
et al. (2006a) on European Government Bond Markets: Transparency, Liquidity,
Eciency.
Starting with 2006 more focused studies emerged regarding European debt markets: on transparency (Paesani and Piva 2007), price discovey (Dunne et al.2006b),
and trading platforms (Dunne et al.2008), and the best moment to develop a country bond market (Halle and Spiegel 2008). Another group of studies focused on a
particular debt market of a particular country (Gyorgy 2002) or debt markets from
a region (Roldos 2004).
However, the literature dedicated exclusively to municipal bonds (or sub-sovereign bonds) is not so extensive. It was possible to identify the volume dedicated to
USA municipal bonds edited by Feldstein and Fabozzi (2008) and also the paper
of Plaz (2009) regarding the potential of sub-sovereign bonds.
The literature regarding Romanian bond market, in general, is also relatively scarce and appeared only starting with 2003 2004. One of the rst studies
presenting the details of Romanian municipal bond market was that of Pop and
Dumbrava (2004). The study of Skully and Brown (2006) had a special section
dedicated to Romanian bond market and a subsection for the municipal bonds.
Corduneanu and Milos (2008), Grecu (2008), Mosteanu and Lacatus (2008),
Matei et al. (2009) are studies written by Romanian academics and are dealing with
some aspects of Romanian (municipal) bond market. Only one study (Bunescu
2009) deals with a specic bond issue in its trial for a detailed analysis.
General information regarding Romanian bond market at Bucharest Stock
Exchange
The secondary market for Romanian bonds was launched at Bucharest Stock
Exchange (BVB)1 at the end of November 2001 with only two bond issues of the
small municipalities of Predeal and Mangalia2.
515
The bond traded at BVB grew in diversity as follow:

- May 2003: domestic corporate bonds started trading;
- September 2006: international (corporate) bonds were introduced;
- August 2008: trading started for Romanian central government bonds
(T-bonds).
Table 1 (composed of 1a and 1b) presents the evolution of trades, volume, value
(in EUR) and the number of outstanding issues for the entire bond market at BVB.
It also includes the importance of every sub-segment of bond market in the total
turnover, highlighting the dominating bond sub-sector in every of the observed
years.
As it can be seen, the bond market grew trough abrupt changes: 2003 turnover
increased with 42% compared with 2002; at the end of 2004 it reached almost 37
times the level of 2003 mainly due to the introduction of corporate bonds, continued to grow almost doubling its value in 2005 and 2006 and reached a rst pick
in 2007, which up until July was one of the best years for BVB. The year 2008 low
turnover shows the inuence of the nancial crisis climax. The increase in trading
value that can be observed for 2009 and 2010 was due mainly to the Romanian
T-bond transactions.
Table 1a: BVB bond market information (public oerings excluded)

Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Number of
trades
5
10
37
274
334
319
233
547
958
540
Volume
Value (EUR)
45
59,050
29,870
118,136
197,107
603,208
3,652,467
862,927
1,822,908
591,511
185.13
250,295.75
355,584.29
13,148,120.07
29,666,788.77
53,877,527.98
147,985,261.23
53,465,296.51
277,746,575.81
552,865,212.24
Number of listed issues (end of

the year/ period)
2
4
10
25
19
18
22
50
60
55
New entries
2
2
9
17
6
5
11
34
16
7
516
Table 1b: continuing Table 1a

Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
% of municipal
bonds in total value
100.00
100.00
95.66
10.02
2.38
3.80
2.00
15.92
1.65
0.99
% of domestic corporate
4.34
89.98
97.62
49.38
10.03
22.30
6.15
0.00
% of international corporate
46.82
87.97
52.09
15.80
0.59
% of Romanian Tbonds in total value

9.69
77.40
98.42
Source: authors calculations based on BVB daily reports (http://www.bvb.ro/TradingAndStatistics/DailyMarketReport.aspx) and

monthly reports http://www.bvb.ro/TradingAndStatistics/Bulletins.aspx
Note : the exchange rates used to express the value in EUR are those available in EUROSTAT statistics at http://epp.eurostat.ec.europa.eu/tgm/
table.do?tab=table&init=1&language=en&pcode=tec00033&plugin=1 for Romania (1 EUR = x RON), as follow: for 200 =
2.6004; 2002= 3.1270; 2003= 3.7551; 2004= 4.0510; 2005= 3.6209; 2006= 3.5258; 2007= 3.3353; 2008= 3.6826; 2009=
4.2399; 2010=4.2122)
Table 2 (composed of 2a and 2b) presents the domestic and international bond
public oerings that were launched trough BVB trading platform; it also presents the
position of the respective oerings in total value. As it can be seen, these public oerings were modest both from volume and initial outstanding value points of view. All
these oerings were subscribed at bonds nominal/ face value.
Table 2a: BVB bond public oerings

Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Number of trades
0
0
2
705
61
252
34
0
4
3
Volume
0
0
158,000
371,000
200,000
3,321,264
3,000,000
0
1,070,000
2,422,864
Value (EUR)
0.00
0.00
4,207,610.98
48,259,688.97
5,523,488.64
228,657,893.24
90,171,798.64
0.00
25,236,444.26
57,520,155.74
Number of oered issues

0
0
2
3
1
3
1
0
3
3
517
Table 2b: continuing Table 2a

Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
% of municipal bonds
in total oerings
0.00
0.00
100.00
0.00
100.00
0.00
0.00
0.00
100.00
100.00
% of domestic corporate
bonds in total oerings
0.00
100.00
0.00
34.68
0.00
0.00
0.00
0.00
% of international corporate bonds in total oerings

65.32
100.00
0.00
0.00
0.00
% of Romanian Tbonds in total oerings

0.00
0.00
0.00

Note 1: the exchange rates used to express the value in EUR are those available in EUROSTAT statistics at http://epp.eurostat.
ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec00033&plugin=1 for Romania (1 EUR = x RON), as
follow: for 200 = 2.6004; 2002= 3.1270; 2003= 3.7551; 2004= 4.0510; 2005= 3.6209; 2006= 3.5258; 2007= 3.3353; 2008=
3.6826; 2009= 4.2399; 2010=4.2122
Despite the growth registered by the bond market segment, its position within
BVB total turnover remained relative modest, compared with the importance of
equity trading, as graph 1 shows; for the entire period between November 2001
and December 2010, total bond turnover represented less than 8% and the value
of bond public oerings less that 3% of BVB total turnover.
For this situation several causes have been identied:
- the low volume per oer; the highest number of oered bonds did not overpass 3,000,000 bonds (the case of bond oering launched by European Investment
Bank in 2007 for the Romanian market);
- the small number of investors subscribing the bond oerings; this cause is
connected with the previous one: due to the low volume per oer (combined with
the fact that bonds represent an alternative investment with a high demand level
for portfolio diversication on Romanian market) every bond oering launched
on the market is subscribed in a very short period of time mainly by domestic in-
518
stitutional investors; the dominance of institutional investors in subscribing bonds

and the high speed with which they are subscribing municipal bond oerings were
highlighted by Sain (2004b, 2005b, 2006), and Ciobanu (2007a, 2008c);
- the tendency of the bond subscribers to keep the bonds in their portfolio long
periods of time or up to their maturity as highlighted by Sain (2005d), Ungureanu
(2006b), Ciobanu (2007d, 2008b, 2010b);
- the relative lack of popularity of bonds among the individual investors due to
several technicalities (like the fact that the price is expressed as percentage of the
bonds nominal/ face value, the cash ow structure generated by the bond which
includes the coupon and a percentage of principal reimbursed at the same date, and
the necessity to use discounting methods to calculate the fair price of the respective
bond; not all the information needed to make a decision is easily and readily available on one webpage dedicated to every bond listed at BVB);
- the absence of a yield curve announced and periodically published by the Romanian Ministry of Finance for the period 2001 2006, and the relative diculty
in accessing the present information regarding the yield curve published starting
with the second quarter of 2007; the current information regarding the yield curve
is relatively dicult to access due to its inclusion in pages of the complicated website of Romanian Ministry of Public Finance;
- the absence of rating for Romanian listed bonds; this cause is not uncommon
in the Central and East European countries due to the absence of a culture oriented
toward using ratings, as highlighted by Szilagy et al. (2004); in the case of Romanian
municipality, the need for a rating is not felt since the demand remains unsatised by
the oer; however for some Romanian (mainly institutional) investors the absence
of rating became increasingly disturbing in the past 3-4 years, as stressed by Ciobanu
(2009).
Graph 1 The turnover structure by main trading instruments at BVB

(cumulate data for the period November 2001 December 2010)
Source: authors calculation using BVB data available at www.bvb.ro

Note: The graph does not the turnover generated by the shares traded on the unlisted market segment at BVB
The above mentioned causes have as direct consequences:

a low free oat on the bond market segment,
a low trading frequency, as shown in table 3 and
the lack of market depth in the price formation.
519
520
Table 3: BVB bond market segment: bond issues available for trading and trading frequency
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Number of outstanding bond issues (end of

the year/ period)
Number of days when trading occurred (public oerings excluded)
Municipal
Total
Municipal
2
4
9
19
13
11
16
20
31
35
2
4
10
25
19
18
22
50
60
55
4
6
11
36
40
21
25
57
67
40
Domestic
corporate
14
82
125
120
72
83
65
0
International
corporate
7
31
46
74
11
T-bonds
11
137
134

Note 1: in 2001, due to the late launch of bond trading, only 17 days remained available for trading.
Note 2: for 2002-2009, BVB was open for trading 250 days/ year (average); for 2010 the number of trading days was 255
Municipal bond market position inside the bond market segment at BVB
The oerings of rst municipal bonds were based on the Act no.189/ 1998 of
local public nance which allowed local authorities, for the rst time after 1990,
to use bonds as an alternative to borrow money trough the capital market. This
act was modied by Government Ordinance no.45/ 2003. Both regulations stated
clearly that the debt ratio (including: principal amount, interest rates and other
debt related costs) should not pass over 20% of the current incomes of the respective local budget, generated by local taxes and various other fees to which are added
a portion allocated by the central government from the income taxes collected at
national level. The collateral for the borrowed amount was represented by the total
current incomes which the local administration has the capacity to collect. In such
a case, the default risk was considered to be relative low for Romanian municipal
bonds issued on the market, as stressed by Pop and Dumbrava (2004).
The Act no.273/ 2006 of Local Public Finance replaced the previous regulations
and it increased the debt ration to 30% of the same current incomes. Government
521
Ordinance no.63/ 2010 which modify the Act of 2006, maintained the debt ration
at 30%, but changed the debt ratio calculation base by taking into consideration
the arithmetic average of current incomes from the past 3 years previous to the
launch of bond oering, and further the respective incomes are diminished with
the amounts resulting from selling various types of goods owned by the respective
local administration (considered to be exceptional incomes).
A procedure of registering in electronic format the collateral agreement (continuing to be represented by the total current incomes collected by the local authority) for the bond subscriber was also put in place, giving the respective municipal
bond subscribers priority claims to recuperate the invested amount (at nominal
value) if any default might occur.
Under the current regulation of 2010 it can be considered that the default risk
for the Romanian municipal bonds remain relative low. However, the respective
default risk must be assessed by subscribers in every case due to the fact that the
dimension of and the economic environment for every city, town or commune
varies widely, generating dierent capacities of collecting local taxes, fees and other
incomes.
As of November 2010, a number of 71 municipal bond issues3 were identied using the dedicated website http://www.kmarket.ro/emisiuni/emisiuni.php, of which
66 were listed at BVB. The 5 oerings4 not listed at BVB were not taken into consideration for the present paper.
As table 1 above highlights, the municipal bond segment has a relative low prole inside BVB bond market, cumulating for the period under scrutiny (November
2001 to December 2010) only around 33.24% of the total bond market turnover.
This situation is in contradiction with the fact that municipal bond segment was
always the one with the highest number of outstanding issues, as table 3 shows.
However, the situation is consistent with the lowest frequency in trading municipal bonds being traded between 30 and 60 days of an average of 250 trading days/
year, as presented in table 3, compared with the other bond market sub-segments
which registered a higher number of trading days.
Tables 4 and 5 present details regarding municipal bond market sub-segment
inside BVB. As it can be seen, the municipal bonds had a relative constant increase
in trades and volume, while the turnover had a sinuous evolution. The highest
turnover for municipal bonds was reached during 2008 and might be due to the
522
sharp decline on BVB equity market, while investors were looking for alternative
investments.
For 2010, the volume and turnover of this sub-segment slightly overpass the
level of 2009, while turnover is around at 65% of the 2008 level.
From public oerings point of view, municipal bond issuing trough BVB trading platform registered both low volume and values, as table 5 indicates. A gap can
be observed in municipal public oerings (trough BVB platform) between 2006
and 2008. This gap might be explained by the fact that during the respective period
Romanian banks become more exible in their lending policies and a number of
municipalities chose to nance their investment projects through bank loans instead of facing the discipline and the increased level of transparency demanded by
bond public oerings.
Table 4: BVB municipal bond market data (public oerings excluded)

Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Number of trades
5
10
12
85
60
60
58
175
154
88
Volume
45
59,050
29,310
51,945
25,632
80,658
119,695
323,793
221,349
254,207
Value (EUR)
185.13
250,295.75
340,150.99
1,317,015.33
705,841.35
2,043,114.05
2,964,905.95
8,510,317.46
4,565,880.02
5,456,669.42
Source: authors calculations based on BVB daily reports (http://www.bvb.ro/TradingAndStatistics/DailyMarketReport.aspx)and

Note : the exchange rates used to express the value in EUR are those available in EUROSTAT statistics at http://epp.eurostat.
follow: for 2001= 2.6004; 2002= 3.1270; 2003= 3.7551; 2004= 4.0510; 2005= 3.6209; 2006= 3.5258; 2007= 3.3353; 2008=
3.6826; 2009= 4.2399; 2010 = 4.2122
523
Table 5: Municipal bond public oerings at BVB

Year
Number
of trade
Volume
Value (EUR)
Number of
oered issues
2001
2002
0
0
0
0
0.00
0.00
0
0
2003
158,000
4,207,610.98
2004
0.00
2005
61
200,000
5,523,488.64
2006
2007
2008
0
0
0
0
0
0
0.00
0.00
0.00
0
0
0
Details regarding the oered issues
TIM05 issued by the city of Timisoara; maturity

in 2005;
number of outstanding bonds: 100,000; nominal
value 100 RON (26.63 EUR)
DEV08 issued by the city of Deva; maturity
in 2008; number of outstanding bonds 58,000;
nominal value 100 RON (26.63 EUR)
TIM11 - issued by the city of Timisoara; maturity
BAC26B - issued by the city of Bacau; maturity

BIS29 - issued by the city of Bistrita; maturity in
2029; number of outstanding bonds 350,000;
2009
4
1,070,000 25,236,444.26
3
ALB27 - issued by the city of Alba-Iulia; maturity
IAS28A - issued by the city of Iasi; maturity in
2028; number of outstanding bonds 1,000,000;
ZAL30 - issued by the city of Zalau; maturity in
2010
3
2,422,864 57,520,155.74
3
BIH17 issued by the Bihor county; maturity in
Note: the exchange rates used to express the value in EUR are those available in EUROSTAT statistics at http://epp.eurostat.
follow: for 2001= 2.6004; 2002= 3.1270; 2003= 3.7551; 2004= 4.0510; 2005= 3.6209; 2006= 3.5258; 2007= 3.3353; 2008=
3.6826; 2009= 4.2399; 2010 = 4.2122
524
Of the 66 listed issues, 31 reached their maturity; the remaining 35 are available
for trading on BVB platform.
The structure of the municipal bond issuers was the following:
- 2 county councils (the local authorities responsible for the county
administration);
- 29 city or town councils (of which 13 are county capitals the main cities in
their home counties, concentrating also the administrative structure at county
level5);
- 1 commune council (ANI20).
One council, and 16 cities and towns launched between 2 and 7 bond oerings
between November 2001 and December 2010.
For the bond oerings made during 2001 to 2004 and partly during 2005, the
destination of the borrowed money was clearly expressed usually involving various
infrastructure improvements and developments. Starting with 2005 until present,
the multiple destinations became the trend, the issuer announcing a mix of various
infrastructure improvements, modernizations or new constructions (streets, sewerage, water distribution systems, natural gas distribution systems, various building
rehabilitation, land investments for new constructions etc.). 13 municipal bond offerings were launched on the market in order to renance bank loans considered
to be bridge loans given for the various main purposes. This secondary trend in
motivating municipal bond oerings started during 2006 and was highlighted by
Matei et al. (2009).
Through this alternative, local authorities tried to reduce the costs incurred by
the respective bank loan (as can be seen in table 7).
The way the maturities increased for municipal bonds is interesting to be mentioned. The years 2001, 2002 and 2003 were dominated by medium term maturities (between 1 and 3 years) with one exception of a maturity approaching 5 years
for the bonds oered by the city of Deva. This situation can be explained by at least
two causes:
- uncertainty regarding the economic situation evolution in Romania
- the novelty that municipal bonds represented for Romanian investors and the
uncertainty regarding their interest toward this investment alternative.
525
During 2004 the condence increased and the maturity for oered bonds ranged
between 2.5 and 6 years. In 2005 an important step forward was made, the rst bond
oering with a maturity closed to 20 years was launched on the market, encouraged by the improved economic conditions and the demand for municipal bonds
manifested by Romanian domestic investors as highlighted also by (Sain 2005c and
2005d). The years that follow (2006 to 2010) were dominated by bond oerings
with maturities ranging between 8 and 20 years, despite the eects of nancial crisis
on the investors pessimistic attitude toward BVB investments as a whole.
No municipal oering overpass 1,000,000 bonds and this situation occurred
only for city of Iasi issues made in 2008 and 2010. The structure of bond oerings
using the volume (outstanding bonds) is the following:
- 4 issues - between 5,000 and 7,500 bonds;
- 2 issues - 1,000,000 bonds.
Also, a progressive increase in the volume per bond oer can be observed in
time, as the maturity increased:
- for 2001 to 2005 the volume/ issue ranged between 5,000 and 250,000;
- for 2006 and 2007 the volume/ issue ranged between 31,500 and 350,000;
- for 2008 to 2010 the volume/ issue ranged between 30,000 and 1,000,000.
The nominal/ face values for the listed bonds were the following:
- 10 RON (100,000 ROL) for 5 issues (which occurred in 2001, 2002 and 2003
before Romanian currency denomination);
- 120 RON for 1 issue;
- 150 RON for 2 issues;
- 100 RON for 58 issues.
This range of nominal values oers the possibility to individual investors to subscribe or to buy municipal bonds through BVB platform. Thus, a nominal value
of 100 RON does not generate an impact when one digit interest rate is applied to
calculate the coupon current value.
526
Almost all municipal bonds oered on the Romanian market are (depending
on their maturity) oating rate notes or oating rate bonds. There were only two
exceptions:
- the bond issue of the city of Arad from 2003, which announced a xed coupon
of 14%;
- one of the bond issues made by the city of Timisoara in 2005, which announced a xed coupon of 8.25%.
The interest rate is calculated using as reference Romanian Interbank Rates
(ROBID-ROBOR)6 to which a margin is added. Of the 64 bond issues that use
this way of calculating their coupon, 61 use for reference the average for ROBIDROBOR at 3 months (3M) or 6 months (6M), usually correlated with the coupon
frequency payment, while 5 use for reference only ROBOR at 3 or 6 months; these
5 issues were launched in 2008, 2009 and 2010.
The coupon is paid quarterly by 47 bond issuers and semiannual by 19 bond
issuers.
Starting with 2007, in 9 cases it was observed that the coupon is paid quarterly,
while the interest rate used for reference is either the average between ROBID and
ROBOR at 6 months, or ROBOR at 6 months. Through such a combination, the
bond issuer might try to compensate the low margin with a slightly higher reference interest rate. No ocial explanation was made public.
The debt risk premium evolved as follow (table no. 6) for the bonds oered
every year during the period under survey:
527
Table 6: Debt risk premium for the bond oerings in the respective year and the average maturity announced
for the respective oerings
Year
Average maturity
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
21 months (1.75 years)

Average margin
(%)
2.50
2.00
1.73
1.83
1.90
1.23
0.96
0.71
0.92
0.55
Minimum (%)
Maximum (%)
2.00
2.00
0.98
1.00
1.50
0.10
0.10
0.10
0.55
0.45
3.00
2.00
2.00
2.00
2.00
1.65
1.50
1.30
1.50
0.65
Source: authors calculation based on the information oered on BVB links from the main pages for municipal bonds (http://www.
bvb.ro/Companies/DMunicipBonds.aspx)
Note: for 2003 and 2005, the issues with x interest rate were excluded
It can be observed a decrease in the margin starting with 2003 when Romanian
economic conditions showed signs of improvements. Up until 2007 the decrease
can be considered a normal one due to available resources at a relative low cost.
However, for the years 2008 2010 there is no correlation between the margin
(which continued to decrease), while the maturity of bonds oered continued to
increase. At least the uncertainty regarding a horizon of over 15 years should have
been taken into consideration. This situation was also highlighted by Ciobanu
(2009).
It must be mentioned that for all of the listed municipal bonds, the coupon
payment is accompanied by the reimbursement of a percentage of the principal
amount. This percentage is dierent for every of the bond issues under scrutiny and
were not included in the present paper.
Further, the trading of the listed bonds was considered.
Of the 66 listed bond issues:
- 18 did not registered any trade for the period under survey;
- 5 issues reached maturity without being traded at all;
528
- 13 issues have maturities over several years from now and might be traded in
the future, but were not traded until the end of 2010;
- another 5 bond issues, available for trading, while traded in the past, did not
registered any trading activity during the last 1 to 2 years.
The structure using the frequency of trading days is the following:
- 10 issues registered trading just 1 day (1 to 3 trades)
- 17 issues registered trading for 2, 3,4 or 5 days (3 to 7 trades)
- 16 issues registered trading for 6 to 19 days (7 to 47 trades)
- 5 issues registered trading for 20 to 60 days (29 to 112 trades).
The structure using the trading value (turnover) expressed in RON is the
following:
- less than 1,000 RON 2 issues
- between 1,000 and 99,999 RON 12 issues
- between 1,000,000 and 4,999,999 RON 13 issues
- between 5,000,000 and 14,999,999 RON 5 issues.
The data regarding municipal bond trading are consistent with the lack of frequency in trading and the relative low liquidity for this bond market sub-segment
at BVB, as mentioned above. The average liquidity7 is about 23.5% for the entire
municipal bond market sub- segment for the period under survey; it must be mentioned that for the 5 most traded issues, the average liquidity is 53.4%, covering
the same period of time.
Some analysis report the absence of correlation of trading frequency with the
coupon payment indicating than no speculative trading are taking place for municipal bonds at BVB (Ciobanu 2007a, Crihana 2009, Ciobanu 2010b).
Discussions regarding the actual standing of municipal bond segment at BVB
Are the local governments interested in issuing bonds?

The answer to this question is a mixed one.
529
Comparing the number of issuers with the potential number at the country
level, the interest for nancing local projects through bonds is low:
- out of 41 counties (Bucharest excluded)8, only 2 issued bonds for road infrastructure improvements: symbols HUE with 3 series of issued bonds and
ALB26;
- out of 320 municipalities and towns (Bucharest included), only 29 issued
bonds for various destinations;
- out of 2,860 communes, only one issued bonds for nancing a socio-cultural
project (ANI20).
However, another part of the answer is that once a local government used bonds
to nance local projects, usually it will continue to use this source of nancing: as
it was mentioned above, 16 municipalities and towns, out of 29 issuers, launched
a second, third or multiple bond oerings. This part of the answer shows that the
interest of issuing bonds is higher after the success of the rst bond oering.
For the current paper no consistent information could be gathered in order to
have a clear picture regarding the intermediation costs of municipal bond oerings, as follow the information presented in table no. 7 is incomplete. Thus, table
7 shows a substantial dierence between municipal bond interest rates and bank
loans interest rates, between 375 percentage points and 940 percentage points.
Table 7 also shows how close to the Romanian Interbank Oering Rate are situated the municipal bond interest rates. This clearly indicates that municipalities can
raise supplementary nancing sources at a lower cost through bond oerings and
this should be a motive to enhance the interest for oering bonds on the market.
Some Romanian analysts considered that local governments will have an additional motive for bond oerings in order to provide the co-nancing sources
for structural project funds oered by European Union (Ciobanu 2007a, 2007f,
2008a). As follow, while the motive is a valid one to generate sometime in the future a wave of bond oerings, it did not reach the critical mass for generating the
expected trend.
At the present moment, on the Romanian nancial market investors are looking
for alternatives to diversify their portfolios. Any new (municipal) bond oering is
subscribed in a short interval of time, despite the discrepancies between the maturity of the oering and the size of the issuer. Some local governments understood
the situation and took advantage of it. For the others is not so obvious that the ab-
530
sence of competition and the presence of willing investors can give the opportunity
to nance (now for periods up to 20 years) projects at a relative low costs.
However, the drawbacks that might be invoked by the local government representatives regarding bond issuing are represented by the increased transparency and
the discipline regarding periodic payments.
The secondary data available could oer only the answers above.
Further investigations (using questionnaires and other source of data) are necessary in order to asses the attitude of local governments toward bond oerings.
Table 7: Municipal bonds interest rates compared with reference Romanian Interbank Interest Rates and bank
loans interest rates (annual averages, %)
Year
ROBOR 3M
ROBOR 6M
2002
2003
2004
2005
2006
2007
2008
2009
2010
29.17
19.87
20.74
9.81
8.77
7.79
13.04
11.72
6.75
29.35
19.25
19.91
9.86
8.72
7.81
13.12
11.79
7.22
(ROBID3M+
ROBOR3M)/ 2
27.37
17.72
19.13
8.34
8.10
7.23
12.28
11.32
6.50
(ROBID6M+
ROBOR6M)/ 2
27.54
16.88
18.14
8.30
7.99
7.22
12.26
11.29
6.85
Bank loan interest

rates
36.65
26.19
29.15
21.04
14.83
13.32
15.07
17.30
14.11
Municipal bond
interest rates
32.90
19.54
19.75
13.85
8.46
8.78
10.77
13.46
8.61
Sources:
For ROBID and ROBOR, authors calculation based on the data oered by Romanian National Bank at http://
www.bnr.ro/Raport-statistic-606.aspx
For Bank loan interest rates, the information available in the following monthly bulletins published by the
Romanian National Bank: Monthly Bulletin 1/ 2010 and 2/ 2011; Monthly bulletin 1/ 2007 and 1/ 2006; all
these monthly bulletins are available at http://www.bnro.ro/PublicationDocuments.aspx?icid=1182
For Municipal bond interest rates, the information oered by BVB for the listed municipal bonds at http://
www.bvb.ro/Companies/DMunicipBonds.aspx
Who are the investors interested to subscribe the municipal bond oerings and
why?
531
As several reports regarding Romanian bond market showed, this is dominated

by institutional investors like (Sain 2004b, 2005d, Ciobanu 2007a, 2007c, 2008a,
2008b):
- banks;
- open-end Romanian funds
- closed-end Romanian funds
- Romanian pension funds
- other Romanian investment companies
- several foreign investment funds.
No ocial statistics are available.
Up until the end of 2003, when the number of bond oerings was very low,
Piata nanciara (a Romanian monthly review specialized on nancial market matters) tried to oer information regarding the investors structure, as presented by
Pop and Dumbrava (2004). Since then, no such information was available from a
reliable source.
The situation applies to municipal bond market segment also.
The dominance of institutional investors, along with a small number of individual investors, is due to the fact that the intermediary of the municipal bond
oering is often a brokerage house belonging to an important banking group active in Romania. This implies that the selling group is led or formed solely by the
corresponding bank, which in its turn has already a portfolio of clients interested
in subscribing the intermediated municipal bond oering as soon it reached the
market. In such cases, the selling announcement is a classic tombstone and outside investors could nd only residual quantities of municipal bonds to invest in.
In some other cases (they could not be identied for the present paper) the bought
deal intermediation method was announced (Sain 2004a), leaving no almost no
room for average individual investors to subscribe.
532
Table 8: Municipal bonds interest rates compared with ination rate, bank deposit interest rates and BVB share
segment returns through BET-C and BET-Fi indices
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
Ination rate Bank deposit interest

rates (annual aver(annual
age, %)
average, %)
22.50
18.39
15.30
10.78
11.90
15.65
9.00
8.34
6.56
6.51
4.84
6.70
7.85
9.55
5.59
11.89
6.09
7.29
BET-C
annual
return (%)
124.02
22.62
97.88
31.63
25.07
26.27
-69.68
34.62
10.89
BET-Fi
annual
return (%)
113.14
24.72
106.94
151.32
24.66
14.95
-83.62
83.33
-10.09
Municipal bond interest

rates (annual average,
%)
32.90
19.54
19.75
13.85
8.46
8.78
10.77
13.46
8.61
Sources:
For Ination rate and Bank deposit interest rate, the information available in the following monthly bulletins published
by the Romanian National Bank: Monthly Bulletin 1/ 2010 and 2/ 2011; Monthly bulletin 1/ 2007 and 1/ 2006; all
these monthly bulletins are available at http://www.bnro.ro/PublicationDocuments.aspx?icid=1182
For BET-C annual return and BET-Fi annual return, authors calculations based on BVB daily reports (http://www.bvb.
ro/TradingAndStatistics/DailyMarketReport.aspx)
For Municipal bond interest rates, the information oered by BVB for the listed municipal bonds at http://www.bvb.ro/
Companies/DMunicipBonds.aspx
Note: From the 6 indices reported for BVB (http://www.bvb.ro/IndicesAndIndicators/indices.aspx) only BET-C and BETFi were chosen due to the length of data series that allowed calculating the returns form 2002 to the present moment.
For the institutional investors choosing to subscribe to municipal bond oerings, the following motives could be identied for their investment decisions:
- the desire to diversify their portfolios; the Romanian nancial market still offers a relative low range of investment products (despite the eorts made during
the past 2 years) and the domestic investors are constantly looking for investment
alternatives; due to this situation, several market reports highlighted the fact that
these investors are willing to keep these bonds in their portfolio for long periods
of time or up to the maturity, rather than trying to trade them often (Sain 2005a,
Ungureanu 2006b, Ciobanu 2007b, 2007d, 2007e, 2010b), which is the average
behavior for most of bond investors all over the world;
533
- the good rate of return that municipal bonds can provide; as table 8 shows,
Romanian municipal bonds oered good alternatives of investments, generating a
return above the ination rate and above the bank deposits (except 2010, due to
the low margins announced starting with 2007); while between 2002 and 2005,
the interest rate paid by municipal bonds was just a small fraction of the return
that could be obtained on Romanian stock market, they generate a relative steady
income during the past 3 years, when a positive return above ination was appreciated by any investor due to the conditions generated by the nancial crisis;
- to have a constant income exempt of any taxes, as Romanian Fiscal Code
stipulates for the coupons paid by municipal bonds;
- the relative low default risk in the case of municipal bonds (as presented
above).
Why the secondary market for Romanian municipal bonds is (still)
underdeveloped?
The rst motive that could be invoked, and also easy to observe, is the lack of
liquidity of this market segment generated by two causes, as mentioned above:
- the low number of outstanding bonds per issue;
- the low number of investors that subscribe to every oering, combined with
their tendency to keep the bonds in their portfolios for long period of time (as highlighted by Sain 2004c, 2004d, 2005a, Ungureanu 2006b, Ciobanu 2007b, 2007d,
2007e, 2010b).
Both these causes also generate the lack of depth in bond price discovery, enhancing the treasuring tendency of the municipal bonds by their investors, after
being bought.
A second reason considered to be important by Romanian analysts (as suggested
by Ciobanu 2008a, 2009 and 2010a) is the absence of a rating system for Romanian bonds. The situation is no dierent by the similar status quo in the Central and
Eastern European where no rating is used due to lack of culture in this sense (Szilagy
et al. 2004). However, the debt risk margin for the municipal bonds issued during
the past 2-3 years decreased without taking into consideration the maturity and the
reimbursement capacity of the issuer (noting that the multiple destinations for which
the lending was launched did not give a clear possibility to asses the investment proj-
534
ects capacities to generate direct or indirect (increased) incomes for the respective
municipality).
It must be mentioned that during May 2003, Bucharest Research Equity Group
SA launched its credit rating service for Romanian municipalities (http://www.
rating.ro/media.htm and http://www.rating.ro/obligatiuni.html) but it registered
no success. At the moment when the credit rating service was presented, the number of listed municipality bonds about half of the present number and due to the
fact that the oerings were rapidly subscribed without any rating, no local authority
considered necessary to increase the debt costs by requesting a rating service.
10
Thus, today the municipal market grew and a rating system could represent
good guide for investors. However, as long as the domestic and several foreign investors will be rapidly subscribing to any municipal bond oering due to the lack
of diversication on the Romanian market, any rating service that can add to the
borrowing costs would be ignored by the issuers.
Several others reasons, less obvious, but of equal importance for a stronger municipal bond market segment, can be:
- the absence, for the period 2002 mid of 2007, of the yield curve made public by Romanian Ministry of Finance; even now, when data are published (http://
www.mnante.ro/rapoarteMFP.html?pagina=buletin), they are not easily and readily available for any type of domestic investors; mainly the individual investors can
experience some diculties in nding this information;
- as it can be seen from graph 2, below, the situation reected by the yield
curve shows expectation of a slightly improved economic situation for the time
horizon of 7 to 15 years;
535
Graph 2: Yield curve for Romania as of December of every year
Source: based on data published by the Romanian Ministry of Finance at http://www.mnante.ro/rapoarteMFP.

html?pagina=buletin
- due
to the absence of a yield curve for almost 5 years, during which the secondary market for municipal bonds was supposed to function, those who traded
the bonds used a replacement (proxy) for calculating the bonds price: ROBOR
at 12 months as announced by the Romanian National Bank (http://www.bnro.
ro/Info-nanciar-5371.aspx) easily to access and up-dated daily; this proxy however can create some price distortions mainly when currently long term maturity
bonds are listed; it is not clear yet which interest rate is used to determine the
current prices for the traded municipal bonds; further research is necessary in this
area;
- the need of gathering data regarding every municipal bond issue from at
least 2 web pages to form an opinion regarding a particular bond issue and to
verify the accuracy of the price level announced, in case it was traded.
Conclusions
The general prole of a municipal bond issue listed on Romanian secondary

market can be sketched to be the following:
- outstanding bonds between 50,000 and 700,000;
536
- nominal/ face value 100 RON (aprox.24 EUR at the exchange rate of 1 EUR
= 4.2112 as the end of December 2010);
- quarterly paid coupon;
- oating interest rate based on the average based on ROBID and ROBOR
interest rate at 3 months (with a possible trend to change only to ROBOR at 3
months as a benchmark in the years to come);
- debt risk premium/ margin of 0.5% to 1.5% ;
- maturity between 10 to 20 years;
- purpose of the issue: multiple destination various investment projects of local
interest;
- issued by a town of 20,000 to 99,000 of inhabitants (see Annex 3);
- traded between 2 and 19 days of the listed period;
- with a turnover (trading value) ranging between 100,000 and 4,999,999 RON
(aprox.23,740 to 1,187,030 EUR at the exchange rate of 1 EUR = 4.2122 as of the
end of December 2010).
These similar characteristics for about 50% to 60% of the municipal bonds offered on the Romanian capital market might be caused by the fact that in about
80% of the cases only one company acts as advisor/ consultant for the prospectus
(Matei et al.2009, p.114) and it tends to replicate the model to all the issuers that
used its services.
The prole of an investor likely to subscribe a municipal bond issue is a domestic institutional investor looking to diversify its portfolio, obtaining a reasonable
rate of return, free of taxes and having almost no intention to trade even a part of
the acquired bonds.
The distribution process for most of the municipal bond oerings did not target
an important number of investors due to the small amount of outstanding bonds
and the demand pressure coming from the ranks of domestic institutional investors
and a small group of individual investors (part of them could be considered as high
net worth individuals, at Romanian level).
Having the features presented above, the lack of liquidity and the lack of depth in
price formation for the Romanian municipal bonds are only normal consequences
generated by a substantial amount of outstanding bonds and a small number of in-
537
vestors (estimated at 2,100 in Sain 2005d analysis, pp.60-61; no other information

regarding this aspect could be found)
In order to overcome these problems and to generate further developments
on the municipal bond market at BVB, solutions must be fund for the following
aspects:
A) from the issuers point of view:
- it is necessary to increase the number of issuers in order to increase the oer
diversity and the competition for resources; of the 41 counties in Romania only
2 issued bonds for road improvements; other counties might be convinced to use
these form of nancing for local and regional development projects and also for
joint projects; the situation is similar when the towns and cities are concerned;
only 29 town and cities issued municipal bonds about of 320 registered at county
level; in this area the potential of diversication is high, but the old mentalities
and inertia must be overcome; in the case of communes, due to their small dimensions and relative low economic activities, some suggestions are that their local authorities must join forces and launch joint bond oerings for sustainable economic
developments;
- while remaining within the limits imposed by current regulations regarding
the debt ration for local administrations (established at maximum 30% of their
current incomes), the number of outstanding bonds per oering should increase in
order to create the necessary free oat for more active trading opportunities;
B) from the investors point of view:
- an increased number of oerings should be made available to a wider range
of investors (using BVB trading platform as the easier and simpler way to address
retail investors) in order to have a sucient number of participants to a secondary
market;
- in order to attract an increased number of individual investors a more transparent and easily accessible information must be provided, mainly by BVB (from the
simple explanation that the bond price is expressed as percentage of the nominal
value, to a direct link to a special page dedicated to the simplied presentation of
the municipal bond oering, including the purpose and to direct links regarding
the Romanian Interbank Interest Rates and the data regarding the yield curve).
538
The problem of municipal bond rating will remain an open one until the increase in diversity and number of investors will generate enough pressure on the
issuers to rank their bonds. As long as any municipal bond oering launched on the
market will be subscribed rapidly and in any conditions, the rating will be ignored
due to an increase in costs.
However, the discrepancy between the debt risk premium and the maturity of
the bonds, combined with the quality of the municipal bond issuer became obvious
in the last 2 years.
The only suggestion that can be made at the present level of the research is that
the consultant/ consultants, assisting the local authorities in establishing the characteristics of any new oering, to make a rough assessment on the reimbursement
capacity of the nanced project/ projects (through the potential income they could
generate) in combination with the proposed maturity of the issue and dimension
of the issuer (number of inhabitants, number of companies paying local taxes etc.).
While this perspective is not always in favor of the issuer due to the fact that increase the costs of its borrowing, it favor the investors that will appreciate a correct
assessment of the risk involved if they chose to invest in the respective oer.
However, it is likely that this attitude of the consultants will not appear until
several municipal bond oerings will remain unsubscribed due to the low margin
and reimbursement capacity discrepancies. Such a situation might occur in the
years to come.
The proposed steps above are consistent with the evidence highlighted by Platz
(2009) which suggests that a diversied nancial sector, increased capacity for debt
support and ecient management have a high level of importance for the development of a sub-sovereign bond market at country level.
Summary and further research suggestions
The present paper provides an in-depth overview of the general situation of

Romanian secondary market for municipal bonds at BVB and the factors that contributed at its current low level of development.
Several suggestions were made regarding improvements in those factors, but
these suggestions depend heavily on factors that need further investigations:
539
- the necessity to asses the local authorities point of view regarding bonds as
an alternative source of nancing (including the costs, other than the coupon
payments);
- the attitude of average individual investors toward investing in bonds, compared with their investments in shares, exchange traded funds and structured
products;
- the intermediation costs attached to any municipal bond investment;
- details regarding the distribution of municipal bond oerings.
Another eld open for further investigations concerns the way prices were
established for the traded municipal bonds at BVB and the inuence of the relatively new reported yield curve. Another interesting aspect would be the reasons
why some of the listed bonds are traded with higher frequency than others, while
having similar characteristics Last, but not least it will be interesting to investigate when the trading occur and the presence or the absence of correlation with
coupon payment.
A comparative analysis of public bond and municipal bond market segments

in the Central and Eastern European countries is also of interest.
All these further lines of research can give a more complete picture of the
factors that can enhance the development of municipal bond market segment
at BVB.
Notes
1
For the present paper the abbreviation BVB (from Romanian name Bursa de Valori Bucuresti) was
chosen in order to avoid any confusion with the possible abbreviation for Budapest Stock Exchange,
Bulgarian Stock Exchange and Bratislava Stock Exchange.
2
Both municipalities are popular tourist destination, one on the mountain region of Prahova Valley
(Predeal), respectively a resort at a Black Seaside (Mangalia).
3
Other two municipal bond oerings (made by the city of Suceava, Suceava county and the city of
Turda, Cluj county) appear on the website of the main consultant for bond issues in Romania. However, the margins for the respective loans are not announced
(http://www.vmbpartners.ro/Bond.aspx?IDBond=44,
http://www.vmbpartners.ro/Bond.aspx?IDBond=49). The invitations for subscribing the oerings were found on Suceava and Turda ocial websites posted in 2007 and respectively 2008. No
further information is available regarding the respective oerings, as follow they were considered as
abandoned and ignored for the current paper.
4
The 5 municipal bond oerings, not listed at BVB, were made by: the town of Breaza, Prahova
county (issued in 2002); Arad county (issued in 2003), the town of Tg.Ocna, Bacau county (issued
540
in 2004), the city of Cluj-Napoca, Cluj county (issued in 2004), and the county of Bihor (issued in
December 2010).
5
County capitals are: Arad, Bacau, Bistrita, Cluj-Napoca, Deva, Focsani, Giurgiu, Iasi, Oradea, Slobozia, Timisoara, Tg.Mures and Zalau
6
Formerly known as BUBID-BUBOR. Data regarding ROBID-ROBOR are oered by Romanian
National Bank on its website http://www.bnro.ro/Info-nanciar-5371.aspx.
7
Authors chose to calculate the liquidity as ratio between the traded volume and the outstanding
number of bonds. The popular method used in Romania to calculate and report the liquidity is the
ratio between turnover (trading value) and outstanding value for the issue, but since the outstanding
value is decreasing with every coupon payment (which is accompanied with the reimbursement of
a percentage of principal) this will generate an increased amount of detailed calculations for every
traded issue and for every year. Instead, a gross approximation was used.
8
As capital of Romania, Bucharest has a double status: as county and as municipality; for this paper it
was considered only as municipality.
9
As communicated through telephone by the commune council secretary as of November 10th,
2010.
10
The company was formed in 1997 and specialized in Romanian nancial market analysis and advising. At the present moment it is not clear if Bucharest Research Equity Group SA is still active since
the information on its website are not up-dated since mid 2008.
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Websites:
http://www.bnro.ro
http://www.bvb.ro
http://epp.eurostat.ec.europa.eu
http://www.fese.be
http://www.insse.ro
http://www.kmarket.ro
http://www.mnante.ro
http://www.rating.ro
THE STABILITY PERFORMANCE OF EASTERN EUROPEAN EU MEMBERS WHO CAN ...
545
THE STABILITY PERFORMANCE OF EASTERN

EUROPEAN EU MEMBERS
WHO CAN JOIN TO THE EURO AREA?
Alexander Moheit and Prof. Dr. Dirk Wentzel1 (Hochschule Pforzheim University)
Abstract:
The so-called Eastern European Enlargement (EEE) has changed the face and
character of the European Union signicantly. With Romania and Bulgaria as additional members from the Eastern hemisphere of the continent and Croatia probably entering the EU in 2012, new challenges arise, especially for the scal and
monetary stability of the Union. A special eld of interest and research is the nancial and monetary relations of the new members with the European Central Bank
(ECB). Actually, the European Union Treaty clearly requires that all new members
sooner or later have to adopt the EURO. The question that will be analyzed in this
paper is if any of the new members are ready and performing appropriately to follow Slovenia, who was the rst of the new members to join the monetary union
and introduce the Euro.
JEL classication: E5, E6, H6
Keywords: nancial stability, monetary stability, convergence criteria, economic
growth
INTRODUCTION: WHO ELSE COULD JOIN THE TEAM?
The so-called Eastern European Enlargement (EEE) has changed the face and
character of the European Union signicantly. With Romania and Bulgaria as additional members from the Eastern hemisphere of the continent and Croatia probably entering the EU in 2012, new challenges arise, especially for the scal and
monetary stability of the Union (see ECB 2007; European Commission 2007).
The economic analysis shows that the new members have their strengths and
their weaknesses at the same time. Basically, the Eastern European countries have
546
Alexander Moheit Dirk Wentzel
improved their economic performance considerably and sustainably since 2004

(see ECB stability report 2007). The one-sided portrayal of the Eastern European
countries as poor and causing trouble to the European path is not accurate
or complete: In contrast to the relatively moderate or slow growth in most Western European States, the dynamic Eastern Europeans enjoyed higher growth rates
based on increasing exports, large FDI inows and strong alignments of long-term
interest rates with EU-average rates. Therefore they made an important contribution to the positive economic development of the EU since 2004.
A special eld of interest and research is the nancial and monetary relations of
the new members with the European Central Bank (ECB). Actually, the European
Union Treaty clearly requires that all new members sooner or later have to adopt the
EURO. The opting out clause, which holds for Britain, Sweden, and Denmark, is
not available for the new members. Some scholars might call it a double-standard,
but the matter of the fact is that the Eastern European governments have to prepare
the adoption of the Euro. From an institutional perspective, a very interesting dilemma occurs: All member states have to adopt the Euro, but they are only accepted
in the Club if they match the criteria. Therefore the only exit option for a country who might not want to adopt the Euro is failing on the criteria on purpose (see
Wentzel 2005).
The question that will be analyzed in this paper is if any of the new members
are ready and performing appropriately to follow Slovenia, who was the rst of the
new members to join the monetary union and introduce the Euro. Nevertheless,
the nal judgment if a country is performing strong enough or not is not that easy:
The current and intensive debate (May 2008) between the European Commission
and the European Central Bank regarding Slovakia joining the Euro zone is a clear
expression of these performance dilemmas. Experts with the best empirical data and
knowledge available come to completely dierent conclusions concerning the stability performance. First, there are general problems of the world economy aecting all
countries. Second, worldwide pressures on ination (also in Western Europe and the
US), increasing costs for energy and food and political conicts impacted all candidates negatively: These facts have been reected in obvious higher national ination
rates. Decits in current account balances are also a normal eect in emerging
countries and some of the transition countries of the East face similar problems (see
Wentzel 1995) which were predicted in the early literature on transition economics.
Surely the environment of the world economy holds a couple of unique problems
for the new EU members right now. There are further challenges directly related
547
to the background of these former centrally planned and administered economies,

with which the candidates have been coping dierently: Some countries (Slovenia
and Estonia) are performing quite well and regained scal stability, while others did
not use their revenues from privatization to reduce public debt. Some countries even
increased social expenditures due to political pressure. Considering the excessive
decits in some Eastern European states (Poland, Czech Republic), scal consolidation seems to be the main challenge for the future and a major concern is if these
countries will become eligible some day to introduce the Euro (see Wentzel 2005).
Another important argument has to be considered from the perspective of political economy. When the Western Europeans started their way towards the Euro in
th
the 90 , there was a credible threat that non performing countries were excluded.
This posed a lot of pressure on the governments, for example in Italy or France, to
leave the path of nancial instability they had followed for many decades. However,
with the introduction of the Euro, this political sanction had disappeared. Especially
after the repeated violation of the Stability and Growth Pact by France and Germany
the situation to enforce stability has dramatically worsened.
This paper will analyze the current status of the new member states on their way
to introduce the single European currency on a country by country approach. The
analysis deals with the hard facts, but considers also additional factors from the political and institutional environment. The paper will provide conclusions for every
single country and conclude with general remarks on the European integration of
dierent velocities.
PERFORMANCE OF ESTONIA
1.1 Convergence criteria
With regards to the government budgetary position Estonia enjoys a surplus

of 1.1 percent per year since 2000, which has been used to reduce the public debt
(European Commission 2006: 15). The gross government debt to GDP dwindles
constantly and the European Central Bank forecasts for 2007 and 2008 did not
cast doubt on the willingness of the Estonian government to follow the process of
reducing the debt up to 50 percent until 2008 (European Commission 2006: 62).
Moreover, the forecasts underline a rising surplus of the revenues to 1.3 percent
of GDP, which strengthens the condence in the Estonian budget balance (Eeste
Pank, Bank of Estonia 2008: 8).
548
Figure 1: Budgetary developments 2005-2010, Estonia (% of GDP). (Source: European Commission 2007:
228).
annual government deficit to GDP
gross government debt to GDP
2003
Inflation rate HICP
-1.1 %
2005
-2,3
4,4
2004
1.2 %
2006
-3,8
4,1
2005
2.7 %
2007
-3,7
2,7
2006
3.3 %
2008
-3,5
2,3
2007
3.5 %
Budgetary developments 2005-2010, Estonia (% of GDP). (Source: European Commission 2007: 228).
The exchange rate stability has performed well: Before the assessment to ERM
II, the Estonian Kroon had been anchored to the Deutsche Mark (DM). The Estonian Kroon started transition from a socialist currency of the Soviet era in 1990, at
that time a very challenging institutional arrangement (see Wentzel 1995). Since
June 2004, the Estonian Kroon is part of European Exchange Rate Mechanism
and could maintain a constant currency board within the mechanism with direct
transmissions of monetary impulses coming from the Euro area (European Commission 2006: 64). Recently, the Estonian Kroon appreciated by 3 percent, which was
mainly facilitated by the stronger growth of consumer prices compared to that in
the partner countries, which is why growth in the real exchange rate of the Kroon
accelerated to 45% in the second half-year (Eeste Pank, Bank of Estonia 2008: 8).
Estonia has high foreign exchange reserves covering 115 percent of monetary base
and short-term interest rates fulll the convergence criteria too (European Commission 2006: 64). There are no pressures on the exchange rate right now.
As a result of Estonias low level of government indebtedness no benchmark
long-term government bond or comparable security is available to assess the durability of convergence as reected in long-term interest rates (European Commission
2006: 16). The indicator is predicated on key gures from bank loans and nonnancial businesses (European Commission 2006: 16). Recent developments, especially since 2004 fulll convergence criteria of long-term interest rates and there is
no indication of any worsening.
As a result of initially external price shocks, higher indirect taxes, increasing
wage costs and a strong demand growth from 2004 to 2007, Estonia suers relatively high ination rates, which remain above the reference value. The Estonian
CPI increased approximately up to 10 percent in December 2007. Forecasts, e.g.
made by the European Commission, could not reveal any signs of a decrease of the
high ination rates for 2008 (European Commission 2006: 15). By 2008, ination
549
will increase due to higher world-market prices for oil and food (Eeste Pank, Bank
of Estonia 2008: 7 forthcoming) as well as robust income growth. It has to be concluded that the monetary performance of Estonia is disappointing right now.
Figure 2: Rise in food prices in Estonia compared to the corresponding month of the previous year (Source:
Eeste Pank, Bank of Estonia 2008: 11).
1.2 Additional factors
Domestic investments and the productivity growth are based on increased foreign savings in Estonia. The Euro is already accepted as investment currency and the
integration of the Estonian economy with the EU is remarkable strong (European
Commission 2006: 16). However, the Estonian economy will have to satisfy large
nancial needs due to a decline in private savings since 2002 and the large external
decit (Financial Times 2008), which widened from -5,6 in 2001 up to -13,1 in
2006 (European Commission 2006: 15). The external decit is nanced by FDI inows and intra-group bank lending. However, that will not be sucient to prevent
future nancing problems of the external balance (European Commission 2006: 69).
With the external debt stock having grown [] to above 80% in Estonia in 2005,
debt service let alone the redemption of debt it might take a considerable toll
on future consumption and investment. For a vigorous convergence scenario it will
be essential to ensure that the high current account decit reects sound private
investment rather than conspicuous consumption (Deutsche Bank Research 2006:
1). In 2007, the trade balance decit decreased slightly: The underlying reason for
550
this was the increased outow of investment income, calculated on an accrual basis.
Income on investment in Estonia was about 45% larger than in 2006 also in the
last months of 2007 (Eeste Pank, Bank of Estonia 2008: 7).
1.3 Conclusion
To sum up, Estonia does not fulll all required convergence criteria. The common feature in recent economic forecasts has been that the adjustment of domestic
demand growth will be smooth and that current account decit is not expected to
decline rapidly once economic growth slows (Eeste Pank, Bank of Estonia 2008:
18). The high ination rates and the rising external decit seem to persist. The
prospect does not indicate changing. However, price stability is a prerequisite to
join the Euro zone that is denitely not negotiable (see Wentzel 2005). This leads to
the conclusion that Estonia will not fulll criteria even in the medium term and is
therefore not yet qualied to join to Euro area. Cutting down ination will be the
central challenge for Estonia on their way into the monetary union.
2 PERFORMANCE OF LATVIA
By 2006 the general government balance of Latvia realized a surplus of 0.4 percent of GDP due to higher tax revenues than expected in previous governments
drafts. Forecasts of the European Commission predict smaller but positive balances of annual government decit. The status of Latvians gross government debt
fullled required criteria during the recent years by 12 percent in 2005 and will be
reduced up to 6.7 percent in 2008, which feeds strong condence in the Latvian
government (European Commission 2006: 19). The average tax burden, which inuences the economical performance and represents a crucial factor in investment
decisions of entrepreneurs, has been reduced from 32 to 30 percent up to 2006
(European Commission 2006: 249). Therefore, Latvia fulls convergence criteria
concerning debt and decit.
After a moderately depreciation against the Euro, Latvian Lats became part of
ERM II in May 2005 and has successfully maintained its currency within the corridor of one percent around the Euro central rate (European Commission 2006: 89).
The lack of severe tensions and the satisfying developments in short-term interest
rates and foreign exchange reserves, lead to a fullment of criteria on the required
551
exchange rate stability (European Commission 2006: 90). The Lats is growing into
the system.
The long-term interest rate (LTIR) within Latvian economy has been around
3.9 percent and did never approach to the upper bound of 6.2 percent of the required convergence criteria (European Commission 2006: 90), so the average LTIR
has always remained below the reference value. Furthermore, Latvia enjoys condence from investors reected by the moderate spreads to the Euro area (European
Commission 2006: 91).
Ination is continually high with 6.7 percent in 2006 and is also expected to
remain high (European Commission 2006: 19). The sudden rise from 2.9 percent
in 2003 up to 6.2 percent in 2004 and the persistence of high ination rates reected initially external price shocks, higher administered prices, indirect taxes and
increasing capacity constraints (European Commission 2006: 84).
Figure 3: Growth of gross domestic product in the Baltic countries (at constant prices, % of the corresponding
period of the previous year). (Source: Central Statistical Bureau of Latvia. 2008).
Recently there have been more demand-side factors and upwards pressures
stemming from labor costs (European Commission 2006: 18). Moreover, excise taxes
and pro-cyclical scal policies lead to the conclusion that the ination will not be
considered as a primary problem by Latvian government.
The integration of Latvian economy with the EU is strong and the Euro is currently used as an investment currency which would relieve the adoption of this currency. Foreign savings, especially from Euro area countries, intensied investments
552
and productivity growth (European Commission 2006: 91). However, Latvia suers
a large external decit (Financial Times 2008), which has widened from -7.6 in
2001 to -16.4 in 2006 (European Commission 2006: 95) and is mainly nanced by
FDI inows and intra-group bank lending (European Commission 2006: 94).
2.3 Conclusion
Latvia does not fulll all required convergence criteria. The ination rate is denitely too high and will persist in 2008. As in the case of Estonia, monetary stability
is the main precondition for the membership in the Euro area and denitely not
negotiable. The budgetary aspects are also inappropriate. Both the large decit, as
well as the prospective strong nancing needs exclude Latvia from participating in
the Euro area in the near future.
However, the Euro is becoming a parallel currency in Latvia in regular life which
leaves the country like its Baltic neighbors in a dicult situation. Even though
the Euro cannot be adopted ocially in the near future, it is part of the Latvian
economy in many ways. It can be concluded that the role of the Euro as a parallel currency in the Baltic states is another example of Greshamss law (see Wentzel
1995). There might be a crowding out of the Lats by the Euro, which will be a real
challenge for the monetary policy of the national central bank and, later on, also
for the ECB.
3 LITHUANIA
The annual government decit to GDP remained low at 0.6 percent in 2006
(European Commission 2006: 28) and will increase slightly to 1.0 percent in 2008,
which would fulll the required convergence criteria (European Commission 2007:
252). The gross government debt is by around 19 percent and is expected to decrease in 2008 and 2009. This positive performance regarding the government decit and debt results from a good budgetary performance at all levels within general
government, strong growth and privatization (European Commission 2007: 251).
Lithuanias general government decit will hover around 1.4% of GDP from
2008 onwards. The governments longer-term target of a cyclically balanced budget
seems reachable in the light of the envisaged improvement in tax collection and the
proven political ability to restrain expenditure (Deutsche Bank Research 2006: 4).
553
The new budget, approved in December 2006, did not contain signicant tax
changes and conrmed the condence external observer have gained in the budget
policy of Lithuanian government (European Commission 2007: 251). Government
target is to balance budget in 2009. However, social expenditures will increase, but
among it, the planned higher subsidies to farmers are co-nanced by the European Union, so does not burden government balance in full (European Commission
2007: 251).
Lithuania fullls criteria concerning exchange rate stability, but has to be monitored in next years. Lithuanian Litas has participated in ERM II since 28 June
2004 and ever since the Litas has remained stable (European Central Bank 2006:
23). Lithuania has got a large decit in balance of payment, which is covered only
half by net inows of FDI (European Central Bank 2006: 23). However, Lithuania
is one of the emerging countries which normally realize such kind of development:
In fast-growing catching-up countries like Estonia and Lithuania a current account decit is considered to be normal, reecting the fact that domestic savings
are too small to nance investments (Deutsche Bank Research 2006: 9).
Figure 4: External debt in % to GDP and Real credit growth 2000 to 2005 (Source: Deutsche Bank Research.
Estonia, Lithuania, Slovenia: Poised to adopt the euro (2005): 9)
The performance of long-term interest rates reects the credibility of Lithuanias

convergence process: The spread of long-term government bond yields declined
from 55 basis points to 25 and the average LTIR is at 3.7 percent, below the reference value of 5.9 percent (European Central Bank (2006): 24). The long-term interest rates declined since 2001 and the spread between Lithuanian LTIR and euro
554
area LTIR narrows, which is indicative of market condence in general economic

and scal developments in Lithuania (European Central Bank 2006: 24).
Figure 5: Measures of ination and related indicators. (Source: Convergence report Lithuania
2006: 26-27).
2005
-2,3
4,4
2006
-3,8
4,1
2007
-3,7
2,7
2008
-3,5
2,3
The ination rate has been volatile and increased in 2005. In contrast to the
value reference of
2.6 percent in 2006, the Lithuanian ination is higher than the average of the
countries (European Central Bank 2006: 20) that adopted the Euro and there are
several risks for ination; especially higher fuel prices for transport and increased
prices for food in general (European Central Bank 2006: 21). Moreover, European
Commission forecasts predict perspective risk factors for ination in the longer
term as a result of strong domestic demand, energy price increases and increases in
indirect taxes (European Central Bank 2006: 21).
Lithuania underlines the willingness to adopt Euro by ensuring a tight scal

policy which supports scal consolidation and the credibility of the currency board
arrangement (European Central Bank 2006: 24). In addition to this, Lithuania enjoys market condence in general economic and scal developments (Convergence
report 2006: 24). However, the large decit in balance of payment (Financial Times
2008) is covered only half by net inows of FDI which indicates weaknesses regarding Lithuanias price competitiveness (European Central Bank 2006: 24). The
medium and long-term convergence to the Euro is threatened by the high current
account decits.
3.3 Conclusion
Government debt increases in 2007 and 2008, but will maintain below the required limit of 60%. Exchange rate is stable since Lithuania is part of ERM II and
long-term interest rates declined as a result of a market condence in economic
and scal developments. However, ination rate is above the required reference
555
value and due to several upward pressures it is expected to further increase in future. Lithuania is in some areas well performing with a strong commitment of its
government to reach objectives of convergence criteria, but is yet not able to adopt
Euro. However, if the country achieves to reduce ination, it might get into an
entry position soon.
Furthermore, it has to be mentioned that Lithuania is in a similar situation to
the Baltic neighbors. The Euro is already part of the economic daily life and the
gap between the ocial currency and the unocial exchange is getting smaller.
Credibility from the Lithuanian economy comes mainly from a solid budget policy
over several years and from successful privatization. The challenge, as in the case of
Estonia, is the reduction of ination. However, that should be a manageable task.
4 POLAND
4.1 Background
Poland was the top student at the beginning of the transition in 1990 (see
Wentzel 1995; Weber 1995). The legendary reforms of Leszek Balcerowic (the socalled shock-therapy) converted the country quickly from a centrally planned and
administered system into a market economy and became a milestone of economic
policy in general. Poland and the other Visegrad contries (Czech Republic, Slovakia, Hungary) tried everything to become members of the European Union as soon
as possible and nally achieved full membership in 2004.
Nevertheless, since the access to the EU in 2004, the Polish enthusiasm to intensify the European integration has disappeared. In 2006, Poland fullles only
two of the four required convergence criteria, namely the price stability and the
long-term-interest rates. Moreover, the Polish government under Lech Kacinski,
questioned the European Central banks independence (OCDE 2006: 4) and asked
for a more democratic approach in monetary policy, which means nothing else
than giving the government control over money supply. The recent developments
in decit and debt, as well as the exchange rate performance are far away from the
value references agreed in the convergence criteria.
However, the new Polish Prime Minister Donald Tusk, elected in 2007, has implemented a change concerning the attitude of the Polish government to public
debt, independence of the national Central Bank, political relations to other EUmembers, and EU institutions in Brussels. Poland now accepts its obligations from
556
the acquis communautaire and the contract with the EU that clearly states that
the country is obliged to adopt the Euro and therefore has to work hard to fulll
the convergence criteria as soon as possible.
Up to now Poland fullls the criterion concerning price stability, but this cant
be taken for granted and has to be observed strictly in future. After high ination
rates in the early 1990s, Polish ination decreased sharply, but so far has been volatile (European Commission 2006: 24). Fluctuations in prices after EU accession, as
well as a lack of willingness on the part of the previous Polish governments, both
the post-communist party Sojusz Lewicy Demokratycznej (SLD) that governed up
to 2005 and the national-conservative Prawo i Sprawiedliwo (PIS), to stabilize the
prices lead to this volatile development of Polish ination. The new Prime Minister Donald Tusk announced changes in public expenditures: In particular he is
committed to limit social spending. However, there is evidence of a slight pickup in ination in 2007 and 2008 attributed to improved economic conditions
and higher indirect taxes, drafted by the Polish government (European Commission
2006: 127). The rst half of 2007 saw an acceleration of economic activity driven
by booming domestic demand. Growing labor shortages have fuelled strong wage
increases. The pick-up in unit labor costs and record-high capacity utilization rates
has darkened the ination outlook (OECD 2007d: 1). To sum up, part of the inationary pressure is home made, whilst another part (energy prices, food) stem
from the development of the world economy.
The recent developments and the medium-term prospects do not reveal any
indication for an improvement of the public debt and decit. Poland suers an excessive decit (OCDE 2006: 4). Actions, taken by Poland to reduce the public debt
had been classied as non sucient by the EU-Council (Council of the European
Union 2006: 6). Opportunities to improve the situation, like the faster growing
tax revenues by 10.3 percent and GDP growth by 6.1 percent have been foiled by
increased state expenditures by 7.4 percent, military expenditures by +17.4 percent
(European Commission 2006: 128). The scal outcome has improved this year and
the outgoing government started to reduce the tax wedge. Yet the recent decision
to increase spending and decrease revenues renders all the more uncertain Polands
EU commitment to reduce its excessive decit. With a pro-cyclical scal stance and
above-potential GDP growth, the burden of staying on a non-inationary growth
557
path falls on monetary policy alone (OECD 2007d: 1). Poland does not fulll
the criterion on public debt and decit with a gross government debt to GDP by
48.4 percent in 2007 and an annual government decit to GDP by 3.4 percent in
2007.
Figure 6: Poland: Government budget balance and debt. (Source: European Commission 2006: 24)
Poland is not part of ERM II. The Zloty exchange rate has uctuated widely
over the past few years (European Commission 2006: 25). However, the 3-monthspread narrowed since 2004. Moreover, Polish currency seems to be undervalued:
A large majority of factors suggest continued undervaluation of the CEE-4 currencies. This was conrmed by numerous sensitivity tests. Even though the productivity gap between the EU-15 and the new members is large, it is apparently
not as large as implied by the current exchange rates. The CEE currencies initial
undervaluation is more persistent than assumed by many people (Deutsche Bank
Research 2005: 6). Nonetheless, to fulll criterion on exchange rate stability, Poland
have to be part of ERM II for at least two years. Poland does not full this required
criterion.
Since 2005, the long-term interest rates did never exceed the reference value of
6.5 percent and the long-term spreads narrowed, which both accomplish required
criteria. LTIR uctuated due to shifts in the ination forecasts and the ambiguous
558
attitude regarding its monetary policy, but it did not impact its good performance
(European Commission 2006: 25).
The integration of Polish economy with the EU is strong, with increasing exports, rising trade and FDI relations especially with its neighbouring countries
(European Commission 2006: 125). Political uncertainties, caused by the previous
government, did not inuence negatively the volume of capital inows. Planned
restrictions of Central Banks independence, as announced by the former Kacinski
administration, dont seem to be pursued any longer by the new government. However the new Prime Minister Donald Tusk is charged to dispel all doubts concerning
political uncertainties which clouded the investment climate and monetary framework in the past. Moreover, the new government has to cope with the dependence
of FDI on ensuring a favorable investment climate and the decreasing net inward
foreign direct investments since late 1990s (European Commission 2006: 25).
4.4 Conclusion
Poland does not fulll the required convergence criteria at all. The current decit does not accomplish the required value on public debt and decit. Furthermore,
the decit is rising so that the short and medium term expectations are pessimistic.
The uctuation of the Zloty as well as the persisting political uncertainties does not
lead to a change on Polands status as a Member State with derogation (European
Commission 2006: 25). Poland is yet not able to participate on the Euro area and it
will probably take quite a while until the country can improve its performance.
The credibility test par excellence is the budget and the general attitude of the
administration towards cooperation on the European level. If Poland becomes a
country in permanent decit and if the highest representatives of the country are
suggesting printing money to solve budgetary problems like the former administration did, inationary expectations will remain high. In addition, since Poland is
a large country, the ECB and the European Commission wont accept and should
not accept any compromises for new members.
559
5 THE CZECH REPUBLIC

Czech ination is volatile but however remained under the reference value since
2005 (European Commission 2006: 46). Previously, the weak labor market demand
prevented an increase in wage ination. Recently, the Czech economy observed a
moderate increase of ination rates due to the EU accession, higher administered
prices (European Commission 2006: 46) and as in other countries, developments
in food and oil markets have also been increasing consumer prices (OECD 2008:
3). Czech ination rate will pick-up modestly in 2007 and 2008, which will be primarily based on improved economic conditions and higher purchase taxes. Future
developments of Czech exchange rate as well as the Czech tax policy will determine
ination rate in the medium term (European Commission 2006: 13), because exchange rate movements strongly inuence Czech consumer prices (OECD 2008:
3). However, the Czech Republic currently fullls the criterion on price stability.
Figure 7: Contributions to ination. Year-on-year percentage change (Source: OECD (2007a)).
Concerning public decit and debt the Czech Republic is over the reference
value of annual government decit to GDP by 3.9 percent in 2007, but nevertheless within the frame permitted by convergence criteria on gross government
debt to GDP by 30.6 percent in 2007 (European Commission 2007: 220). The
Czech government increased social expenditures after 2000 which were not backed
up with additional tax revenues: This gap has led to higher annual decits. Only
the stronger economic growth in recent years has prevented severe scal problems.
However, the medium-term prospect does not indicate improvements. Additional
560
social and educational expenditures have been drafted in budget for 2007 (European Commission 2006: 50).
The Czech Republic does not fulll the exchange rate criterion therefore did yet
not join ERM II (European Commission 2006: 14). Constant upward revaluation of
the Czech Koruna and low ination of recent years both have been reected in the
development of short-term interest rates (European Commission 2006: 52). However, the average long-term interest rate did never exceed the reference value since
accession to the EU, which underlines successful disination. The Czech Republic fulls convergence criterion on long-term interest rates (European Commission
2006: 52).
The improved economic performance is being driven by export oriented manufacturing reecting further deepening of the economys involvement in international production chains (OECD 2008: 3). The Czech economy enjoys a high
degree of their foreign ownership of nancial intermediaries and realizes large trade
and FDI relations with other EU members. The higher inow of net FDI leads to
positive nancial account of 8 percent (European Commission 2006: 14). However,
portfolio investments ows remained volatile (European Commission 2006: 56) and
due to the delay of privatization proceedings in the 1990s, the Czech Republic has
a less developed nancial sector in comparison with EU-15 (European Commission 2006: 53). The intensity of nancial intermediation is smaller than those of
other similar EU countries (European Commission 2006: 53). The equity market is
comparatively small with only 39 listed shares on the Prague Stock Exchange (European Commission 2006: 53).
5.3 Conclusion
By 2007 the Czech Republic fullled only two of the four required convergence
criteria, namely the price stability and long-term-interest rates. The budget decit is
still a major concern and the exchange rate stability has to be improved. The Czech
Republic suers under the consequences of the delay in privatization proceedings
in the 1990s and the nancial sector is small. Considering the performance of the
economy, the entry into the Euro area remains only a medium-term objective for
the Czech Republic.
561
6 SLOVAKIA
Slovakia is the most interesting case of new EU members on their way to introduce the Euro, as right now (May 2008) the ECB and the European Commission are debating intensively about the permission for Slovakia to join the Euro
area. Actually, it is a debate between a more economic approach (as pursued by
the ECB) and a more political approach (which can be seen in the strategy of the
Commission).
In the past, Slovakia suered a volatile and high ination rate (European Commission 2006: 137). Initially, it was a result of external factors, higher administered
prices and indirect taxes. Recently, domestic demand pressures and the world-wide
pick-up of energy prices exert pressure on price stability (European Commission
2006: 25). However, ination will probably stabilize in 2007 and 2008 due to
declining administered prices (European Commission 2006: 26). Recently, sharp
appreciation of Slovak Koruna, e.g. + 8.5 % in March 2007, could compensate the
high ination, but the persistently high ination rates remain a critical issue (see
details in: Deutsche Bank Research 2008).
Figure 8: Slovakia: HICP ination. (Source: European Commission 2006: 137)
562
Figure 9: Slovakia: Components of ination. (Source: European Commission 2006: 138)

2005
-2,3
4,4
2006
-3,8
4,1
2007
-3,7
2,7
2008
-3,5
2,3
In spite of signicant eorts to reduce public debt, Slovakias budgetary situation remains critical as in the past. According to the ECB forecasts the decit will
decline from around 35 percent in 2005 to 29 percent in 2008 (European Commission 2007: 282). Growth performance facilitated Slovakias scal consolidation
(European Commission 2007). In 2007, Slovakia could fulll criterion on public
debt and decit: Government decit to GDP is by 2.9 percent under required
reference value of 3.0 percent. Moreover, the debt criterion is easily respected
as government debt was 33% of GDP in 2006. Further budget consolidation is
programmed through the remainder of the decade aimed at cutting the structural
decit to 0.9% of GDP in 2010, in compliance with the medium-term objectives
for the sustainability of public nances agreed for Slovakia in the revised Stability
and Growth Pact (SGP) (OECD 2007b: 4). So far, Slovakia fullls the criterion
on public decit and debt and seems to possess a successful long term strategy to
maintain stability.
Slovakia is part of ERM II since November 2005. Before, Slovak Koruna appreciated moderately against the Euro and moved near the central rate (European
Commission 2006: 26). After joining, the exchange rate has remained within the
15% uctuation bands around the central ERM2 rate (OECD 2007b: 4). Therefore, Slovakia fulls the criterion on exchange rate stability and has been a reliable
partner to the ECB.
Since Slovakia accessed the EU in 2004, average long-term interest rates have
moved below
6.2 percent; the reference value. Fiscal consolidation as well as far-reaching
structural reforms led to a decline of its long-term interest rate (European Commission 2006: 145). Slovakia successfully fulls criteria on long-term interest rates.
Sustained high economic growth in recent years is gradually narrowing the gap
in living standards between Slovakia and advanced European countries, but there is
563
still a long way to go (OECD 2007b: 5). Like his neighboring country, the Czech
Republic, Slovakia has strong economic relations with the EU and enjoys a signicant degree of foreign ownership of nancial intermediaries (European Commission 2006: 27). The situation in the banking sector is stabilized, protability has
improved, competition in the market for banking products has risen and prudent
banking indicators have developed favorably (Nrodn Banka Slovenska 2005: 5).
However, Slovakias current account balance has been highly volatile, which is primarily based on changes in export performance and has let to a large current account decit of 8.6 %, mainly nanced by net FDI inows (European Commission
2006: 148).
6.3 Conclusion
Slovakia fullls three of the four required convergence criteria: namely the longterm-interest rates, the public debt criterion and the exchange rate mechanism.
The ination rate has been volatile and high at the beginning of the millennium
and right after the entry into the EU, but has signicantly reduced in the past year.
Slovakia is therefore an open case and therefore the rst of the larger Eastern European members to join the EU. Maybe it could follow Slovenia, Malta, and Cyprus
in 2009.
The controversy between the ECB and the Commission is basically a debate if
the stability path of Slovakia is consistent enough. It can be expected that if Slovakia is maintaining comparable results over the next two to three years and at the
same time manages to tame ination, the country might be included in the Euro
area.
7 HUNGARY
Hungary was always a special case even during the time of Soviet occupation
and the centrally administered economy. At the beginning of transition in 1990,
experts expected the country to be the fastest and most successful on their way to
become a competitive market economy. Nevertheless, the development of Hungary, especially the stability performance, has been unsatisfactory and disappointing
for many specialists.
564
The Hungarian ination rate has been, and still remains, volatile: Originally
from a high level it declined to 4 percent in 2003, then has picked-up since 2004
attributed to higher prices in energy and food. It declined and has picked-up again
in 2006 as a result of higher indirect taxes (European Commission 2006: 97). Several
measures implemented in 2006, such as higher administered prices and indirect
taxes, as well as health and education reforms will increase ination rate in 2007
(European Commission 2006: 20). A smooth conversion to a low rate is not likely
right now.

2003
Inflation rate HICP
-1.1 %
2005
-2,3
4,4
2004
1.2 %
2006
-3,8
4,1
2005
2.7 %
2007
-3,7
2,7
2006
3.3 %
2008
-3,5
2,3
2007
3.5 %
With a gross government debt to GDP by 66 percent in 2006 and an annual

government decit to GDP by 9.2 percent, Hungary is far away from the references
value and there is no sign for substantive change (European Commission 2007: 255).
The 2006 decit, at 9.2% of GDP, indeed marked another peak in Hungarys
strong electoral spending cycle. The governments goals imply breaking out of this
(OECD 2007c: 3). Since 2001, the Hungarian government pursuit year after year
an expansive scal policy which leads to large increases in public expenditures,
especially public wages and social transfers (European Commission 2006: 20), in
contrast to investors expectations, that the objective to adopt the single European Currency would commit Hungarian government to satisfy convergence criteria
(Nrodn Banka Slovenska 2005: 9). These expenditures should have been reduced
corresponding to tax cuts, but did not (European Commission 2006: 21). In spite
of an immense privatization, the Hungarian government did not prevent debt and
decit increases (European Commission 2006: 102).
With regards to exchange rate stability, Hungarian Forint is not participating
on ERM II, which automatically excludes Hungary from being part of the Euro
area for at least next two years (European Commission 2006: 21). Likewise, the
long-term interest rates have never been under 6.2 percent, quite the contrary the
average LTIR is at 7.1 percent (European Commission 2006: 104). Moreover, yield
spreads vis-a-vis Euro widened since 2006 and investors do increasingly avoid Hungary due to extended scal adjustments (European Commission 2006: 21).
565
Figure 11: Hungary: Government budget balance and debt. (Source: European Commission 2006: 21)
The integration of Hungarian economy with the EU is remarkable, with a high

degree of foreign ownership of nancial intermediaries (European Commission
2006: 21). Hungarians account decit decreased due to smaller decits in goods
and services. However, the development of the Hungarian economy in recent years
remains disappointing. Hungary suers a large decit in public savings, less portfolio inows and receives negative publicity regarding the foreign investors assessment of Hungarian economic fundamentals (European Commission 2006: 108).
7.3 Conclusion
The biggest test of the consolidation program will be from 2009 onwards,
when structural reform is supposed to deliver more of the decit reduction, but
when also pressures for new spending measures are likely to mount due to elections in 2010 (OECD 2007c: 3). By 2007 Hungary was not in a position to claim
fulllment of the convergence criteria. The ination rate is too high to accomplish
required criteria and remains volatile. Both government decit and debt are exces-
566
sive, and Hungary is not participating in ERM II and the long-term interest rates
moved above reference value. Not even the medium-term prospective does reveal
any signs for a soon accession of Hungary to Euro area. The biggest problem is the
fundamental lack of long term commitment of the Hungarian government to reach
the objectives of convergence criteria.
8. GENERAL CONCLUSIONS
Analyzing the date from current research and the ocial European institutions,
it seems clear that a fast integration of the Eastern European members into the
common currency area is not likely and not recommendable.
The small Baltic states, despite all their dierences, might be eligible in the near
future because they perform quite well in the most important area of testing; the
attitude towards public debt. These states have developed some kind of a stability culture and they are cooperating very well with their European neighbors and
the European institutions. The case of the Vise-grad countries is quite dierent.
Poland, the Czech Republic and Hungary provide a disappointing stability report
and on the base of a strict economic evaluation they wont be able to join the Euro
area for quite a while. At the same time, the Euro became a parallel currency in all
these countries and it will be quite interesting to observe if Greshams law will also
hold for these countries, and the stronger currency will push the national currencies aside without an ocial acceptance of the Euro. In Romania or Bulgaria, for
example, the Euro is already some kind of ocial currency and used (and preferred)
all over the country, even though these countries are far away from starting ocial
negotiations about an access to the Euro area.
Slovakia is a dierent case and at some point also surprising. At the beginning of transition, and during the separation of the Czech Republic and Slovakia,
international experts expected a much better performance of the Czech Republic.
However, Slovakia was quite successful in attracting foreign capital and taming
public expenditures. If they can repeat their positive performance for two more
years, they might be the next member of the Euro zone.
Comparing the strategy of ECB and Commission, dierences can be observed.
It seems that the Commission is following a (political) strategy to go chunk by
chunk, thus integrating the small countries one by one year after year. The ECB,
in contrast to that, is following a stricter economic approach interpreting the empirical data due to the legal framework of the ECB and the currency area does not
567
provide any regulation to expel a member who is not cooperating any more. The
experience with Greece, which got access to the EU on the basis of on inaccurate
data is surely a benchmark for the central bankers.
In the case of Malta and Cyprus, the Commission and the ECB both expressed
very clearly that they dont expect any danger for the stability of the Euro since
these countries and their GDP are small compared to the rest of the EU. The case
of the Visegrad countries is dierent, as they are large and signicant for the monetary supply. Therefore, the failure of one of these countries would surely cause
negative repercussions on all other Euro countries, even if they are performing well.
In literature, this is discussed as the bail-out problem (see Wentzel 2005). From
a scientic perspective, it is highly recommendable to postpone the entry of these
countries to the Euro area as long as they provide clear evidence on their stability
orientation in the long run.
Literature:
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2008&cc_cat= 470&id=5615. Date: 4/10/2008. Council of the European Union
(2006): Council Opinion on the updated Convergence Pro
gramme of Poland. URL: http://register.consilium.eu.int/pdf/en/06/st07/st07383.
en06.pdf.
Date: 10/12/2007. Deutsche Bank Research (2005): Are the CEE-4 currencies fundamentally undervalued? URL: http://www.dbresearch.de/PROD/
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Urban Bacher Christopher Pohl
570
FR EIN NEBENEINANDER VON PRIVATEN UND

STAATLICHEN RATINGAGENTUREN
von Prof. Dr. Urban Bacher / Christopher Pohl, Hochschule Pforzheim
Abstract
Credit rating agencies are private, prot-oriented institutions that are in the
business of evaluating the creditworthiness of enterprises, banks and states, aiming
to provide investors with information they require to make decisions. Such a rating
cannot replace ones own analysis and should not be the sole basis of investment
decisions. Nevertheless, it is in the interest of both investors and creditors to have
the credit rating checked regularly by an expert third party. In view of the observed
shortcomings of credit rating agencies, the paper discusses a possible dual system
consisting of both private and state credit rating institutions.
Keywords: credit rating agencies, credit rating systems, dual system
1 PROBLEMSTELLUNG
1.1 Aufgaben von Ratingagenturen
Ratingagenturen sind private und gewinnorientierte Institutionen, die gewerbsmig die Bonitt von Unternehmen, Banken und Staaten bewerten und somit
Investoren mit entscheidungsrelevanten Informationen versorgen. Ratings knnen
die eigenstndige Analyse nicht ersetzen und sollen die Anlageentscheidung des
Investors nicht abnehmen. Dennoch haben Investoren und Glubiger ein Interesse
daran, dass die Bonitt regelmig von einem fachkundigen Dritten untersucht
wird.
International wird der Markt der Ratingagenturen von Standard & Poors,
Moodys und Fitch Ratings dominiert. Die primre Aufgabe von Ratingagenturen
besteht darin, die asymmetrische Informationsverteilung zwischen den Parteien zu
mindern. Nach den international vereinbarten bankaufsichtsrechtlichen Regelun-
FR EIN NEBENEINANDER VON PRIVATEN UND STAATLICHEN RATINGAGENTUREN
571
gen (Basel II) knnen fr die risikoadquate Eigenkapitalunterlegung Ratingurteile

von externen Agenturen herangezogen werden.1
Zur Erreichung dieser Ziele und Aufgaben analysieren Ratingagenturen Staaten,
Banken und Unternehmen und deren Finanzprodukte und bewerten deren Kreditwrdigkeit (Bonitt) anhand einer Bewertungsskala. Das Verfahren beginnt mit einem zahlungspichtigen Auftrag an die Ratingagentur. Die Agentur prft dann die
Bonitt anhand von entlichen und internen Daten nach einem eigenen System.
Das Ergebnis wird in der Regel durch eine Buchstabenkombination (AAA bzw.
Aaa (beste Qualitt) bis D (zahlungsunfhig)) ausgedrckt und bildet eine Rangfolge. Die Ratingeinstufungen basieren auf Modellen, welche unter Zuhilfenahme von entlichen und privaten Informationen die Ausfallwahrscheinlichkeiten
berechnen.2
1.2 Ratingagenturen und die Finanz- und Bankenkrise
Die Ursachen der Finanz- und Bankenkrise sind vielfltig:3 Seit Mitte der Neunzigerjahre sind die Zinsen weltweit extrem niedrig, Kapital war damit fr Investoren so billig wie nie zuvor. Der durch das niedrige Zinsniveau entstandene nanzielle Freiraum wurde von vielen Schuldnern - Staaten wie private Schuldner - nicht
zur Schuldentilgung genutzt, sondern bot die Chance fr neue, hhere Schulden.
In den USA waren variable Finanzierungen beliebt, also Zinsvereinbarungen, die
den Zins exibel an das niedrige kurze Ende binden. Wer bereits eine Finanzierung am langen Ende hatte, schuldete um und konnte so kurzfristig protieren. Die Erwartung stetig steigender Immobilienpreise und die niedrigen Zinsstze fr Hypothekenkredite bewirkten, dass die Anzahl der Hauseigentmer in
den USA stetig anstieg. Hausnanzierungen ohne Eigenkapital waren in den USA
nicht unblich. Unter den Hauseigentmern stieg der Anteil mit niedriger Bonitt
(Subprimekreditnehmer). Deren Kredite wurden in Zweckgesellschaften verlagert, verbrieft, mit bestem Rating versehen und weltweit margenstark verkauft.
ber Jahrzehnte hinweg genossen die Ratingagenturen eine hohe Reputation,
deren Ratings waren allgemein anerkannt und zuverlssig. Ausgelst durch den
Immobilienboom in den USA boomten auch die Ratingagenturen. Der Umsatz
1
Vgl. Bacher (2009), S. 27 und S. 143.

Vgl. Kuhner (2001), Schmalenbach Business Review 1/2001, S. 2 .
3
Vgl. Bacher (2009), S. 22; Bloss/Ernst/Hcker/Eil (2008), S. 9-10.
2
572
der drei genannten Branchenfhrer verdoppelte sich im Zeitraum 2002 bis 2007.4
Fr Verbriefungsprozesse auf dem Feld der Subprimekredite hatten Ratingagenturen eine Basisfunktion: Ohne ihre positiven Produktbeurteilungen wre es Emittenten von strukturierten Wertpapiere (Special Purpose Entities) nicht mglich
gewesen, Banken jene risikobehafteten Strukturpapiere anzubieten.5 Private Ratingagenturen waren somit wesentlicher Bestandteil des Subprimedeals und damit
mitverantwortlich fr die Fehlentwicklungen auf den Finanzmrkten.6 Steigende
Zinsstze hatten schwerwiegende Auswirkungen: Finanziell schlecht aufgestellte Kreditnehmer konnten ihre steigenden Zahlungsverpichtungen nicht mehr
erfllen; die Subprimekonstruktion el in sich zusammen; die Krise begann ihren Lauf. Infolge der Fehlbeurteilungen schwand das Vertrauen in die Urteile der
Ratingunternehmen.7
2 Dezite der privaten Ratingagenturen
2.1 Kritikpunkte im berblick
Im modernen Finanzwesen spielen Ratingagenturen eine dominante Rolle mit

erheblichen Interessenskonikten. berblickartig sind die wesentlichen Kritikpunkte wie folgt zu beschreiben:
Interessenskonikte mit der Gefahr von Abhngigkeiten.
Dynamisches und prozyklisches Verfahren mit der Gefahr einer Self-FulllingProphecy.
Keine gesetzlich standardisierten Verfahren.
Mangelnde Sanktion, wenig Aufsicht und geringe Haftung.
2.2 Interessenskonikte von Ratingagenturen
An erster Stelle der Kritik an Ratingagenturen steht deren Gewinnorientierung.

Ratings werden von Unternehmen in Auftrag gegeben und mssen bezahlt werden.
4
Vgl. Rotemberg (2008), S. 6.

Die zu positiv ausgefallenen Ratings stellten folglich das elementare Vehikel zur Transformation
von mit Risiko behafteten Subprimekrediten in marktkonforme Finanzprodukte dar. Vgl. Cortez/
Schn (2010), Zeitschrift fr das gesamte Kreditwesen, 5/2010, S. 226; Behr (2008), Wirtschaftsdienst 10/2008, S. 628.
6
Vgl. Beck/Wienert (2010), Wirtschaftsdienst 07/2010, S. 464; Elschen/Lieven (2009), S. 99.
7
Vgl. Schfer (2010), Wochenbericht Nr. 20/2010 des DIW Berlin, Mai 2010, S. 20.
5
573
Durch das Entgelt haben die Agenturen einen Anreiz zu opportunem Verhalten.
Um lukrative Folgeauftrge zu erhalten, besteht die Gefahr, dass die Agenturen im
Zweifel eine zu positive Bewertung abgeben. Die Ratingagentur ist somit dem typischen Principal-Agent-Problem ausgesetzt.8
Dennoch: Die Wahrung der Reputation ist die wesentliche Motivation fr unabhngige und hochwertige Ratings. Die Ratingagenturen beharren darauf, dass kein
Zusammenhang zwischen den Kosten fr ein Rating und dem Verhltnis zwischen
ihnen selbst und den Auftraggebern besteht. Standard & Poors verweist hierzu
in ihren Richtlinien zur Geschftsprozessgestaltung auf die Trennung ihrer Analysten von ihrer Abwicklungsabteilung. Auf diese Art und Weise soll gewhrleistet
sein, dass keine Beziehung zwischen den genannten Abteilungen hergestellt werden
kann.9
Laut Wappenschmidt ist nur eine geringe Abhngigkeit der Ratingagenturen von
einzelnen Emittenten festzustellen, weil oligopolistische Strukturen vorherrschen,
die Agenturen ber groe Kundenstmme verfgen und ein relativ starrer Gebhrenkatalog fr Ratings besteht; die eigentliche Problematik bestnde indes in entgeltlichen Nebengeschften und im Consulting der Ratingagenturen, die in den
letzten Jahren einen rapiden Zuwachs verzeichneten.10 Die drei Branchenfhrer
bieten nmlich auch mageschneiderte Dienstleistungen in den Bereichen RiskManagement, quantitative Instrumente und weitere Beratungsleistungen an. 11
Zum Beispiel beraten die Ratingagenturen Emittenten von strukturierten Produkten dahingehend, wie deren Tranchen konkret zu bilden sind, um ein bestimmtes
Rating zu erhalten und fhren in der Folge das Rating dann auch selbst durch.12
Insofern werden Ratingagenturen Richter in eigener Sache.
Ein weiterer Anknpfungspunkt fr eine Interessenskollision besteht beim so
genannten Rating-Shopping.13 Die Emittenten knnen sich von verschiedenen
Ratingagenturen bewerten lassen und die fr sie vorteilhafteste Einschtzung
8
Vgl. Wieben (2004), S. 27.

Vgl. Standard & Poors (2005), S. 6.
10
Vgl. Wappenschmidt (2008), S. 32.
11
Vgl. Frost (2006), Journal of Accounting, Auditing & Finance, 6/2006, S. 480.
12
In der Regel hufen sich Eingruppierungen am unteren Rand der jeweiligen Ratingklasse, vgl. Rudolph (2008), Zeitschrift fr betriebswirtschaftliche Forschung, 11/2008, S. 737.
13
Vgl. Rudolph (2008), Zeitschrift fr betriebswirtschaftliche Forschung, 11/2008, S. 738.
9
574
aussuchen, bevor sie die Ergebnisse verentlichen.14 Beispielhaft sei an dieser

Stelle erwhnt, dass der Marktausbau von Fitch in der Tendenz zu einer Verbesserung/Aufweichung der Bewertungen am Markt gefhrt hat.15 Diese empirisch
nachgewiesene Beobachtung in Zusammenhang mit der Aufbrechung des Duopols
von Moodys und Standard & Poors lt vermuten, dass sich die sinkenden Gewinnerwartungen seitens der Agenturen aufgrund der wachsenden Konkurrenz kontraproduktiv auf faire Beurteilungen auswirken.
Schwerwiegende Dezite bestehen oensichtlich auch im Ratingprozess selbst.
Der US-Bondmarkt bestand zu Ende des Jahres 2008 aus 35 % strukturierten und
verbrieften Finanzprodukten mit einem Wert von etwa 11 Billionen Dollar. Fr die
Anleger waren die neuen Finanzinstrumente zu komplex, so dass sie quasi blindes
Vertrauen in die Ratingagenturen und ihre Fhigkeiten setzten.16
Moodys bewertete ber 50 % von diesen mit einem AAA-Rating, also mit der
besten zu vergebenden Note.17 In den Jahren 2007 bis 2008 stufte Moodys ber
36.000 Tranchen infolge zahlloser Ausflle ab, insbesondere auch viele Wertpapiere
mit einem AAA-Rating, also solche die als besonders sicher angesehen waren.18
Als Konsequenz dieser Abstufungen kam es zu einem kapitalen Vertrauensverlust
an den internationalen Finanzmrkten.
2.3 Weitere Kritikpunkte
Die Ratingeinstufungen werden nicht fr eine bestimmte Zeit garantiert. Die

Urteile sind dynamisch, knnen also jederzeit gendert werden. Da die Agenturen
einem generellen Informationsbeschaungs- und Rechtfertigungsproblem unterliegen, erfolgen in guten Zeiten tendenziell eher zu gute Einstufungen. Besonders
kritisch sind Ratings in Krisenzeiten zu bewerten, insbesondere dann, wenn in
sehr kurzen Abstnden mehrere Herabstufungen erfolgen und weitere gravierende
14
Vgl. Harbrecht/Wieland (2010), ifo Schnelldienst 1/2010, 1/2010, S. 4.

Vgl. Becker/Milbourn (2010), Harvard Business School Working Paper 09-051, 9/2010 S. 4.
16
Vgl. Fender/Mitchell (2005), BIZ-Quartalsbericht, 6/2005; S. 77 ; Schtte (2009), ifo Schnelldienst 3/2009, Mrz 2009; S. 17-18; Rudolph (2008), Zeitschrift fr betriebswirtschaftliche Forschung, 11/2008; S. 737
17
Vgl. Benmelech/Dlugosz (2009), S. 1.
18
Vgl. Elschen/Lieven (2009), S. 89.
15
575
negative Folgen nach sich ziehen.19 Im Ergebnis wirken Ratings prozyklisch und
knnen Kettenreaktionen auslsen.
Haftungsrechtlich war den Ratingagenturen trotz der minderen Ratingqualitt in der Vergangenheit nicht beizukommen. In den USA galt ein Rating als
verfassungsrechtlich besonders geschtzte Meinung, die trotz Fehlerhaftigkeit
nicht justiziabel war. Ergo: Eine Ratingagentur war bis 2010 grundstzlich frei von
Schadenersatzansprchen.
Die Verfahren der Agenturen, deren Kriterien und genaue Gewichtung sind
gesetzlich nicht normiert und auch nicht standardisiert. Die International Organization of Securities Commissions (IOSCO) hat in 2008 einen Verhaltenskodex
fr Ratingagenturen erarbeitet, um Interessenskonikte zu entschrfen und eine
Verbesserung der Modell- und Methodenqualitt zu bewirken.20 Infolge der Finanzkrise wurde 2009 eine EU-Rangverordnung erlassen. Rangagenturen
stehen damit in Deutschland seit Anfang 2010 unter Genehmigungsvorbehalt
und unter der Bankaufsicht.21 Die Bankaufsicht berprft jetzt, welche Manahmen Ratingunternehmen ergrien haben, um Interessenkonikte bei ihrer Ttigkeit zu verhindern bzw. gering zu halten.
3 Eingrie des Staates
3.1 Notwendigkeit von staatlichen Eingrisrechten
Der Prsident der deutschen Bankaufsicht Sanio bezeichnete Ratingagenturen

als grte unkontrollierte Machtstruktur im Weltnanzsystem und das Ratingverfahren bei strukturierten Finanzprodukten als Protmaschine; der ehemaliger
Chefvolkswirt der EZB Issing hat in der Finanzkrise den Ratingagenturen die Rolle
eines Brandbeschleuniger zugewiesen.22 Da das Protstreben sich schdlich auf
die Qualitt der Rangs auswirken kann, war der Ruf nach staatlichen Eingriffen nicht zu berhren.
19
Der in der Finanzkrise zugespitzte Begri vom Brandbeschleuniger beschreibt anschaulich das
Problem.
20
Vgl. IOSCO (2008).
21
Vgl. 17 WpHG, vgl. auch 3.2.
22
Vgl. Leersch (2010), Das Parlament 29.03.2010; Theilacker (2009) Zeitschrift fr das gesamte Kreditwesen 13/2009; S. 643.
576
3.2 Genehmigungsvorbehalt und staatliche berwachung
Mit dem Ausfhrungsgesetz Anfang 2010 zur europischen Verordnung ber

Ratingagenturen werden erste Konsequenzen aus der Finanzkrise gezogen. Danach werden Ratingagenturen der Bankaufsicht unterstellt. Neben Regelungen zur
Unabhngigkeit von Ratingagenturen bestehen Regelungen zur Oenlegung von
Methoden und Modellen und zur fachlichen Eignung der Organbesetzung; fr
die Analysten ist ein Rotationsystem vorgesehen.23 Bei Zuwiderhandlungen drohen
Bugelder bis zu 1 Mio. . Die neuen Bestimmungen - gerade die neu vorgeschriebene Trennung von Beratungs- und Ratingleistungen - sind gut gemeint, lassen
sich aber leider auch umgehen.24 So kann ber Holding- und Beteiligungslsungen
das Trennungsgebot unterlaufen werden, der angedrohte Bugeldrahmen ist eher
zu niedrig angesetzt.
3.3 Aufbau staatlicher Ratingsysteme
Staatliche Genehmigungsvorbehalte und berwachung sind ein Weg, ein weiter

gehender Ansatz wre die Schaung staatlicher Ratingagenturen bis hin zur Ausgestaltung eines staatlichen Ratingmonopols. Die staatliche Ratingagentur knnte
unabhngig und entlich-rechtlich ausgestaltet werden und wrde nicht dem
Protstreben unterliegen. Fr eine staatliche Ratingagentur gibt es auch vom Fachlichen her gute Ansatzpunkte: So knnte die EZB mit ihrem Know-how und den
Zugrismglichkeiten auf makrokonomischen Daten relativ einfach die Bonitt
von Staaten beurteilen, die Bankenaufsicht klassiziert bereits heute schon Banken
nach Qualitt und Systemrelevanz.25
3.4 Duale Ordnung von Ratingsystemen
Private Ratingagenturen verfgen ber jahrzehntelange Erfahrung im Kapitalmarktrating. Bei allen Verbesserungen, die derzeit im Gesprch sind, bleibt der
Webfehler: Private Ratingagenturen sind nicht unabhngig und sind im Kern ihren
Auftraggebern verpichtet. Auch die Alternative ist nicht ohne Probleme: Ein rein
23
Vgl. 17 WpHG.
Fr Wirtschaftsprfungsgesellschaften, bei denen hnliche Problemlagen vorherrschen, galt das
gleiche.
25
Der sterreichische Notenbankchef Nowotny hat eine staatliche Ratingagentur bei der EZB gefordert, vgl. Hesse, Handelsblatt vom 03.03.2010. Die deutsche Bankaufsicht stuft Banken nach Risikogruppen ein (vgl. Ban (2010), S. 140 .
24
577
staatliches System msste erst aufgebaut werden, wre nicht frei von jeglichem
Interesse und mit vielen weiteren Hindernissen verbunden. Was sich fr dieses
Dilemma anbietet, ist eine Dualitt der Systeme (sowohl-als-auch) nach dem
Vorbild der Rundfunkordnung.
Ratingurteile sind wie Pressemitteilungen grundrechtlich durch Art. 5 I GG
geschtzt (Meinungsfreiheit). Ratingagenturen haben groe hnlichkeiten mit
Rundfunkanstalten, fr die eine verfassungsrechtliche Einrichtungsgarantie besteht. Bei nherer Betrachtung drngt sich eine Analogie von Ratingagenturen zu
den Rundfunkanstalten geradezu auf! Grund: So wie sich der Rundfunk von der
Presse unterscheidet, so unterscheiden sich Ratingagenturen von den sonstigen Kapitalmarktanalysten. Der jeweilige Unterschied besteht in der Anzahl der Marktteilnehmer und im vergleichsweise schwierigen Marktaufbau und in der nachhaltigen
Marktakzeptanz. Sowohl im Rundfunk als auch bei Ratingagenturen bleibt aus
technischen und nanziellen Grnden sowie aus Grnden der Marktakzeptanz die
Zahl der Trger solcher Einrichtungen klein.
Diese Sondersituation hat das Bundesverfassungsgericht bereits mit Urteil vom
28. Febr. 1961 bewogen, fr den Rundfunk besondere Vorkehrungen zur Verwirklichung und Aufrechterhaltung der in Art. 5 Abs. 1 Satz 2 GG gewhrleisteten
Freiheit des Rundfunks zu fordern.26 Im Rundfunkwesen sind staatliche Monopole
mglich, besondere Prinzipien von Sachlichkeit, Meinungsfreiheit und inhaltlichen
Ausgewogenheit geboten.27 Im Urteil zum niederschsischen Rundfunkgesetz vom
4. Nov. 1986 hat das Bundesverfassungsgericht eine duale Ordnung im deutschen
Rundfunk festgeschrieben und konkretisiert:28 Danach ist die unerlssliche Grundversorgung Sache der entlich-rechtlichen Anstalten, deren Programme und das
Programmangebot essentielle Funktion fr die demokratische Ordnung wie fr das
kulturelle Leben sind. Diese wichtigen Aufgaben machten es notwendig, die technischen, organisatorischen, personellen und nanziellen Vorbedingungen ihrer Erfllung entlich sicherzustellen. Daneben knnen private Anbieter treten, fr
26
Grundlegend BVerfG 12, 205, 261. Freilich war die Entwicklung im Rundfunk gerade umgekehrt
als bei den Ratingagenturen: Zuerst entstand ein funktionstchtiger entlich-rechtlicher Rundfunk,
der nach den Urteilen des Bundesverfassungsgericht Voraussetzung fr die Zulssigkeit des privaten
Rundfunks ist.
27
Vgl. BVerfG 12, 205, 263; 57, 295, 325.
28
Vgl. BVerfG 73, 118. In Europa hat sich eine duale Rundfunkordnung in nahezu allen Staaten
entwickelt.
578
die der Gesetzgeber verfassungsrechtliche Anforderungen stellen und diese dann

auch kontrollieren muss.
Die Analogie zum Rundfunk lsst sich wie folgt darstellen: Was fr Staatsbrger der Rundfunk leistet, leisten fr Anleger die wenigen Ratingagenturen. Ratingagenturen hngen besonders von der Akzeptanz des Marktes ab, sie sind besonders
vertrauensempndlich. Der Aufbau einer Ratingagentur verlangt besonderen Vertrauensvorschuss der Marktteilnehmer und besondere organisatorische, personelle,
nanzielle und methodische Ressourcen. Der Markteintritt und der Verbleib von
Ratingagenturen im Markt sind somit erschwert.
Die Ratings selbst zhlen heute zu den unentbehrlichen Informationsmedien
im modernen Geld- und Kapitalmarkt. Deren Ergebnisse sind entscheidungsrelevant. Ratings sind mehr als nur ein Informationsmedium, sondern selbst ein
systemimmanenter Faktor der modernen Geld- und Kapitalmrkte. Deren Ergebnisse haben unmittelbare Wirkung auf das Wohl und Wehe eines Wertpapiers, dessen Preisbildung und wirken sich reexartig auf den Emittenten aus. In extremen
Marktsituationen knnen Abstufungen von Ratings ein Unternehmen, eine Bank
oder sogar ein ganz Land existenziell berhren.
Im Ergebnis stellen Ratingagenturen eine unkontrollierte Machtstruktur im
Weltnanzsystem dar. Die Finanzkrise hat deutlich gezeigt, dass der deutsche Staat
dieses Vertrauen von den Anlegern und vom Geld- und Kapitalmarkt besitzt. Der
Staat ist deshalb gut beraten, bei Ratingagenturen - analog der Rundfunkordnung
- eine duale Ordnung zu verfolgen: Die staatliche Ratingagentur knnte fr eine
Grundversorgung von Informationen und deren Bewertung an den Geld- und Kapitalmrkten sorgen, ganz besonders fr die wichtigen Segmente von Staats- und
Bankanleihen. Daneben knnen private Anbieter stehen.
4 Ein erstes Fazit
Ratingagenturen entscheiden mit ihrer Einstufung ber Wohl und Wehe von
Wertpapieremittenten und damit ber das Image und die wirtschaftliche Zukunft von Staaten, Banken und Unternehmen. Der Markt der Ratingagenturen wird
von drei Unternehmen dominiert. Alle drei Ratingagenturen sind amerikanisch
geprgt. Bis zur Finanzkrise unterlagen Ratingagenturen praktisch keiner Aufsicht, eine Haftung fr falsche Einstufung war nicht gegeben. In den letzten zwei
Jahren wurde begonnen, Ratingagenturen zu reglementieren und unter Aufsicht
zu stellen. Alternativ knnte man weltweit staatliche Ratingagenturen aufbauen.
579
Prferiert wird ein duales System von Ratingagenturen: Neben den privaten Agenturen bernimmt der Staat die Rolle einer dominanten Ratingagentur selbst und
garantiert die Grundversorgung des Geld- und Kapitalmarktes mit Wertpapierinformationen und deren Bewertung. Vorbild hierzu knnte die duale Ordnung des
Rundfunks sein.
Quellenverzeichnis
Bacher, U. (2009): Bankmanagement kompakt, Kompendium der Betriebswirtschaftslehre der Banken, 2. Auage, Hartung-Gorre Verlag 2009.
Beck, H. / Wienert H. (2010): Brauchen wir eine europische Ratingagentur? In:
Wirtschaftsdienst 07/2010, S. 464 - 469.
Becker, B. / Milbourn, T. (2010): How did increased competition aect credit
ratings? In: Harvard business School Finance Working Paper 09-051, Cambridge,
September 2010.
Behr, P. (2008): Bankenkrise: Die Ratingagenturen. In: Wirtschaftsdienst
10/2008.
Benmelech, E. / Dlugosz, J. (2009): The Credit Rating Crisis. In: Working Paper
15045 hrsg. v. National Bureau of Economic Research, Cambridge, Juni 2009.
Bloss, M. / Ernst, D. / Hcker, J. / Eil, N. (2008): Von der Subprimekrise zur
Finanzkrise, Oldenbourg Verlag, Mnchen, 2008, S. 9 - 10.
Cortez, B. / Schn, S. (2010): Die neue EU-Verordnung ber Ratingagenturen.
In: Zeitschrift fr das gesamte Kreditwesen, 5/2010, S. 226 - 229.
Elschen, R. / Lieven, T. (2009): Der Werdegang der Krise Von der Subprimezur Systemkrise. Gabler Verlag, Wiesbaden, 2009, S. 89 - 99.
Fender, I. / Mitchell, J. (2005): Strukturierte Finanzierungen: Komplexitt, Risiken und die Rolle von Ratings. In: Bank fr Internationale Zusammenarbeit Quartalsbericht Juni 2005, S. 77 - 91.
Frost, C. A. (2006): Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies. In: Journal of Accounting,
Auditing & Finance, 6/2006.
Harbrecht, E. / Wieland, M. (2010): Ist eine europische Ratingagentur sinnvoll
und wie sollte sie organisiert sein? In: ifo Schnelldienst 1/2010, Januar 2010.
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Hesse, M. (2010): Noten von der Notenbank, Kommentar im Handelsblatt vom

03.03.2010.
IOSCO (2008): Report on the Subprime Crisis. Final Report of the Technical Committee of the IOSCO, May 2008 (URL: http://www.iasplus.com/
iosco/0805ioscosubprimereport.pdf ).
Kuhner, C. (2001): Financial Rating Agencies: Are They Credible? Insights into
the Reporting Incentives of Rating Agencies in Times of Enhanced Systemic Risk.
In: Schmalenbach Business Review Vol. 53, 1/2001, S. 2 - 26.
Leersch, H.-J. (2010): Angri auf die Protmaschinen. In: Das Parlament 13/2010
vom 29.03.2010.
Rotemberg, J. (2008): Subprime Meltdown: American Housing and Global Financial Turmoil. In: Harvard Business School, Case No. 708-042.
Rudolph, B. (2008): Lehren aus den Ursachen und dem Verlauf der internationalen Finanzkrise in: Zeitschrift fr betriebswirtschaftliche Forschung, November
2008, S. 737 - 738.
Schfer, D. (2009): Mehr denn je: Europa braucht eine europische Rating-Agentur. In: Wochenbericht Nr. 20/2010 hrsg. vom Deutschen Instituts fr Wirtschaftsforschung, Berlin 2010.
Schtte, M. (2009): Lehren aus der Finanzkrise: Was ist zu tun? In: ifo Schnelldienst 3/2009, Mrz 2009, S. 17 - 18.
Standard & Poors (2005): Standard & Poors ratings services, Code of conduct.
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Peter Lang Verlag, Frankfurt 2008.
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Weiterentwicklung der Analysekonzepte. Deutscher Universittsverlag, Wiesbaden
2004.
DIE BERCKSICHTIGUNG VON FRAUDRISIKEN IM RAHMEN DER RISIKOORIENTIERTEN ...
581
DIE BERCKSICHTIGUNG VON FRAUDRISIKEN IM RAHMEN

DER RISIKOORIENTIERTEN ABSCHLUSSPRFUNG
Markus Hfele, Jan Helge Schmeisky1
Abstract
In times when many economies are suering under the nancial and currency
crisis, which is characterized by far-reaching volatility in almost all areas of business
life, the annual audit is a constant ridden with high expectancies and requirements.
Uncovering possible risks of fraud presents a special challenge for an auditing rm
in the framework of risk-oriented annual audit. The paper discusses the auditors
limitations and measures to be undertaken when considering the fraud risks.
JEL classication: H83
Keywords: risk-oriented annual audit, fraud risks, risk analysis
1. Einleitung
Wirtschaftsprfer haben nach den Vorschriften der 316, 317 HGB die Aufgabe, die Jahresabschlsse und Lageberichte der Unternehmen zu prfen, auch
in wirtschaftlich unwgbaren Situationen. Die zuknftige Entwicklung mancher
Unternehmen ist ber weite Strecken trotz der derzeitigen Erholung immer noch
fragil, reduzierte Umsatzerlse, Wechselkursverluste, Verluste aus Absicherungsgeschften aufgrund gefallener Rohstopreise sowie reduzierte Ertragswerte aus
Beteiligungen stellen nach wie vor ein nicht unerhebliches Risiko fr die Unternehmen dar. Der Druck auf die Unternehmensleitungen, der unter Umstnden in
Bilanzmanipulationen, also absichtlichen Versten, sein Ventil ndet, sei es um
von Missmanagement abzulenken oder sei es um Bonusansprche zu retten und
1
WP / StB Prof. Dr. jur. Markus Hfele ist Professor an der Fakultt fr Wirtschaft und Recht an der
Hochschule Pforzheim. Er lehrt Rechnungslegung und Prfungswesen unter anderem im nach 8a
WPO akkreditierten Masterstudiengang. Dipl. Betriebswirt, WP, CIA, CCSA Jan Helge Schmeisky
ist Prfungsleiter bei einer groen Wirtschaftsprfungsgesellschaft und hat im Jahr 2009 den Masterstudiengang an der Hochschule Pforzheim erfolgreich absolviert.
582
Markus Hfele Jan Helge Schmeisky
Covenants einzuhalten2, ist keinesfalls kleiner geworden. Im Rahmen der Planung

der Abschlussprfung hat der Wirtschaftsprfer angemessene Prfungshandlungen
einzuplanen, um das Prfungsrisiko zu minimieren, wenn und soweit der Prfer
ein erhhtes Risiko zu Versten feststellt.
2 Grundstze der risikoorientierte Abschlussprfung
2.1 Allgemeine Ausrichtung und Zielsetzung der risikoorientierten Abschlussprfung
Der aus Bilanz, Gewinn- und Verlustrechnung und ggf. Anhang bestehende
Jahresabschluss sowie die zugrunde liegende Buchfhrung und ggf. der Lagebericht eines Unternehmens sind Gegenstand der gesetzlichen Jahresabschlussprfung
nach 316 Abs. 1 Satz 1 HGB. Die Abschlussprfung ist nach 317 Abs. 1 HGB
so anzulegen, dass Unrichtigkeiten und Verste gegen gesetzliche Vorschriften
und die sie ergnzenden Bestimmungen des Gesellschaftsvertrages oder der Satzung, die sich wesentlich auf die Darstellung der Vermgens-, Finanz- und Ertragslage des Unternehmens auswirken, bei gewissenhafter Berufsausbung erkannt
werden.3 Grundlage der Durchfhrung der Abschlussprfung ist der risikoorientierte Prfungsansatz. Danach trit der Abschlussprfer sein Urteil ber die Ordnungsmigkeit des Jahresabschlusses bzw. Lageberichts unter Beachtung der Grundstze der Wirtschaftlichkeit und Wesentlichkeit mit hinreichender Sicherheit.4
Die Abschlussprfung ist vom Abschlussprfer mit einer kritischen Grundhaltung zu planen und durchzufhren. Das bedeutet, dass der Prfer nicht davon
ausgehen kann, dass die ihm vorgelegten Unterlagen grundstzlich den Tatsachen
entsprechen. Ein ber diese kritische Grundhaltung hinausgehendes besonderes
Ma an Misstrauen ist hingegen nicht erforderlich. Der Abschlussprfer muss sich
allerdings stets darber im Klaren sein, dass Umstnde (Fehler, Tuschungen, Vermgensschdigungen oder sonstige Gesetzesverste) existieren knnen, aufgrund
derer der Jahresabschluss wesentliche falsche Aussagen enthalten knnte.5 Diverse
Prfungshandlungen insbesondere eine berprfung der im Unternehmen implementierten Kontrollen auf ihre Wirksamkeit und aussagebezogene Prfungshan2
3
4
5
vgl. IDW Verlautbarung zur Finanzkrise Tz. 8.

vgl. auch IDW PS 210, Tz. 12 und Generalnorm des 264 Abs. 2 HGB.
vgl. IDW PS 210, Tz .14; IDW PS 261, Tz. 5.
vgl. IDW PS 210, Tz. 17.
583
dlungen (analytische Prfungshandlungen und Einzelfallstichproben) werden im

Rahmen des risikoorientierten Prfungsansatzes durchgefhrt. Es besteht jedoch
stets das unvermeidbare Risiko, dass auch bei ordnungsgemer Prfungsplanung
und durchfhrung wesentliche falsche Aussagen nicht entdeckt werden. Eine
lckenlose Prfung ist aufgrund des Konzeptes der hinreichenden Sicherheit nicht
erforderlich und wirtschaftlich nicht darstellbar.6
Das Prfungsrisiko wird als die Wahrscheinlichkeit deniert, dass der Abschlussprfer den Jahresabschluss bzw. ein Preld akzeptiert, obwohl wesentliche
Fehler vorliegen, vgl. IDW PS 200 Tz. 29-32; IDW PS 261 Tz. 6. 7 Es ist auf
ein akzeptables Ma zu reduzieren. Hierfr muss der Abschlussprfer die einzelnen Komponenten des Prfungsrisikos kennen und analysieren. Auf Grundlage
dieser Analyse entwickelt er die risikoorientierte Prfungsstrategie, woraus dann
das Prfungsprogramm abgeleitet wird (IDW PS 240). Im ersten Schritt wird das
Fehlerrisiko durch Beurteilung des inhrenten Risikos (mgliche wesentliche Fehler in einem Preld) und des Kontrollrisikos (wesentliche Fehler, die die Kontrollen des Internen Kontrollsystems (IKS) passieren oder umgehen) bestimmt.8
Darauf aufbauend entwickelt der Prfer adquate Prfungshandlungen, mit denen
er wesentliche Fehler aufdeckt und die es vermeiden, dass wesentliche Fehler in
den Jahresabschluss Eingang nden. Die Einholung der Prfungsnachweise erfolgt
aus einer Kombination von Risikobeurteilung (inkl. Aufbauprfung), Funktionsprfungen und aussagebezogenen Prfungshandlungen.9 Der risikoorientierte
Prfungsansatz ist auch deswegen hervorzuheben, da durch die zunehmende Komplexitt der Unternehmen, der Fokus der Prfungshandlungen auf der Prfung
von Systemen liegt. Es werden die Angemessenheit (Zweckmigkeit) und die
Wirksamkeit (Funktionsfhigkeit) des Systems an sich geprft. Sind im zu prfenden Unternehmen wirksame Kontrollen implementiert, die der Sicherstellung der
Vollstndigkeit und Richtigkeit der rechnungslegungsrelevanten Informationen
in den einzelnen Transaktionszyklen dienen, folgt hieraus eine Reduzierung des
Risikos. Demzufolge knnen aussagebezogene Prfungshandlungen verringert
werden, ohne die Qualitt der Abschlussprfung zu beeintrchtigen (Abkehr vom
Konzept der Vollprfung).
6
7
vgl. IDW PS 200, Tz. 24 und IDW PS 210, Tz. 19.
vgl. IDW PS 261, Tz. 5 und Marten, K./Quick, R,/Ruhnke, K. (Hrsg.) (2007), S. 217-218.
8
9
584
2.2 Ausrichtung der Abschlussprfung zur Bercksichtigung des FraudRisikos
Die Grundstze des risikoorientierten Prfungsansatzes nden sich auch bei

dem Teilaspekt der Aufdeckung von Unrichtigkeiten und Versten wieder.10
Der Abschlussprfer hat auf Grundlage seiner Risikobeurteilungen die Prfungshandlungen so zu denieren und durchzufhren, dass auf Unrichtigkeiten und
Versten beruhende wesentliche falsche Angaben mit hinreichender Sicherheit
entdeckt werden. Alternativ mssen diese wesentlichen falschen Angaben, soweit
sie im Rahmen der Abschlussprfung aufgedeckt wurden, berichtigt worden sein.
Der Abschlussprfer muss in diesem Zusammenhang auch feststellen, dass die Buchungsunterlagen gegen Verlust und Verflschung hinreichend gesichert sind. Bei
Erkennen von falschen Angaben hat der Abschlussprfer die Ursache hierfr festzustellen und mgliche Einsse auf die Prfung zu wrdigen.11
Die berufsstndische Verlautbarung des IDW PS 210 bzw. ISA 240 hebt besonders
die kritische Grundhaltung des Abschlussprfers hervor. Der Abschlussprfer muss
unabhngig von frheren positiven Erfahrungen ber die Ehrlichkeit und Integritt der Unternehmensfhrung sowie der Mitglieder des Aufsichtsorgans, seine
kritische Grundhaltung beibehalten und dabei die Mglichkeit in Betracht ziehen, dass vorgelegte Unterlagen und die Rechnungslegung aufgrund von dolosen
Handlungen wesentliche Fehler enthalten knnen.12 Dabei hebt IDW PS 21013
insbesondere die beruiche Skepsis und die Wichtigkeit von berraschungselementen in der Abschlussprfung hervor14. Zugleich wird jedoch klargestellt, dass
ein Prfer grundstzlich von der Echtheit von Dokumenten und Buchungsvorlagen sowie der Korrektheit bergebener Informationen ausgehen darf.
Er hat insbesondere das Risiko des Management-Override zu bercksichtigen
und in seine berlegungen einzubeziehen, dass Prfungshandlungen, die fr die
Aufdeckung von Unrichtigkeiten geeignet sind, im Zusammenhang mit Versten
nicht notwendigerweise ausreichen. Die Beibehaltung der kritischen Grundhaltung whrend der gesamten Prfung wird besonders betont und als essenziell beze10

vgl. IDW PS 210, Tz. 40-41.
12
vgl. IDW PS 210, Tz. 14 und. ausfhrlich zum Thema Dolose Handlungen in der Rechnungslegung Hfele, M./Schmeisky, J., ZIR 5/2009, S.37 .
13
vgl. IDW PS 210 Zur Aufdeckung von Unregelmigkeiten im Rahmen der Abschlussprfung.
14
vgl. Hfele, M.; Schmeisky, J.; ZIR 5/2009, S. 237 . (238).
11
585
ichnet, weil bestimmte Verste nur schwer erkannt werden knnen. Zudem knnen sich Umstnde, die die Ehrlichkeit und Integritt der Unternehmensfhrung
betreen, zwischenzeitlich gendert haben. Gleichzeitig kann vom Abschlussprfer
nicht erwartet werden, dass er seine bisherigen Erfahrungen diesbezglich gnzlich
auer Acht lsst.15
Die Prfungshandlungen zur Aufdeckung von Unrichtigkeiten und Versten
liegen schwerpunktmig in Aufbau- und Funktionsprfungen des IKS.16 Einen
abweichenden Prfungsansatz und somit eine andere Vorgehensweise erfordert
hingegen die Unterschlagungsprfung (siehe dazu: Fachgutachten 1/1937 i.d.F.
1990: Pichtprfung zur Unterschlagungsprfung). Sie ist immer eine von der
gesetzlichen Jahresabschlussprfung zu unterscheidende Sonder- oder Teilprfung.
Die Unterschlagungsprfung dient dem Zweck der gezielten Aufdeckung von Vermgensschdigungen und umfasst in vielen Fllen eine vollstndige Prfung der
zu dem Prfgebiet gehrenden Geschftsvorflle und Bestnde sowie eine detektivische Beurteilung der vorgelegten Prfungsunterlagen. Hierbei wird vom
Prfer ein ber die kritische Grundhaltung hinaus gehendes besonderes Misstrauen
erwartet.17
2.3 Grenzen der Abschlussprfung bezogen auf Fraud
Die Grenzen der gesetzlichen Abschlussprfung bezogen auf Fraud ergeben sich
schon aus dem allgemeinen Prfungsvorgehen. Durch die Prfung in Stichproben
bzw. den Einsatz mathematisch-statistischer Verfahren18, den immanenten Grenzen des IKS einschlielich des Rechnungslegungssystems und dem Umstand, dass
Prfungsnachweise ggf. nicht den Tatsachen entsprechen knnten (z.B. bei kollusivem Verhalten, Flschung etc.) ergeben sich Limitationen bezglich der Erkenntnismglichkeiten des Abschlussprfers. Weiterhin fllt ins Gewicht, dass in den
meisten Fllen die vorgelegten Prfungsnachweise eher berzeugend als zwingend
sind, d.h. sie legen oftmals Schlussfolgerungen nahe, ohne aber einen endgltigen
Beweis zu erbringen.19 Das Ma an Sicherheit der Prfungsaussagen wird auch du15
vgl. IDW PS 210, Tz. 10 und 14.

17
vgl. Fachgutachten 1/1937 i.d.F. 1990: Pichtprfung zur Unterschlagungsprfung und IDW PS
210, Tz. 15.
18
vgl. Orth, T./Schmidt, A. (2009), S. 611.
19
16
586
rch das pichtgeme Ermessen des Prfers bei Entscheidungen und Beurteilungen beeinusst. Dies kommt zum Ausdruck bei der Erlangung von Prfungsnachweisen (hinsichtlich Art, Umfang und Zeitpunkt der Prfungshandlung) und beim
Ziehen der Schlussfolgerungen auf Grundlage dieser erlangten Prfungsnachweise.
Die Schlussfolgerungen des Abschlussprfers sind beispielsweise die Wrdigung
der Angemessenheit von Schtzungen, die bei der Aufstellung des Jahresabschlusses
und Lageberichts von den gesetzlichen Vertretern vorgenommen worden sind.20
Grenzen liegen zudem in der beruichen Kompetenz des Abschlussprfers, da
es in vielen Fllen einer dezidierten juristischen Beurteilung bedarf, ob ein Tun
oder Unterlassen auerhalb von Rechnungslegungsvorschriften einen Versto mit
Auswirkung auf den Abschluss oder Lagebericht darstellt. Oftmals kann ein nicht
unmittelbar die Rechnungslegung betreender Gesetzesversto (z.B. in regulierten
Bereichen wie der Energieversorgung oder der Pharmaindustrie) erst wesentlich
spter durch ein Gericht festgestellt werden, ohne dass dies Rckwirkungen auf die
Ordnungsmigkeit der Abschlussprfung hat.21
Der Grundsatz der hinreichenden Sicherheit impliziert, dass die Abschlussprfung keine absolute Sicherheit dahin gehend erreichen kann, dass Unrichtigkeiten
und Verste durch den Abschlussprfer aufgedeckt werden.22 Das aus dem Prfungsansatz resultierende unvermeidbare Prfungsrisiko (Restrisiko, dass falsche
Angaben, aufgrund von Unrichtigkeiten und Versten, die einen wesentlichen
Einuss auf den Abschluss haben, nicht entdeckt werden) ist vom Abschlussprfer
ausdrcklich nicht zu vertreten. In den Fllen, in denen Top Management-Fraud
vorliegt, mglicherweise unter Mitwirkung der Aufsichtsorgane, besteht ein erheblich hheres Risiko, dass falsche Angaben in der Rechnungslegung nicht entdeckt
werden.23 Insbesondere der Aufdeckung von Top-Management-Fraud sind durch
den Prfungsansatz Restriktionen gesetzt, da hier klassische Instrumente des IKS
hug versagen. Der risikoorientierte Prfungsansatz basiert auf der Annahme,
dass die gesetzlichen Vertreter in ihrem eigenen Interesse ein funktionierendes IKS
eingerichtet haben und der Abschlussprfer nach Prfung des IKS seine Prfungsaussagen auf die Wirksamkeit des IKS sttzen kann. Im Falle vom Nichtvorhandensein eines IKS oder dessen Unwirksamkeit muss der Abschlussprfer seine Pr20
21
22
23

vgl. IDW PS 210, Tz. 19, 49.
587
fungssicherheit allein aus aussagebezogenen Prfungshandlungen gewinnen oder

diese ggfs. ausweiten. Bei Top-Management-Fraud hingegen wird in aller Regel
ein wirksames IKS ausgehebelt. Die existierenden und funktionierenden Kontrollen werden vom Management gezielt umgangen, ignoriert oder overruled. Es
ist daher oensichtlich, dass eine garantierte Aufdeckung von Fraud durch den
Abschlussprfer, der sich in seinem Prfungsansatz wesentlich auf das IKS sttzt,
kaum mglich ist.24
Besonders hingewiesen sei noch auf die Tatsache, dass bei einer nachtrglichen
Aufdeckung von Versten nicht schon per se von einer Pichtverletzung eines
Abschlussprfers ausgegangen werden kann25. Dies gilt insbesondere fr bewusste Tuschungen, bei denen ein oder mehrere Mitglieder des Managements, des
Aufsichtsorgans, Mitarbeiter des Unternehmens oder Dritte an der Verschleierung der falschen Angaben mitwirken. Dies gilt auch, wenn der Prfer geflschte
Prfungsnachweise vorgelegt bekommt,26 denn er kann grundstzlich von der
Echtheit der Dokumente ausgehen.27 Teilweise sind Flschungen zudem nur mit
kriminaltechnischen Methoden aufzudecken. Ausgangspunkt der Abschlussprfung ist weder Misstrauen noch ein konkreter Verdacht, wie er es fr eine Unterschlagungsprfung oder eine forensische Sonderuntersuchung wre.28
3. Manahmen zur Bercksichtigung des Fraud-Risikos im Rahmen der Abschlussprfung
Der Abschlussprfer besitzt eine positive Suchverpichtung hinsichtlich der

Aufdeckung von Fraud.29 Bereits bei der Planung der Abschlussprfung hat der
Wirtschaftsprfer das Risiko von wesentlichen falschen Angaben aufgrund von
Unrichtigkeiten und Versten vorlug zu beurteilen. Bei der Beurteilung der
Fehlerrisiken muss der Abschlussprfer einschtzen, auf welche Bereiche der Rechnungslegung sich Unrichtigkeiten und Verste wesentlich auswirken knnen.
24
vgl. Schru, W. (2003), S. 903. Ausfhrlich zum Thema IKS und Top-Management-Fraud uert
sich Lechner, S. (2006) in seinem Beitrag.
25
vgl. IDW PS 250 Tz. 50.
26
27
vgl. Schru, W. (2003), S. 903.
28
vgl. Schru, W. (2003), S. 903-904; Knabe, S. u.a. (2004), S. 1058.
29
vgl. Marten, K./Quick, R,/Ruhnke, K. (Hrsg.) (2007), S. 423 und
Orth, M./Schmidt, A. (2009), S. 610.
588
Daraus mssen die entsprechenden Konsequenzen fr die Prfungsplanung und

die durchzufhrenden Prfungshandlungen gezogen werden. Dabei hat der Abschlussprfer speziell zu beurteilen, ob besondere Risikofaktoren auf eine mgliche falsche Bilanzierung oder die Veruntreuung von Vermgensgegenstnden hindeuten. Erkannte Risikofaktoren mssen bei der Erstellung von Prfprogrammen
bercksichtigt werden. Anhaltspunkten fr erhhte Risiken ist ausdrcklich nachzugehen.30 Darauf aufbauend ist die Risikoeinschtzung an whrend der Prfung
gewonnene Kenntnisse laufend anzupassen (reassessment).31 Wenn die durchgefhrten Prfungshandlungen nicht auf Unrichtigkeiten und Verste hindeuten,
hat der Abschlussprfer keine weitergehenden Prfungsnachweise einzuholen.32
Grundlage fr die berlegungen, in welchen Preldern sich ein erhhtes Risiko
fr Unrichtigkeiten und Verste bendet, ist die von Donald R. Cressey entwickelte Fraud-Triangel.33 Besondere Bedeutung kommt dabei neben der Motivation
und der inneren Rechtfertigung der Komponente der Gelegenheit zur Durchfhrung zu, denn zu 63% begnstigt dieser Umstand die Begehung der Tat.34 Gelegenheiten ergeben sich insbesondere durch Schwachstellen im IKS. Genau solche
Erkenntnisse ber Schwachstellen im IKS hat der Abschlussprfer im Rahmen der
Aufbau- und Systemprfung zu verwerten.
3.1 Risikoanalyse bei der Prfungsplanung durch Errterung im Prfungsteam
Im Prfungsteam sind die Risiken bei der Prfungsplanung in einem oenen

Austausch zu errtern. Ziele der Diskussion sind die Identizierung von Bereichen
im Unternehmen, in denen eine erhhte Wahrscheinlichkeit fr Unrichtigkeiten
besteht und wie Verste begangen werden knnen. In dieser Diskussion muss zum
Ausdruck gebracht werden, dass die kritische Grundhaltung whrend der gesamten
Prfung zu wahren ist. Das Prfungsteam muss hinsichtlich Informationen und
Umstnden sensibilisiert sein, die auf Verste hindeuten knnen, unabhngig von
den Erfahrungen aus der Vergangenheit und der Einschtzung der Glaubwrdig30
vgl. IDW PS 210, Tz. 23, 33.

32
33
vgl. Hfele, M./Schmeisky, J. (2010), S. 234; , Bantleon, U./Thomann, D. (2006), S.1714-1721,
Nimwegen, S.(2009), S.18. oder auch IDW (Hrsg.) WP-Handbuch 2006, R.139.
34
vgl. KPMG (Hrsg.) (2010) S. 17, Abb. 15 Umstnde, die Wirtschaftskriminalitt begnstigen.
31
589
keit und Integritt des Managements und des Aufsichtsorgans.35 Dabei muss der
Abschlussprfer in Betracht ziehen, ob die eingesetzten Mitarbeiter hinsichtlich
ihres Wissens, ihrer Erfahrung und ihrer Fhigkeit in der Lage sind, den Risikoanforderungen des Mandats gerecht zu werden. Der Wirtschaftsprfer muss sich in
diesem Zusammenhang mit der risikobezogenen Zuordnung von Preldern zu
den einzelnen Mitarbeitern und der laufenden berwachung seiner Mitarbeiter
befassen.36
Der Abschlussprfer sollte bei der Art, dem Umfang und dem Zeitpunkt seiner
Prfungshandlungen berraschungselemente (elements of unpredictability) einbauen. Diese berraschungselemente sind von besonderer Wichtigkeit, da gerade
Personen, die mit den blicherweise durchgefhrten Prfungshandlungen vertraut
sind, dolose Handlungen eher verdecken knnen.37
3.2 Befragungen
Befragungen von gesetzlichen Vertretern, Mitgliedern des Aufsichtsorgans und

weiterer Personen innerhalb des zu prfenden Unternehmens stellen eine besonders
eektive Prfungstechnik dar, da sie unter anderem psychologische Aspekte enthalten.38 Hinzu kommt, dass eine groe Anzahl von Versten durch zumeist
anonyme Tipps bzw. Hinweise einzelner Personen aufgedeckt werden.39
3.2.1 Befragung der gesetzlichen Vertreter
Da die Verantwortung fr die Vermeidung und Aufdeckung bei den gesetzlichen Vertretern liegt, sind diese im Rahmen der Prfungsplanung zu befragen,
wie sie das Risiko hinsichtlich Unrichtigkeiten und Versten einschtzen, welche
Manahmen sie im IKS (einschlielich dem Rechnungslegungssystem) eingerichtet haben, wie sie selbst die Wirksamkeit dieser Manahmen zur Vermeidung und
Aufdeckung beurteilen und wie sie das Aufsichtsorgan ber diese Manahmen
informieren. Die Befragung der gesetzlichen Vertreter soll Erkenntnisse darber
verschaen, welche Informationen das Management ber bestehende, vermutete
35
36
37
38
39
vgl. IDW PS 210, Tz. 25, Schru, W. (2003), S. 907 und Ramos, N. (2003).
vgl Marten, K./Quick, R,/Ruhnke, K. (Hrsg.) (2007), S. 427.
vgl. Schindler, J./Grtner, M.(2004), S. 1241.
590
oder behauptete Verste im Unternehmen hat und wie auf interne oder externe
Behauptungen ber angebliche Verste reagiert wird. Auerdem soll die Befragung der Unternehmensfhrung darber Aufschluss geben, wie das Management
sein Verstndnis von einer verantwortungsvollen Fhrung der Geschfte und von
ethischen Grundstzen an die Mitarbeiter vermittelt. Mit dem Management kann
z.B. errtert werden, ob es bestimmte Betriebsteile, Geschftszweige oder -vorgnge
oder Posten im Abschluss gibt, bei denen das Risiko von Unrichtigkeiten mglicherweise hoch ist. Weiterhin kann in der Befragung eruiert werden wo ein Risiko fr
Verste besteht, und wie bzw. mit welchen Manahmen das Management darauf
reagiert.40
Die Befragung der gesetzlichen Vertreter scheint hinsichtlich der Aufdeckung
von Top-Management-Fraud wenig hilfreich, sondern ist eher geeignet, Verste
auf den nachgelagerten Management-Stufen aufzudecken, abgesehen davon, dass
aus dem Gesprch ggf. Rckschlsse auf die Ehrlichkeit und Integritt der gesetzlichen Vertreter gezogen werden knnen.41 Im Rahmen der schriftlichen Vollstndigkeitserklrung haben die gesetzlichen Vertreter zu besttigen, dass sie den Abschlussprfer ber alle ihnen bekannte oder vermutete Verste in Jahresabschluss
und Lagebericht in Kenntnis gesetzt haben.42
3.2.2 Befragung des Aufsichtsorgans
Auch das Aufsichtsorgan, blicherweise der Vorsitzende des Aufsichtsorgans

oder ggf. des Prfungsausschusses, ist nach seinen Kenntnissen ber bestehende,
vermutete oder behauptete Verste im Unternehmen zu befragen. Dadurch sollen die Aussagen des Managements besttigt und bekrftigt werden. Durch ein
entsprechendes Gesprch soll der Abschlussprfer ein hinreichendes Verstndnis
dafr erhalten, wie das Aufsichtsorgan seiner berwachungspicht nachkommt.
Er soll verstehen, welche Handlungen z.B. der Aufsichtsrat oder Beirat durchfhrt,
um Erkenntnisse in Bezug auf Anflligkeit des Unternehmens fr Verste der Unternehmensfhrung, die Angemessenheit der internen Kontrollen und die Integritt
des Managements zu erhalten. Es liegt im Ermessen des Abschlussprfers, mit dem
Aufsichtsorgan darber hinausgehend weitere Sachverhalte zu errtern. Inhalt der
Befragungen knnen Bedenken ber Art, Umfang und Hugkeit der berpr40
41
42
vgl. IDW PS 210, Tz. 26-27.

vgl. Schru, W. (2003), S. 907.
591
fungen des IKS durch die Unternehmensfhrung sein. Weiterhin kann das Aufsichtsorgan hinsichtlich der eigenen Einschtzung des Risikos von falschen Angaben
im Abschluss, oder Versumnisse des Managements, festgestellte Schwchen des
IKS zu beheben, befragt werden. Der Abschlussprfer kann auch etwaige Bedenken
hinsichtlich der Kompetenz und Integritt des Managements mit dem Aufsichtsorgan diskutieren. In dem Zusammenhang kann erlutert werden, welchen Einuss
diese Sachverhalte auf Ansatz und Umfang der Abschlussprfung haben und ob
sich daraus mglicherweise ergnzende Prfungshandlungen ergeben, die der Abschlussprfer fr notwendig hlt oder die seitens des Aufsichtsorgans gesondert in
Auftrag gegeben werden.43
3.2.3 Befragung der Mitarbeiter der Internen Revision
Wenn das Unternehmen ber eine Interne Revision verfgt, ist der Abschlussprfer verpichtet, die Mitarbeiter der Internen Revision ber ihre Kenntnisse in Bezug auf bestehende, vermutete oder behauptete Verste zu befragen. Gegenstand ist auch die Einschtzung der Internen Revision von Risiken in
Zusammenhang mit Versten. Der Wirtschaftsprfer muss die Interne Revision
auch nach Prfungshandlungen, die whrend des Berichtsjahres zur Aufdeckung
von Versten vorgenommen wurden, befragen. Weiterhin muss er sicherstellen,
ob die Interne Revision zu der Auassung gelangt ist, dass das Management angemessen auf ihre Prfungsergebnisse reagiert hat.44 Der Internen Revision kommt
bei der Aufdeckung und Vermeidung von Fraud insofern eine Schlsselrolle zu,
da sie in der Regel unterjhrig Prfungshandlungen zur Aufdeckung von dolosen
Handlungen durchfhrt und das IKS diesbezglich auf seinen Aufbau und seine
Wirksamkeit hin berprft.45
3.2.4 Befragung weiterer Mitarbeiter
Da die Befragungen des Managements selbst nicht ausreichend geeignet ist, um

verwertbare Informationen ber das Risiko von Top-Management-Fraud zu erlan43
vgl. IDW PS 210, Tz. 30-31.

45
vgl. Bantleon, U./Thomann, D./Bhner, A. (2007), S. 1983, vgl. zudem IDW Hrsg.(2002) IDW
PS 321, kritisch zur Wirksamkeit der Internen Revision bei der Aufdeckung von Top-ManagementFraud uet sich Loitlsberger, E, (2002), S, 707-708. Positiv hingegen beschreibt Wichter, B. (2007)
die Rolle der Internen Revision.
44
592
gen, sollten auch andere nach pichtgemem Ermessen ausgewhlte geeignete

Mitarbeiter befragt werden, ob sie Kenntnisse ber bestehende, vermutete oder
behauptete Verste im Unternehmen haben. Auf diese Weise kann der Abschlussprfer an Informationen gelangen, die seitens der Unternehmensfhrung
nicht kommuniziert werden. Die Befragung weiterer Personen bietet diesem Personenkreis die Mglichkeit, dem Abschlussprfer Informationen anzuvertrauen.46
4. Das Risiko des Management-Overrides
Bei der Einschtzung des Risikos hat der Abschlussprfer zunchst allgemeine
berlegungen anzustellen, in welchen Bereichen Risiken fr fraudulente Handlungen bestehen knnten. Dabei hat er unter anderem die vom Unternehmen
angewandten Rechnungslegungsmethoden zu beurteilen - insbesondere wenn sie
sich auf komplexe Geschftsvorflle und auf subjektive Bewertungen beziehen. Bei
derartigen Geschftsvorfllen und Bewertungen besteht ein erhhtes Fraud-Risiko,
weil sich diese entsprechend eigenen, um Sachverhalte zu verschleiern. Deshalb
ist hier abzuwgen, ob die Auswahl und Anwendung der Rechnungslegungsmethoden einen Hinweis auf Tuschungen geben kann.47 Durch die Auerkraftsetzung
ansonsten wirksam erscheinender Kontrollen, kann das Management in der Lage
sein, direkt oder indirekt die Buchfhrung zu manipulieren und folglich einen
geflschten Abschluss aufstellen. Das Management-Override stellt somit ein bedeutendes Risiko hinsichtlich wesentlich falscher Angaben im Abschluss dar.
Aus diesem Grund hat der Abschlussprfer hierfr besondere Prfungshandlungen nach IDW PS 210 zu planen und durchzufhren. Falsche Angaben in der
Rechnungslegung erfolgen oft durch Manipulationen im Rechnungslegungsprozess, indem unangemessene oder nicht autorisierte Buchungen whrend oder zum
Ende der Berichtsperiode vorgenommen werden. Weitere Beispiele sind Anpassungen wie Konsolidierungsbuchungen und statistische Umbuchungen im Jahresabschluss, die sich nicht im Hauptbuch niederschlagen und somit im Rahmen
der Abschlussprfung schwer nachverfolgt werden knnen. Demnach sollte der
Abschlussprfer die in den Rechnungslegungsprozess eingebundenen Mitarbeiter
zu unangemessenen oder ungewhnlichen Buchungen und Anpassungen befragen.
Zustzlich muss er von den zum Ende der Berichtsperiode vorgenommenen Buchungen in Stichproben auswhlen und diese prfen. Ob entsprechende Stich46
47
vgl. IDW PS 210, Tz. 28; Schru, W. (2003), S. 907.

593
proben fr Buchungen whrend der Berichtsperiode vorzunehmen sind, hat er

analog zur Risikoeinschtzung und auf Basis der vorliegenden Prfungsergebnisse
zu entscheiden.48 Geschtzte Werte stellen auch ein Instrument dar, mit dem das
Management die Rechnungslegung zielgerichtet und einseitig beeinussen kann.
Um auszuschlieen, dass eine interessensgerichtete Darstellung vorliegt, hat der
Abschlussprfer die geschtzten Werte und die dazugehrigen Prfungsnachweise
besonders zu wrdigen und ggf. eine rckblickende Durchsicht der bedeutenden geschtzten Werte des vergangenen Abschlusses vorzunehmen.49 Der Abschlussprfer
hat auerdem ein Verstndnis von den bedeutsamen Geschftsvorfllen zu gewinnen, die auerhalb der gewhnlichen Geschftsttigkeit lagen oder die ihm auf
andere Art auergewhnlich erschienen. Um dann folgend einzuschtzen, ob diese
Geschftsvorflle zur Flschung der Rechnungslegung oder zur Unterschlagung
von Vermgenswerten vorgenommen worden sein knnten.50
5 Einschtzung des Risikos anhand verschiedener Verfahren
5.1 Red Flags und Methodische Verfahren
Bei der Einschtzung, ob Fraud-Risikofaktoren im Unternehmen vorliegen,

knnen als Hilfe Red Flags (Warnsignale)51 eingesetzt werden. Dies sind beispielhafte Sachverhalte oder Bedingungen, die auf einen Anreiz bzw. Druck hindeuten
oder eine Gelegenheit fr Verste bieten.52 Jedoch variiert die Bedeutung von Red
Flags bei einzelnen Unternehmen in Abhngigkeit von ihrer Gre, den Eigentumsverhltnissen, der Geschftsttigkeit, der Branche und anderen Kriterien.53
Red Flags zur Erkennung und Aufdeckung von dolosen Handlungen werden
aus Daten bekannter Fraud-Flle gewonnen, die statistisch ein Muster aufweisen.
Entsprechend der von Donald R. Cressey entwickelten Fraud-Triangel kann an48
Loitlsberger, E. (2002) kritisiert in seinen Ausfhrungen, dass bei Abschlussprfungen hauptschlich eine berprfung der ordnungsgemen Belegbuchung stattndet und nur in geringem Umfang
die Richtigkeit des Beleginhalts - im Sinne des zugrunde liegenden wirtschaftlichen Sachverhalts- geprft wird. S. 708-709.
49
vgl. IDW PS 314.

vgl. IDW PS 210, Tz. 43 und Ramos, M. (2003).
51
vgl ausfhrlich IDW PS 210, Tz. 35-37.
52
vgl. ausfhrlich Hfele, M./Schmeisky, J. (2010), S 233 .
53
vgl Marten, K./Quick, R./Ruhnke, K. (Hrsg.) (2007), S. 427 und Knabe, S. u.a. (2004), S. 1059.
50
594
genommen werden, dass beim Vorliegen eines hnlichen Musters bei einem anderen Unternehmen eine Fraud-Risiko-Konstellation vorliegt.54 Red Flags kommt
primr eine Untersttzungsrolle zu. Sie knnen sinnvolle Denkanste fr das
Prfungsteam geben und zu einem frhen Zeitpunkt der Prfung ein Warnsignal
sein. Die Schlussfolgerung aus den festgestellten Warnsignalen obliegt jedoch der
Einschtzung und Wrdigung des Abschlussprfers.55
Da die Prfung einzelner Belege und Systemprfungen Grenzen aufweisen, weil
beispielsweise Belege mit krimineller Energie geflscht worden sind oder das Management die Kontrollen umgeht, bietet eine gesonderte Fraud-Risikoanalyse einen
objektiven Ansatz, Fraud-Muster zu erkennen. Komponenten wie die Motivation
und Moral von Mitarbeitern und die des Managements sind vom Abschlussprfer
schwer zu prfen, auch wenn er indirekt Informationen darber erlangen kann.
Methodische Verfahren bauen auf den Red-Flag-Indikatoren auf. Bei den Red Flags
wird jedoch nicht gewhrleistet, ob die richtigen Indikatoren enthalten sind und
in welcher Relation sie zueinander zu bewerten sind. Durch maschinelles Lernen
(Automatisierung der Analyse von Daten durch Einsatz von IT) werden objektiv
die besten Indikatoren ausgewhlt und aus bekannten Fllen eine Regel erstellt.
Maschinelle Verarbeitungen haben den Vorteil, komplexe Abhngigkeiten und
Regeln zu identizieren. Die erstellten Regeln ermglichen es, durch Beantwortung einer geringen Anzahl von Fragen eine verlssliche Aussage ber das FraudRisiko zu erhalten. Dieser sogenannte methodische Ansatz ermglicht es, mit hoher Genauigkeit das Vorliegen eines Fraud-Musters zu erkennen. Der Ansatz objektiviert die Risikobeurteilung und es kommt ihr im Prfungsprozess eine (Frh-)
Warnfunktion zu.56
5.2 Analytische Prfungshandlungen und Einzelfallprfungen
Im angemessenen Umfang sind Plausibilittsbeurteilungen vorzunehmen.

Diese analytischen Prfungshandlungen knnen Zeit-, Branchenvergleiche oder
allgemeine Verprobungen sein. Wenn diese Vergleiche Aulligkeiten ergeben, hat
der Abschlussprfer weitere einzelfallorientierte Prfungshandlungen vorzunehmen, bis die Abweichungen von den erwarteten Werten geklrt sind und durch an-
54 vgl. Knabe, S. u.a. (2004), S. 1059.

55
56
vgl. IFAC (Hrsg.) (2004), Tz. 27-32 und Bantleon, U./Thomann, D. (2006), S. 1715.
vgl. Knabe, S. u.a. (2004), S. 1059-1068.
595
gemessene Nachweise besttigt sind. Dies gilt im besonderen Mae fr analytische

Prfungshandlungen im Bereich der Umsatzerlse. Die beruiche Verlautbarung
des IDW PS 210 betont, dass es nach kritischer Wrdigung der als plausibel eingeschtzten Erklrungen nicht mehr Aufgabe des Abschlussprfers ist, die letztendliche Richtigkeit sicherzustellen.57
Analytische Prfungshandlungen knnen helfen, ungewhnliche Relationen
aufzudecken, die einen Anhaltspunkt fr die Begehung von dolosen Handlungen
sein knnen.
Nach Einschtzung des Risikos des Prfungsfeldes muss der Abschlussprfer
den Umfang der Einzelfallprfungen festlegen. Die Einzelfallprfungen erfolgen
zumeist aufgrund des Konzeptes der hinreichenden Sicherheit stichprobenartig. 58 Sofern Indikatoren auf fraudulente Handlungen hindeuten, ist der Abschlussprfer angehalten, den Umfang der einzelfallorientierten Prfungshandlungen auszuweiten.
6 Schluss
In Zeiten wirtschaftlicher Finanz- und Whrungskrisen, die gekennzeichnet sind

von tiefgreifenden Ein- und Umbrchen in vielen Teilen des Wirtschaftslebens,
stellt die jhrlich wiederkehrende Abschlussprfung ein Kontinuum dar, mit dem
sich hohe Erwartungen und Anforderungen gleichermaen verbinden. Die Bercksichtigung von Fraud-Risiken im Rahmen der risikoorientierten Abschlussprfung
stellt hierbei eine besondere Herausforderung fr den Wirtschaftsprfer dar.
Literaturverzeichnis:
Bantleon, U.; Thomann, D. (2006) Grundlegendes zum Thema Fraud und dessen Vorbeugung, Quelle: DStR 2007, pp. 1714
Bantleon, U.; Thomann, D.; Bhner, A. (2007) Die Neufassung des IDW Prfungsstandards Zur Aufdeckung von Unregelmigkeiten im Rahmen der Abschlussprfung (IDW PS 210) und dessen Auswirkungen auf die Unternehmensorganisation, Quelle: DStR 2007, pp. 1978
57
58
vgl. IDW PS 210, Tz. 32, 53.

vgl. Marten, K./Quick, R./Ruhnke, K. (Hrsg.) (2007), S. 311.
596
Hfele, M.; Schmeisky, J. (2009) Dolose Handlungen in der Rechnungslegung,

Quelle: ZIR 5/2009, pp. 237
Hfele, M.; Schmeisky, J. (2010) Fraud Red Flags Warnsignale zur Erkennung
wirtschaftskrimineller Handlungen, Quelle: ZRFC 5/2010, pp. 233
IDW (Hrsg.) WP Handbuch 2006, Wirtschaftsprfung, Rechnungslegung, Beratung, Band I, 13. Auage, Dsseldorf, 2006.
IDW PS 200 Ziele und allgemeine Grundstze der Durchfhrung von Abschlussprfungen, (Quelle: WPg 15/2000, S. 706 ., FN-IDW 7/2000 S. 280 .)
vom 28.06.2000 (Stand)
IDW PS 210 Zur Aufdeckung von Unregelmigkeiten im Rahmen der Abschlussprfung, (Quelle: WPg 22/2006, S. 1422 ., FN-IDW 11/2006 S. 694 .)
vom 06.09.2006 (Stand)
IDW PS 261 Feststellung und Beurteilung von Fehlerrisiken und Reaktionen des
Abschlussprfers (Quelle WPg 22/206, S. 1433., FN-IDW 11/2006, S. 710.,
WPg Supplement 4/2009, S. 1., FN-IDW 11/2009, S. 533.) vom 09.09.209
(Stand)
Knabe S.; Mika, S.; Mller, K.-R.; Rtsch, G.; Schru, W. (2004) Zur Beurteilung
des Fraud Risikos im Rahmen der Abschlussprfung, , Quelle: WPg 2004, pp.
1057
KPMG (Hrsg.) (2010): Wirtschaftskriminalitt in Deutschland 2010, Fokus Mittelstand, Berlin 2010
Loitlsberger, E. (2002) Das Mnchhausen-Dilemma der Abschlussprfung und die
Bedigungen seiner berwindung, Quelle: WPg 2002, pp. 705
Marten, K.; Quick, R. ; Ruhnke, K. (2007): Wirtschaftsprfung, 3. Auage, Stuttgart, 2007
Nimwegen, S. (2009) Vermeidung und Aufdeckung von Fraud in Batege, J./

Kirsch, H.-J./Thiele, S.(Hrsg.) Rechnungslegung und Wirtschaftsprfung,
S.18., Band 16, Berlin, 2009
Lechner, S. (2006) Vermeidung und Aufdeckung von Top Management
Fraud durch das unternehmerische berwachungssystem, Quelle: DStR 2006,
pp.1854.
597
Schindler, J. ; Grtner, M. (2004) Verantwortung des Abschlussprfers zur Bercksichtigung bon Versten (Fraud) im Rahmen der Abschlussprfung, Eine
Einfhrung in ISA 240 (rev.), Quelle: WPg 2004, pp. 1233
Schru, W. (2003): Zur Aufdeckung von Top-Management Fraud durch den
Wirtschaftsprfer im Rahmen der Abschlussprfung, Quelle: WPg 2003, pp.
901
Branko Mati Hrvoje Serdarui Maja Vretenar
598
IMPACT OF FINANCIAL CRISIS ON CREDIT LENDING OF

CROATIAN BANKS1
Branko Mati1, Ph.D., Hrvoje Serdarui2, B.Sc., Maja Vretenar3, B.Sc.
Full Professor, Faculty of Economics in Osijek, Croatia, [email protected]
2
Teaching Assistant, Faculty of Economics in Osijek, Croatia, [email protected]
3
Teaching Assistant, Polytechnic in Slavonski Brod, Croatia, [email protected]
1
Summary
The global economic crisis has threaten the stability of banking systems around
the world, which has impact on the Croatian bank. Banks as nancial intermediaries between money sucient and money decient subjects through their core business, credit lending, signicantly aect the stability and economic development.
This study examines the impact of the global nancial crisis on the changes in the
Croatian banking system which reected on the amount and structure of bank
lending.
JEL classication: E51, G21
Key words: banks, credit lending, the nancial crisis
1. INTRODUCTION
The crisis in global nancial markets are not equally reected in the nancial
sectors of some countries with regard to the structure and development level of
the same. In Croatia, the dominant credit-system in the nancial system, inuenced by the global nancial crisis 2008 the signicant changes occur. In accordance with the changed circumstances credit institutions are transforming their
business circumstances. Their activities, along with monetary policy measures
of the central bank have resulted in relative stability of the entire credit system.
The presented results are the outcome of the projects Bank System in the Financing of Polycentric
Development (No. 010-0102290-1284) conducted with the support of the Ministry of Science, Education and Sports of the Republic of Croatia
599
2. CREDIT INSTITUTIONS IN THE REPUBLIC OF CROATIA
Business credit institutions and the conditions under which they provide their
services in the Republic of Croatia is regulated and governed by law. Accordingly,
the credit institution is a legal entity that has obtained a banking licence from the
relevant body, and its eld of activity is to receive deposits or other repayable funds
from the public and to approve loans for its own account (Credit Institutions Act,
Ocial Gazette 117/08, 74/09, 153/09, Article 2). Credit institutions in the Republic of Croatia can be established as a banks, savings banks or housing savings
banks. Within these credit institutions, banks dominate in relation to savings banks
and housing savings banks, while the total number of credit institutions in the Republic of Croatia was not signicantly changed over the past ve years (Table 1).
Table 1: Number of credit institutions in the Republic of Croatia in the period from 2006 to 2010
Year
2006
33
-
Share
%
86,84
-
5
38
Number
Banks
Savings banks
Housing savings
banks
TOTAL
2007
2008
33
-
Share
%
86,84
-
13,16
100%
38
Number
2009
33
1
Share
%
84,62
2,56
13,16
100%
39
Number
2010
32
2
Share
%
82,05
5,13
12,82
100%
39
Number
32
2
Share
%
82,05
5,13
12,82
12,82
100%
39
100%
Number
Source: Authors calculation based on Croatian National Bank report
The share of banks in the total number of credit institutions in the Republic of
Croatia ranges from 82% to 87% in the analyzed period. The largest share of banks
in the system of credit institutions registered in 2006 and 2007. In addition, total
number of credit institutions after 2007 increased, due appearance of savings banks
in the market of banking services in the Republic of Croatia. The number of housing savings banks during the analyzed period not changed, while their share in the
total number of credit institutions are slightly changed in this period (Table 1).
2.1. The ownership structure of credit institutions in the Republic of Croatia
According to the classication of the Croatian National Bank, measured by the

share of assets in total bank assets, banks are divided into three categories: large (assets of banks is greater than 5% of the total assets of all banks), medium-sized (assets
of banks increased from 1% and less than 5% of total assets all banks) and small
banks (assets of the bank is less than 1% of the total assets of all banks) (Table 2).
600
Table 2: Groups of banks in Croatia and the share of their assets in total assets of all banks
Year
2006
2007
2008
Share Number Share Number

%
%
Large banks
6
80,2
6
79,0
6
Medium-sized banks
4
12,0
4
12,9
4
Small banks
23
7,8
23
8,1
24
TOTAL
33
100%
33
100%
34
Number
Share
%
79,4
12,5
8,1
100%
2009
Number
6
3
25
34
Share
%
82,7
9,1
8,2
100%
2010
Number
6
3
25
34
Share
%
82,2
9,1
8,7
100%
According to this classication number of banks did not signicantly changed

in the period from 2006 to 2010. During the analyzed period, in Croatia operated
6 large banks, while the number of medium-sized banks decreased by one bank in
2009, a number of small banks in the same year increased by one bank. In the last two
years, the banking system in the Republic of Croatia consisted of 6 large, 3 mediumsized and 25 small banks. Given this structure on the market of banking services
mainly operate small banks, but considering the share of assets of each bank group in
total assets of the banking system, large banks will take rst place (Table 2).
The ownership structure of these nancial institutions is shown by data in table 3.
Table 3: Ownership structure of banks and the share of their assets in total banking system assets
Year
2006
2007
2008
Share
Share
Number
Number
Number Share
%
%
%
State-owned banks
2
4,2
2
4,7
2
4,5
Private domestic banks
16
5,0
15
4,9
16
4,9
Foreign-owned banks
15
90,8
16
90,4
16
90,6
TOTAL
33
100%
33
100%
34
100%
2009
Number
2
17
15
34
Share
%
4,2
4,9
90,9
100%
2010
Number
2
17
15
34
Share
%
4,2
5,2
90,6
100%
The ownership structure of banks in analyzed period consists of three categories

of banks: state-owned banks, private domestic banks and foreign-owned banks.
Given the number of notable is the dominance of private domestic banks and
foreign- owned banks. But analyzing the share of their assets in total bank assets
in stated period, it is possible to conclude that the assets of foreign-owned banks
makes up over 90% of the total banking system assets in the Republic of Croatia.
601
The largest share of assets of foreign-owned banks in total assets of all banks registered in 2009, and was even 90.9% (Table 3).
2.2. Assets of credit institutions
Total assets of banks in the period from 2006 to 2010 in the Republic of Croatia
is steadily increasing (Table 4).
Table 4: The structure of bank assets in Croatia in billions HRK

Year
2006
HRK
2007
Share
%
HRK
2008
Share
%
Cash and deposits with

50,9
15,5
51,4
14,8
the CNB
Deposits with banks
34,2
10,4
35,1
10,1
Securities
31,1
9,4
32,7
9,4
Loans to nancial institu201,3 61,1
216,5 62,2
tions and other clients
Other
11,8
3,6
12,1
3,5
TOTAL
329,3 100% 347,8 100%
2009
HRK
Share
%
42,7
2010
HRK
Share
%
HRK
Share
%
11,4
47,7
12,5
46,5
12,2
35,6
34,8
9,5
9,4
32,7
34,4
8,6
9,0
29,3
33,0
7,7
8,6
246,7
66,1
252,7
66,3
259,2
67,8
13,3
373,1
3,6
100%
13,8
381,3
3,6
100%
14,2
382,2
3,7
100%
The largest increase in total bank assets in the analyzed period was recorded in
2008 compared to 2007 (an increase of 25.3 billion HRK). After 2008 the bank recorded a much smaller increase in total assets (in 2009 compared to 2008 increase
by 8.2 billion HRK, in 2010 in comparison with 2009 an increase of only 0.9 billion HRK). The result of this change is the impact of the global nancial crisis in
late 2008 engages in Croatia (Table 4).
3. COMPARATIVE ANALYSIS OF CREDIT LENDING IN THE BANKING SYSTEM
OF REPUBLIC OF CROATIA DURING FINANCIAL CRISIS
Research included currency structure of credit lending to state sector, corporate

sector and households, and changes in interest rates of credit lending in the period
from 2006 to 2010.
3.1. The currency structure of credit lending to state sector, corporate sector
and households
During the research period analyzed the structure of the given domestic and
foreign currency loans to three sectors in Republic of Croatia (Table 5.)
602
Table 5: Distribution of loans to banks by institutional sectors in the Republic of Croatiain millions HRK
Year
DOMESTIC
CURRENCY
LOANS
State loans
Corporate
loans
Loans to
households
TOTAL
DOMESTIC
CURRENCY
LOANS
foreign
currency
LOANS
State loans
Corporate
loans
Loans to
households
TOTAL
foreign
currency
LOANS
2006
2007
2008
2009
2010
HRK
Index
HRK
Index
HRK
Index
HRK
Index
HRK
Index
9,877
100
9,850
99,72
9,713
98,34
9,952
100,76
12,908
130,69
64,666
100
74,002
114,44
82,432
127,47
80,913
125,12
86,565
133,86
95,308
100
112,593
118,14
126,205
132,42
122,571
128,62
127,191
133,45
169,851
100
196,445
115,66
218,350
128,55
213,436
125,66
226,664
133,45
HRK
Index
HRK
Index
HRK
Index
HRK
Index
HRK
Index
4,707
100
4,548
96,62
12,554
266,71
19,504
414,36
21,524
457,27
13,599
100
12,265
90,19
14,417
106,02
17,826
131,08
21,598
158,82
0,382
100
0,332
86,91
0,346
90,58
0,323
84,55
0,342
89,53
18,688
100
17,145
91,74
27,317
146,17
37,653
201,48
43,464
232,58
Based on the calculation of the total domestic and foreign currency loans growth
has been evident in the analyzed period, with a tendency of growth of total domestic currency loans after 2008 less than in previous years. Analyzing credit loans by
sector it is possible to conclude that increase in total foreign currency loans to state
sector in the last two years in respect of total domestic currency loans. Loans to
corporate sector and households are generally placed in HRK (Table 5).
3.2. Changes in interest rates of credit lending
Changes in interest rates have been analyzed in terms of short-term and longterm credit lending (Chart 1).
603
Chart 1: Interest rates on credit lending in the period from 2006 to 2010
Movements in interest rates on credit loans
12,50
12,00
11,50
interest rates
11,00
10,50
10,00
9,50
9,00
8,50
8,00
7,50
7,00
2006
2007
2008
2009
2010
Year
Total average
Total average on short-term credits
Total average on long-term credits
Monthly weighted average interest rate on an annual basis for short-term credit
lending have been growing after 2007, and most were recorded in August 2009
(11.93%). Interest rates on long-term credit lending reported higher uctuations
in the analyzed period, but were lower than the interest rates of short-term credit
lending. The maximum interest rate of long-term credit lending was recorded in
July 2009 and amounted to 10.94% (Chart 1).
3.3. Return on average assets and average equity of banks and their rates of
growth in the analyzed period
Average assets and average equity of banks in the Republic of Croatia are shown
in chart 2.
604
Chart 2: The average assets and average equity of Croatian banks in million HRK
2006.
400.000
350.000
300.000
250.000
200.000
150.000
100.000
50.000
0
2010*
2007.
2009.
2008.
Average Assets
Average Equity
The average assets of banks the period from 2006 to 2010 in the Republic of
Croatia is steadily increasing. However, after 2008 the arrival of the nancial crisis, it has a much smaller increase in average assets of banks in relation to previous
years. The average equity of banks in analyzed period also shows an increasing trend
(Chart 2). Rates of growth of average assets and average equity of banks and their
prot record certain changes in the period from 2006 to 2010 (Table 6, Chart 3).
Table 6: Rates of growth of average assets, average equity and bank prot
Year
Growth rates compared to previous year
Average Assets
Average Equity
Prot (Loss) Before Tax
Prot (Loss) After Tax
2006
%
15,38
26,85
5,11
4,53
2007
%
15,01
36,07
20,51
19,81
2008
%
10,08
25,08
12,37
13,40
2009
%
4,65
10,10
-26,51
-28,94
2010
%
1,91
4,50
-18,34
-13,30
605
Chart 3: Growth rates of average assets, average equity and bank prot compared to the previous year in
analyzed period
Growth rates compared to previous year
Profit (Loss) After Tax
Profit (Loss) Before Tax
Average Equity
2006.
2007.
-40,00%--20,00%
2008.
-20,00%-0,00%
2009.
Average Assets
2010*
0,00%-20,00%
20,00%-40,00%
Rates of growth of average assets and average equity of banks is changing much
less intensity after 2008. So, in 2009 average growth rate of banks assets was 4.65%
compared to 2008, while the banks in 2010 reported an average asset growth rate
of only 1.91% compared to 2009. In addition, banks in 2009 and 2010 recorded
a negative growth rate of their prot as a result of the global nancial crisis on the
banking services in the Republic of Croatia (Chart 3).
Changes in return on average assets of banks and return on average equity of
banks in this period are shown in chart 4.
606
Chart 4: Return on average assets (ROAA) and average equity (ROAE) of banks in the period from 2006 to 2010.
13
12
12,4
11
10,9
10
9,9
9
8
7,1
7
6,4
6
5
4
3
2
1,5
1,6
1,6
1
2006.
2007.
2008.
ROAA before tax
1,1
2009.
1,2
2010*
ROAE after tax
Based on the graphic it is evident that the return on average equity of banks (ie
the share of prot after tax in the average capital of banks) is increasing at much
higher rates of return on average assets of banks (ie the share of income before taxes
in the average bank assets). In addition, it is evident that the return on average assets and return on average equity record rates of decline after 2008 (Chart 4).
4. CONCLUSION
The impact of the global nancial crisis in Croatia in 2008 leads to signicant
advances in the banking sector which is reected in the change of former business
policies of banks through their adaptation to new circumstances, and in order to
preserve its market position and stability. Thus it is possible to observe that:
Croatian banking system despite the nancial crisis has remained stable due to
its relatively small involvement in trading derivative nancial instruments,
A trend of reduction in growth of assets of the Croatian banks, and signicant
decline in overall protability and return on average equity,
607
Turn the current credit policy of banks caused by the fall of economic activities and focus on lending to the government primarily for the safety of
collection,
Growing interest rates resulted in signicant slowing of growth in total credit
lending to all sectors except the state,
Increased presence of foreign credit lending to the state, which is the reason
for the reduced possibility of state borrowing on international capital markets
due to its reduced credit rating.
Reference
Mati, B. (2011). Monetarna ekonomija, Ekonomski fakultet u Osijeku, ISBN

978-953-253-091-9, Osijek
Mati, B. (2010). Financijska inkluzija i regionalni razvitak, Ekonomski fakultet u
Osijeku, ISBN 978-953-253-090-2, Osijek
Mati, B. & Serdarui, H. & Vretenar, M. (2010). Managing Non-Interest Income
as Part of Bank Business Strategy, Zbornik radova sa Interdiscplinary Management
Research VI, Barkovi, D. & Bacher, U. (ur), str. 499-509, ISBN 978-953-253079-7, Pore, 07-05. svibanj 2010, Ekonomski fakultet u Osijeku & Hochschule
Pforzheim University of Applied Sciences, Osijek
Srb, V. & Mati, B. (2003) Bankarsko poslovanje, Ekonomski fakultet u Osijeku,
ISBN 953-6073-78-1, Osijek
Zakon o kreditnim institucijama, Narodne novine 117/08., 74/09., 153/09
Zakon o bankama, Narodne novine, 84/02., 141/06.
http://www.hnb.hr/statistika/hstatistika.htm (02.03.2011.)
http://www.zse.hr/default.aspx?id=26476 (02.03.2011.)
Ivo Mijo eljko Poega Boris Crnkovi
608
CASH FLOW STATEMENT ACCORDING TO IASB

RECOMMENDATIONS AND CROATIAN ACCOUNTING
STANDARDS
Ivo Mijo, M.Sc. Faculty of Economics in Osijek, Croatia, [email protected]
eljko Poega, Assistant Professor Faculty of Economics in Osijek, Croatia, [email protected]
Boris Crnkovi, Ph.D. Faculty of Economics in Osijek, Croatia, [email protected]
Abstract
The basic framework that allows the prediction of cash ows in a certain retail
chain is the Statement of Cash Flow. Content, structure, form and permitted methods of preparation of a cash ow statement are prescribed by the IASB accounting
standards, more specically by the International Accounting Standard (IAS) 7. IAS
7 emphasizes that the information regarding the cash ows of a company helps the
users of nancial statements to provide the basis for assessment of a company on
achieving the cash and the cash equivalents, the need of the company to use the
cash ows i.e. the time frame and to achieve certainty.
In Croatia, the obligation of compiling and reporting statements of cash ows
has been prescribed for all businesses except for craftsmen. Through the statement
of cash ow it is possible to obtain trilateral information - information on conducting business, the possibilities of payment of liabilities and the return of surplus cash
to the investors. As it is of the multiple importance of the cash ow statements
in the business environment, the basic characteristics of the stated report will be
presented on the practical example and determine the signicance of compiling
the statements of cash ows.
Keywords: cash ows, cash ow statement, nancial activities, business activities, investment activities.
1. INTRODUCTION
International Accounting Standard 7 has been replacing IAS 7 of the same name
(Statement of Changes in Financial Position) from July 1977. In general, the es-
CASH FLOW STATEMENT ACCORDING TO IASB RECOMMENDATIONS AND CROATIAN...
609
sence and content of the new accounting standard remained unchanged with certain modications and adjustments in accordance with the requirements of the
Fourth and Seventh EU Directive of the Companies Act.
In IAS 7 (NG, 2009, pg 17) is stated that the main purpose of the cash ow
statement is to provide information for assessment of changes in net assets of the
company, assessment of the nancial structure (including liquidity and solvency)
of a company and the possibility to aect the amounts and the time frame of cash
ows in order to adapt to new business circumstances. In accordance with the provisions of IAS 7, the cash includes petty cash and deposits receivables.
Cash equivalents are short-term, highly liquid investments that are quickly converted into known amounts of cash and are not under signicant inuence of the
risk of changes in the value. Cash equivalents are hold for the purposes of meeting
short-term nancial liabilities apart for investments and other purposes. In order to
qualify as cash equivalent, investment must be quickly convertible into the known
cash and with no signicant risk of changes in the value. Therefore, investment normally qualies as a cash equivalent only when it has a short maturity of three months
or less than the date of acquisition according to IAS 7 (NG, 2009, pg 17).
On the other hand, the IAS 7 highlights the usefulness of the information about
cash ow due to the possibility of a company to generate cash and cash equivalents,
allowing the users to develop the models of estimation for the comparisons of the
present value of future cash ows of dierent companies (IAS 7, NG, 2009, pg 17)
which increases and allows the comparability as imposed by the set of accounting
standards IAS / IFRS, HSFI and regulations of international and regional accountancy organizations and professional bodies.
2. PRESENTATION OF STATEMENTS OF CASH FLOWS
Specic needs of nancial reporting of small and medium enterprises (SMEs)

were recognized, and a lot of simplications have been conducted which ultimately
resulted in publication of the draft IFRS for SMEs in February 2007. After the assessment of the proposed draft, multi-year eorts, varieties of consultation and auditing
of certain standards, the nal version of IFRS for SMEs was published at the beginning of July 2009. Along the standards, two separate documents were issued (Basis
for conclusions and Illustrative nancial statements - their presentation and publication) which complement and explain further the standards. (Smrekar, 2009, 94).
610
In July 2009, The International Accounting Standards Board issued International Financial Reporting Standards for Small and Medium Enterprises - SME
IFRS (International Financial Reporting Standards for Small and Medium-sized
Entities). The main purpose and goal of these standards are to simplify the complex
IFRS (International Financial Reporting Standards) i.e. to make specic accounting
standards that will be more suitable for small and medium enterprises. (Smrekar,
2009, pg 90). In Croatia, small businesses are not obliged to compile statements
of cash ows, but are obliged to apply Croatian Financial Reporting Standards
(HSFI). Table 1 shows the gap in nancial reporting between the Croatian nancial
reporting standards and IFRS for SMEs.
Table 1. Comparative study on the nancial statements according to HSFI and IFRS for SMEs
HSFI 1
Balance Sheet
Assets, liabilities and capital
Are not prescribed information that need to be published,
and the structure prescribed by the Pravilnik on the structure and content oft he annual nancial statements.
term dierences: short-term assets, and long-term assets
(liability, capital)
Prot and Loss Account
method of total costs classied by the natural species
business, nancial and extraordinary - other activities
are not required to disclose information, a structure required
by Pravilnik
Statement of Changes in Equity
by Pravilnik
Statement of Cash Flows
direct and indirect methods
business, investment and nancial activities
by Pravilnik
Notes
required information to be disclosed
reduced volume of prescribed items for small businesses
individual standards prescribe what is necessary to disclose
in the notes
IFRS SMEs 4, 5, 6, 7, 8
Statement of Financial Position
Assets, liabilities and capital
prescribed information that need to be published, but not
the structure of the report
term dierences: liquid and non-liquid assets and liabilities
and capital
Statement of Comprehensive Income
method of total expenses classied by nature or by function
type
business, nancial activities
required information to be disclosed, but not the structure
of the report
Statement of changes in equity
income statement and retained earnings
of the report
Statement of Cash Flows
direct or indirect method
business, investment and nancial activities
of the report
Notes
of the report
prescribed sequence of information presented
individual standards prescribe what is necessary to disclose
in the notes
Source: Smrekar, N. (2009): Usklaivanje nacionalne i meunarodne regulative nancijskog izvjetavanja malih i srednjih poduzea,
Zbornik Ekonomskog fakulteta u Zagrebu, Vol.7 No.2, str. 98.
611
Basically, cash ow statement includes i.e. is structured through the constituent

elements that constitute the wholeness of the unity. These are: (1) business activities, (2) investing (investment) activities and (3) nancial activities. Each of these
activities has a predetermined receipts (inows) and expenses (outows) of cash
and cash equivalents in accordance with the impositions of accounting standards
and nancial reporting standards.
However, regardless of the pre-elaborated positions within individual activities,
quite often certain problems appear and there are multiple practical examples which
recognize and value each transaction in dierent ways (business event) through the
statement of cash ows. Certain transactions of bivalent behavior (the possibility of
classication within one or more activities) should be regulated by the accounting
policies of a business entity, which means that is necessary to keep the consistency
of recognition of transactions within each activity from period to period i.e. it is not
possible nor is it permitted so called independent assortment in order to present a
certain eect incorrectly. However, IAS 7 (NG, t.12., pg 18), cites the example of
cash repayment of the credit which consists of the interest and the capital i.e. the
interest can be classied as a business activity and the capital can be classied as a
nancial activity ceteris paribus.
In order to avoid any doubts in compiling of a cash ow statements, further in
the text are briey shown the most important characteristics, and the receipts and
expenditures specic for each activity in accordance with IAS 7th.
2.1. Business activities
Business activities are the main revenue-generating activities of companies.

Therefore, they usually result from transactions and other business events that determine the net prot or loss. The amount of cash ows arising from business activities is the key indicator of the capacity in which the activities of a company have
resulted in sucient cash ows to repay loans, to maintain the business eciency
of a company, pay dividends and make new investments without external funding.
(IAS 7, NG., t. 13 - 14, pg 18). Examples of cash ows from business activities, in
accordance with IAS 7, are shown in Table 2.
612
Table 2. Examples of cash ows from business activities

Cash receipts from operating activities
Cash outow from operating activities
Cash receipt from sale of goods and services
cash payments to suppliers for goods delivered and

services rendered
cash receipts from royalties, fees, commissions and

other income
cash proceeds of the insurance companies for premiums
and claims for damages, annuities and other insurance
policies
cash refunds of taxes on income, unless they can be specically identied as a nancial and Investing activities
Cash payments to employees and on behalf of

employees
cash payments of an insurance company for premiums
and claims for damages, annuities and other insurance
policies
cash payment of income tax, unless they can be specically identied as a nancial and investing activities
cash receipts under contracts that are used for business

or commercial purposes
cash payments under contracts that are used for business or commercial purposes
Source: Meunarodni raunovodstveni standard (MRS) 7 - Izvjetaj o novanom toku, NN. 136/2009, t. 14., str. 18.
Certain transactions, such as selling items of installations may lead to gain or

loss, which is included in determination of net prot or loss. However, cash ows
relating to such transactions are cash ows from investment activities. A company
may hold securities and loans for business or commercial purposes, in which case
are similar to the stock, but were purchased for resale. According to this, the cash
ows arising from the purchase or sale of business or trade securities are classied
as business activities. Similarly, cash allowances and loans received from nancial
institutions are usually classied as business activities since they relate to the main
business activity which generates income. (IAS 7, NG, t. 14 - 15, pg 18).
2.2. Investing (investment) activity
Investing activities are the acquisition and alienation of xed assets and other
investments that are not included in cash equivalents. It is important to separately
disclose cash ows resulting from investing activities, since the cash ows represent
the size of the expenditures occurred for resources intended for the accomplishment of future prots and cash ows. (IAS 7, NG, t. 16, pg 18). Examples of cash
ows resulting from investing (investment) activities, in accordance with IAS 7, are
presented in Table 3.
613
Table 3. Examples of cash ows from investing (investment) activities

Cash receipts from investing activities
Cash outow from investing activities
Cash receipt from sale property, plant and equipment,

intangible assets and other xed assets*
Cash receipt from sale equity or debt instruments of
other companies and stakes in joint ventures (excluding
receipts for instruments that are considered to be cash
equivalents or those held for business or commercial
purposes
cash payments for purchases of property, plant and

equipment, intangible assets and other xed assets
cash payments to acquire equity or debt instruments
of other companies and stakes in joint ventures (except
for payment for the instruments that are considered to
be cash equivalents or those held for business or commercial purposes
cash receipts from repayment of advances and loans

given to third parties (except for advances and loans
from nancial institutions)
cash advances and loans given to other parties (except

for advances and loans made by nancial institutions)
cash receipts from future contracts, forward contracts,

with the option and compensation contracts, except
when those contracts held for business or commercial
purposes or receipts are classied as nancing activities
cash payments for future contracts, forward contracts

with option contracts and compensation agreements,
except when the contracts are held for business or
commercial purposes or for repayment are classied as
nancing activities
Source: Meunarodni raunovodstveni standard 7- Izvjetaj o novanom toku, NN. 136/2009, t. 16., str. 18.
* these payments include those relating to the capitalization of development costs and construction of property, plant and equipment their own performance
2.3. Financial activities
Financial activities are the activities that result in size and composition of equity and borrowings of companies. Separate disclosure of cash ows resulting from
nancial activities is important because it is used in assessment of expectations of
future cash ows from those who provide the capital for a company (IAS 7, NG.,
t.17., pg 19). Examples of cash ows resulting from nancial activities have been
presented in Table 4.
Table 4. Examples of cash ows from nancial activities

Cash receipts from nancial activities
Cash proceeds from issuing shares or other equity
instruments
Cash proceeds from issuing debentures, loans,
credits, bonds, mortgages and other short-or longterm borrowings
Cash outows from nancial activities

cash payments to owners for the acquisition or
purchase of company shares
repayment of money borrowed amount
cash repayment of the tenant to reduce arrears
relating to nance leases.
Source: Meunarodni raunovodstveni standard (MRS) 7- Izvjetaj o novanom toku, NN. 136/2009, t.17., str. 19.
614
3.4. Reporting Cash Flows
Statement of cash ows can be represented by one of the two permissible methods of accounting: (1) direct and (2) indirect method. The direct method is based
on the gross amount of receipts and expenditures i.e. the indirect method is based
on net receipts and expenditures which are then corrected (reclassied) for the
eects of particular transactions. In IAS 7 (NG, t. 20, pg 19) is stated that the
indirect method understands the adjustment of net prot (loss) for the eects of
transactions of non-cash nature (amortization, bonuses, deferred taxes, unrealized
gains and losses in foreign currency and undistributed prots of associated companies and minority shares) any delimitation or expressing the occurrence of events
past or future business cash receipts or payments, and for the positions of income
or expense related to investing or nancing of the cash ow. Final structure and
content of reports of cash ows presented with direct or indirect method are given
in Table 4.
Practice shows that business entities in the Republic of Croatia mostly use the
direct method in the presentation of cash ows since the direct method provides
the information useful for estimation of future cash ows, which is not enabled by
the indirect method (IAS 7, NG., t. 19, pg 19). Recently, FINA require compiling
of the statements of cash ows from business entities using the indirect method.
After being shown all the laws and rules in compiling the statements of cash
ows, it is determined the nal value of the receipts and expenditures of cash and
cash equivalents in the increase of the net cash ow for all activities (business, investment and nancial) that, ultimately, should be equal to the increase or decrease
of the cash and the cash equivalents.
The Increase or decrease of the cash and the cash equivalents can be presented as
follows (Mijo, 2010, pg 35):
Net cash ow from nancial activities
+ Net cash ow from investment activities
+ Net cash ow from nancial activities
= Total net cash ow
i.e.
Cash and cash equivalents at beginning of period (01/01/20xx).
- Cash and cash equivalents at end of period (31/12/ 20xx).
= Increase (decrease) of cash and cash equivalents
615
i.e.
Total net cash ow = increase (decrease) of cash and cash equivalents
3. CONCLUSION
Content, structure and organization of business events (transactions) are regulated by IAS 7 i.e. Statement of Cash Flow and Croatian Financial Reporting Standards (HSFI). In terms of the stated accounting standard the statement of cash
ows enables the provision of information about historical changes of the cash and
the cash equivalents of the subject by the classication of cash ows of the period
through business, investment and nancial activities.
The obligation of compiling and preparation of reports of cash ow is prescribed
by the Accounting Act (National Gazette no. 109/07) where is stated that large
and medium-sized businesses have a legal obligation to prepare the stated report
with the exception for small business owners who compile and prepare so called
abridged nancial statements (balance sheet, income statement and notes). However, small business owners can compile and prepare internal report of cash ows
for their own needs in order to obtain the in time information of the quality and
ability of the subject in terms of generating the cash and the cash equivalents in
order to facilitate the process of decision making.
Acquaintance with the techniques and methods of preparation of statements
of cash ow allows (accelerates) also the prediction of future cash ows. Therefore,
statement of cash ow consists of (IAS 7, NG., T.5., pg 17) historical information
as the indicator of the amount, time and certainty of future cash ows useful in
the assessment of the accuracy of previous estimations of future cash ows and in
examination of the relations between the protability and the net cash ow and the
impact of the price changes. Regarding that, every business entity must not ignore
the crucial role of the described report in monitoring and recording of the cash and
the cash equivalents.
616
4. REFERENCES
Crnkovi, L. & Martinovi, J. & Mijo, I. (2008). Financijsko raunovodstvo,

Ekonomski fakultet u Osijeku, Osijek
Mijo, I. (2010). Sastavljanje izvjetaja o novanom tijeku indirektnom metodom,
Financije i porezi: asopis za poduzea i banke, obrtnike, proraune i proraunske
korisnike, neprotne i ostale organizacije, 6 (10), 28-38.
MRS 7 Izvjetaj o novanim tokovima, Narodne novine 136/09
Pravilnik o strukturi i sadraju GFI, Narodne novine 38/08, 12/09 dostupno na
http://narodne-novine.nn.hr/default.aspx Pristup: (15-02-2011.)
Proklin, P. & Proklin, M. (2001). Bilanciranje i metode procjenjivanja pri sastavljanju novano raunovodstvenih izvjea poduzetnika, Ekonomski vjesnik br. 1.
i 2., Ekonomski fakultet u Osijeku, Osijek
Smrekar, N. (2009). Usklaivanje nacionalne i meunarodne regulative nancijskog
izvjetavanja malih i srednjih poduzea, Zbornik Ekonomskog fakulteta u Zagrebu, Vol. 7 No. 2 dostupno na http://hrcak.srce.hr/index.php?show=clanak&id_
clanakjezik=69019 Pristup: (15-02-2011.)
Zakon o raunovodstvu, Narodne novine 109/07
Zakon o reviziji, Narodne novine 146/05
HEALTH,
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AND
WELFARE
A STUDY OF MOTIVES, EXPECTATIONS AND ACADEMIC PERFORMANCE OF STUDENTS...
619
A STUDY OF MOTIVES, EXPECTATIONS AND ACADEMIC

PERFORMANCE OF STUDENTS AT SCHOOL OF ECONOMICS
AND BUSINESS, SARAJEVO
Jasmina Osmankovi, Associate professor, School of Economics and Business,
University of Sarajevo, [email protected]
Amra Rizvi, Senior Research Fellow, School of Economics and Business,
University of Sarajevo, [email protected]
Hatida Jahi, Teaching and Research Assistant, School of Economics and Business,
University of Sarajevo [email protected]
Abstract
The aim of this paper was to analyze the motives, expectations and demographic
characteristics of graduate students and discuss possible implications for quality of
education oered, educational policy and in specic, directions for higher education
in Bosnia and Herzegovina. The research uses primary data collected from graduate
students at School of Economics and Business, University of Sarajevo. This paper
contains the results of research on students motives and reasons of entering School
of Economic and Business, Sarajevo (SEBS). Assessment of dierences between
the attitudes of the student sample will be performed using t - test. The analysis
was conducted on a sample of students at SEBS, using SPSS 17 software tool. The
paper oers a timely measure of the motives and expectations of graduate business and economics students. The ndings should be of practical value to graduate
educators in Bosnia and Herzegovina and oer educators the opportunity to have a
greater sensitivity and a better understanding their students. This should be a good
start for better -informed curriculum, teaching and assessment process guiding students in higher education process and leading to better quality learning.
JEL classication: A12, I21
Key words: motives, expectations, characteristics, higher education
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Jasmina Osmankovi Amra Rizvi Hatida Jahi
1. Introduction
This paper represents a continued research in eld of education and motives,

expectations and academic performance of students at School of Economics and
Business, Sarajevo (SEBS). Pilot research has been done during summer semester of
2009/2010 academic year on panel of 49 students in order to analyze the quality of
education that they have received. It has been concluded that rstly, dominant way
of learning was concentrated not distributed learning, secondly, students are not
doing enough in terms of their individual work/study/reading at home as it is dened by Bolonja principles and thirdly, while presents on lectures and/or seminar
classes, student are not following these activities and participating in discussions
(Osmankovic & Jahic; 2010). This situation oftenly results in disparity between
needed knowledge in the economy and produced knowledge in the education sector. Two reasons for this situation can be: quality of institutions and education in
general and existing motives for studying.
2. Literature review
Tertiary education in context of 21st centuary and goals of becoming innovative

and knowledge based economy, has strong inuence on development intensity
and structural transformations in economy and society in general. All changes that
happen in development process directly inuence tertiary educational institutions
and the quality of this educational level. Besides the role of university in education, research and praticipation in socio economic development, the nature of
students learning, motives and performance should also be analyzed.
Entwistle (2000) identies three groups of factors inuencing student learning:
I. Students charasteristics (prior knowledge, intellectual abilities, learning style,
personality, attitudes to courses, motivation, work habits and study skills),
II. Teaching charasteristics (structure, clarity, explanation, enthusiasm, empathy
of teaching) and
III. Departmental charasteristics (course design and objectives, learning materials, assessment procedures, workload, freedom of choice and study skills
support).
When enterying tertiary education student bring their prior knowledge, experience and views. Many studies have reported a signicant positive relation-
621
ship between prior academic achievement and academic performance in rst year
accounting modules (Arguero et al.; 2009). It is recognised that students bring
not only their prior knowledge and prior academic achievements but also an accumulation of motives, intentions and expectations which will interact with their
learning activities at university (Biggs; 1996). Students expectation of success and
their condence in their abilities is positively correlated with their academic performance (Gigliotti & Secrest;1988, Zeegers; 2004). It is desirable for their future
performance if students have realistic expectations and if they are well informed.
We can say that this is mostly not the case and that mature students exibit more desirable approaches to learning and education in general and their academic performance is at least as good as that of the non mature students (Richardson; 1995).
Students should be interested in the subject of their study, however despited the
existing level of interest, students in many cases tend to underestimate the eort
required by the programme. Research also shows that male students expected to
devote considerably less time to private study than their female counterparts Future
job opportunities and the prospect of nancial rewards are the most important
external motives. With regard tointernal motives, the opportunity for the development of intellectual abilities, the broadening of horizons and new challenges, the
acquisition of knowledge and skills and the desire for a better education were other
important motives dening the academic performance (Arguero et al.; 2009).
Dominant motives for students studing economics are usefullness wider possibilities in employement (Kesic & Previsic; 1998). Therefore, university programmes
which are focused on economics should in terms of usefullness be created in oreder
to give to students knowledge and skills that they need at labour market. Their motives, performance and expectations should be taken into acoount when creating
and implementing university level curriculums.
3. Methodology and data collection
Data collection was performed in December 2010. by using the paper questionnaire that was given to 800 students. Out of 800 given, 488 questionnaires were
completely lled, which represents 61% of the total number of given questionnaires. The demographic prole and descriptive statistics of surveyed students is
given in the Table 1.
622
Table 1: Demographic prole and descriptive statistics of surveyed students

Item
Gender
Frequency
Percentage
Male
Female
183
305
37,50
62,50
18-21
22-25
26-30
31-35
36-45
Years at SEBS
1st year
2nd year
3rd year
337
124
14
7
6
69,06
25,41
2,87
1,43
1,23
48
428
112
8,16
72,79
19,05
Age
3.1. Reliability of measurement scales
In order to verify internal consistency and reliability of scales used in the design
of the questionnaire we will apply the appropriate statistical tests. In order to verify
internal consistency and reliability of the scale used, the design of the questionnaire, calculated the corresponding standardized Cronbach alpha value. Following
table shows the results of conducted tests.
Table 2: Results of Cronbach Alpha test

Mean
3,24
Range
2,19 - 4,27
Theoretical range
1-5
The standardized Cronbach alpha value

0,883
The calculated value of the test actually gives a measure of internal consistency
of measurement scales based on the average correlation between the values of responses to questions from regarding group of questions. Standardized Cronbach
alpha value that is greater than 0.70 indicates that the scale is reliable and consistent
measurements (Francis, 2004) (Leech et al., 2005). So, we can say that the scale
used in this paper reliable (Francis, 2004) and internally consistent (Leech et al.,
2005).
623
3.2. Quantitative data analysis
The purpose of the study was to see how the college students perceive SEBS.
Quantitative data analysis was performed using SPSS 17 software packages and MS
Excel. The paper used the following statistical tools: t - test was used to test hypotheses related to the high value of the variable. This test is used to give an answer to
the following questions:
What are the SEBS students motives to enter School of Economics and
Business?
The paper value of 3 (median score of the scale) was used as a test value, because
the value 3 represents the neutral value of responses related to agreeing or disagreeing with the allegations in question. If the mean response observed on the question
was signicantly higher than 3, this means that the respondents agree with the
above statement. Analogous argument is valid if the mean value statistically lower
than the third. Based on the foregoing it is clear that the one-sided t test was used.
Analysis of variance (ANOVA) was used to assess whether there were signicant
dierences in willingness to accept the new concept of education among dierent
groups of subjects, but there were no statistically signicant dierence between
various demographic characteristics of the student, and
4. Results
In addition, the results of conducted research are represented in following

table.
Table 3: Results of t - test
Adequate employment
Family tradition
High level of salaries
Study is really interesting
The inability of registration to the desired Faculty
Coincidence
t - test
P - value
T - value
Mean
Median
Mode
Descriptive statistics
4
1
4
4
1
1
4
2
4
4
1
1
4,00
2,44
3,55
3,67
1,79
1,98
52,37
44,64
100,87
88,92
34,82
32,36
,000
,000
,000
,000
,000
,000
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Networks and friendships

The quality of professors and teaching assistants
The public Faculty
The inability of registration to the private Faculty
Easy
Because of the friend
Satised with course curricula
3
4
4
1
1
1
3
3
4
4
1
1
1
3
3,17
3,63
3,80
2,02
1,74
1,86
2,83
62,54
83,18
78,06
36,05
37,78
38,48
73,47
,000
,000
,000
,000
,000
,000
,000
Students perceptions toward reasons and motives for entering SEBS was evaluated using these characteristics: adequate employment, family tradition, high level
of salaries, study is really interesting, the inability of registration to desired faculty,
coincidence, networks and friendships, the quality of professors and teaching assistants, the public Faculty, the inability of registration to the private Faculty, study
is easy, because of the friend and satisfaction with course curricula.
From table 3 it is clear that all the variables included in the analysis statistically
signicant. The last column of Table 3 gives the results of t - test conducted when
you look at the variables that represent the impact of observed types of factors.
The main motives and reasons for entering SEBS can be divided into the following categories: (i) long - term reasoning, where the student pointed out as a motive
for enrollment the possibility of nding adequate employment upon graduation
and high level of salaries as another motivating factor, (ii) short - term reasoning
where students have stressed signicance of friendship for selection SEBS (iii) a
signicant factor that has proved to be a signicant motive for the registration at
School is the concept of studying process, and the quality of professors and teaching assistants who also rated highly relevant.
Conclusion
Purpose of the research was to identify students motives for entering tertiary
education and explenations of their performance. Besides, this research was conducted with a purpose to nd out whether motives dier in relation to demographic characteristics of students.
It is signicant that students perceive SEBS as synonym for quality of professors
and teaching assistants. This is the prove and challenge for the future to be better and
to produce high - quality labor force that will get adequate job and salary, which will
results with higher level of signicance of the School and education in general.
625
Results suggest several implications for all involved in process of curricula design. Students have stressed the existance of wider possibilities for better job so
the continues improvement of curricula in context of providing knowledge that
is need is absolutely neccessary. The nature of studying process at SEBS has been
identied as a signicant factor, so this is also another aspect that needs continuous
improvement.
Further research should examine the ways in which students draw on their prior-learning experience to make sense of their learning process as well as to analyze
students charasteristics (prior knowledge, intellectual abilities, learning style, personality, attitudes to courses, motivation, work habits and study skills) in order to
understand better the education process.
REFERENCES
Arquero, L.J. et al. (2008): Motives, expectations, preparedness and academic performance: a study of students of accounting at a spanish university, Revista de
Contabilidad - Spanish Accounting Review, 12 (2), pp. 279 - 300.
Biggs, J. (1996). Enhancing teaching through constructive alignmnet, Higher Education, 32 (3), pp. 347 364.
Corman, H. (1983): Postsecondary education enrollment response by recent high
school graduates and older adults, The Journal of Human Resources, 17 (2), pp.
247 -267.
Entwistle, N. (2000). Some aspects of the teaching learning environment inuencing approaches to studying, First meeting of the Edinburgh 2000 Group,
Edinburgh, UK.
Francis et al. (2004). Constructing questionnaires based on the theory of planned
behaviour: A manual for health services researchers. UK: Centre for Health Services Research, University of Newcastle.
Gigliotti, R. & Secrest, S. (1988). Academic success expectations: the interply of
gender, situation and meeting, Research in Higher Education, 29 (4), pp. 281
297.
Leech, N. L., Barrett, K. C., & Morgan, G. A. (2005). SPSS for intermediate statistics use and interpretation. Mahwah, NJ: Lawrence Erlbaum.
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Kesi, T. % Previi, J. (1998): Motivi upisa i zadovoljstvao nastavnim programom studenata ekonomskih i elektrotehnikih fakulteta u Hrvatskoj, Drutvena
istraivanja Zagreb, 7(4 5), pp. 731 746.
Osmankovic, J. & Jahic, H. (2010). Kvalitet obrazovanja: rezultati Bolonje, Zbornik
radova Ekonomskog fakulteta u Sarajevu, 30, pp. 441 459.
Richardson, T.J. (1995). Muture Students in Higher Education:II. An investigation of approaches to studying and academic performance, Studies in Higher Education, 20 (1), pp. 5 17.
Zeegers, P. (2004). Student learning in higher education: a path analysis of academic achievement in science, Higher Education Research and Development, 23
(1), pp. 35 56.
CULTURE OF ORGANISATION AS A DRIVING FORCE FOR IMPROVING MANAGEMENT RESULTS
627
CULTURE OF ORGANISATION AS A DRIVING FORCE FOR

IMPROVING MANAGEMENT RESULTS
Legevi Jelena, MBA, Assistant
Faculty of Law in Osijek
University of J.J.Strossmayer
ABSTRACT
Building and maintaining an organization that is introducing quality management system requires competence in cultural changes, acquisitions of reliable practices, implementation strategies and eective organization structure. Organization
culture is only one of stages of culture whose building process is long, complex
and never-ending. Process of introducing organization culture guarantees competitive and comparative advantages for that organization in terms of less expenditure,
workers with more motivation and increasment of organizations prestige.
Key words: service quality, measurement, human capital
1. INTRODUCTION
In a global market environment where constant changes occur it is increasingly

dicult to achieve uniqueness.1 Many organizations strive to belong to an interest
group and have a signicant role in it, to be present and act on a global level but at
the same time be unique and recognizable in order to survive in a turbulent global
market. In such an environment the culture of organization is a postulate and constant and the culture of organization level and quality of its elements are variables
that determine uniqueness. The essence of quality observed from the aspect of the
culture of organization is found in the following postulates2:
1
Drljaa, M., Kultura kvalitete i organizacije, 6. Croatian Conference on Quality, Opatija 1820.05.2005.
2
Planti, D., Koncepcija Zerodefects kao vaan imbenik organizacijske kulture, 6. Croatian Conference on Quality, Opatija 18-20.05.2005.
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Jelena Legevi
An organization and all of its employees fulll all their promises;

The organization is committed to fulll all the needs of its users and strives to
fulll their expectations;
The products of the organization function correctly and serve its purpose when
used rst without unnecessary customer complaints;
In case of complaints, additional inquiries and requests of users the organization must respond immediately and provide all requested information and
services;
The organization must treat every person that it comes in contact with professionally and with respect (buyers, suppliers, employees and other business
partners, owners);
The organization does business honestly, is responsible and abides to ethical
standards;
The ordered products are delivered by the organization within deadline and in
case of a delay the user is notied;
The organizations and its employees constantly develop an ecological awareness they ensure that business processes (especially production) produce a
minimal amount of waste and that the waste is disposed in a responsible and
conscientious manner.
2. THREE MYTHS ABOUT THE CULTURE OF ORGANIZATION
The culture of quality is a term that is often mentioned in the context of the
culture of organization. The culture of quality is a collection of principles and legal
procedures with which the basic principles of TQM are integrated with the culture
of organization. They include the orientation towards the application of principles
of managing quality in an organization. The principles are:3 1) focus on the customer, 2) managing, 3) inclusion of employees, 4) process approach, 5) systematic
approach to managing, 6) constant improvement, 7) decision making based on
facts, 8) mutually benecial relationship with suppliers. In addition to these principles, it is of critical importance that cultural changes in the organization follow
the implementation of the quality system.4
3
4
www.kvaliteta.inet.hr/e-quality/prethodni/19/Drljaca_M_rad.pdf (01.08.2010.)
Arcaro, S.,J., Quality in Education, An Implementation Handbook, Florida, 1995., page 27.
629
Myth Nr. 1: Culture is something mysterious and hard to dene. Although the
culture of organization is intangible, it is not mysterious. Culture is related to two
related components: values and expectations.
Values are principles that direct the policy and actions of the organization. Senior managers determine the values by what they do and partly by what they say.
Every organization has several values: protability, being a part of the community,
serving the users, establishing a healthy working environment, technical ingenuity
etc.
Expectations refer to what the employees expect that the result of their actions
will be. The culture is what leads the employee to think that the new measurement
system will induce him to speed up his work. Culture is what leads the other employee to expect that his improved performance in fullling the customers needs
will lead to a reward.
Myth Nr. 2: The culture of organization is imposed from above. Expectations
evolve over time. Senior managers have a large role in establishing culture, but they
cant impose it or change it instantly.
Myth Nr. 3: The culture of organization mainly consists of slogans and symbols.
It is a supercial view of culture as something that resulted from award giving
ceremonies, general meetings and short-term eorts. Although these can be useful
tools, they cant dene culture. If values and devotion are not behind all this, the
employees will not implement it. The culture of organization is much more fundamental. It is developed from the ways you do business. A value, such as orientation
towards customers, does not derive from slogans and programs of the employee
of the month type. It derives from the fact that the satisfaction of the customers
is a central point of every business activity, from design of the product to earning
money from it.
3. OBSTACLES ON THE ROAD TOWARDS THE CULTURE OF QUALITY
During a culture change one cannot ignore the resistance at the beginning of
the process, which will probably happen when employees realize how far-reaching
the changes will be and how much it will be necessary to change traditional ways.
The change of culture is one of the greatest challenges which an organization will
face, therefore, in order to achieve it the support of senior management is of critical importance. The change in culture sometimes cannot be achieved without the
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Jelena Legevi
change of senior management because managers who do not acknowledge the need
for change cannot lead organizations through great culture changes. Apart from
that, quality should be seen as a journey not a destination. This means that TQM is
based on a devotion to long-term and continuous improvement. It is recommended to direct the activity of quality teams towards the biggest problems i.e. processes
where the chances for success in a short period of time are the biggest.
The basic obstacles on the road to the culture of quality are:5
1. Short-term measures employees who are on the road to accepting a TQM
environment must aim for long-term goals. Sometimes it is necessary to wait a
long time for the focus on customers or team work to pay o. Demands focused on
short-term nancial results will destroy attempts of building a system of quality.
2. Job uncertainty if reducing the number of jobs is necessary in order to
achieve a better quality control system, employees should be informed of the reasons for it. Experience has shown that a quality control system works better if employees are reassigned to other positions instead of being red.
3. Badly designed jobs one of the rst steps in building a culture of quality
should be involving the workers in designing the methods of their work. A person
who performs a certain duty almost always knows the best way of achieving its
goals.
4. Lack of leadership if senior management is not active in planning and
implementing quality programs there will be no culture of quality development.
5. No long-term commitment to quality Employees and some managers will
often test the commitment of the organization to quality in the early stages which
are directed at improving overall quality. If the organization does not give the employee the support he needs when he takes the initiative, it is a sign of a lack of
commitment.
4. TEN WAYS OF ESTABLISHING A CULTURE OF QUALITY
The implementation of various aspects of your TQM program will signicantly

improve the quality of the structures in your organization. At the same time it is
important to constantly work on establishing that culture.
5 Kelly, John M., Upravljanje ukupnom kvalitetom, Potecon, 1997.,

page127.
631
The following techniques have proven successful in organizations which introduced TQM: 6
1. Show commitment
Why? Senior managers have to take leadership when showing that quality is and
will be the priority of the organization. Without that commitment the employees
perceive all the attempts aimed at improving quality with doubt.
How? Commitment is demonstrated through actions. Managers have to set an
example that they want their employees to follow. It is not enough to just talk about
quality. Bear in mind that every manager acts in an open relationship; employees
observe what they do and how they do it.
2. Establish a connection with the users
Why? The focus on the user is the driving force of TQM. If you determine with
certainty that your endeavors are always directed at the user, it will keep you focused on the results and not just on the simple rituals.
How? Name a user representative for every project or meeting in your organization. That person should examine the progress made from a user point of view
and ensure that all endeavors go in that direction.
3. Allow the employees to solve problems
Why? The solutions to quality issues that come from the employees mainly work
better than those imposed by management. Employees have a better insight into
work processes and have a vested interest in making the solutions eective.
How? Form permanent and ad-hoc teams for improving quality. Members
should be given authority and responsibility.
4. Use symbols appropriately
Why? Symbols of acknowledgment such as employee of the month rewards
and rituals such as product launching meetings can be useful cultural tools. But
they should always represent a deeper culture and not serve as actual culture.
How? Ask your employees if these meetings and awards are important to them.
What is important about them? What is the best way to determine who should
get an award? Asking regularly for advice on these issues will keep you on the right
6
Kelly, op.cit., page 128.
632
Jelena Legevi
track. You also need to take care of what you reward and what are the values depicted by these rituals. Does the rewarding of employees who make more prot for
your organization undermine the focus on the customer who is serviced by other
groups of employees?
5. Include employees on every level
Why? If implementing TQM is just another strategy imposed by management
the employees will resist it.
How? Employees from all organizational levels should be included in discussions
about overall quality. You should ask for ideas and suggestions from everyone and
consider them seriously.
6. Turn your view inward
Why? Ideas that come from the inside have higher credibility than outside ideas.
To implement an idea that is the result of eorts made by employees means giving
them recognition for their work.
How? Find a department or unit in the organization that is especially successful
in a certain eld. Large contests take place in some organizations in order to entice
the best ideas related to quality.
7. Improve team work
Why? TQM encourages team work because it is eective. It is ecient in solving
problems and promoting quality structures.
How? One way is to review your promotion policy. A common mistake is to
promote employees that excel in their work to managerial positions. They often
lack skills that are needed to encourage team solutions. It is better to establish a
system which reveals and identies managers capable of team work.
8. Acquire the language of quality
Why? The way in which the employees talk about quality aects the way in
which they think about it. Communication becomes richer and the level of quality
awareness higher if everyone understands the implementation of basic overall quality management terms.
How? A basic training in quality concepts is important. E.g. when employees
adopt a view of other departments as their users and realize the challenges set by
quality standards, they can start communicating ideas with each other.
633
9. Get rid of narrow-mindedness

Why? Overall quality management does not make sense to a person who is occupied only with its immediate responsibilities. This demands a broader view of
company strategies and its competitive position.
How? A focus on internal users is the rst step with which we instigate the employees to realize that collaboration is the way to fullling the needs of users. This
leads to a new point of view about work and new ideas for improvement.
10. Promote employee ownership
Why? Overall quality includes the idea by which a person is the owner of its
business and the person involved in improving a process is the owner of that process. The feeling of ownership raises morale and leads to employee authority.
How? Managers have to learn the basic principles of relegation which include
transferring authority and ownership over tasks. Quality improvement teams which
have complete responsibility for specic quality issues also promote ownership.
5. BEHAVIOUR WHICH NEEDS TO BE ADOPTED FOR MAINTAINING ACHIEVED
CULTURE OF QUALITY
Maintaining achieved quality culture over time is just as challenging as achieving it. In order to maintain the culture of quality, according to Gryna (2001)7, organizations need to adopt dierent types of behavior. One of behavior is maintaining the consciousness about quality as a key question of culture. This is achieved
through regular education of all members of the organization about the aims of
quality and the achieved results related to these aims, second behavior is to ensure
that there is numerous evidence of management involvement. Managers need to
oer leadership in strategic quality planning and be actively involved in implementation of quality initiatives. Next is to give authority to employees and encourage
initiative and autonomous progress. Managers need to ensure that the work obligations are dened in a manner that enables as much self-evaluation as possible. They
also need to continuously ask for and implement input given by the employees and
encourage team work. Another behavior includes employees. It is not enough to
ask for their involvement by giving them authority. It is also necessary to structure
the organization and its processes in a way that makes their involvement inevitable
7
Gryna, F.M., Quality Planning and Analysis, McGraw Hill, New York, 2001., page 68.
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Jelena Legevi
and the last behavior give credit and rewards for behavior that improves and supports the new organizational culture. Giving credit includes several forms of public
acknowledgment Rewards are tangible benets such as increased salary, bonuses,
benets and promotions.
Seven pieces of advice for more ecient quality training:8
1) Link training and business strategy. Your general business strategies should
always direct in setting priorities for training. If you estimate that technology will
aect your business, technical training should be important. If your focus is on
improving customer relations, the training should also focus on that. Do not allow
yourself to lose sight of your strategic goals because of the process of training.
2) Asses the need for training. Gather information from managers and employees about areas in which training is necessary. Informing yourself about employee
attitudes will point out the training needs in areas of quality and consciousness.
Exit polls are another source of information about training needs.
3) You should know when not to train. Training is not always a solution for
low work eciency. Sometimes it is better to redesign the work process. Sometimes,
a better communication between employees and bosses is necessary and sometimes
motivation is the problem.
4) Tailor the training according to the needs of the organization. A wide
range of instant training packages is at your disposal. But in most cases a program
that is tailored according to your needs is much more ecient. This is the reason
for many organizations to make their own training programs rather than buying
programs from outside companies. External training sources view your relationship
as a partnership.
5) Use in the nick of time training. This form of training implies sessions
in short intervals as close as possible to the time when the trained skill will be
needed in practice. This step will greatly improve the eciency of the training.
For instance, instead of training all employees simultaneously in problem solving
techniques train every quality improvement team individually just before they need
to start applying those techniques in practice. The skills they have acquired will be
used immediately thus strengthening them.
Kelly, op. cit., page 124
635
6) Use employees to conduct training. One organization has brought employees from a department that has already implemented TQM into another that has
just started implementation. The more experienced employees have conducted the
whole quality training program. This was not just cost ecient, but the employee/
instructor credibility was higher than third party credibility.
7) Teaching comes after training. One company sends the person responsible
for conducting problem solving training to work with quality improving teams in
the eld.
6. EXAMPLE OF THE ZERO MISTAKES CONCEPT AS A SIGNIFICANT GUIDELINE
IN THE CULTURE OF ORGANIZATION
Working without making mistakes is one of the key rules of quality. But at the
same time it is reasonable to speak about a concept which has a constant aspiration
to achieve situations without mistakes as its basis. On the other hand, a constantly
present zero mistake concept is inconceivable. A situation where an organization
or its employees will never make a mistake, no product will have aws and every
activity will be free of error. Therefore, it seems acceptable to talk about a constant
aspiration of all employees in a certain organization to use their knowledge, skills
and capabilities the best they can in any given moment and in every activity in
order to produce goods or oer services without aws. But if mistakes occur they
will be removed or the negative eects will be mitigated in the fastest and the most
acceptable way for the user.
Some of the most common misconceptions about the zero mistakes concept
are: 9
No one in the organization can ever make a mistake
All processes and activities in certain organization are dened by humans and it
is a commonly accepted assumption that all humans make mistakes because making mistakes is human. Some people make mistakes more often than others but
no one certainly works without making mistakes. One should take care that the
number of mistakes in an organization is reduced to a minimum, that mistakes are
not repeated and that their number is reduced over time.
Crosby, P., Kvaliteta je besplatna umijee osiguranja kvalitete, Privredni vjesnik, Zagreb, 1996.,
page 56.
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Jelena Legevi
It is not necessary to correct small mistakes

First of all, the signicance of the consequences that such a small mistake has
created should be determined and assessed concerning the expenses of removing
the source of this mistake. Certain consequences from even the smallest mistakes
are impossible to measure precisely and one should be careful when determining
what is a big and what a small mistake.
Losses created by mistakes should be calculated
All losses cannot be precisely calculated the same way losses that will appear in
the future cannot be calculated.
It is enough to spot the mistakes in order to react appropriately
Mistakes in organizations are very rarely systematically monitored in individual
sectors, departments and employees. It is necessary to construct a system which will
determine the cause of certain mistakes in order to prevent them in the future or
reduce them to a minimum.
Quality is the responsibility of the quality department thus all mistakes are the
mistakes of that department
In every organizational structure there should be a department responsible for
quality. The person who is in charge of the activity where a mistake occurs is responsible for it. Employees of the quality department are responsible within the
boundaries of their obligations.
No mistakes occur in certied organizations
Mistakes happen even in organizations with a well managed and certied quality system. The misconception that errors are not possible in systems with the ISO
certicate should not be accepted.
8. CONCLUSION
A management that invests in building and raising the culture of organization

to a higher level shows consideration for their own business result. An organization
does not wait for business results, it controls them. In that context the concept
of the culture of organization enables long-term business success. The culture of
quality is compatible with the culture of organization with respect to all its goals.
In order to achieve the best business results the culture of organization concept has
637
to be accepted on the individual level as well as the level of the whole organization
because this is the only way to ensure a better image and a stronger competitive and
comparative organizational position in the global market.
BIBLIOGRAPHY
Arcaro, S.,J., Quality in Education, An Implementation Handbook, Florida,

1995.
Crosby, P., Kvaliteta je besplatna umijee osiguranja kvalitete, Privredni vjesnik,
Zagreb, 1996.
Drljaa, M., Kultura kvalitete i organizacije, 6. Hrvatska konferencija o kvaliteti,
Opatija 18-20.05.2005.
Gryna, F.M., Quality Planning and Analysis, McGraw Hill, New York, 2001.
Kelly, John M., Upravljanje ukupnom kvalitetom, Potecon, 1997.
Lazibat, T., Upravljanje kvalitetom, Znanstvena knjiga, Zagreb 2009.
Planti, D., Koncepcija Zerodefects kao vaan imbenik organizacijske kulture,
6. Hrvatska konferencija o kvaliteti, Opatija 18-20.05.2005.
Skoko, H., Upravljanje kvalitetom, Sinergija, Zagreb 2000.
www.kvaliteta.inet.hr/e-quality/prethodni/19/Drljaca_M_rad.pdf (01.08.2010.)
638
Antun undali
EDUCATION, MANAGEMENT AND MERITOCRACY

Prof. dr. sc. Antun undali
Summary
Among other things that modern democratic societies wish to exhibit is also
the fact that they are meritocratic. In such societies, a social standing that brings
prestige, power and material gains has to be earned by ones own eorts, education
and capabilities, which should be a sucient motive for those taking an education
and planning a career. To what extent is this motive present in Croatian society
is a central issue of this paper, as well as the question whether the countrys youth
can recognize it in everyday life. University students were questioned about their
attitudes, and their answers indicate whether they see a connection between education and social development, and what they expect in the future after graduation.
Do the university students recognize themselves as future managers or as employees
without any responsibilities? The paper will present a part of research conducted in
January 2011 at Osijek University with students closer to graduation.
JEL classication: I20, I25, I31
Key words: education, management, meritocracy, knowledge
1. APPROACH
Two decades of transition have caused signicant changes in Croatian society,

not only in terms of democratization of power and economy being redirected towards market-based principles, but also regarding cultural values. The values of
collectivism and egalitarianism have been substituted by individualism and prestige, capabilities and knowledge, career and acquisition of wealth. The attitude
towards work and ownership has changed as well. Adequate pay is expected and
demanded for work, and adequate prot is claimed on the basis of ownership, depending on how it is used. In this panoply of altered social values education holds
a special place. Nowadays education is an important lever of social mobility and
639
social stratication. Most of all, this is a crucial feature of meritocratic societies in

which social position, prominence and power arising from it, are primarily derived
from the attained level of education and competencies and abilities developed. This
is emphasized by R. Dahrendorf when he points out that one of the functions of
education is to deploy individuals to certain posts in society that will bring them
status and power (Dahrendorf, 1967).
As it underwent the transition, Croatian society has had to accept the developmental and progressive role and signicance of education. This has been particularly emphasized in the eorts to bring Croatian education system in line with the
European system. Political concepts of social development have inaugurated the
syntagm knowledge society, implicating that the only possible orientation for
the future of Croatian society is education and knowledge-based economy, which
ought to conrm our European orientation1. This general postulate, however, is at
odds with the reality of social changes in Croatia. In the system of social values,
education is still not the only path to successful career, and consequently to social
power and status. Some other values continue to be desirable as an easier, faster,
and more dependable way to achieve success. Instead of meritocratic principles,
in our environment there are frequently the inherited (and sustained!) patterns of
nepotism, political credentials and amoral familism2. Among other things, such
patterns have contributed to the weakening of social capital (trust and solidarity),
which is frequently referred to as the crisis of public morality.
All this is conrmed by the results of some previously conducted studies. A study
carried out in 2004 among Osijek University students revealed that two groups of
values are in short supply at the time of economic and cultural transition in Croatia: 1) intellectual and human values, and 2) ethical values (Table 1). As can be seen
in Table 1, everything is lacking, but the situation is most critical when it comes to
trust and integrity. Capable managers and politicians did not fare any better. Thus,
it can be concluded that students had recognized a serious crisis of social capital in
Croatian society.
1
The 1997 European Commissions communication Towards a Europe of Knowledge outlined the
transition towards knowledge society for the European Union, which would be conrmed primarily
in a knowledge-based economy. (Krbec, 2008:115)
The theory of amoral familism of the American sociologist Edward Baneld (1958) has gained
in importance in modern discussions on the scope of development of civil society. In the society
of amoral familism the main principle is to maximize material values and to achieve short-term
advantages for ones nuclear family assuming that everybody else will do the same. Baneld calls
everyone who adheres to this principle an amoral familist. (Beovan, 2005:43)
640
Antun undali
Table 1. Presence of dierent values in Croatian society

intellectual and human values
educated professionals
capable managers
capable politicians
high-quality labour in dierent elds
Suciently present (%)

10,8
2,9
2,1
23,2
Lacking (%)
66,8
72,7
92,5
38,0
ethical values
trust in people
trust in institutions
trust in laws
integrity
social justice

5,4
2,1
2,0
2,5
3,3
Lacking (%)
74,9
86,9
85,0
77,4
72,5
material values
raw materials
energy resources
production technology
communication technology

39,4
25,3
10,4
30,3
Lacking (%)
21,8
27,0
57,8
36,7
Source: undali, 2004:69-70.
The crisis of social capital was noted also by entrepreneurs, owners and coowners of small and medium companies. A study conducted in 2001 among 131
business owners in Slavonia and Baranya revealed the following: As many as 114
respondents (87 %) accepted the thesis that diculties in the economy were caused
by plundering and fraud during privatization. This claim was ranked rst with the
average grade 2.85 (out of maximum 3). Entrepreneurs were not enthusiastic about
the thesis that diculties were caused by business owners incompetence (38.2 %
agreed with the thesis, whereas 35.9 % disagreed, Claim 4). The smallest proportion of respondents was inclined to blame the West (only 18.3 % thought that the
passivity of the West was to blame for economic diculties, Claim 2). Only one
third (34.4 %, Claim 1) felt that remnants of socialism had an impact on poor
performance of Croatian economy. (undali, 2004:111)
Given that the crises of trust, morality, value of work, etc. have been recognized,
there arises the obligation to change the recognized issues, especially for those who
are the key actors in economic life employers and employees, as well as for the
political elite, who have assumed responsibility for compliance with relevant legislation in economic life. Business owners are expected to enhance their companies
competitiveness, which requires intellectual capital comprised of human capital
(minds, skills, insights and potentials of the people in the company) and structural
641
capital (clients, processes, databases, brands and information technology systems).

This is a prerequisite for the development of knowledge economy (Edvinsson,
2003:35-48). Thus, employee education or training becomes the starting point
for changing the economic system. This, however, does not imply that everyone
should have university education. A variety of skills and competencies are required
for dierent jobs, and individual employees should have diverse qualities. A good
example for this point was revealed in the research of manager perceptions of employee competitiveness. The authors Poloki and Frajli oered twenty competencies, skills and abilities that managers were asked to assess as regards their necessity
for every level of employee qualication. For low-skilled workers the most important
characteristics were assessed to be honesty (ethics) and loyalty to the organization,
for employees with secondary education apart from ethics and loyalty some other
features received about half a point more, such as literacy, team work, analytic
thinking, exibility, and others. With university-educated employees all the skills and
competencies were given high scores as being necessary: next to literacy and reading
skills, it is important to have professional knowledge, computer and presentation
skills, problem solving skills, etc. (Poloki, Frajli, 2004:19-21) In this sense we can
also understand Druckers view of knowledge workers as those employees that
employers should treat as main productivity factors, i.e. dierently than in traditional production setup (e.g. Taylorism), which sought productivity in the system
itself. For employees to become knowledge workers and factors of productivity, the
employer should ask them three questions: 1. What are your advantages and what
should you, in you opinion, be engaged in? 2. What can this company expect from
you, and in what timeframe? 3. What information do you need to do your job, and
what information are you obliged to provide? In this way, every knowledge-based
organization has changed its attitude to the knowledge worker for him to be productive, the system has to serve him, whereas in traditional organization it was the
other way round, the worker served the system. (Drucker, 2007:31, 94-95) Here we
speak of scientic management whose main feature is reliance on scientic research,
decision making based on science, objectivity and rationality (Auster, 1996:209-210).
Through modern technology production has been scientied, and as such requires
adequate representation of employees involved in the production cycle.3
P. Drucker wrote about the emerging post-business society that will be signicantly determined
not only by information and management, but also by knowledge worker and education as a driving
force of social development (Drucker, 1992:217).
642
Antun undali
2. HYPOTHETICAL RESEARCH FRAMEWORK
In everyday life, it is common practice that people frequently do not adhere

to the things they know to be true, honest and proper. Thus, knowledge society orientation very often leaves out the main actor of the whole process, i.e. the
knowledge worker. Sometimes one gets the impression that the education system,
which should be the backbone of knowledge society concept, is not designed in
a way to create knowledge workers, or else that its products are not treated as a
key resource of the knowledge society. The question whether this should be seen
as individual deviations or a deviation of the system4 will be answered by employers and company owners in one way, and in the other by employees. Similarly, the
answers given by top managers and executive managers will be dierent, as well as
those given by highly educated employees in contrast to low-skilled workers.
Because of limited space, this comprehensive topic will be restricted here to a
single hypothesis which refers to the perception of knowledge worker by those who
will become knowledge workers, i.e. current students: In Croatian business environment young professionals are still treated as being insuciently prepared through their
studies for positions of responsibility. Instead, they must be trained outside the educational system by older, experienced bosses for managerial practice. Hence, the acquired
knowledge is underestimated in terms of its importance and usefulness in practice, and
this is a widely accepted view in Croatian society.
In Croatian day-to-day business practice one can often witness young professionals getting the tasks such as delivery, making coee, and even cleaning of premises, since initially they cannot be trusted with anything else. This indirectly demonstrates the level of condence (or lack thereof ) in the education system and the
diplomas that young people have as proof of the expert knowledge they acquired.
Such knowledge is often characterized as fruitless theory, whereas real training is
received inside a company, at work with old hands. These old hands are mostly less
educated than young people, and here we have the rst clash between expertise
through education and expertise through experience (adherence to the outmoded catchphrase its up to you to nd the means brings forward the importance of
4
S. Lelas points out that two major prerequisites for adequate valuation of science and education are
still lacking in Croatian society: rst, market competition is yet to take hold, especially in the area
of diversity of applied knowledge either in technology, management, or nance; second, instead of
validating knowledge and education appropriately, in Croatia there is still talk of literacy and achieving
full literacy of the population. (Lelas, 1998)
643
connections, old favours that can be called in, and the like as the only dependable
way to be successful in running a company). The latter expertise is usually (being)
favoured, as it has already proven itself . The research described below will show
how students see these issues, as they are the ones who will experience the destiny
of young professionals in organizations or companies in the near future5.
3. STUDENT OPINIONS ON THE ISSUES
Our research was conducted in January 2011 with senior students (rst year
of graduate studies) of Josip Juraj Strossmayer University in Osijek. A group survey was taken with the students who happened to be there on a particular day, so
the sample was occasional. The questionnaire comprised 24 questions of dierent
formats. In this paper we shall use only a portion of the obtained data. In taking
the survey every eort was made to represent proportionally social sciences on one
hand, and natural, technical and biomedical sciences on the other. In the end, the
sample consisted of 361 students, 131 male (36.3%) and 230 female (63.7%). Social sciences (Faculty of Economics and Faculty of Law) accounted for 230 respondents (63.7%) and others (Faculty of Medicine, Faculty of Electrical Engineering,
Faculty of Civil Engineering, Department of Mathematics) for 131 respondents
(36.3%). In terms of place of residence, 48.3% live in villages and 51.7% in the
town.
Attitude to studies
When questioned about their course of study, most respondents replied that it
was their own choice (298 or 82.5%). A small proportion (10 respondents or 2.8%)
enrolled at the urging of parents, and 29 (8 %) are studying only because they need
or want some kind of a degree. There are also students who are not certain why they
chose to study at all (24 or 6.6%). The attitude to their studies is demonstrated also
in the achieved and desired performance. Thus 17 respondents (4.7%) want to be
the best student of their generation, but more of them want to belong to the top 10
percent (83 or 23%). The biggest number of respondents wishes to belong to the
average group (208 or 57.6%).
Student aspirations frequently depend on structural reasons, i.e. economic and political circumstances that can be stimulating, but also of the kind that impede their realization. This topic was
extensively researched by Iliin Potonik, 2008.
644
Antun undali
Education and practice
The question referring to the relationship between studies and employment in

the chosen profession (career) after graduation received the answers as shown in
Table 2. No less than 2/3 of respondents accepted the rst claim, which seriously
questions the usefulness of studies for later professional work. The origins of such
an opinion can be traced back to the answers in Table 3. Most respondents see the
discrepancy between knowledge acquired at university and the requirements of
professional practice as the key reason for the problems that young professionals
encounter in their rst job (150 or 42.1%)6. Only 15.4% of respondents believe
that the problems arise because of inadequate posts where young professionals cannot demonstrate their abilities and prove themselves. Even fewer accept the thesis
that older superiors with less education prevent the advancement of young professionals (only 13.2%). Some other reasons for problems of young professionals in
their rst job were opted for by 15.2% of respondents, whereas 14% do not know
about the real or potential reasons.
Table 2. Relationship between studies and employment in the chosen profession

Claims
1. It is common knowledge that what we learn during our studies is not very useful in the future job.
2. Good students are very well prepared for employment after graduation.
3. I am not sure; it all depends on the person, job, and environment.
Total
F
239
59
61
359
%
66,2
16,3
16,9
100
F
150
55
47
54
50
356
%
42,1
15,4
13,2
15,2
14,0
100
Table 3. Reasons for discrepancy between studies and professional practice

Claims
1. Knowledge acquired at university is not useful in professional practice.
2. Young professionals are employed in positions where they cannot demonstrate their knowledge.
3. Superiors with less education prevent the advancement of young professionals.
4. Something else
5. I dont know
Total
Higher education, future employment and career are all integral parts of a whole
that current students view as follows from their perspective (Table 4): possibility for
professional development is the most important aspect for the majority (45.5%),
followed by job security (31.1%). These two items are much more important to
6
This could be termed functional illiteracy, since education has not provided students with sufcient skills and competencies required in practice. (Bejakovi, 2008:220)
645
our respondents than applying the acquired knowledge, appreciation among coworkers or high salary.
Table 4. Education, employment and career

Question: What is the most important aspect in your future employment?
1. Applying the knowledge I acquired during my studies
2. Appreciation and good reputation among co-workers
3. Possibility for professional development
4. High salary
5. Job security
6. Something else
Total
F
26
18
161
33
110
6
354
%
7,3
5,1
45,5
9,3
31,1
1,7
100
It is indicative that in Tables 2, 3 and 4 students themselves do not see the importance of the acquired knowledge for their future profession. This can be caused
by various inuences, from opinions of their elders who are not involved in education process, to everyday life in their environment, which does not put too much
value on education. Nevertheless, subjective inuences should not be excluded i.e.
the attitude to studies and individual performance as a framework in which somebody views the usability of the acquired knowledge in future work life. Table 5.
shows the results of crossing the variables of attitude to studies and importance
of education in future career.
Applying the knowledge I

acquired
Appreciation and good reputation among co-workers
Possibility for professional

development
High salary
Job security
Total
Table 5. Attitude to studies and importance of education in future career
I want to be top of the class
1
4,0%
0
0,0%
13
8,2%
0
0,0%
0
0,0%
14
4,1%
I want to be among top 10 percent of students
6
24,0%
3
17,6%
49
30,8%
7
21,9%
14
12,8%
79
23,1%
I am satised with average grades
16
64,0%
11
64,7%
88
55,3%
17
53,1%
72
66,1%
204
59,6%
646
My only concern is to pass the exams

Total
Antun undali
2
8,0%
3
17,6%
9
5,7%
8
25,0%
23
21,1%
45
13,2%
25
100,0%
17
100,0%
159
100,0%
32
100,0%
109
100,0%
342
100,0%
2 = 40.07, P < 0.05, Cramers V = 0.20
The connection between these two variables is statistically signicant, but relatively low (Cramers V is 0.20). In other words, most respondents are satised with
average grades during their studies regardless of the element they chose as the most
important in future career. Still, it is noticeable that students who expect to apply
the acquired knowledge in future jobs and to get the opportunity for further professional development are usually more ambitious in terms of academic performance.
On the other hand, students who chose high salary, job security, and appreciation
and good reputation among co-workers as important elements in future career are
usually slightly less driven in terms of academic success.
Students perception of reality and of their own future was indicated by answers
to the question where they would prefer to nd employment after they graduate
(Table 6). Here it could be stated here that the inuence of socio-cultural heritage
is very much present. Most respondents would prefer the security of civil-service
employment (54.3%), and the least would like to work in a privately-owned Croatian company (5%). Perhaps this is one of the reasons why importance of education
does not rank rst when respondents contemplate future employment.
Table 6. Desired employment

I would prefer to nd employment
1. In public administration (county, municipality) or in a state-owned company
2. In a private Croatian company
3. In Croatian subsidiary of a foreign company
4. I would establish my own business
5. I am not sure
Total
F
194
18
82
37
26
357
%
54,3
5,0
23,0
10,4
7,3
100
If we correlate the place of work (desired employment) and importance of education in future profession, we notice that more that half would opt for employment in public administration or state-owned companies (58.2%). Similarly to the
previous case, crossing of these two variables shows that the connection between
them is statistically signicant, but relatively low (Cramers V is 0.21). The majority of respondents would like to nd employment in public administration or a
647
state-owned company in which they would get opportunities for professional development, but also job security. Still, it is noticeable that respondents who chose
appreciation and good reputation among co-workers, possibility for professional
development and high salary as most important elements in future career more frequently wish to work in a foreign company or to establish their own business. Applying the knowledge acquired during studies is mostly highlighted by the respondents who wish to nd employment in public administration or in a state-owned
(county or municipal) company. It should be noted, though, that this conclusion is
not quite reliable due to the relatively low number of cases in individual categories
(Table 7).
Total
Total
Job security
I would establish my own business
High salary
Croatian subsidiary of a foreign

company
Possibility for professional development
Private Croatian company
Appreciation and
good reputation
among co-workers
Public administration or a stateowned company
Applying the knowledge I acquired
Table 7. Desired employer and importance of education in future career
18
75,0%
0
0,0%
4
16,7%
2
8,3%
24
100,0%
5
31,2%
1
6,2%
5
31,2%
5
31,2%
16
100,0%
72
46,8%
14
9,1%
49
31,8%
19
12,3%
154
100,0%
15
48,4%
1
3,2%
10
32,3%
5
16,1%
31
100,0%
79
79,0%
2
2,0%
13
13,0%
6
6,0%
100
100,0%
189
58,2%
18
5,5%
81
24,9%
37
11,4%
325
100,0%
2 = 41.25, P < 0.05, Cramers V = 0.21
Regardless of where they wish to nd employment, for the most part respondents do not wish to abandon their profession. This was claimed by as many as 260 respondents (72%). Only three respondents see themselves in politics. Nevertheless,
there are 98 (27.1%) of those who would weigh up the options and protability,
or who are not yet certain about this, so the number of politicians might change
over time (Table 8).
648
Antun undali
Table 8. Employment in the chosen profession or politics

After graduation, would you prefer a career in your chosen profession or in politics?
1. In my chosen profession only
2. I would assess what is more protable (in terms of money and speed of advancement)
3. In politics only, as my future profession is not very appealing to me
4. I havent thought about it yet
Total
f
260
77
3
21
361
%
72,0
21,3
0,8
5,8
100
Perceptions of life
The perception of life in Croatian society among young people is not unrealistic.
It was shaped by socio-cultural heritage, whether we speak of attitudes towards work
and career, or towards education. Table 9. lists twelve claims that were assessed by
students with grades from 1 (strong disagreement) to 5 (strong agreement). These
claims represent certain social values, which are more or less acceptable to our respondents. Their answers provide a framework for the mosaic of values in which
young people are trying to nd themselves and their future.
The rst ve claims negate the importance of education for Croatian everyday
life. Their acceptance is high (grades 4 and 5), especially of claims 1 (79.8%) and
3 (78.6%). With claims 2, 4 and 5 there is a high degree of non-commitment. In
claim 5 it is indicative that future professionals have put experience before education as crucial for a successful manager in their elds (47.3% agreed with this
claim, whereas 41.8% were undecided).
The remaining 7 claims present education armatively. What is striking is high
disagreement with the claim 8 (71.5%), indicating that young people have a clear
understanding of social values in Croatian society, which is in line with claims 1
and 3. Still, there is high acceptance of claims 10, 11 and 12, whereby students
choose the option that educated professionals with expertise deserve leading positions, high income and high social status and recognition (67.1%, 80.6% and
80.6% of acceptance respectively). Such wishes of future professionals have yet to
be conrmed in reality, judging by the low acceptance of claim 9 (22.6%), which
indicates that in real life the true value of a diploma and education is still underappreciated. Also, students are doubtful whether the general public recognizes knowledge and expertise as the key factors for ending the crisis (claim 7).
649
Table 9. Perceptions of life in Croatian society

Agree
Strongly
agree
Total
Neither
agree nor
disagree
3
0,8
1,4
18,0
57,6
22,2
100
1,7
17,5
45,4
31,3
4,2
100
1,7
19,7
37,8
40,8
100
1,7
18,6
38,2
30,7
10,8
100
5. For a good manager experience is more important than

education.
0,8
10,0
41,8
34,6
12,7
100
6. There is a growing consensus that education is the only

way to personal success.
7. There are views in the general public that knowledge
and expertise are key factors for development of society
and ending the crisis.
8. For social status in our country diploma is more important than wealth.
9. Overall social climate has a positive impact on the
signicance of education and university diploma for
career success.
10. Only highly educated professionals should be appointed to leading positions in their professional area.
2,5
20,3
39,0
32,9
5,3
100
1,4
16,9
29,1
41,0
11,6
100
20,5
51,0
21,9
5,5
1,1
100
5,0
33,0
39,4
20,1
2,5
100
1,7
8,9
22,3
42,2
24,9
100
0,6
2,8
16,1
54,8
25,8
100
1,7
1,9
15,8
55,7
24,9
100
Strongly
disagree
Disagree
1
1. In Croatian society, the ruling maxim is still its up to
you to nd the means.
2. The majority of Croatian citizens do not see education
as a path to a career.
3. In our country it is more important for a career to have
an inuential friend or relative (connections) than a
university diploma.
4. Educated people with no political support cannot
attain important positions.
Claims
11. Highly educated professionals in leading positions

and positions of responsibility deserve high income.
12. Highly educated professionals in leading positions
and positions of responsibility deserve high social
status and recognition.
4. Concluding theses
The starting hypothesis of this paper has been conrmed by the used part of the
research results. The surveyed sample, male and female senior students of Osijek
University, determined the quality and weight of hypothesis testing. The aim was to
explore how future professionals, currently students, view their future in the framework of existing socio-cultural heritage. This heritage is far from encouraging for
young people, which is conrmed by their perceptions of life in their environment
that still lives by the rule its up to you to nd the means, the rule of inuential
650
Antun undali
relatives or friends instead of meritocratic rule of knowledge, ability and achievement. There is hope, though: our respondents believe that educated experts should
be appointed to positions of responsibility, receive high salaries and attain high
social status (Table 9).
What is worrisome is the recognized discrepancy between education and knowledge required in professional practice (Tables 2, 3 and 4). This can be the inuence of prevalent popular opinion, but also subjective assessment of students after
several years of study. Even so, Table 5 has shown that more ambitious students
consider education and acquired knowledge to be quite important. The current
crisis probably induced most respondents to prefer employment in a state-owned
company or public administration, as this would oer more job security and possibility of advancement (Table 7). All these circumstances have not diminished the
value of the chosen profession: most respondents wish to work in their profession
upon graduation. This can be recognized as a suggestive step towards condence
in the profession they were educated for, but also as a step towards deconstructing
the models of anti-intellectualism and incompetence which are so abundant in our
social reality.
Bibliography
Auster, Carol, J. (1996). The Sociology of Work, Thousand Oaks, California, Pine
forge Press.
Bejakovi, Predrag (2008). Uloga obrazovnog sustava u postizanju zapoljivosti
i konkurentnost radne snage u Hrvatskoj, u knjizi: . Pili (ur.): Obrazovanje u
kontekstu tranzicije, Split, str. 207-232.
Beovan, Gojko (2005). Civilno drutvo, Zagreb, Nakladni zavod Globus.
Dahrendorf, Ralf (1967). Class and Class Conict in Industrial Society, Stanford, Stanford University Press.
Drucker, Peter (1992). Nova zbilja, Zagreb, Novi liber.
Drucker, Peter (2007). Upravljanje u buduem drutvu, Zagreb, M.E.P.
Consult.
Edvinsson, Leif (2003). Korporacijska longituda navigacija ekonomijom znanja, Zagreb, DIFFERO d.o.o.
651
Iliin, V., Potonik, D. (2008). Profesionalne i ivotne aspiracije studenata Zagrebakog sveuilita, Sociologija i prostor, Vol. 46, No. 3-4, str. 285-309.
Krbec, Denisa (2008). Re-formiranje obrazovne politike u Hrvatskoj prema
Europi znanja, u knjizi: . Pili (ur.): Obrazovanje u kontekstu tranzicije, Split,
str. 115-125.
Lelas, Sran (1998). Obrazovanje i drutveno vrednovanje znanja, u zborniku:
D. Polek (ur.): Vidljiva i nevidljiva akademija, Zagreb, Institut I. Pilar, str. 163174.
Poloki, Nina Frajli, Dubravka (2004). Pokazatelji konkurentnosti hrvatske
radne snage rezultati empirijskog istraivanja; www.ijf.hr/konkurentnost/poloski-frajlic1.pdf (18.2.2011.).
undali, Antun (2004). Hrvatsko drutvo i integracijski procesi, Osijek, Matica
hrvatska.
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Mira Majstorovi
GUARANTEE OF EDUCATION FOR EVERYBODY

Mira Majstorovi, dipl.oec.
Marija Toki1
1
University of Applied Sciences, Slavonski Brod
Summary
The purpose of this paper is to show that education is an initial step in the
development of a person. It is an investment which produces quality, eciency,
competitiveness and status of an individual. The paper also underlines the problem
of accessibility of education for all people under the same conditions. The policy
of each country should be striving for knowledge as a key to its development, not
only in words, but in actions as well. It should become an imperative which can
be achieved without humiliation and discrimination. Education is an economic
need and a long-lasting priority capital investment in the development of human
resources and national development. Education should be accessible to everybody
under the same conditions, however education on a massive scale, open school
doors and democracy do not mean equality, which is proved by the fact that on a
global level, one child out of six primary school children does not go to school.
The paper ends with examples of accessibility of education, constructive criticism as well as the constructive proposal for narrowing the gap between the developed and the undeveloped which open up a new way for the achievement of the
nal goal. To narrow the gap is still a challenge for the global community.
JEL classication: I28
Key words: education, equality, capital investment, priority, economic stability
1. Education today
Education is one of the key pillars of every society and a main component of
economic growth and development. Knowledge, ideas, and new technology infrastructure, as well as their fast transfer from the developed to the less developed
centres a poor level of development and a uniform distribution, represent a precondition for development of global society.
653
Thanks to education standard of living has grown in the last two millennia. As
the income of an individual depends on the level of his or her education, an educated individual can earn more than uneducated one. The same principle can be
applied to the countries. Investing in humans is the same as investing in x funds.1
with
If we consider education from a point of view of an individual, we can say
that education is an investment of money and time to improve knowledge, skills
and competences of an individual. The individual will thus participate stronger in
the society and develop skills to improve a level of his or her personal and social
satisfaction.
Finally we can nd an employment prospective and competitiveness in the labour force market. Many studies have shown positive investment results for an
individual. These results are either quantitative achievements or the cognitive ones.
(OECD 2006.) The data in this graph conrms ratio among education levels in the
OECD countries. The return rates in all OECD countries are higher than 8% in
respect to the investment.
From a point of view of macroeconomics and when considering the country
as a whole, GDP is used as a standard measure of economic growth in most cases.
In his study from 2002, Barro has shown that additional education of men over
25 years of age has a positive and important role in the future economic growth
rate. The average number of years spent in an education institution for a group of
hundred countries in the world has been considered for a time period from 1960
to 1995. Experts have a controversial opinion about the above research and some
other empirical ndings, which gives an unclear picture of the interrelated factors.
The number increases GDP by 0,44% annually for every education year.
Education is not only teach me how to read, write and calculate. Modern education is based on methodology teach me how to study in a programme of life-long
education. This way a person can improve acquired knowledge developing his or
her own potential to perfection. A human person is entitled to strive for knowledge
which gives him or her control over ones life, development of personality, selfprotection and protection of his or her family. Knowledge enables participation in
social, political and economical life. Knowledge should be accessible to everybody
1
Stevens P.&Weale M.(2003) Edukation and Economic Growth, National Institute of Economic and
Social research available et www.niesr.ac.uk/pubs/dps/Dp221.pdf (18-2-2011)
654
Mira Majstorovi
under the same conditions which is stated in The General Declaration of Human
Rights in article number 26(2): Nurture and education should be directed towards the full development of human being and should strengthen human rights
and fundamental freedom (Puljiz et al, 2010:91)
Globalization has a dual impact on education. On the one hand education has
become one of the fastest growing things considering development speed and investment funds. On the other hand almost one billion people have entered the
21st century without being able to read a book or to sign a document.2 Instead of
narrowing the gap between developed and undeveloped countries, the fast-growing
globalization widens it.
2. Education for everyone
Education for everyone has been a common goal of international organizations

for the last two decades. Its activities are primarily aimed towards reduction and
long-term elimination of illiteracy. Companies that participate in the program
implementation are UNICEF, UNESCO, The World Bank, OECD, various international non-governmental organizations, private corporations, etc. The global
plan of actions has a wide range, it incorporates promoting international peace and
security, availability of knowledge, cultural widespread, determining educational
standards, stimulating innovations and so on.
Education are becoming even more systematical subject of research in modern,
fast changing world. Some global tasks are characterized by a need of thorough
changes in approach to education in society of knowledge. By acquainting ourselves and changing the presence, we create the foundations of prfedicting future.
Granted, it is an unusually complex process that requires dierent stages, but also
it also has a price, requires monopolizing the approach, and encounters contradictions as a result of democratic right of personal opinion.
We are witnesses to many crises, as well as traumas caused by a system disturbances, moral alienations, general lack of empathy that brought certain results to be
less than expected, and even educational disrepair. The report titled The Hidden
Crisis: Armed Conict and Education brought by UNESCO, estimates that, of
67 million children of school age, 42 percent or 28 million of them live in under2
Source of data: http://www.etc-graz.at/typo3/leadmin/user_upload/ETC Hauptseite/manual/versionen/croatian/ pog09.pdf (22-2-2011)
655
developed countries where armed conicts are present The two opposing sides
deliberately attack schools; sexual violence and raping are a part of military tactics,
and a fear of sexual molestation is preventing children from going to schools, most
of them female children. One third of victims of sexual molestation in Democratic
Republic of Congo are children, and 13 percent is aged less than 10. However, the
number of unreported rapes at the east of country is perhaps 10 do 20 times bigger. 3
Educational politics of UNESCO is to enable the individuals to develop their
own abilities, to live and work with dignity, and participate in the advance of society. The foundations for the plan are four main points: to learn to know, to learn
to act, to learn to exist, and to learn to live together. The rst one started to promote the idea of learning through the entire life. During the history, the priorities,
guideline ideas, and the participants of educational policies on a global level have
changed. In the recent times, UNESCO has decided to thematically commemorate every decade in which certain goals would be promoted: a decade of literacy
(2003.2012.), a decade of education for sustainable development (2005.2014.),
2015. year to nalize the goal achievements of World educational forum Education
for Everyone
The key aimed groups are underdeveloped, marginalized and excluded countries. UNESCO should be a bridge to connect them with more developed and
wealthier countries.
UNESCO has accepted a plan of actions on the World forum for education
in Dakar along with 164 countries and partner institutions in 2000, following
these common goals: 1.Increase of care for children in early childhood, and their
education
2. Ensuring free and mandatory elementary education of high quality by the
year
2015., 3.Promoting learning and skills acquiring for both young and adlults,
4.50 percent increase of literacy of adults by the year 2015., 5.Gender equality in
education, 6.Increase of education quality on all levels (Puljiz et al,2010:24)
However, according to the latest reports explained in The Hidden Crisis:
Armed Conict and Education estimates that although the general progress, the
3
Source of data: http://www.iusinfo.hr/DailyContent/News.aspx?id=9204 (2-3-2011)
656
Mira Majstorovi
world will not be able to fulll these educational goals. Approximately 17 percent
of world adult population is still illiterate, two thirds of which are female. In Africa
10 million children gives up elementary education each year. On a global scale, one
of every six children does not attend school.
Table 1. Estimated number of children attending schools in period 1999. -2004.

(numbers portrayed in thousands)
Source: Miller, R. (2007) Education and economic growth: From the 19th to the 21st century,p.3
By the year 2004, almost 77 million children in the world of elementary school
age has not been enrolled to any schools. There is still a long way ahead for the intentions of United Nations to achieve a goal of education for everyone.(UNESCO,
2007:28)
The pressure of accelerated globalization in attempts to unite time and space in
a network as a whole have in fact caught some countries in a trap of globalization
that, instead of uniting, it actually seems to bring apart even more. Inequality is still
emphasized; the utopian visions of united human community to some are blessing,
but also are a curse for others.
The problems of developed countries concerning education have gone a long
way and are practically incomparable to those of less developed ones. In developed
countries we nd a great accent on eciency, excellence, quality and innovation
in conditions when economic development lies on knowledge as a key to further
development. In developed countries, the rate of children attending elementary
school is near one hundred percent, absolutely equal concerning both male and
female children. The number of people completing their high school education is
growing. But even in these circumstances we nd a problem - even in most developed countries such as the Republic of Ireland, United Kingdom or USA, around
15 percent of adults is still illiterate.
In countries that are still in development, more than 90 percent of children
starts attending elementary schools, which is a number that must not be disregarded. However, the problem lies in leaving schools and dropping years. The inefciency comes from the lacking nancial investment in schools, the education of
the teachers themselves, teaching materials, transportation problems and so on.
657
The underdeveloped countries have some basic issues such as material and nonmaterial infrastructural problems. Poverty in many countries forces families to exploit child labour to ensure additional incomes. Girls are forced to perform exhausting household chores, traditional customs and education expects from them to step
in early motherhood which decreases or even negates the chances of any form of
proper education. Realization of general elementary school education in period of
ten years in all countries in development would cost approximately 7 8 billion of
US dollars per year, which is an approximate equal value of weekly investment in
global-scale military purposes; weekly value of nancial speculations on worldwide
market, less than half of the money that parents in North America spend yearly on
toys bought for their own children.4 International warfare is an additionally disrupts and burdens the normal way of life, and prevent regular education in schools,
which alone are often a target for military attacks. Although Edward Everett had
a good point in saying: Education is a better safeguard of liberty than a standing
army, one of the great obstacles in the process is frequent natural disasters, the
eects of HIV infections (i.e. AIDS) that in this moment represent a great crisis of
global scale, and a big challenge for growth and development.
3. Education in Croatia
After becoming a candidate country to the European Union and starting the
Accession Negotiations, Croatia has adopted strategic goals as a basis for its future.
This means that the life-long education process will become a priority and an ambition for the Croatian citizens. This way Croatia will become a land of knowledge
and not only the land of cheep labour force, favourable geographical position and
natural resources. The 21 century is a century of knowledge. Knowledge is the future of the land and its people. But a new paradigm has to be introduced to reject
knowledge as a self-aim and to make students wiser, more humane and more intelligent. The new accepted ideas should override the old ones. However, practical
achievements should remain in the rst place.
The population in Croatia is not educated enough. According to the DZS data
from the year 2010, sixteen per cent of the total population has not completed the
primary school education process. For 1 per cent of the population the data are unknown. Three per cent of the total population does not have any formal education.
4
www.etc-graz.at/typo3/leadmin/user_upload/ETC-Hauptseite/manual/versionen/croatian/pog09.
pdf(22-2-2011)
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Mira Majstorovi
All in all, 20% of the population in Croatia does not have a minimal level of education. Eight per cent of population has a masters degree while 4% has some kind
of Bachelors degree. Such a result has a fatal eect on competitiveness of Croatia.
To become a competitive country, Croatia has to full a precondition which is an
investment in quality education. The quality education of the Croatian citizens
contributes to a successful economy and competitiveness in the global market. The
plan of Croatia to develop quality education has been a part of strategic goals of
the European Union stated in the Strategy from Lisbon from the year 2000. The
strategy underlines education as a key factor for economical growth.(Turinovi &
Morosini, 2006:11)
Croatia is a country in transition. To become a part of the global stream, Croatia
has to conduct an analysis of quality and eciency. It has to be open for education
and world trends. As an indicator of success, Croatia has to stipulate strategic goals
in the long run. To become a country of knowledge, Croatia has to eliminate reality created by the society that knowledge should be commercialized quickly and
it is always fashionable. Today knowledge is a waste which brings neither money
nor success. The quality of a system is determined by results. The results are not
promising and give little hope for Croatia to become a country of knowledge. The
government in Croatia should take things seriously, face the truth, take responsibility, reconsider success and problems and determine clear goals for the future
development.
Croatia has to taka advantage of the actual situation and, despite the heavy crises,
not cut the expenses but invest even more. The reforms should not be a make-up,
but a deep and radical process. The priority is to invest in a person ready to improve
his or her knowledge and skills constantly. Such a person will create quality, competitiveness and will improve status and prosperity of the whole county. It would
seem that knowledge has become a precious raw material which is produced with
very big costs, kept very carefully and nurtured selessly. (Liessman, 2008:123)
Every form of cooperation and advancement is praise worthy, and so the Ministry of science, education and sport in cooperation with establishments and other
represented departments that are incorporated in a Workgroup for removing barriers and strengthening of international mobility in education has brought the
Action plan for removing barriers and strengthening of international mobility in
education for the period 2010. 2012. The plan is one of the priorities of the Bologna educational process which implies spending a certain time in a students life in
659
other areas outside his or hers home place in order to attain additional knowledge,
skills, experience and qualications. Also, with the Program for learning through
the entire life and Youth in action it is one of the Croatias pre-accession obligations for entering the European Union.
Graph 1. Number of children, pupils and students at dierent education level from 2005 and 2006 to 2009
and 2010.
Source: Statistical Yearbook 2010.
The data shows a mild growth of children enlisted in pre-school education, but
also a mild decline of children participating in elementary and high school education. The statistics that represent people in high education establishments are more
optimistic because they are in a mild growth.
Croatias educational system includes elementary, high school and college/university level of education. From 2000 to 2009, there is a tendency with less students nishing elementary and high school, but a signicant increase of number of
students graduating on colleges, high educational (interdisciplinary) and university
studies. (Table 2)
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Mira Majstorovi
Table 2: The data shows number of pupils or students who have nished a primary school or a high-school, or
have graduated from a college or university.
Graduated from basic school
Graduated secondary school
Total
Male
Female
Total
Male
Female
2005
50 173
25 538
24 635
47698
23 536
2006
49 578
25 489
24 089
46551
2007
46 814
24 046
22 768
2008
46 328
23 585
22 743
2009
47 578
24 102
23 476
Students graduated from institutions of higher education

Professional study
University study
Total
Male
Female
Total
Male
Female
24 162
8 458
3 432
5 026
5 026
3 913
5 819
22 874
23 677
8 919
3 765
5 154
10 647
4 207
6 440
45823
45 823
23 424
9 929
4 292
5 637
11 040
4 497
6 543
44506
22 115
22 391
10 247
4 430
5 817
15 326
6 129
9 197
45331
22 416
22 915
9 905
4 411
5 494
20 251
8 064
12 187
Source: Statistical Yearbook 2010.
4. Conclusion
In my opinion, the countries with long-term plans have to take drastic measures, to act aggressively, by means of legitimate, political and nancial measures,
by removing administrative or bureaucratic obstacles, and act so that the rights of
individuals would be achieved entirely. The educational policy is not omnipotent,
but since being one of the bases of society, it should form a more critical opinion,
and with it a more signicant physical and constructive approach. It should not
allow the negative aspects of society in general to breach deep in the system which
then passively surrenders to indoctrinations led to corrupted interests. Mandatory
and free elementary education for everyone, girls and boys, for women and men,
for elderly or challenged people based on ideas of equality and non-discrimination
is unquestionable. This idea is followed by ensuring adequately equipped schools,
abolishing school fees, ensuring a free meal, free transport, scholarships for students, learning foreign languages etc. Another one, also important factor is a vital
symbiosis of school system and economy, providing mutual benet. The latter is
decient in many countries in development, Croatia being among them as well.
In a poll conducted within company employers, two thirds of them stated that
the knowledge of young employee candidates is decient compared to the needs
of their companys requirements. The educational system has to adapt to the needs
of job market, to establish active communication and cooperation, creating active
knowledge that provides new values to motivate economic growth, higher employment rate, as well as provide safe work place for people. A good example of this
661
idea is an automobile brakes factory in York, South Carolina which has an elaborate
program that includes training basic skills and educational programs in cooperation with faculties, local colleges and high schools. 5
It is undisputable that education is one of the major factors of a countrys wellbeing. A lot of scientists are trying to prove that education induces economic
prosperity. However, it seems to be hard to determine which of these two induced
the other one, that being a slippery ground even for the best of experts on this
eld.
Literature
Barro, R. J.,(2000) Education and Economic Growth, , Symposium the contribution of human and social capital to sustained economic growth and well-being,
Qubec City, available at www.oecd.org /dataoecd/5/49/1825455.pdf (10-12011)
Barro,R.J. (2002) Quantity and Quality of Economic Growth, available at www.
bcentral.cl/estudios/revista-economia/2002/agosto2002/recvol5n2ago200217_36.
pdf (10-1-2011)
Liessmann, P. K. (2008). Teorija neobrazovanosti, Jesenski i Turk, ISBN 978-953222-285-2, Zagreb
Miller, R. (2007) Education and economic growth: From the 19th to the 21st century. Cisco Systems, from www.rielmiller.com/images/Education-and-EconomicGrowth.pdf (12-1-2011)
Noe, R.A., Hollenbeck, J.R., Gerhart, B., Wright, P.M., (2006.), Menadment
ljudskih potencijala, Mate, ISBN: 953-246-012-8, Zagreb
Pastuovi,N.(1999.), Edukologija, Znamen, ISBN 953-6008-04-1, Zagreb
Pivac, J.(2000.) Inovativnom kolom u drutvo znanja, Hrvatski pedagokoknjievni zbor, ISBN 953-6134-31-4, Zagreb.
Puljiz I.,utalo I. & ivi M.( 2010.) Meunarodne organizacije o obrazovanju
odraslih (2), ASO i AOO, ISBN 978-953-55704-2-4,Zagreb.
Noe, R.A. et al.,2006.,p.21.
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Mira Majstorovi
Stevens P&Weale M (2003) Education and Economic Growth, National Institute

of Economic and Social Research, available at www.niesr.ac.uk/pubs/dps/Dp221.
pdf
(18-2-2011)
Turinovi P. i Morosini S. (2006). Cjeloivotno obrazovanje i hrvatski put u Europsku uniju, Vrgo, H.(ur), str.11, Europski izazov hrvatskom kolstvu,zbornik
radova, Hrvatski pedagoko-knjievni zbor,ISBN 953-6134-61-6, Zagreb
http://www.etcgraz.at/typo3/leadmin/user_upload/ETC-Hauptseite/
versionen/ croatian/pog09.pdf (22-2-2011)
manual/
http://unesdoc.unesco.org/images/0014/001477/147794e.pdf (27-2-2011)
www.iusinfo.hr/DailyContent/News.aspx?id=9204 (2-3-2011)
www.dzs.hr/Hrv_Eng/ljetopis/2010/SLJH2010.pdf (16-3-2011)
IMPORTANCE OF HUMAN RESOURCES IN ENTREPRENEURIAL SUPPORT I...
663
IMPORTANCE OF HUMAN RESOURCES IN ENTREPRENEURIAL

SUPPORT INSTITUTIONS FOR ADAPTATION OF SMEs TO
BUSINESS ENVIRONMENT IN THE EU
Sanela Ravli, Ivana Zelenko
[email protected]
[email protected]
ABSTRACT
Human resources are the most important segment in any company or institutions. Today we are witnessing more frequent changes in business, daily changes
with which are faced all employees and managers. Today it is not enough to know a
little, people must know everything. If employees and managers want to survive in
this turbulent environment, they must know everything at any time and any place.
Entrepreneurs need a help from entrepreneurial support institutions if they want to
realize their goals and make prot. In Croatia we have a large number of institutions
that serve as a service to businesses - Croatian Chamber of Commerce, regional development agencies, business incubators, business centers, chambers, etc., these are
institutions that are supposed to prepare businesses and create conditions so that
small and medium sized enterprises could adapt more easily to the entrepreneurial
climate that will prevail once we enter European Union. The main thesis of this
paper is Entrepreneurial support institutions are suciently good quality services
for all small and medium sized enterprises (SMEs) and could enable them to meet
those high demands and standards that EU market requires? In this paper we will
review the new human resources criteria, knowledge and skill proles in business
support institutions. Entrepreneurs can no longer perform independently. They are
forced to daily nd out about open tenders for EU grants, how to apply and implement projects. All the above indicates that during the forthcoming period lifelong
learning and real-time information will be crucial for the success of their business.
Every beginning is dicult. For entrepreneurship in todays business, not only in
Croatia but also worldwide, continuing business successfully is even more dicult.
Big role in getting real time information for SMEs have business intelligence and
664
Sanela Ravli Ivana Zelenko
readiness for lifelong learning because late information are useless and then they no
longer serve companies in achieving their business goals.
Keywords: human resources, entrepreneurial support institutions, small and
medium-sized enterprises, change, lifelong learning, business intelligence, communication, feedback, knowledge and skills.
1. INTRODUCTION
In todays uncertain times in which most of the small and medium size enterprises do business, real - time information and data may aect the status of a
business, its business results, and survival on the market. One of the main actors
in Croatia entering the EU, is the government and its institutions because they are
the lter between EU, national institutions and economic sector. Entrepreneurs
are now faced with a number of challenges and must be able to respond promptly
and eectively if they want to succeed. Here, we emphasize the great importance
of human resources, both in business sector and in business support institutions.
Both must be prepared for lifelong learning, for the changes that are happening
daily, must possess not only knowledge but also skills and be excellent communicators. Human resources are the sum of knowledge, skills, abilities, creative options,
motivation and commitment to the disposal of an organization (or society). It is the
total intellectual and emotional energy that organizations can employ to achieve
the objectives and develop the business. (Bahtijarevi - Siber, 1999, p.16). New
products, technologies and approaches to business thinking, denitely increase the
need for constant acquiring of new knowledge and skills, adapting to changes in
communication channels and higher exibility of human resources.
2. HUMAN RESOURCES IN THE BUSINESS SUPPORT INSTITUTIONS IN CROATIA
The main thesis of this paper is that Entrepreneurial support institutions are
suciently good quality services for all (SMEs) and enable them to meet high
demands and standards that EU market requires. Proles of human resources in
entrepreneurial supporting institutions so far, were very dierent from those in
small and medium enterprises. 2.1. table shows the required structure of human
resources for the 21st century.
2.1. Employees skills and knowledge according to EEF standards
665
666
Equipped for the Future (EEF) standards were developed to address the very
complex question: What exactly do employees need to know and what qualities should have to perform complex tasks that are put before them every day?
Although completed academic level often is important factor for getting a job, it is
not as important as skills and knowledge that one individual possesses, and which
may be of crucial importance for the quality execution of tasks. The results of this
research are primarily based on individuals readiness and need for lifelong learning,
the level of communication skills, quality and type of decision-making tools we
use, interpersonal skills as a team member, conict resolution and mentoring, ect.
Results in these categories extremely aect the level of synergy in the team and in
the end the results that SME will achieve.
As can be seen from the table, knowledge and skills that the employee should
have are much more complex. They require lifelong learning and constant progress that can happen only through monitoring changes happening in the market.
Until now, employees in entrepreneurial supporting institutions could smoothly
carry out their tasks without possessing most of these qualities, but Croatian accession to the EU now puts in front of them new tasks, together with new and
necessary knowledge and skills. Strengthening institutions until now was one of
the focuses of funds that we had the opportunity to use. The importance of institutional strengthening is still evident from the components within the IPA fund
where most of the nances from the fund is for that sector - strengthening the
government and all state institutions with the amount of 260.9 million euro of the
total 910.1 million euro in the budget period 2007.-2012. (http://www.hbor.hr/
Default.aspx?sec=1615)
Vast majority of business support institutions will in future have a huge impact
on the entire economic sector, especially small and medium enterprises because
they will possess specic knowledge about the opportunities for SMEs on EU market, as well as education and counseling on specic problems that SMEs could
encounter when entering the EU market.
2.2. Required changes in HR in supporting entrepreneurial institutions in
Croatia
One of entrepreneurial support institutions that were established to increase

local awareness level about opportunities and challenges that we will meet once we
enter the EU are regional development agencies. High-quality human resources
667
were one of the prerequisites for good performance of these activities. The classication of civil servants so far had no major changes, but now they are necessary
because of the job description, classication, and therefore salaries for civil servants
who implement EU projects. Salaries of ones who implement EU projects can not
be identical to those who do not perform these tasks, due to complexity of tasks,
specic knowledge and skills and level of responsibility they cary out. Requirements
for these jobs are better knowledge of english language in speech and writing, correspondence with high-level bodies of the European Union, better organizational
skills, time management, etc.
If we take a look at any regional development agencies, entrepreneurial incubators and center in Croatia - AZRA, REDEA, SIMORA, IDA, PORA, VIDRA,
ZADRA, ZACORDA, CTR, PORIN, (http://www.businessnavigator.biz/poslovni_centri/razvojne_agencije_rh) we see that the prole diers from other levels of
government bodies. Primarily it refers to the skills and knowledge which they possess, reached level of education, age structure, but also on past experience, where
majority gained their experience in NGOs and foreign foundations, which carried
out activities in Croatia after the war. These human resources were taught how to
recognize the needs of local communities, write high quality projects to meet those
needs and how to implement and evaluate projects. The experience they gained in
these foreign agencies is valuable for all levels of business support institutions, from
local to state, because the high-quality human resources in entrepreneurial supporting institutions are the most important resource and tool for the success of SMEs
in the future. Employees in all these institutions are the source of information that
are necessary in small and medium-sized businesses. We can say that they should
be the ones who see the bigger picture, all the challenges and opportunities oered
to entrepreneurs in the upcoming period.
2.3. Entrepreneurial support institutions in the Osijek-Baranja County
Osijek - Baranja County has a range of business support institutions: Regional

Development Agency of Osijek - Baranja county, Ministry of Economy, Labour and
Entrepreneurship, The Center for Entrepreneurship, Business Incubator BIOS, The
Croatian Bank for Reconstruction and Development HBOR, Croatian Agency
for Small Business - HAMAG, Croatian Employment Service, Croatian Chamber
of Commerce in Osijek, Croatian Chamber of Commerce, Chamber of Trade and
668
Crafts of Osijek-Baranja County, The State Administration Oce in the OsijekBaranja county.(http://www.obz.hr/hr/index.php?tekst=209)
We could conclude that the Osijek - Baranja County has all institutional predisposition for SMEs to have real - time information and quality assistance in adapting to EU rules. The next step that SMEs should make is adjustment of their human resources to EU requirements because they have a direct impact on nancial
results. Human resources are the most rigid to changes and will take a long time
to achieve the wanted change, so introducing the new skills and knowledge should
start as soon as possible in every SMEs and be evaluated frequently.
3. BUSINESS INTELLIGENCE AND HUMAN RESOURCES IN ENTREPRENEURIAL
SUPPORT INSTITUTIONS AND SMEs
Every business, governmental body or public institution, which is supported by

some information system, can also use business intelligence. Business intelligence
is an upgrade of information systems to support operations. Information systems
that support a business continuously use all available processing systems. People
management, business planning and decision making are the prerequisite for a successful business, and access to the right information at the right time contributes
to optimizing the expenditure of time and human resources and allows focus on
making high-quality and real - time business decisions. (http://www.combis.hr/hr/
rjesenja-i-usluge/po-vrsti/usluge-razvoja-i-integracije/poslovna-inteligencija)
Business intelligence represents a previously concealed knowledge that is revealed from operations, operating routinely collected data by applying appropriate
arithmetic-logic method, usually the supported information technology. (Panian,
Klepac, 2003, p. 1). In todays uncertain times in which operations should be carried out in large number of SMEs, the source of data, real - time information may
aect the status of a business, its business results and ultimately survival. Business
intelligence can help human resources departments to gain the place that naturally
belongs to them in their organizations - to become the department of strategic
importance from the viewpoint of company management. (Panian, Klepac, 2003,
p. 128).
Business intelligence can be seen as a covert knowledge, knowledge that we can
read from the data collected. Every day we nd a large number of data and information, but entrepreneurs must be able to collect the data that will be of signicant
benet for their business and sort them in their own databases. Very important
669
is the feedback between business support institutions and SMEs. The success of
communication depends on all participants, because their previous experience and
giving the common meanings to the same or similar message to a large extent inuences the success of a communication event. (Lamza-Maroni, Glava, 2008, p.
10). Entrepreneurial support institutions are institutions of strategic importance
for all entrepreneurs, but they are still the ones who must inform themselves and
be up to date, learn new strategies to be able to adapt to an increasingly demanding
market through real - time information, make the selection of data, apply projects
that have clear and dened objectives, project budget and eventually achieve the
expected results based on everything invested. All stated will ultimately create the
added value for the company and the strong foundation for successful business in
the future. Information are an important element of intangible assets, and in business intelligence systems their value is even more evident and important.(Panian,
Klepac, 2003, p. 172). All employed in business support institutions should monitor the number of daily businesses that attend seminars that are held, the number
of projects submitted by entrepreneurs, the results that they achieve and the degree
of sustainability after the project ended. In that way entrepreneurial support institutions fulll its role which is enabling smooth operations and transition of the
economic sector, which is ultimately their main task - to be a quality entrepreneurial service to all small and medium enterprises.
4. LIFELONG LEARNING
Lifelong learning includes all activities related to learning throughout life with
the aim of improving knowledge, skills and abilities. The importance of lifelong
learning was recognized by the European Union, which has launched a program of
lifelong learning (Lifelong Learning Programme) which target groups are all levels
of education and training. The program covers the period 2007. - 2013. And for its
implementation at European level, EU allocated 6.9 billion euro. The Programme
aim is to contribute to the development of Europe as an advanced knowledge society with sustainable economic development, social cohesion and a stronger increase
in the number of quality jobs for its citizens. In order to achieve these objectives,
the Programme promotes the exchange and cooperation between educational institutions, individual mobility of students and educational experts, and training in
vocational areas, which is also preparing participants for successful participation in
the European market. (http://public.mzos.hr/Default.aspx?sec=2935)
670
Government of Croatia established the Agency for Mobility and EU Programmes in order to implement the Lifelong Learning Programme. The establishment of these agencies and all stated above is a remarkable step toward creation of
high-quality support to SMEs in adapting the EU market. The next step should
be improvement of human resources in public services such as Croatian Chamber
of Commerce, Croatian Employment Service, Croatian Chamber of Trades and
Crafts, ect,. so that they could perform their tasks at the same level as the newly
established entrepreneurship centers, development agencies, business incubators
whose human resources are more equipped for demands on EU market.
5. CONCLUSION
With all stated above, we can conclude that the entrepreneurial support institutions at the beginning of becoming a quality service for SMEs. We can say that the
high quality foundation has been set and the next steps should go toward incense of
foreign language improvement, higher organizational skills, better communication
skills, development of analytical thinking, quality and dissemination process of
selection in all aspects of the business, better time management, strategic planning,
adaptation of new communication channels, establishing the level of responsibility
and decision making in business. Introducing these changes in human resources
in all business support institutions will help improve functioning and being able
to perform their most important task - help SMEs in all the challenges that await
them on the EU market, which will ultimately have positive eects on the entire
economy.
REFERENCES
1.Bahtijarevi-iber, (1999). str. 16, Management ljudskih potencijala, Golden

marketing, Zagreb
2.http://www.asktbs.com/dealer/Equipped_for_the_Future_Plan.pdf
9.01.2011.)
(Accessed
3. http://www.hbor.hr/Default.aspx?sec=1615)(Accessed 9.01.2011.)
4. http://www.business-navigator.biz/poslovni_centri/poduzetnicki_inkubatori_rh
(Accessed 11.01.2010.)
5. http://www.obz.hr/hr/index.php?tekst=209 (Accessed 12.01.2010.)
671
6. http://www.combis.hr/hr/rjesenja-i-usluge/po-vrsti/usluge-razvoja-i-integracije/
poslovna-inteligencija (Accessed 15.01.2011.)
6. Panian, Klepac, (2003). str. 1., Poslovna inteligencija, MASMEDIA, Zagreb
8. Lamza-Maroni, Glava, (2008). str. 10., Poslovno komuniciranje, Sveuilite
J.J.Strossmayera u Osijeku, Ekonomski fakultet u Osijeku, Osijek
10. http://public.mzos.hr/Default.aspx?sec=2935 (Accessed 12.01.2011.)
Ivana Ivani Nada Bosanac Sran Petri
672
VOCATIONAL EDUCATION AND TRAINING IN CROATIA:

A NEW CONCEPT FOR THE LABOUR MARKET
REQUIREMENTS
Ivana Ivani, univ.spec.oec.
Economic and trade school Ivan Domac Vinkovci
Nada Bosanac, B.Econ.
J.J. Strossmayer University in Osijek,
Sran Petri, univ.spec.oec.
Ministry of Interior, Police Administration Vinkovci
ABSTRACT
Adopting of educational policies to the requests of the labour market and higher
education has lead to remarkable discussions about the importance of vocational
education and training in Croatian education system vertical. Vocational education
is in the function of the development of professional competencies that should
satisfy the needs of a modern, competitive and exible labour market. About 70%
of secondary school students participate in an educational program oered by vocational schools in Croatia today.
The impact of rapid development of new knowledge and technologies, problems of demographically aging population, demand of labour market for workers
with new job skills and competencies, led the ocial policy to realize the necessity of modernizing vocational education. Holders of education policy introduce a
wide range of new regulations and ideas in order to speed up the process of change.
Croatia is involved in all development processes of vocational education and training of the European Union through common European principles, standards and
tools. Contemporary vocational education responds to individual needs by analyzing present and predicting future trends on the labour market to adopt educational
oer. Due to lack of information about actual economical needs for certain occupational proles, education in Croatian vocational schools is still based more
VOCATIONAL EDUCATION AND TRAINING IN CROATIA: A NEW CONCEPT FOR ...
673
on theoretical occupations than on practice. There are still dominant programmes

in industrial occupations but not enough service occupations on which modern
developed economies are based. Accordingly, it is very important to apply common
criteria and principles of quality assurance.
The primary goal of this paper is to present the role of the education in involving Croatia in the globalization process at the beginning of the 21st century. It offers the theoretical and methodological approach that responds to the needs of
vocational education system changes for labour market requirements.
JEL classication: H75, I20
Key words: education, vocational education, Croatia, labour market
1. INTRODUCTION
Globalization has an increased economic competition between countries and

worlds regions. Many education reforms have been justied by the urgent need
to increase labour productivity and promote economic development and growth
through expanded and improved education. The need to redesign education systems, including secondary education, comes from the notion that changing economic, social and ecological circumstances have created the need for individuals
who are exible and able to adjust to changing situations. Social and creative capitals are becoming increasingly important and sought after characteristics of successful nations, just as basic knowledge and generic manual skills were the drivers of
industrial countries.
Vocational education and training (VET) includes education and training programmes designed for a particular job and involves practical training as well as the
learning of a relevant theory. It is in the function of the development of professional
competencies that should satisfy the needs of a labour market. Demand for secondary education is worldwide on the increase. More young people complete primary
schooling and an increasing number seek opportunities to continue learning in
secondary schools. Modern economies and their labour markets need people with
sophisticated knowledge, skills and competences that cannot be developed only in
primary school or in low-quality secondary schools.
According to the Organization for Economic Co-operation and Development
(OECD) there are three factors that stand out as reasons for the growing inter-
674
est of policy makers in VET today.1 Many OECD countries are concerned with
ever-increasing global competition. Since OECD countries cannot compete with
less developed countries on labour costs, they will need to compete in terms of
the quality of goods and services they provide. That means a highly skilled labour
force, with a range of mid-level trade technical and professional skills. VET is seen
as the right vehicle for upskilling those who would otherwise be unskilled and
ensuring a transition into the labour market. VET can play a central role in preparing young people for work, developing the skills of adults and responding to the
labour-market needs of the economy. Despite this role, it has been neglected and
marginalised in policy discussions, often overshadowed by the increasing emphasis
on general academic education and the role of schools in preparing students for
university education. Many of the unskilled jobs which existed a generation ago
are fast disappearing because they have been replaced by technology. Provision in
vocational programmes reects fast-changing employer needs. It means building a
foundation of basic and transferable skills into vocational qualications, to reect
a world of career ow and development rather than one job for life. Also, it means
an eective partnership between government, employers and unions to ensure that
the learning is connected at all levels with the world of work. Strong vocational
programmes increase competitiveness but many programmes fail to meet labour
market needs. Countries needs to compete on the quality of goods and services requires a well-skilled labour force, with a range of mid-level trade, technical and professional skills alongside those high-level skills associated with university education.
More often than not, those skills are delivered through vocational programmes. In
order to nd an adequate balance between the needs of the economy and society
for human resources - is the other side includes the real possibility of the school
population at certain levels of education, it is necessary to develop projections of
long-term development of education. The basic variables that must be considered
in this study are the natural movement of population forecasts, predictions on the
movement of the school population by status groups, projections of GDP growth
rates, growth rates and projections of global productivity growth rate of total employment. (Jai;1999,317)
Adopting of educational policies to the requests of the labour market and
higher education has led to remarkable discussions about the importance of VET
1
Source: OECD, 2009, Learning for Jobs, Reviews of Vocational Education and Training Initial
Report, available at http://www.oecd.org/dataoecd/36/24/43926141.pdf (12.11.2010)
675
in Croatian education system vertical. The impact of rapid development of new

knowledge and technologies, problems of demographically aging population, demand of labour market for workers with new job skills and competencies, led the
ocial policy to realize the necessity of modernizing vocational education. Croatia
is involved in all development processes of vocational education and training of the
European Union through common European principles, standards and tools. It is
recognising a VET as a major contribution to make to economic competitiveness
and it is assumed that citizens must acquire knowledge, skills and attitudes necessary for civic success and the knowledge-based economy. Assessment of the role of
education in Croatia at the beginning of the 21st century, we must start from the
contemporary understanding of the contribution of material and immaterial factors in the process of economic and social development. (Jai;1999,317)
2. EDUCATION IN THE KNOWLEDGE SOCIETY: VOCATIONAL EDUCATION AND
TRAINING IN CROATIA
The traditional structure of secondary education as a parallel bridge between

primary education on one side, and higher education and world of work on the
other, is changing. Workforce in this millennium is less involved in industrial production and isolated professions, and increasingly involved in knowledge work,
services, communication and innovation. Economies and societies are therefore
looking for ways to have their education systems more concentrated in building
meta-cognitive and creative capitals that both are necessary resources for both individuals and nations to succeed in competitive knowledge-based and innovationintensive world. (Sahlberg;2007,4) Secondary education in Croatia still represents
a connection between obligatory primary and optional high education and encompasses general education, vocational education and art schools. Curriculum contents are regulated by teaching curriculum, formal documents unique for schools
of the same type where school subjects, frame content and number of classes are
given. The purpose of secondary school education is to expand and deepen basic knowledge with the focus on a particular content and to enable students for
performing business within the chosen profession. Secondary school institutions2
are secondary schools and pupils dormitories. Secondary school programs are:
secondary school diploma programs, secondary profession degree programs, basic
2
Source: Ministry of Science, Education and Sports of the Republic of Croatia, available at
http://public.mzos.hr/Default.aspx?art=5839&sec=2504 (12.11.2010)
676
professional degree programs and qualication and training programs. Secondary

school diploma, secondary professional degree and basic professional degree programs provide the knowledge and competence needed to enter the work force and
to undertake further education. Qualication and training programs complement
existing knowledge, capabilities and skills for work in a profession. VET schools are
technical, industrial, trade and others, as dened by the type of instructional plan
and program they oer, carry out an instructional plan and program of from one
to ve years, at the end of which students receive a secondary professional degree,
and programs of from one to two years, at the end of which students receive a basic
professional degree.
According to available statistics3 (table 1) the share in high school programmes
oered for students enrolment in the school year 2010/2011 in public schools is
96.5%, whereas the share of oered vocational programmes (four-year, three-year
and two-year programmes) is 71.7%. Out of programmes oered within vocational
education, the largest share belongs to the four-year vocational programmes for
technical and related economic activities with 40.8%. Then follow three-year vocational programmes for occupations in industry and economy with 28.5 %.
Table 1 High school programmes oered in the school year 2010/2011

School type
Public schools
Gymnasiums
Vocational and trade schools
Custom programs
Art schools
Religious schools
Private schools
Total
Number of classes
2067
448
1424
72
125
33
59
2159
Number of students
53054
12267
38440
722
2075
887
1031
55422
Percentage
96,5%
23%
71,7%
1,4%
3,9%
1,6%
1,9%
100%
Source: Ministry of Science, Education and Sports of the Republic of Croatia, 2010
There are two separate systems of training for professional occupations in Croatia. Within the dual system for the crafts there is a standardized system of voca3
Source of data: Ministry of Science, Education and Sports of the Republic of Croatia Odluka o upisu uenika u I. razred srednje kole u kolskoj godini 2010./2011. (eng. Decision on admission of
students in the rst year of high school in 2010/2011) , available at http://www.skole.hr/ucenici/
upisi-ss- 2010-2011?news_id=3517 (20.12.2010)
677
tional education training programs that connect theoretical and practical training.
On the other hand, there are four-year vocational training programs with a low
share of the practical training.
Holders of education policy in Croatia introduce a wide range of new regulations and ideas in order to speed up the change process of vocational education
based on the principles and goals of the Lisbon Declaration4. Declaration invites
member states to modernize their education systems and proposes that the European Union has become the most competitive and dynamic knowledge-based
economy. European priorities and strategies for the development of vocational
education have been conrmed in the Copenhagen Declaration5, the Statement of
Maastricht6 and Helsinki7. Globalization is a cultural paradox: it simultaneously
unies and diversies people and cultures. It unies national education policies by
integrating them with the broader global trends. Because problems and challenges
are similar from one education system to another, solutions and education reform
agendas also are becoming similar. Due to international benchmarking of education systems by using common indicators and the international comparisons of
student achievement, the distinguishing features of dierent education systems are
becoming more visible. (Sahlberg; 2007,4)
Development Strategy for Vocational Education in the Republic of Croatia
2008 - 20138 emphasizes the possibility of comparability, transferability and recognition of qualications and competences by developing reference levels, common
principles for certication and transfer credits in vocational education in order to
promote citizens mobility. The strategy proposes the development of qualications
based on competencies, at the sector level, with due involvement of social partners. The European credit system for vocational education (ECVET)9 is a support
mechanism for the recognition and transfer of VET qualications. The priority is
to take measures to strengthen the prestige and attractiveness of vocational educa4
5
6
7
8
9
Source: http://www.europarl.europa.eu/summits/lis1_en.htm (8.12. 2010)

Source: http://www.aso.hr/UserDocsImages/dokumenti/kopenhaska_deklaracija.pdf (8.12.2010)
Source: http://www.aso.hr/UserDocsImages/dokumenti/maastriska_izjava.pdf (8.12.2010)
Source: http://www.aso.hr/UserDocsImages/dokumenti/izjava_iz_helsinkija.pdf (9.12.2010)
Source: http://www.aso.hr/default.aspx?id=13 (9.12.2010)
See the EUROPEAN CREDIT SYSTEM FOR VET (ECVET), Report of the Credit transfer technical working group, Brussels, 2005, available at http://ec.europa.eu/education/policies/2010/
doc/ecvt2005_en.pdf (11.12.2010)
678
tion which requires an open, exible and individualized system that provides a
rapid transition to working life or further education and supports the development
of competencies of adults in the labour market. Developing vocational education
system in the direction of greater exibility and relevance requires abandoning the
traditional approach in Croatia, which is based more on the duration of the educational program rather than on learning outcomes what an individual knows, understands and is able to do at the end of the learning process. Due to lack of information about the real needs of the economy for the specic proles of interest, the
Croatian education vocational schools are based on theoretical knowledge and less
on practice. The basis of the problem lies in the absence of material conditions such
as equipment, facilities, modern teaching materials and modern teaching skills.
There are still the dominant applications in industrial occupations and not services
which are the foundations of a modern developed economy.
3. IDENTIFICATION FUTURE SKILL REQUIREMENTS: GUIDELINES FOR VET
TRANSFORMATION AND REFORMS
National competitiveness has become one of the central preoccupations of every

nation. The only meaningful concept of competitiveness at the national level is
productivity. The principal goal of a nation is to do so depend on the productivity
with which a nations labour and capital are employed. Productivity is the value of
the output produced by and unit of labour and capital. (Porter;1990,76) Human
capital is one of the main drivers of economic competitiveness. The OECD gives a
narrower denition of human capital in the knowledge economy as human capital in science and technology. With regard to highly skilled knowledge workers it
only focuses on researchers, dened as professionals engaged in the conception
and creation of new knowledge, products, processes, methods and systems and
directly involved in the management of projects (OECD, 2007).
Early identication of future skill requirements is the most important for political decisions on the design of VET systems. A majority of scientists and political
and economic stakeholders agree that exibilisation of work and working careers,
the dissemination of information and communication technologies in virtually
all areas and the growing role of knowledge are increasingly calling for exible,
broadly-based and transferable skills. (Tessaring;2003,309) In order to examine
the association of secondary school system and labour market in Croatia, it is important to indicate that Croatia has changed its vocational education system based
on European standards. Accordingly, the acquisition of new knowledge and skills
679
has become a commitment for life. The vocational education system inherited from
the former centrally planned economies is still not suited to provide education and
skills in accordance with social and economic demands of lifelong learning. The
framework of vocational education is divided between the short professional prole, most of which are less attractive due to poor promotion opportunities and the
long vocational prole which mainly aim to continue their education and their
content is too often focused on theory.
The analysis of a workforce of 15-64 years of age by level of education10 leads
to information about a dominant vocational education level. It can be concluded
that the small group of employees aged between 15 and 19 is dominated by young
people with three-year vocational education that are directly employable and often
end their education when they are 17. The group of age between 20 and 24 is
dominated by professionally educated people, where at the end of this period of
life a signicant number of those who graduated starts to appear. The data show
that professionally educated male employees in all age groups are signicantly more
likely to have completed a three-year vocational secondary education prole, while
women are dominant in the four-year vocational proles. The share of educated
professional employees in the older age groups of employees is signicantly lower
than that of people of higher education. This points to an earlier exit from the
world of educated professional people due to a combination of poor working conditions and the obsolescence of skills, employability and reduce of the structural
changes in the economy.
According to the statistics of Croatian Employment Service11 in December
2010, the people with a one to three-year vocational secondary school background
and school for skilled and highly skilled workers had a major share in the educational structure of the unemployed (110,863 or 34.7 %). This category was followed by people with a four (or more)-year secondary school and grammar school
background (88,148 or 27.6 %). The Survey of Employers 201012 collects information from employers about previous and expected trends in employment and
employment of any diculties in recruiting and needs in terms of interest, knowledge and skills of workers. A purpose of this survey is to study a successful labour
market performance through the alignment of supply and demand of workforce.
10
Source of data: http://www.dzs.hr/hrv/censuses/census2001/census.htm (20.12.2010)
11
Source of data: http://www.hzz.hr/default.aspx?id=4163 (10.3.2011)
12
Source of data: http://www.hzz.hr/default.aspx?id=6472 (22.2.2011)
680
The greatest number of employees in 2009 has a secondary school education level
(73261 or 63.7%). Employers are faced with diculties in nding workers, and
the most important reason is the lack of workers required interest (38.2% of the
surveyed employers).
The indicator of the link between vocational proles and the labour market is
the duration of time needed for those who leave school to nd their rst job.13 Considering the rate of employment of new entrants aged 15-19, the data show that the
fastest employed are people who have completed three-year vocational programs,
signicantly faster than those who completed a four-year school. This probably
emerges from dierences in the amount of professional knowledge. Specically, the
three-year program emphasises greatly the professional knowledge and practice.
The duration of the search for rst jobs is only one of several indicators of the link
between vocational education and the labour market because this indicator does
not provide information about the quality of employment found.
According to the specied data, the involvement of employers in the VET system is crucial to enable VET systems to respond better to labour market needs.
Employers are in the best position to see if the content of VET curricula and
qualications meets current labour market needs, and employers can guide their
adaptation to new emerging requirements. Also, employers need to be involved in
development policy not only because that ensures that policy reects labour market
needs, but also because employer engagement is essential at the outset, if the policy
is to be successfully implemented.
4. CONCLUSION
VET systems do not exist in isolation and their eectiveness depends on their
links to the labour market. This implies two types of supporting arrangements:
a need for tools to engage the key stakeholders in VET in particular so that employers can explain the skills that they need and negotiate the provision of these
skills with other stakeholders. Secondly, it includes a need for information tools so
that the value of vocational programmes of study can be identied, recognised and
analysed. These information tools include qualication frameworks, systems of assessment, data and research. The world faces major challenges in creating enough
quality jobs to sustain growth and development.
13
Source of data: http://www.hzz.hr/DocSlike/analit.bil-3_2009.pdf (11.12.2010)
681
A change of vocational education system addresses the resulting need for the
early identication and timely forecasting of qualications and skills and their
implementation in educational and training policy and practice. The question of
the nature of skills and qualications needed in the future and how they can be designed and implemented in curricula and educational routes are gaining in importance. Appropriate measures call for substantiated ndings on skill requirements
in a longer-term perspective as well as information on new qualications, competences and requirements which have not yet been dened by statistics and classications. At the same time, openness, exibility and the change of meaning emerging
in many countries with the movement away from formal qualications towards a
more comprehensive understanding of competence is making it increasingly difcult to anticipate and dene the knowledge, skills and competences which will be
required in the future.
5. REFERENCES
EUROPEAN CREDIT SYSTEM FOR VET (ECVET), (2005), Report of the

Credit transfer technical working group, Brussels, Available at: http://ec.europa.
eu/education/policies/2010/doc/ecvt2005_en.pdf, Accessed: (11.12.2010)
Jai, Z. (1999). Hrvatska u uvjetima globalizacije i uloga ljudskih resursa, Zbornik
radova Hrvatsko gospodarstvo u tranziciji, Baleti, Z. (ur), pp. 306-318, ISBN
953-6030-20-9, Ekonomski institut, Zagreb
Odluka o upisu uenika u I. razred srednje kole u kolskoj godini 2010./2011.
Available at: http://www.skole.hr/ucenici/upisi-ss-2010-2011?news_id=3517,
Accessed: (20.12.2010)
OECD (2007), Science and Technology Scoreboard , Available at: http://www.
oecd.org/document/59/0,3746,en_2649_33703_44198843_1_1_1_1,00&&enUSS_01DBC.html, Accessed: (14.2.2011)
OECD, (2009), Learning for Jobs, Reviews of Vocational Education and Training
Initial Report, Available at: http://www.oecd.org/dataoecd/36/24/43926141.pdf ,
Accessed: (12.11.2010)
Porter, M.E. (1990), The Competitive Advantage of Nations, Harvard Business Review, Available at: http://asesoriainternacional.com/Clases%20URN/The_Competitive_Advantage_of_Nations.pdf , Accessed: (12.2.2011)
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Sahlberg, P. (2007) Secondary education in OECD countries, Common challenges, diering solutions, European Training Foundation, Available at: http://www.
pasisahlberg.com/downloads/Secondary%20education%20in%20OECD%20
countries%202007.pdf, Accessed: (11.12.2010)
Tessaring, M. (2003), Identication of future skill requirements, Activities and approaches for European cooperation, Cedefop Reference series; Early identication
of skill needs in Europe, Cedefop, Available at: http://www.cedefop.europa.eu/EN/
Files/3029_en.pdf , Accessed: (12.2.2011)
http://public.mzos.hr/Default.aspx?art=5839&sec=2504 , Accessed: (12.11.2010)
http://www.europarl.europa.eu/summits/lis1_en.htm , Accessed: (8.12. 2010)
http://www.aso.hr/UserDocsImages/dokumenti/kopenhaska_deklaracija.pdf, Accessed: (8.12.2010)
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(8.12.2010)
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http://www.hzz.hr/default.aspx?id=4163, Accessed: (10.3.2011)
LAW
AND
ECONOMICS
THE CONTRIBUTION OF ROMANIAN LEGAL ELITES FROM THE 20TH CENTURY TO ...
685
THE CONTRIBUTION OF ROMANIAN LEGAL ELITES

FROM THE 20TH CENTURY TO THE DEVELOPMENT OF THE
ECONOMIC AND LEGAL SYSTEM
Dr. PUN CIPRIAN ADRIAN1
Romanian National Sciences Academy, Cluj Branch
Babe-Bolyai University
Abstract
With the start of the 19th century, the Romanian countries entered a truly European route. Whether we refer to the cultural circuits or to the economic, political
or judicial ones, the European inuence is strongly felt in this area, and it imposes
culture and civilisation patterns. We can therefore speak of a comeback to the native cradle of the Romanian people, namely, to the European cultural sources that
appeared and were preserved along with the Latin origin of the Romanian people.
It is upon this foundation that the European formation routes of the Romanian intelligentsia were built, together with the cultural, institutional and judicial premises
taken from within the country, and the political-administrative and cultural dialogue that was kept alive during the interwar period. From this point of view, one
can always talk about the role of the Romanian intelligentsia in the rearmation of
the plenary actualised European myth in the studied historic period.
JEL classication: B0, P0
Key words: Romanian intellectual, European creation routes, political elites,
interwar European projects
1
*The Article was draften with the support of the European Union in the framework of European Program POSDRU- Proiect conanat din Fondul Social European prin Programul Operaional Sectorial pentru Dezvoltarea
Resurselor Umane 2007 2013 Axa prioritar 1 Educaia i formarea profesional n sprijinul creterii economice i dezvoltrii societii bazate pe cunoatereDomeniul major de intervenie 1.5 Programe doctorale i
postdoctorale n sprijinul cercetrii.Titlul proiectului: tiinele socio-umaniste n contextul evoluiei globalizate
dezvoltarea i implementarea programului de studii i cercetare postdoctoral ID 61104 Contract: POSDRU
89/1.5/S/61104
686
PUN CIPRIAN ADRIAN
Introduction
After a European century of building the nation states and after a rst world
war with tragic consequences, all announced by Oswald Spenglers so-called ideology of the European decline, the European intellectual elite enters a febrile
phase, concerned with the common European destiny. More plans, societies and
continental and regional unication projects emerge, granting the new century a
new, Pan-European preoccupation, after a 19th century of national achievements.
In various formulas, almost all national states, especially the newly congured ones,
enter this concert. Romania, too, manages to play founding roles in these constructions. Through its intellectual elite, our country manifested itself intensely on the
European plan, gaining recognition especially due to its great personalities that
represented its name. This was not a random thing, since the great majority of
the Romanian intellectuals, assimilated by the political class, came via European
formation routes and had access, therefore, to the same schools as the European
intellectual elite.
Therefore, the interwar debate referring to the European unication had found,
at the time, a serious partner in this part of the continent; we are talking about Romania and its representatives in intercontinental relations. If one were to sequentially remember the main European unication projects of the time, promoted
by Kalergi, Briand or Tardieu, one could name Romanian personalities such as V.
Madgearu, G.G. Mironescu, Nicolae Titulescu or Iuliu Maniu, who promptly positioned our country on the routes of these projects. It is sucient to remind that
in the Briand plan, Romania played, through its representatives, a founding role
in a conjuncture in which the President of the General Assembly of the League of
Nations was Nicolae Titulescu, a Romanian whose name relates to the history of
the entire organisation. The president of the General Assembly, read the resolution
project that the French government lodged, on behalf of 45 delegates (September
17th 1930), through which the governments of the European states were invited to
follow the inquiry initiated through Briand memorandum, nishing the proposals
of the General Assembly of the League of Nations. (Ciornescu; 1995, p.115)
The feverishness of the manifestations of the Romanian representatives on the
international scene was actually a logical result of the great transformations that
had taken place in Romania at a national level. The interwar epoch represented,
and we claim this allegation in the thesis, the creative maturity stage of a social class
segment the intellectual elite , which, throughout a century, had left its mark on
687
the rhythm of development and modernisation of the country. Some foreign observers called Romania at the beginning of the 20th century the Belgium of the
East or the European Japan. This was not surprising. The pace of modernisation
placed Romania far from the other southwest countries, which Romania outnumbered both in surface and population. (Iacob; 2004, p.552)
From the point of view of the lights caused by the suggested title it is obvious
that the Romanian intelligentsia, in general, and especially its elite, which turned
into a normative and technical one, through all its representatives who took part,
one way or another, in the decision-making and legislative national process, becomes responsible for this entire development and modernisation of Romania.
However, the connection between the proposed European model and the private
destiny of each personality that adhered to it lies precisely in their process of intellectual growth. The routes of intellectual development that the Romanian personalities of the time had followed were meant to link them to the myth and destiny of
Occidental Europe. One step was left from this point to setting a unied Romania
on an exclusive and uniquely European path. The entire intellectual debate of the
era was, as we will show, one of European descent; the development patterns were
organically European, and as a conrmation and crowning of these patterns, the
political elite contributed in the fourth decade of the 20th century to the shaping
and design of some important projects.
The Message of the Romanian Public Figures
The evaluation of the Romanian space, of the debated ideologies and also of the
cultural routes in the interwar period must necessarily stem from the agitation that
this people knew in the 19th century and the rst decades of the 20th century. If we
were to start with 1829 (the Adrianople Treaty), we should enumerate a few moments before 1918: creating economic relations with the West, the 1848 moment,
the double election of Cuza, the subsequent consolidation of the Union, the bringing of a foreign prince, the adoption of the Constitution in 1866, the proclamation
of state independence of Romania, the First World War and the unication of the
country, the political and agrarian reforms that were signicantly modernizing the
country. All these events, with a time span of less than a year, lead to signicant
changes in the country in its vital dimensions: the political-national one evolved
from a few regions to an enlarged Romania with nearly 20 million inhabitants, the
administrative one came to have a Constitution and a unitary legislation; the social
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PUN CIPRIAN ADRIAN
dimension moved from feudalism to a modernised structure with an enthusiastic

middle class; at cultural level, the country left behind an orientalised culture and
aligned itself to the great European coordinates.
The simple enumeration of all these processes takes us closer to one of the Romanian realities that we can nd in the interwar debate. The big stages of the
Western culture do not exist as such in Romania; (...) The projection of what is
successive in the simultaneity plan seems to be the sign of a dangerous and sublime
passion: to gain an advantage towards over others, to quickly do everything the
others did carefully; but also to get a valorisation of time, entirely dierent from
the one in other cultures. (Alexandrescu; 1998, pp.34-35) Along with the geographical location at the junction of three large empires (Russia, Turkey, AustriaHungary) and the discontinuities of the Romanian culture, this simultaneity of
the integration of some fundamental processes in a relatively short time enters the
line of the Romanian realities of the epoch. The accelerated rhythm of integrating
social-institutional forms constitutes, for this reason, an element that characterizes
the cultural life itself of the country and especially the interwar debate. Some foreign observers called Romania-in the beginning of the XXth century- the Belgium
of the East or the European Japan. This was not random. The rhythm of modernisation has set Romania apart from other countries in the south-east of Europe,
which the country surpassed both in surface and population. (Iacob; 2004, p.552)
We can therefore speak of a national boost that sustained a modernisation rhythm
which not only proves today to have been accelerated, but, more than that, it places
Romania ahead of the other countries in the region. Lovinescu (the theorist of the
necessity to adopt the European forms) couldnt tell that the Romanian experience
of the West and of civilisation was one of the rst and that we were leading. All
the developing countries followed the same line, they burnt progress stages with
stumbles and comebacks of the Western world and launched straight in the latter expression. (...) Doesnt the option of our country say anything or ask for an
explanation? (Alexandru; 1999, p.76) This placement, at the front of the cultural
synchronisation phenomenon, can only bring eulogies for a country like Romania,
in those days. Explainable or not, the process was real, and its moment set the
Romanian countries ahead. Moreover, aside of primacy, the historians, the historiographers and the comparatists of the epoch grant it another quality: rapidity. As
the origin of the phenomenon, imitation led, as it was shown, to assimilation and
integration. From this point of view the Romanian countries were leading. The
westernisation took place in all orthodox countries in Europe at dierent paces and
689
phases. (...) Accordingly, of all orthodox countries in Eastern Europe, Romania

was the one where the westernisation was the fastest and most spontaneous, being
favoured by its Neo-Latin origin and the sentimental and temperamental anities
with the Italians and the French, as well as by the nearly obsessive certication of
Latinity, a force-idea in the development battle. (Djuvara; 2007, pp.9-10) Also,
the faster the phenomenon is, the deeper it proves to be. Assimilation is made in a
short temporal space, but with implications in the very depth of cultural realities:
if one may somewhere nd in South-eastern Europe a truly complete assimilation
of this aspect of the Enlightenment spirit, one could hardly nd a more conclusive
example than the Romanian one. (Marino; 1969, p.14) Found in the third decade
of the past century in the given situation of a reunited Romania that brought about
new implications, from the organisational ones to the ideological and cultural ones,
the country had to retrieve its natural pace, respectively to rank itself on one of the
possible routes of later evolution. In this context, the debate referring to the ways
and means necessary in the countrys development resumed and was even amplied. The intellectual and political elite of the country engaged, especially in the rst
decade of the interwar period, in erce controversy. (Slgean; 2004, p.586)
One must not omit the fact that the annexation of Transylvania along with
other provinces to Romania brought, especially on behalf of the rst, a new evolution model, even if it was inside the same nation. Being under Austro-Hungarian
occupation until the moment of the Great Union, Transylvania brought a new
elite with intellectual adhesion and horizons that oered a qualitative plus to the
group of interwar personalities. Their integration in the new state, followed by the
necessity of legislative and administrative integrations, brought new valences to the
Romanian state of the third decade, but also new diculties to surpass. Bringing
a consolidated national consciousness with them, the Transylvanian intellectuals
brought a qualitative plus to the debate, gained through the national survival battle
in the Austro-Hungarian Empire. Transforming them into instrumentum regni,
the empire had to create specic social, economic, cultural and confessional opportunities for them, contributing therefore to the diversity of their elites. (Cmpean;
1999, p.22) Or, we are already talking about an enrichment of the ideological
political and judicial debate scene with a new category, that of the Transylvanian
intellectuals, which had to be inserted, one way or another, in the general interwar
scene. Problems of the integration? They were the more dicult as the new entity was exposed, as succession state, to some violent litigations; this happened in
the specic worldwide crisis atmosphere, especially in the central European space,
690
PUN CIPRIAN ADRIAN
reorganised after the principle of nationalities and faced with new issues. (Zub;
1989, p.16)
We have, therefore, both a modied geo-political perspective, given the unication of the country, and a reanimated ideological one, given the new multiplied
conditions at a national scale. The premises are enough to suggest both the agitation of the debates, and the animosities that accompanied them throughout the
period. The dispute of ideas, erce so far, from the war onwards, met during these
two-three years (1926-1928) a fury that never subsided. (Ornea; 1980, p.23) The
fact is emphasized by most historians of the epoch, but the stakes of the entire
debate explain both the clenching of the combatants and the orientations or the
sideslips they adopt. The interwar epoch brought to the Romanian society not
only the intellectual eervescence of modernisation, through the appearance of European institutions, but also political experiments, among which some, especially
those belonging to the extreme right, prepared, along with the instauration of the
royal dictatorship, the conditions of a terror and suspicion region, amplied by the
consequences of the Second World War. (Jucan; 2006, pp.31-32)
From the perspective of the modernisation process of Romania, we can look
historically at the period between the beginning of the 19th century and the Second
World War. Set forth in such a way, the evaluation of the rst step, expanded over
more than a century, oers the point of view of a modernising eort, aspects which
we have already dealt with. The synchronisation process of the European civilisation that started almost a century ago knew an accelerated rhythm during these
decades and included all the sides of the socio-economic and political life. Romania
had become a European country, connected to the civilised world through all communication channels. (Iacob; 2004, p.567) Using this premise of the successful
modernisation in the rst analysed decade as a starting point, it is essential to notice
if the second interwar stage represent a moment of collective eort in continuing
the previous century process or, on the contrary, a break from it.
A rst objective evaluation of the period 1918-1937 must mention the important moments of the beginning of the decade. The creation of the Greater Romania,
as well as the adoption of the two reforms agrarian and political and especially
of the Constitution in 1923, can become the premises of a period as promising as
the one before the First World War. At the same time, however, one must consider
also the shortcomings that the country had upon entering the second period. It is
noticeable that in the evaluation of the modernisation of the Romanian society we
691
must consider the overwhelming percentage of the rural population and the rural
culture, of the setting of the prevalent factor of keeping the tradition in modernitys
perception, which meant the preservation of mistrust towards industrialism, industrialisation, bourgeoisie, seen as elements of a cultural heterogeneity with so-called
bad national inuences. (Jucan; 2006, p.32) This reserve towards the forms of
modernisation must be attributed to the still overwhelming layer of the rural population (nearly 90%), unschooled and unwilling to change the patriarchal lifestyle
and still displaying obvious late feudalism characteristics. In conclusion, it can be
said that, at the level of the entire Romanian society of these decades, the mentality
of the classes and social layers, of individuals in general, it was more of a brake than
a stimulant in the process of modernisation, of getting closer to the civilised world
of Western Europe (Iacob; 2004, p.568), as the historians of the time say, marking
a still obvious reality.
By superimposing this entire reality over the European cultural shift, synthesised
by Oswald Spengler in the formula and paper with the same title The Decline of
the West, we will be able to observe the rst characteristic of the interwar debate: slowly, but certainly, the ideological atmosphere was taken over by the grand
spiritualist-traditionalist theories. From this general point of view, we can consider
that the main debate of the time took shape synchronically with the European
debate, on the coordinates of the modernism-traditionalism concepts. The crisis of
rationalism, its critique as well as the presupposed decay of the West were also felt
in the spectrum of the Romanian ideology. The vibrations of the Romanian culture
carefully found answers within the unied Romania, the great lines of Western
thinking knew extensions in this European time frame, even if personalized for the
specic of the country.
The truth is that any objective examination of the ideological phenomenon
that we are studying as well cannot avoid noticing an obvious convergence relation with similar concerns in France and Germany. (Ornea; 1980, p.269) A close
connection between the issues discussed anywhere within the European culture
and the Romanian one was easily noticeable, especially since the relations of our
country with the Western ones expanded exponentially at a diplomatic level after
the First World War. This debate, however, between modernism and traditionalism, oers the general framework of the ideological clenching that characterises the
third decade of the past century. It had, nevertheless, numerous extensions, either
taken from the Western polemics, either specic to national issues. RomanianEuropeanism, Orthodox-Christianity, autochthonous-westernisation, these were
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PUN CIPRIAN ADRIAN
just a few local instances of the same struggle between the tendency to renew and
the conservatory forces that clenched in a general framework. Apart from these, the
European themes also found an echo in our country, such as rationalism-mysticism,
modernisation-traditionalism, West-East, agrarianism and industrialism.
One must still observe, in such circumstances, the pattern of the autochthonous interwar intellectual. This is because, and we repeat ourselves, this very return to autochthonism (thinking and living in Romania) and spiritualism (Lucian Blaga, Mircea Eliade), was being built on European routes taken from the
so-called Western crisis. The interwar intellectual positions himself according
the European model, the only cultural model considered authentic (...).Therefore
the pattern does not seem to be the same European one. We speak here about the
intellectual, a scientist rst of all (with humanist predilections), who, once having
entered the cultural elite of the country, assumes the society involvement after a
similar European pattern, respectively, in the debate regarding the direction of its
evolution. From this moment on, essential specications have to be made: rstly,
almost all, if not all, Romanian interwar intellectuals were formed in the great
schools of Western Europe; secondly, one must emphasise that, given their formation, many of them had become great European-level personalities. In the political
branch we can remind Brtianu, Maiorescu, Blaga; in the cultural eld, Eliade and
Iorga; Madgearu or Motru in the economic one, and the examples can continue
with humanist or exact. Romanian intellectuals occupied front positions among
rst-class European personalities.
It is sucient to use a bibliographical source of reference, namely the Romanian History, edited by the Romanian Academy, to prove the above: In conclusion, one can appreciate that, after the Great Union in 1918, a real development in
education, science, literature and art was registered in Romania. On the one hand,
the entire society felt the need of increasing its intellectual level, and on the other
hand, education and science contributed to the economic progress of the country,
through the formation of specialists. The democratic reforms achieved towards the
end of the war stimulated the citizens interest for the towns life, as well as the will
to acquire wider knowledge in varied elds. The synchronism of the Romanian
culture with the European one was an undeniable reality. Name such as Henri
Coand, tefan Procopiv, (...), Ion Cantacuzino, C-tin I. Parhon, Gh. ieica,
Dimitrie Gusti, Mihail Manoilescu, Nicolae Iorga, Vasile Prvan, Gh. I. Brtianu,
M. Eliade, E. Cioran, Nicolae Titulescu, G. Enescu, Dinu Lipatti and Constantin
Brncui were well-known and notorious at a European and even a worldwide
693
level. An additional reference has to be made in the judicial and legislative eld.
Beyond the avatars of a society with many ancient, traditional components, of a
developing economy, at the level of the elites, Romania stood among the developed
countries of the continent. (Romanian Academy; 2003, p.752)
However, from the point of view of the proposed theory, the pattern of the
European intellectual, the thesis of their implication in the political-administrative
life of the country, remains to be demonstrated. Following the same pattern, the
intellectual elite of the country interferes with the political one and therefore becomes an authority in the eld, with implications in debating the development
path that the country needed to follow. To be more specic, we support here the
thesis according to which there were strong recruitment phenomena between the
intellectual elite of the country and the political elite. The mere enumeration of
some epoch ministers conrms the theory: N. Iorga, V. Madgearu, D. Gusti etc.
What is left then is the only logic step to achieve, that of creating the connection
between the modernisation eort and the involvement of these personalities in
managing these eorts. Even if the Greater Romania engaged itself, later in the 19th
century, in this modernisation process, the steps taken, although strongly criticised,
represented minimal stages in the tendency of drawing closer to the Western Europe. The interwar modernisation obviously bears the marks of the lack of means
and purposes, but above everything the lack of a modernisation programme, of a
suitable consensus. Here, correlated with the general process of territorial organisation of Romania, of the new Constitution from 1923, the Romanian School of
Law has known a spectacular evolution: rst-class Romanian personalities were
validated by the great schools of Europe, an elite, of which we can remind G.
Alexianu, Paul Negulescu, Anibal Teodorescu, took shape. Overall, we assume the
thesis according to which the message of the Romanian interwar public gures
was one of pro-European essence. We have shown that the tendency of returning
to autochthonism was one of cultural European nature. From this point to assuming the pro-Europeanism following the interwar Romanian debate there is only a
short distance. With personalities shaped in the European space, with behaviours
adequate to the European intelligentsia, all based on a Latin culture, common to
most European cultures, the Romanian message tted between the general borders
of the European cultural debate.
In conclusion, along with other historians of the epoch, we can ascertain that
the interwar period in Romania was one of continuing the modernisation eort
initiated in the 19th century. The set landmark, especially of a country that had to
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PUN CIPRIAN ADRIAN
relate to such a model (since the peripheral geographic positioning from the cultural emission centre gave birth to time gaps), was permanently the European one,
of the developed country in the Western part of the continent.
Bibliography:
Adrian Marino (1969), Modern, modernism, modernitate, Editura pentru literatur

universal, Bucharest.
Alexandrescu Sorin (1998), Paradoxul romn, Univers Publishing House,
Bucharest.
Alexandru George (1999), Reveniri, restituiri, revizuiri, Ed. Cartea Romneasc,
Bucharest.
Cmpean Remus (1999), Intelectualitatea romn din Transilvania n veacul al XVIII-lea, Presa Universitar Clujean, Cluj-Napoca.
Ciornescu George (1995), Romnii i ideea federalist, Ed. Enciclopedic,
Bucharest.
Iacob Gheorghe (2004), Romnii n perioada edicrii statelor naionale, in Istoria Romniei compendiu, The Romanian Cultural Institute, Cluj-Napoca.
Jucan Marius (2006), Intelectualii Europei interbelice i mitul fondator al unitii
europene in Actualitatea mesajului fondatorilor Uniunii Europene, coord. Nicolae
Pun, Ed. EFES, Cluj-Napoca.
Marcela Slgean (2004), Romnia ntre 1919 i 1947, in Istoria Romniei compendiu, the Romanian Cultural Institute, Cluj-Napoca.
Neagu Djuvara (2007), ntre Orient si Occident, Ed. Humanitas, Bucharest.
Ornea Zigu (1980), Tradiionalism i modernitate n deceniul al III-lea, Eminescu
Publishing House, Bucharest.
The Romanian Academy (2003), Istoria romnilor, vol. III, Enciclopedic Publishing House, Bucharest.
Zub Al (1989), Istorie i istorici n Romnia interbelic, Junimea Publishing House,
Iai.
FINANCIAL MEASURES TO MITIGATE THE NEGATIVE CONSEQUENCES OF UNEMPLOYMENT
695
FINANCIAL MEASURES TO MITIGATE THE NEGATIVE

CONSEQUENCES OF UNEMPLOYMENT
Renata Peri PhD, associate professor
Faculty of Law
Josip Juraj Strossmayer University in Osijek
Department of Financial Law and Financial Science
Radieva 13
31000 Osijek
Croatia
Mobile ( 00 385) 091 224 5505
E-mail address: [email protected]
Emina Konji, assistant lecturer
Faculty of Law
Josip Juraj Strossmayer University in Osijek
Department of Financial Law and Financial Science
Radieva 13
31000 Osijek
Croatia
E-mail adress: [email protected]
ABSTRACT
Croatian Employment Service reported a record unemployment in Croatia.

Along with the claim that unemployment rose in all age groups, it has to be said
that the structure of unemployed on the grounds of qualication is also dierent.
Act on Employment Mediation regulates the conditions for the realization of monetary benets for unemployed and their rights during the time of unemployment in
order to mitigate the negative consequences of unemployment. There are connections for the realization of the right to nancial compensation for the unemployed
and other social security rights including in particular the supplementary health
insurance. Specic measures are provided to mitigate the negative consequences of
unemployment for certain groups (eg. Homeland War soldiers). Special measures
696
Renata Peri Emina Konji
and solutions are also presented by various local and regional government units.
There are dierent measures for dierent types of education, training and retraining
where certain skills and competences are acquired aiming easier adjustment to the
labor market. Projects are typically funded by one-time nancial incentives. Active
employment policy is set according to the guidelines of the European Employment
Strategy. Its measures are more targeted to long-term unemployed persons and individual members of certain groups. Programs are implemented either through
subsidized employment of targeted group (invalids of Homeland War, people older
than 50 years) or by training for known or unknown employer.
JEL classication: E24, J64
Key words: structural unemployment, supplemental health insurance, local and
regional government units, unemployment compensation
1. INTRODUCTION
Term of unemployment can have dierent meanings depending on the context

in which we use it. It can describe legal-administrative condition with reference to
record on the list of Employment Oce or the right to monetary remuneration for
unemployed persons. At the same time, it can symbolize manner or preparedness
on acceptation of the job under certain circumstances. It can refer to social difculties inside the certain economic system, as well as the imbalance of the supply
and demand of the labour on the individual parts of labour market or on the labour
market in general.1
In accordance with the instructions of International Labour Organisation, standard international denition of unemployment includes every person within 15
and 74 years of age, that full this conditions:
1. during the referent period of time were unemployed
2. during the referent period of time were available for employment
3. were searching for the job ( took certain steps towards nding a job)
Therefore, criterias of which a standard denition of unemployment is based are
only concerning the course of action of the individual during the referent period
of time. All the criterias have to be fullled at the same time. The only exception
refers to persons that have an agreement of initiation of job after referent period of
1
Mrnjavac, . (1996). Mjerenje nezaposlenosti, Ekonomski fakultet, Split, page 25.
697
time and are not searching for a job, but they full the other two criterias. These
persons will, nevertheless, be classied as unemployed, because they are just now
available for job and still not working, respectively, they are a part of unused working resource of the economic system.
In most of the countries, and Croatia is not an exception, there are two source
of informations regarding the motion of employment and unempoyment. Prior the
administrative sources regarding unemployed persons that are recorded on the Croatian Employment Service (HZZ). Secound source of information is the Survey of
the workforce (ARS), which is conducted by the Croatian Bureau of Statistics since
1996. So it could be methodologically compared with equivalent surveys in the
EU, methodology for survey of workforce have to be synchronized with the rules
and directions International Labour Organisation and the Eurostat. Unemployment in the survey is showing the real situation of the persons that are unemployed
and that are searching for job. On the other side, recordings of persons from the
Croatian Employment Service (HZZ) is often caused by other reasons ( achievement of various social rights which demands a ratication of unemployment: social
assistance, child support, transport subvention etc.)
Graph 1 : Comparation of unemployment according to administrative patterns and the survey of workforce
Source: Croatian Employment Service
2. SYSTEM OF EMPLOYMENT AND PROTECTION OF UNEMPLOYED PERSONS
Development of system of employment and protection of unemployed persons

is an answer on spreading and unpredictability of unemployment. Due to a fact
698
that market mechanisms, specically at this period of global chrises, does not guarantee eciency of search for the job as well as the basic material security during
the period of unemployment, in every developed country there are institutional
mechanisms and organisations for prevailing mentioned problem.
When we are talking about the systems of social solidarity, we can mention three
systems. Two systems that have over the years attracted many attention, and those
are pension and health care system, gave over their place to employment system
and the system for insurance from unemployment, which havent got so much attention in Croatia during the period of transition. Institutional infrastructure was
gradually developed on the area of employment in order to apply active policy of
employment and the policy of rights during the period of unemployment.
2.1. Active policy of employment and pasive policy of employment
Active policy of employment is refering to activation and employment of groups

of unemployed persons which have experienced the most problems with the employment. To make it simple, active measures stimulate demand of labour. They
can be accomplished by various programs:
1. programs for the opening of new work places
2. occuopational and professional retraining of workers
3. intermediation and consultation of employment services
4. stimulation of self-employment
5. co-nancing of employment
6. stimulation of geographic and economic mobility
7. shortening of working hours
As the ultimate result of these measures we expect the enlargement of production as well as the growth of the purchasing power of citizens and the growth of demand for products and services. In Croatia active measures of employment started
to apply since 1992. in four waves.
On the other side, pasive measures are based on social and material help for
unemployed. Through them in various ways we are trying to reduce the supply of
labour. Pasive measures are short-termed, and they demand nancial support from
the state and are not to be considered as a permanent solution so they are considered less acceptable in general.
699
3. RIGHTS DURING THE UNEMPLOYMENT
Responsibility for entering the system of unemployment most frequently we

can lay on the worker itself and the pour labour performance. The cause should be
looked for in wider economic frames. It is a fact that the loss of job entails a loss of
ones regular incomes which has direct inpact on existence of unemployed person
and its family. That was the main reason for the state to develop the insurance in
period of unemployment as one of elements of social solidarity.
As the intermediary in this case the Croatian Employment Service is manages
nancial aid and other social rights which have to provide preservation of incomes
for unemployed person as well as the social security, until they nd adequately employment. In that way these so called pasive policy of market of labour supplements
with the activities of intermediation and active policy of employment2
3.1. The right on monetary remuneration
Monetary remuneration is a central instrument of material insurance for unemployed persons. Unlike the other programs of active and pasive policy of employment, monetary remuneration is a right which is accomplished on grounds of
principles of insurance respectively on deposition of compulsory contribution for
the employment of persons employed on grounds of employment contract.3 It is
essential to mention that the right on the monetary remuneration doesnt apply
to unemployed persons which are at the beginning of their career as well as the
employed persons which havent been previously engaged by the employment
contract and didnot pay the compulsory contribution for employment.4
If the unemployed person wants to achieve its right on monetary remuneration
it has to full certain conditions:
1. Full the condition of previous work
2. employment can not be stopped by its will or its fault
3. it has to report to autorized district service of Croatian Employment Service
in statutory term and submit the request for monetary remuneration
2
Matkovi, T.(2008). Politika zapoljavanja i nezaposlenost, Socijalna politika Hrvatske, Pravni
fakultet u Zagrebu, Zagreb, page 198.
3
Contribution for employment is a contribution from salary and its rate is 1,7%.
4
It refers to self-employed persons, artisans, company owners, persons who work on piece work agreement, students and individual farmers
700
The right to monetary remuneration is entitled to unemployed person which,

in the moment of conclusion of employment, has at least 9 months of labour in
the last 24 months period. The time spent on the labour is including the time of
compulsory insurance by the regulations of retirement insurance accomplished on
the basis of employment in the Republic of Croatia as well as the time spent on
the o period, parental leave, adoptive leave, custodial leave after the conclusion
of employment, or a job, if the person was reciving a benet of pay on the basis of
regulations of health insurance.5
Unemployed person has to report to the Employment Service and submit the
request for realisation of benet in the period of 30 days after the conclusion of
employment, conclusion of the o period, parental leave, adoptive leave, custodial
leave. If the person for a justifable reason fails to do so in period of 30 days, she
can submit the request in the period od 8 days after the conclusion of the justifable
reason and not later than 60 days from the day of failure of submission of the
request.6
By the paragraph 41 of the Law of intermediation at the employment and the
rights in period of unemployment the base for the determination of quantitie for
monetary remuneration is determined by the average of calculated salary decreased
for contributions for compulsory insurance accomplished in the quarter before the
conclusio of employment. The base does not include benitions for salary which
was accomplished by special regulations. If the base for the determination of monetary remuneration cant be determined by the salary, the base for the unemployed
person will be determined by the amount of minimal salary decreased for contributions for compulsory insurance determined by the special regulations, depending
on the percentage.
The minimal salary for the period from the rst of June, 2010 until the May 31,
2011 in the Republic of Croatia was 2 814,00 kunas.7
The maximal amount of monetary remuneration for the rst 90 days of usage
can not be higher than 70 %, and for the remaining time of usage it vcan not be
5
l. 37. Zakona o posredovanju pri zapoljavanju i pravima za vrijeme nezaposlenosti, Narodne
novine 80/08, 94/09, 121/10
6
l. 38. Zakona o posredovanju pri zapoljavanju i pravima za vrijeme nezaposlenosti, Narodne
novine 80/08, 94/09, 121/10
7
Zakon o minimalnoj plai, Narodne novine 66/10
701
higher than 35 % of the amount of the average salary payed in economic system of
Republic of Croatia in previous year based on the last ocial information.8
The minimal amount of monetary remuneration can not be lower than 50 %
of the amount of minimal salary reduced for the contributions for the compulsory
insurance determined by the special regulations, except if the amount of the monetary remuneration is determined by percentage of time spent on the labour.
Once accomplished right on monetary remuneration is limited by time and
linked to time of previous employment. Unemployed person, depending on the
total time spent on employment, has a right on monetary remuneration from 90
days for fullling on minimal condition, to 450 days if the person spent more than
25 years employed.
- 90 days if she spent from 9 months to 2 years employed,
- 120 days if she spent more than 2 years employed,
- 450 days if shespent more than 25 years employed.
For unemployed person wich has a right to monetary remuneration, if selfrequested, it can be payed a benet in single amount depending on the determined
right to a benet for employment, self-employment and volunteering based on the
regulations of employment.9
Reception of the benet is not unconditional. Unemployed person is asked to
be available for the job and in contact with Croatian Employment Service. In case
8
l. 4. Zakona o izmjenama i dopunama Zakona o posredovanju pri zapoljavanju i pravima za vrijeme nezaposlenosti, Narodne novine 121/10
9
Odluka o isplati novane naknade u jednokratnom izvoru, Narodne novine 32/09
702
unemployed person rejects a job, does not cooperate with Croatian Employment
Service about self-activation in search for the job, if she works illegally ( moonlighting) apropos is earning more than amount of highest monetary remuneration
by the illegal part-time work, she loses the right on monetary remuneration.
3.2. The right on the health insurance
Based on the Law of compulsory health insurance (NN 150/08), the persons
with residence, authorized permanent residence in the Republic of Croatia, which
do not have health insurance on the other basis, are gaining the right on health
insurance at Croatian Institute for Health Insurance if they register to authorized
local oce of that Institute:
1. in the period of 30 days:
- from the conclusion of the employment, conclusion of preformance of the
activities or from the conclusion of receiving the benet for the salary of which
they have rights based on this Law or by the regulations made on the basis of
this Law or from the conclusion of the insured person status,
- from the day the person turns 18 years old if they are not having health insurance on the other basis,
- from the day of the conclusion of receving the benet of salary on which the
person has rights based on this Law,
- from the day of conclusion of the pupil or student status, and if the right on
the compulsory health insurance can not be accomplished on the other basis,
persons with residence in the Republic of Croatia which, by the regulations of
education of Republic of Croatia, lost their pupil or student status,
- from the decease of spouse, and the right on compulsory health insurance can
not be accomplished on other basis, spouse of the deceased insured person
which after the decease of spouse did not gain the right on family possessions
2. in the period of 90 days:
- from the day of expiry of school year in which they completed education on
regular basis by the rights on regular education in The Republic of Croatia or
in period of 30 days from passing the nal exam
- Croatian soldier from The Croatian War of Indenpendance if they register to
Croatian Institute for Health Insurance and if the right to compulsory health
insurance can not be determined on the other basis
703
4. Conclusion
The protection of employment and rights in case of unemployment represent

mechanisms for overcomming the risks which links signicant costs. Consequences
are that very few countries have equaly developed both systems. The cost of protection of unemloyed persons manifests in higher public expenditure or benets in
case of unemployment and policy of employment. Although monetary redundance
and other rights in the period of unemployment are forms of pasive policy of employment, they do not stimulate unemployed persons to search for a job, they prior
insure maintaining of the earnings. It is the fact that Croatia entered the New 2011
year with record unemployment which, at the moment, does not have an end.
5. References
Matkovi, T. (2008). Politika zapoljavanja i nezaposlenost, Socijalna politika

Hrvatske, Pravni fakultet u Zagrebu, ISBN 978-953-97320-9-5, Zagreb
Mrnjavac, . (1996). Mjerenje nezaposlenosti, Ekonomski fakultet u Splitu, UDK
331.5, Split
Odluka o isplati novane naknade u jednokratnom izvoru, Narodne novine 32/09
Zakon o posredovanju pri zapoljavanju i pravima za vrijeme nezaposlenosti, Narodne novine 80/08, 94/09, 121/10
Zakon o minimalnoj plai, Narodne novine 66/10
Zakon o doprinosima, Narodne novine 84/08, 152/08
Zakon o obveznom zdravstvenom osiguranju, Narodne novine 150/08
704
APPLICATION OF THE GAME THEORY TO LAW:

SELECTED EXAMPLES
Prof. dr. sc. Ivana Barkovi Bojani
J.J. Strossmayer University of Osijek
Faculty of Law
e-mail: [email protected]
Abstract
The law and economics, or the economic analysis of law, has been increasingly
popular intellectual movement that unites two great social elds law and economics. Economic analysis of law as a branch of legal scholarship is dened as
the application of (micro)economic theory and econometric methods to examine
the formation, structure, processes and impact of law and legal institutions. This
paper focuses on game theory as a branch of applied mathematics that has been increasingly used in economics since 1970s and consequently in law and economics.
Game theorys method is to simplify a situation by describing it in terms of players,
actions, payos, after which the players strategic interactions can be described.
Whether used explicitly or implicitly, this is a highly useful approach to law. Namely, well-known games such as the prisoners dilemma, the battle of the sexes, beerquiche, and the Rubinstein bargaining game can illuminate many dierent kinds of
legal problems. The purpose of this paper is to present the underlying logic of the
game theory and law and to help improve the communication between economic
and legal scholars since economic and mathematical tools can be intellectually very
useful for law scholars and law practitioneers.
JEL classication: C7, K0
Key words: game theory, law and economics, prisonners dilemma
1. Introduction
The law and economics, or the economic analysis of law, has been increasingly
popular intellectual movement and scientic discipline that unites two great social
APPLICATION OF THE GAME THEORY TO LAW: SELECTED EXAMPLES
705
elds law and economics. Economic analysis of law as a branch of legal scholarship is dened as the application of (micro)economic theory and econometric
methods to examine the formation, structure, processes and impact of law and
legal institutions (Rowley, 1989; 125). According to Posner (1990) there is a general consensus that economic analysis oers a forcefull behavioural theory to study
law and related issues. In another words, numerous economic concepts such as
Pareto eciency, transaction costs analysis as well as game theory, econometric and
statistical methods and others can be very useful in assessing which legal rules are
economically ecient and can predict which rules will be promulgated.
This paper focuses on game theory as a branch of applied mathematics that has
been increasingly used in economics since 1970s and consequently in law and economics. Game theorys method is to simplify a situation by describing it in terms
of players, actions, payos, after which the players strategic interactions can be
described. Whether used explicitly or implicitly, this is a highly useful approach to
law. Namely, well-known games such as the prisoners dilemma, the battle of the
sexes, beer-quiche, and the Rubinstein bargaining game can illuminate many different kinds of legal problems.
The purpose of this paper is to present the underlying logic of the game theory
and law and to help improve the communication between economic and legal
scholars since economic and mathematical tools can be intellectually very useful
for law scholars and law practitioneers. The particular emphasis is placed on the
Prisoners Dilemma as the basis of the game theory and one of the most interesting
paradigms of recent theoretical work in variety of elds warfare, diplomacy, sport,
the social sciences and even biology.
2. Brief review of the game theory: Prisoners Dilemma
The origins of the game theory date back to 1944, when John von Neumann, a
Hungarian mathematician and physics and Oskar Morgenstern, a former director of
the Austrian Institute for Economic Research, published their work Theory of Games
and Economic Behaviour.1 The game theory deals with any situation in which strategy is important. In another words, it studies the way how people behave in strategic
situations. Hereby the game is characterized by several specic things including (i)
1
Read more in Game Theory - The Origins Of Game Theory - Games, Research, Von, Strategy, Solution, and Neumann, available at http://science.jrank.org/pages/9420/Game-Theory-Origins-GameTheory.html#ixzz1CoxlE9Vj (Accessed 3.02.2011.)
706
players or decision makers, (ii) strategies available to each player; (iii) rules governing players behavior; (iv) outcomes, each of which is a result of particular choices
made by players at a given point in the game; and (v) payos accrued by each player
as a result of each possible outcome (Rapoport, 1974: 1). Game theory provides
analytical tool for examining strategic interactions among two or more participants.
By using simple and often numerical models to study complex social relations, game
theory can illustrate the potential for cooperative behavior among distrustful participants, as well as risks associated with it (Shane, 2003). These hypotethical games
are applicable to variety of social situations: writing a research paper by a group of
studing, using dopping as a mean of enhancing abilities in the race, determining
pricing strategy between to businesses, arm races between superpowers or local rival
nations, etc. Game theory is very useful for understanding some legal rules and
institutions since the law is often faced up to the situations in which there are few
decision-makes and in which the optimal action of one person to takes depends on
what another actor chooses (Cooter and Ulen, 2004: 38).
One of the most famous concepts of game theory is the Prisoners Dilemma. It
illustrates the paradoxical nature of interaction between mutually suspicious participants with opposing interests. Consider following hypothetical situation. Two
criminals conspire to commit a criminal oense and they make a pact not to confess in case they are caugth. They are arrested by the police where the crime is
committed and they are placed in separate rooms in the police station so that they
cannot communicate with each other. Unfortunatelly, the evidence against them
is circumstantial (they were at the wrong place in the wrong time) and if the prosecutor must go to the trial only with this evidence, they will be charged for minor
oence only. So, the prosecutor would like very much for either one of them or both
to confess. Thus, the prosecutor oers a reward one who confesses gets the reward
for assisting the state in terms of reduced sentence (i.e. fewer years in prison). So,
the question is what shoould each suspect do? The strategies in this case are confess
or do not confess; the payos (i.e. penalties) are the sentences served which are shown
in the form of matrix (see gure 1).
Figure 1 Payo matrix

Suspect
2
confess
does not confess
confess
10, 10
20, 0.5
Suspect 1
does not confess
0.5, 20
1, 1
707
The matrix is read as follows: the rst number in each cell represents how desirable that outcome is for the suspect 2, and the second number represents how desirable the same outcome is for the suspect 1. The most preferred outcome is indicated
with a 0.5 representing half a year in prison, and the least preferred outcome is
indicated with a 20, representing 20 years in prison.
Thus, the matrix suggests following: if Suspect 1 and Suspect 2 both confesse,
they will get 10 years in prison each. If Suspect 1 confesses and Suspect 2 does not
confess, Suspect 1 will spend half a year in prison and Suspect 2 will spend 20 years
in prison. If Suspect 1 does not confess and Suspect 2 confesses, then Suspect 2 will
spend half a year in prison and Suspect 2 will spend 20 years in prison. If both suspects keep quiete, i.e. do not confess, each will spend one year in prison.
According to the matrix, the best option for Suspect 1 is always to confess regardless of the Suspect 2 does since it means less years in prison. In terms of game
theory, this is a dominant strategy, i.e. the optimal move regardless of what the
other player does. Reversely, this is the dominant strategy for Suspect 2 as well since
he/she will reason the same as the Suspect 1. Thus, the dominant strategy for both
suspects is confessing and the solution to this game that both suspects confess
is equilibrium. This equilibrium, alsno known as Nash equilibrium2, suggests that
there is no reason for either player to change his/her strategy.
This game suggests that both players, i.e. suspects, are rational and want to
minimize their sentence. Also, if they cooperate (i.e. neither confesses to the crime)
they will receive the minimum sentence since there is no evidence. However, since
the prisoners cannot communicate with each other, the question of whether to
trust the other not to confess is the critical aspect of this game.
This may be a simple model, but its lessons can be used to examine more complex strategic interactions such as arms races, negotiations in case of divorce, contract fulllment, etc.
Nash equilibrium, named after John Nash, is a set of strategies, one for each player, such that no
player has incentive to unilaterally change her action. Players are in equilibrium if a change in strategies by any one of them would lead that player to earn less than if she remained with her current
strategy. For games in which players randomize (mixed strategies), the expected or average payo must
be at least as large as that obtainable by any other strategy (Shor, 2011).
708
3. Application of game theory to law: selected examples
There has been considerable academic consideration of the application of the

game theory to various branches of law, e.g. environmental law, contract law, labor
law, etc. (e.g. Dau-Schmidt et al., 1997; Baird et al., 1994; Katz, 1990).
Let us take, for example, the family law. Game theoretic techniques can be applied to existing negotiation models in the family law context when it comes to the
breakdown of family unite in the cases of separation or divorce. As the court practice
suggest, many settlement agreements are inappropriate for the parties for a variety
of reasons, including not establishing the parties true interests during the negotiations (see more details in OHanlon, 2006). Lessons derived from the game theory
can promote communication, cooperation, and forgiveness without allowing either
party to be manipulated. Thus, the game theory techniques and methods can be a
constructive addition to negotiation strategies such as traditional courthouse negotiations that take place leading up to the trial, quasi-cooperative negotiations such
mediation and cooperative negotiations (Zeleznikow & Bellucci, 2003.).
Another example comes from the contract law (Cooter&Ulen, 2004: 189-200).
People make promises in everyday situations, yet it happens that promises are not
fullled and one party in such a relation becomes a victim of deciptive promise.
The contract law poses two fundamental questions: (1) what promises should be
enforced by the law, and (2) what should be the remedy for breaking the promise?
Anglo-American courts and legal commentators developed the bargain theory of
contracts to answer these questions. According to the bargain theory, a promise is legally enforceable if it is given as part of a bargain, otherwise is unenforceable. Also,
the promisee is entitled to the benet he or she would obtaine from the fulllment
of promise. However, the bargain theory is quite dogmatic and economic theory
of contract law is much more responsive. Namely, many exchanges in business
are based upon promises, some are instant and simultaneous (e.g. paying cash for
groceries in the store) and some including deferred exchange, i.e. transaction that
involve the passage of time for their completion (e.g. one party pays in advance for
goods that will be delivered; one party delivers goods now and other promises to
pay later, etc.). The passage of time bewteen exchange of promise and performance
of promise raises uncertainties and risks, which represent an obstacle to exchange.
The application of game theory can be illustrated in the case of deferred exchange
when promises are unenforceable. The seller asks buyer to pay now for the goods
that will be delivered in the future. The unenforceable promise involves a high risk
709
that the seller will not deliver the goods in the future, so the buyer wants something
stronger than a moral obligation of the seller that he will act on his promise; he
wants a legal obligation of seller to deliver goods. Thus, the cautious buyer may be
willing to pay now for an enforceable promise to get the goods in the future, so the
enforceability of promises encourages exchange and cooperation among people. The
game theory can help to illustrate what is the dominant strategy in such a case. The
exchange is a game in which there are two players (buyer and seller), strategies (enforcement or non-enforcement of promise) and payos (purchased good and sale).
Both parties want the sellers promise to be enforceable (dominant strategy) the
buyer wants the enforcement of promise to be sure that the seller will provide him
goods in the future or otherwise to pay him a remedy for the breach of contract;
and the seller wants the enforcement of the promise in order to encourage the
buyer to make a purchase. Thus, yy enforcing promises, the court can make both
parties better o, i.e. it makes committments credible and cooperation ecient
which is a key for doing a business. 3
The application of game theory can be found in the international public law. The
most common game-theoretic model of the nuclear arms race between two hostile
countries is the one involving the ex-Soviet Union and US (Plous, 1993). Their
armament in order to pursue nuclear superiority has been an iterated Prisoners
Dillema (gure 2).
Figure 2 Prisoners Dilemma: ex-Soviet and US nuclear armament

USA
USSR
Disarm
Arm
Disarm
3,3
4,1
Arm
1,4
2,2
Note: The rst number in each cell represents how desirable that outcome is for the US, and the
second number represents how desirable the same outcome is for the USSR. The most preferred
outcome is indicated with a 4, and the least preferred outcome is indicated with a 1.
Source: Plous (1993: 164)
According to the matrix, both countries are better o arming no matter what
the other side is choosing to do. However, the outcome is less desirable than in the
See Baird et al. (2004: 196 200) for example of agency game that describes the situation in which one player decides whether to put a valuable asset under the control of
the second player.
3
710
case if both countris would choose to disarm, i.e. to reduce the supply of nuclear
weapons. The cost of such race had various political, economic and social repercurrsions both countries had been exposed to raising tension, potential leathal
destruction, could have more nancial and security savings that could be put in
another (more productive) use, etc.
4. Concluding remarks
Legal scholars have made a great use of this concept particularly in terms of exploring topics such as contracts and property, international law, race discrimination,
federal judiciary, actual prisoners (e.g. Setear, 1997; McAdams, 1995; Rose, 1990)
or to explain the major concepts in law such as tragedy of commons, public good
problems and the like (e.g. Ostrom, 2008; Engel, 2004). Despite its popularity in
the legal academic community, there are also authors who question the necessity
to use the Prisoners Dillema so vastly. McAdams (2008) claims that legal schoolars overuse the cooperation concept since the real situation more often deal with
social problems of equity and coordination that cannot be reduced to cooperation
problems. There are several reasons why legal scholars favorize Prisoners Dillema.4
Namely, when these games are played once, they have a single equilibrium, which
in turn provides denite prediction of behavioural outcome. Also, such models are
normatively simple and oer a simple Pareto-justication for legal interventions,
i.e. when cooperation is a problem, the right kind of external incentives to solve
Prisoners Dillema can make everyone better o without necessity to develop complex theory to justify redistribution.
Unfortunatelly, those who force using the Prisoners Dillema neglect the fact
that social problems of equity and coordination more often araise in practice that
the problem of cooperation. Thus, one shoould move away from only using Prisoners Dillema and include other insights of game theory, i.e. use other games such
as i.e. other games such as Rubinstein bargaining game, the battle of sexes, etc.
In that way, the game theory provides better methods to lawmakers to think and
reason about the strategic behaviour of persons and formulate laws that are based
on such behaviour.
R.H. McAddams (2008) discusses in details why legal scholars favorize Prisoners Dillema and tend to characterize a situation as Prisoners Dillema game even if it is not. As
an example he points out why Prisoners Dillema game is a poor model of a bank run
even though it is often used in many articles.
4
711
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Baird, D.G., Gertner, R., Picker, R. (1994), Game Theory and the Law, Cambridge,
Mass.: Harvard University Press.
Cooter, R, Ulen, T. (2004). Law & Economics, 4th edition, Pearson, Addison Wesley, Boston.
Dau-Schmidt, K., Alexeev, M., Stake, J., Heidt, R., Rasmusen, E. (1997), Review
Discussion: Game Theory and the Law, Law and Society Review, 31,3: pp. 613629
Engel, C. (2004), Social Dilemmas, Revisited from a Heuristics Perspective,
MPI Collective Goods Preprint No. 2004/4., available at SSRN: http://ssrn.com/
abstract=539442
Katz, A. (1990), The Strategic Structure of Oer and Acceptance: Game Theory
and the Law of Contract Formation, Michigan Law Review, 89, 2: pp. 215-295
McAdams, R.H. (2008), Beyond the Prisoners Dilemma: Coordination, Game
Theory and the Law, John M. Ohlin Law &Economics Working Paper No. 437,
The Law School, The University of Chicago: pp. 1-56
McAdams, R.H. (1995), Cooperation and Conict: The Economics of Group Status Production and Race Discrimination, 108, Harward Law Review: pp. 10031084; Stable URL: http://www.jstor.org/stable/1341869
OHanlon, J.E. (2006), Can Lessons from Game Theory be Applied to Family Law
Negotiations? Library and Archives Canada, Published Heritage Branch, ISBN 9700-494-28641-8.
Ostrom, E. (2008), Building Trust to Solve Commons Dilemmas: Taking Small
Steps to Test an Evolving Theory of Collective Action. In Levin, S. (ed), GAMES,
GROUPS, AND THE GLOBAL GOOD, New York: Springer, Forthcoming, available at SSRN: http://ssrn.com/abstract=1304695
Posner, Richard (1990), The Problems of Jurisprudence, Cambridge, MA: Harvard
University Press.
Rowley, C. (1989), Public Choice and the Economic Analysis of Law in Nicholas
Mercuro (ed.), Law and Economics, Boston, Kluwer, Academic Publishers: pp. 123173
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Rapoport, A. (ed.) (1974), Game Theory as a Theory of Conict Resolution, D. Reidel

Publishing Company, Boston
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Relations Theory: The Rules of Release and Remediation in the Law of Treaties and
the Law of State Responsibility, 83, Virgian Law Review: pp. 27-32
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GENDER DISCRIMINATION IN THE LABOR MARKET: CROATIAN EXPERIENCE
713
GENDER DISCRIMINATION IN THE LABOR MARKET:

CROATIAN EXPERIENCE
Katarina Maroevi, univ. spec. oec.
Faculty of Law
Josip Romi, univ.spec.oec.
ABSTRACT
The issue of discrimination has been addressed by many academic scholars, including Nobel Prize winners for economics such as Gery Becker and Kenneth Arrow. Namely, Kenneth Arrow (1971) provided often cited denition of discrimination as the valuation in the market place of personal characteristics of the worker that
are unrelated to worker productivity. Also, Gerry Becker (1971) has developed the
theory of discrimination by examining the behavior of employers who have showed
the taste for discriminatory policy. Discrimination can manifest itself in all aspects of life. This paper focuses on gender discrimination on the labor market.
Much has been done around the world to reduce gender inequality in the labor market in terms of economic participation and economic opportunity, yet no
country has managed to eliminate the gender gap. The purpose of this paper is to
discuss the complex notion of gender discrimination on the labor market. After
providing a theoretical review of why discrimination occurs on the labor market,
this paper addresses two most known forms of discrimination against women gender pay gap (i.e. women are being paid less than for doing the same or similar
job) and glass ceiling (i.e. a limitation preventing women of upward advancement
within the organization which is not immediately apparent, usually as an unwritten rule or unocial policy). The theoretical perspective of the paper is illuminated
by the example of Croatia, an EU candidate country, which has been investing en
eort to promote gender equality in accordance with EU legislation. Taking into
consideration that discrimination is economically inecient and leads to lower
wages for women and consequently to lower output of national economy, the paper
714
Katarina Maroevi
provides selected suggestions how to support gender equality on the labor market.
They may serve as a general guide for national or regional decision makers in promoting the status of women in the labor market which can positively impact the
overall economic development.
JEL classication: K31, M54
Key words: discrimination, gender equality, gender pay gap, glass ceiling
1. INTRODUCTION
Basic principles and premises of each society should be based upon equality of
all people regardless of sex, race, religion, social position or any other characteristics
upon which the dierence can be made. However, not all people are treated equally,
i.e. discrimination is still present in economies and societies across the world. There
are many denitions of discrimination. For example, discrimination is the prejudicial treatment of an individual based solely on their membership in a certain
group or category. It involves excluding or restricting members of one group from
opportunities that are available to other groups (Appelbaum et al., 2009: 324).
Arrow (1973) provided often cited denition of discrimination as the valuation in
the market place of personal characteristics of the worker that are unrelated to worker
productivity. American economist Gary Becker (1971) describes discrimination as
form of dierent wage rates for equally productive workers with dierent personal
characteristics (such as race, sex, age, religion, nationality, or education) and it can
also take form in which discriminated employers can be exclusioned from jobs on
the grounds of social class, union membership, or political beliefs. The common
denominator to all denitions is that discrimination must involve some kind of
exclusion or rejection in the behaviour towards particular indivduals or groups.
Discrimination can manifest itself in all aspects of life, but the focus of this paper is
on gender discrimination on the labor market. Namely, even tough women make
the demographic majority across the world, they are still economic minority and
face direct and indirect discrimination on the labor market. Particularly known
forms of this discrimination are the wage gap between men and women, labor
market segregation by gender, and the glass ceiling.
McConnell and Brue (2004: 61) instigate that this situation has been changing
during the last four decades, marking an increase of employed woman in all age
range, except of those older of 65 or more, and especially increasing growth is notable for younger woman in age range of 20-24 and those of 25-54 years. Intriguing
715
is the fact that the participation of married women in the labour market is increasing since one would expect otherwise. Some of the reasons of increased number
of woman participation on the labor market are due to growth of their real wages,
changing of their inclinations and postures, growth of productivity in households,
decrease in birthrate, increase in divorce rates, as well as increase in possibilities of
employment (Puri, 2000). Still, gender asymmetry on the labor market has not
been eliminated yet.
Many studies have been dealing with the gender discrimination on the labor
market. Gender dierences are often presented through the gender pay gap (Blau,
1996, Bell, 2005, Hersch, 2006). Furthermore, much has been discused about
gender gap on the labor market in terms of positioning of the women in management and leadership (Gang, Landon-Lane & Yun, 2003; Adams & Funk, 2009;
Basu, 2008).
The purpose of this paper is to discuss the complex notion of gender discrimination on the labor market with particular emphasis on the Republic of Croatia. After
introductory remarks, the section 2 provides various denitions of discrimination
on the labor market, brief overview of economic models which explain why does
discrimination occurs and oers selected typization of this complex fenomena. Particularly explained are two most known forms of discrimination on the labor market
gender pay gap and glass ceiling. Section 3 discusses European and Croatian experience with discrimination on the labor market. The statistics show that labor market discrimination in both cases is evident through gender asymmetry in economic
participation (e.g. unemploymen rate) and economic opportunity (e.g. advancing
in the organization hierarcy, pay gap, etc.). As a concluding part, section 4 provides
selected policy suggestions how to eliminate gender gap on the labor market.
2. DICRIMINATION ON THE LABOR MARKET
Discrimination is very complex term which is evident from numerous denitions, as well as from the fact that it is a topic in various scientic elds such as
economics, sociology, law, etc. As far as denition of the term is concerned, discimination is often dened as a decision that puts one person in economically unfavorable position compared to other, based certain characteristics such as gender,
religion, race, etc. (imonovi Einwalter, 2009: 10). Legal scholars usually dene
discrimination as to make a dierence between persons or group of persons that is
forbidden by the law (Potonjak, 2007: 49).
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Katarina Maroevi
Discrimination on the labor market has been intensively discussed in the literature and has been addressed by many academic scholars, including Nobel Prize
winners for economics such as Gery Becker and Kenneth Arrow. Kenneth Arrow
(1971) provided often cited denition of discrimination as the valuation on the
market place of personal characteristics of the worker that are unrelated to
worker productivity. Earlier, Gerry Becker (1957) has developed the theory of discrimination by examining the behavior of employers who have showed the taste
for discriminatory policy.
There are several economic models of discrimination which explain why does
discrimination occur: (i) neoclassical model of discrimination, i.e. taste model
Becker, 1971); (ii) statistical discrimination: oer dierent transaction terms to individuals because of perceived or accurate group dierences (Norman & Moro,
2001); (iii) overcrowding model: crowding into lower wage jobs due to preferences
or lack of alternative opportunities (Bergmann, 1971); (iv) institutional model: everyday operation of rm causes dierences in productivity, promotion opportunities and pay (Colander, 1997).
There are numerous forms and partitions of discrimination. For instance, Pavlovi
(2009: 91) implies two forms of discrimination - direct and indirect Other authors,
for instance Kokanovi and Milidrag mid (2000: 35) oer a slightly dierent types
of discrimination on the labor market as well as in the proces of education: (i) discrimination regarding wage hight, meaning woman are less paid than men for the
same job; (ii) discrimination by employment policy which occurs when alongside all
other conditions, priority towards employment is given to men, cousing situation in
which women are unequaly bearing accomplishment of unemployment (higher rate
of women in total unemployment); (iii) discrimination towards availability to some
occupations or businesses, having a signication of arbitrage restrictions or prohibition
of accesson to women in certain occupations; (iv) discrimination in education, which
is manifesting through reduction of women posibilities in increased knowledge,
skills and competention through formal education or training at work and some extra perfection of specic knowledges and skills. Besides this typization, other authors
make some dierent classications of discrimination. For instance, Madden (1973),
considers three types of labor market discrimination, and two ancillary forms of
discrimination: (i) wage discrimination, which occurs when wage dierentials are
not based on productivity dierences; (ii) occupational discrimination, which occurs
when the proportion of members of a group in an occupation is based on factors
other than productivity dierences; (iii) cumulative discrimination, which occurs
717
when a person has low productivity due to past discrimination; (iv) pre-labor market
discrimination, similar to cumulative discrimination, which occurs when a person
has low productivity because of inferior educational opportunities due to discrimination; (v) societal discrimination, a precursor to both labor market and occupational
discrimination, which is based on the belief that some jobs are more appropriate
for certain groups, such as nurses should be females and doctors should be males.
It is obvious from named classication, that it is impossible to determine a unique
division, but more important than unique division for sure is establishing all forms
of this problem. This paper focuses on two most frequently forms of gender discrimination on the labor market - gender pay gap and glass ceiling.
2.1. Gender pay gap
Gender pay gap has been intensively disscussed by various academic scholars
(Blau & Kahn, 2007; Orazem, et al., 2003; Costa & Silva, 2008; Goldberg & Hill,
2007). The gender pay gap reers to the dierence between average gross hourly
earnings of male paid employees and of female paid employees as a percentage of
average gross hourly earnings of male paid employees (Padavic & Reskin, 2002).
From the theoretical point of view, there are three most common economic
theories that are being used to explain the factors underlying the gender pay gap: (i)
human capital theory emphasizes how education increases the productivity and eciency of workers by increasing the level of cognitive stock of economically productive human capability and is rational because the new generation must be given the
appropriate parts of the knowledge which has already been acumulated by previous
generations, that the new generations should be used to develop new products, and
that people should be encouraged to develop entirely new ideas, products, processes
and methods through creative approaches (Babalola, 2003); (ii) dual labor market
suggests division of market into primary and secondary sector. Jobs in the primary
sector generally have relatively high pay and status, job security, good working conditions and opportunities for promotion through a highly-developed internal labor
market. On the other hand, jobs in the secondary sector are low-status and poorly
paid, have poor working conditions, little job security and virtually no promotion
or training opportunities. Secondary-sector jobs tend in general to be lled by
women, ethnic minorities and people from disadvantaged backgrounds. This led
the rst writers on dual labor markets to assume that workers in the secondary sector were there because they chose that sort of work, or were not suited for primarysector jobs, either through being unreliable or poor workers (Doeringer & Piore,
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Katarina Maroevi
1971) and (iii) the reserve army of labor theory refering basically to the unemployed
in capitalist society. It is synonymous with industrial reserve army or relative surplus population, except that the relative surplus population also includes people
unable to work. The use of the word army refers to the workers being conscripted
and regimented in the workplace in a hierarchy, under the command or authority
of the owners of capital.1
2.2. Glass ceiling
The phrase glass ceiling is metaphorical term describing a form of discrimination

within workplaces. The glass ceiling is a transparent barrier that kept women from
rising above a certain level in corporations (Morrison et al., 1987: 13). The
importance and eects of this phenomen has been discussed by many authors (e.g.
Moore, 1997; Baxter & Wright, 2000).
The metaphor of the glass ceiling comprise a specic claim that discrimination against women is pervasive at all levels of managerial hierarchies and consists
a claim that the obstacles women face to promotion relative to men systematically
increase as they move up the hierarchy. Obstacles may also increase for men as
they move up the hierarchy, but barriers to promotion intensify more for women
than for men. Women are also a minority in higher level of management, limited
by employers and top management which obstruct them in acces and reach of
top management. Signicant problem are also pay dierentials between men and
women that increase as workers move into the upper level of the wage distribution (Newell, 2007; Lampousaki 2008). Mechanism responsible for this kind of
obstructions are oldfashioned sexism, women managers isolation from important
informal networks, or more subtle sexist attitudes that place women at a disadvantage (Baxter & Wright, 2000).
According to ILO (2004) upward mobility is for women very limited once they
are employed as support stu. The growth of salary is usually noted with education,
age, work experience and job tenure for both, men and women, but the increase is
almost always greater for men than for women. There is an exception, but in most
occupations there is no impact on mens earnings, which means that their compensation would not change regardless of weather they worked in male or female-
1
Source of data: World Lingo: Reserve army of labour, available at http://www.worldlingo.com/ma/
enwiki/en/Reserve_army_of_labour, (8.3.2011.)
719
dominated occupations, but women employed in female-dominated jobs earn less

than those working in non-female-dominated jobs (Giaccone, 2009).
3. GENDER DISCRIMINATION ON THE LABOR MARKET: EUROPEAN AND
CROATIAN EXPERIENCE
3.1. European experience
The European union (EU) has been investing signicant eorts in promoting
women participation in the labour market. This is particularly evident through the
Lisbon Strategy (2000) where one of the goals is to raise the employment rate of
women to more than 60%.2 Regarding the EU target for the female employment
rate, some progress has been made.3 In 2009, 58.6% of working-age women were
employed. In the same year, 14 Member States had a female employment rate at,
or above, the Lisbon target of 60% (i.e. Denmark, The Nederlands, Sweden, Finland, Austria, Germany, United Kingdom, Slovenia, Estonia, Cyprus, Portugal).
However, most other Member States are still away from the Lisobon target such as
Malta, Italy, Greece and Hungary which are more than 10 percentage points short
(between cca 35 -50%). There are also countries in which the situation on the labor
market deteriorated (i.e. Estonia, Ireland, Spain and Latvia) or remaind status quo
(i.e. Romania, Hungary and the Czech Republic).
When it comes to gender dierence in economic participation, labor market
segregation still remains high, even where women have high employment rates (including Denmark, Finland and Sweden). Women are concentrated in low-graded,
service, public sector and part-time jobs, and tend to dominate in caring professions while men ll most posts in construction and agriculture. With respect to
equal pay, moreover, on average women are paid less than men for the same work
or for work of equal value.4 According to the EUROSTAT (2008) statistics, the
average gender pay gap for EU 27 is 17.5%.5 High rates of gender pay gap (between
2
For more details on Lisbon Strategy see: http://ec.europa.eu/archives/growthandjobs_2009/

index_en.htm
3
Source of data: European Commission: Employment in Europe 2010 available at http://ec.europa.
eu/employment_social/eie/chap1-5-2_en.html 14.03.2010.)
4
Source of data: European Commission: Women in the Labor Market, available at http://www.
eurofound.europa.eu/areas/industrialrelations/dictionary/denitions/womeninthelabourmarket.htm
(14.3.2011.)
5
Source of data: European Commision: Women in the Labor market, available at http://ec.europa.
eu/social/main.jsp?catId=685&langId=en (14.3.2011.)
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Katarina Maroevi
approx. 20%-30%) are recorded for Estonia, Czech Republic, Austria, Germany,
Cyprus, Lithuania, United Kingdom and Slovakia. Countries which note low rate
of gender pay gap are Belgium, Roumania, Malta, Sovenia and Italy (up to approximately 10 %). Countries like Hungary, Spain, Denmark, France, Ireland, Sweden
and Bulgaria have rates of gender pay gap between those two marginal groups of
gender pay gap rates. Access to management positions is not restricted for women
in the EU. However, they face many obstacles in reaching higher managerial positions and are being grossly under-represented in executive positions and board
seats. The greatest evidented percentage of women in senior management for 2011
in EU6 has been noted for Poland (31%), high percentage (between approximately
20%-30%) are registered for Greece, Sweden, Finland, United Kingdom, Spain,
Italy and France. World average in percentage of senior managerial positions held
by women in 2011 is 20%, while down below that percentage are Ireland, Belgium,
Netherlands, Denmark and Germany (up to approx. 20%).
3.2. Croatian experience
When observing Croatian situation, one can notice similar gender-related problems on the labor market. According to data of Croatian Employment Service
(2011), the rate of unemployment for women is continously higher than those for
men oscillating at the level of 60% within last ve years (table 1). Such high rate
of women unemployed is opposing the Lisbon strategy goal related to increase the
participation of women on the labor market.
Table 1 Unemployed pearsons

Year
2005
2006
2007
2008
2009
2010
Total
308.738
291.616
264.448
236.741
263.174
302.425
Average number
Men
Women
127.942
180.796
116.519
175.097
102.482
161.966
89.540
147.201
107.115
156.059
136.805
165.620
Chain index
99,6
94,5
90,7
89,5
111,2
114,9
Source: Croatian Employment Service, 2011

6
Source of data: Grant Thornton , IBR 2011, Proportion of women in senior management falls to
2004 levels, (16.03.2011.); Statistics reveals on the global level
721
The majority of unemployed women has only secondary schooling, which

points out at the dierence in educational attainment between women and men.7
Such an asymmetry in education is later transformed into gender segregation on
the labor market.
Croatian corporate world is not gender-balanced as well. Similar to international
experience, women in Croatia are limited in obtaining higher managerial positions,
facing glass ceiling as one of the barriers. For example, data shows that in 2009 in
Croatian 100 largest companies women occupied only 6% of managerial positions,
what is a legitimate indicator of vertical segregation on Croatian labor market.8
Equally present is horizontal segregation since women are mostly related to the jobs
in particular sectors such as services, tourism, catering industry and education.9
When concerning data for the gender pay gap (table 2), situation on the Croatian labor market is similar to that in the rest of Europe. The gender pay gap in
Croatia is approximately 17% which is correspondent to the EU average of 17.5%.
In other words, Croatian women need to work extra two months per year to keep
pace with their male colleagues.10
Table 2 Gender pay gap in Croatia (2008)
Total
Average montly gross earnings per person

in paid employment
Total
Men
Women
7507
7892
7016
Average montly paid o net earnings per

person in paid employment
Total
Men
Women
5161
5418
4832
Note: Earnings are expressed in the national currency of Croatia where by 1 EUR = 7.3 HRK
Source: Croatian Bureau of Statistics (2010)
The time of transition of the Republic of Croatia that followed up the breaktup
of former Yugoslavia has created an opportunity as well as the necessity for women
to engage in entrepreneurship. However, it did not translate into a signicanlty
7
According to the last Census (2001), women that held Ph.D. were in percentage 0.1 % while there
was 0.3 % of men with Ph. D.
8
Source of data: Croatia: International Womens Day focuses on gender salary gap; available at http://
www.undp.hr/show.jsp?page=51874 (16.03.2011.)
9
Source of data: Croatian Employment Service, available at http://www.business.hr/hr/Naslovnica/
Hrvatska/Zene-u-Hrvatskoj-12-posto-slabije-placene-od-muskaraca (16.3.2011.)
10
Source of data: Croatia: International Womens Day focuses on gender salary gap; available at
http://www.undp.hr/show.jsp?page=51874 ((16.03.2011.)
722
Katarina Maroevi
increased number of women in entrepreneurship. Similar to the case of female

entrepreneurship around globe in general and transitional economies in particular,
Croatian men have been starting their own business more often than women, i.e.
women are represented only by 30%.11
Such an adverse situation on the labor market is also due to the fact that Croatia
is facing gender inequality in decision-making. Even though women represent a demographic majority according to the last Census (2001), they are political minority
which has a negative impact on the development potentials. Increasing womens
political participation rates would mean to incorporate (more) women interest into
policy-making, i.e. to support laws that benet women, their families and children
as well as other things that may be a barrier to their more active participation on
the labor market.12
4. Policy suggestions: conluding remarks
Gender asymmetry on the labor market proves to be a complex problem that

can be considered from various aspects: economic in terms of inefcient utilization of the women as human resource, legal in terms of not respecting legal
rights of women on the labor market which further implies question of social
justice, etc.
EU invests serios efforts to eliminate gender asymmetry in the economy and
society. One of the well-known anti-discrimination policies at the European
level, particulary known is the initiative For Diversity, Against Discrimination
by the European Commision in which very important role play European Court
of Justice (Hgl, 2004). Furthermore, in 1999 an Article was inserted into the EC
Treaty (Amsterdam Treaty) demanding the ghting of discrimination on dierent
grounds. Also, four anti-discrimination Directives have been issued, which expand
freedom from discrimination (Baer, 2003). There are number of means in ghting
against gender discrimination. One of the most commonly known means in ghting against gender discrimination is already mentioned Lisbon Strategy (2000) in
which EU dened a 10-year strategy aiming at long-term economic growth, full
employment, social cohesion and sustainable development, as well raising the em11
Source of data: Tko su poduzetnici? http://www.poduzetna.hr/poduzetnistvo/zene_u_poduzet-
ni.html (17.03.2011.)
12
For more details see Barkovi and Teri (2009).
723
ployment levels of groups that are currently under-represented on the labor market,
particulary women. The same aim can be also recognized in the EU anti-discrimination directive of 2002 which prohibits sex discrimination, including sexual and
gender harrasment (Zippel, K.S, 2006).
For the purpose of implementation of gender sensible policies, the Republic
of Croatia has brought a number of laws, policies and measures which are all in
accordance with EU standards. Also, various institutions and bodies have been
established at the national and local level in order to implement gender-sensitive
policies. Still, much work remains to be done.
Some of those policies are:
better and sequential implementation of present legislation as well as their
better approachnes (presentation)to people;
be involved in all aspects of removing any kind of discrimination specially those
on the labor market in accordance in creating higher rates of employment;
generate environment based upon equality, where any type of segregasion or
gap is not going to exist or is going to be on smallest level possible;
create policies that include women on high positions but at the same time do
not exclude them from family obligations and enjoyments;
investing in generating and bringing principles of non-discrimination and diversity management into practise at the level of companies and persons daily life.
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727
ROME II REGULATION
ROME II REGULATION
Assistant Professor Vjekoslav Puljko, PhD.
Faculty of Law of Osijek
1 Introduction
Despite encouragement and appointment of experts by the EU, only three relevant international treaties1 regulating EU procedural and private international law
were signed in the period from the Treaty of Rome2 to the Treaty of Amsterdam3, a
period lasting 40 years. Moreover, in the last ten years, since the Treaty of Amsterdam was adopted in order to reform the EU legislation and help create an ultimate
judicial body, a unique EU private international law has emerged, gradually replacing private international laws of Member States. The old, complicated procedure of
signing and adopting international treaties has been abandoned. The former regime
of international conventions has been replaced by secondary EU law, i.e. regulations and directives, adoption of which belongs to the jurisdictions of the Council
of the EU.
Since then, a dozen of regulations and directives4 have been signed, among which
the Brussels I Regulation5, Rome I Regulation6 and Rome II Regulation7 are the most
1
These are the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters 1968, The Convention on the Law Applicable to Contractual Obligations
1980 (Rome Convention) and the Lugano Convention regulating the same subject matter as the
Brussels Convention but, unlike the Brussels Convention, it can also be joined by non-EU member
states. Stone, P., EU Private International Law, Cheltenham UK etc. 2006. pages 3 10.
2
The EEC Treaty of 1 January 1958
3
Treaty of Amsterdam amending the Treaty on European Union, the Treaties establishing the European Communities and certain related acts, signed on 2 October 1997, OJ C 340 of 10 November
1997.
4
Sajko, K.: Meunarodno privatno pravo (Private International Law), Narodne Novine, Zagreb 2009,
page 70.
5
Council Regulation (EC) No 44/2001 of 22 December 2000 on Jurisdiction and the Recognition
and Enforcement of Judgments in Civil and Commercial Matters, OJ L 12 of 16 January 2001. It
should be pointed out that the 2006 Directive has been amended more than once and the amendment
process has never ended since some solutions contained therein have turned out to be full of aws.
6
Regulation of the European Parliament and Council No 593/2008 of 17 June 2008 on the Law Applicable to Contractual Obligations, OJ L 177 of 4 July 2008.
Regulation of the European Parliament and Council No 864/2007 of 11 June 2007 on the Law
Applicable to Non-Contractual Obligations, OJ L 199 of 31 July 2007.
728
Vjekoslav Puljko
prominent ones, representing a particular trilogy8 of instruments adopted in the light

of harmonization of rules, which, in the end, should contribute to a legal security and
predictability increase as well as to the more ecient common market.
This paper is focused on the Rome II Regulation, including a concise overview
of its emergence, the discussions and proposals preceding its completion and its
implications, relevance and key features.
2 ON THE EMERGENCE OF THE ROME II REGULATION
In terms of the emergence of the Rome II Regulation, one, despite not going
into details, has to mention the work of the Hague Conference on Private International Law9 which, apart from shorter interruptions, has been active since 1883 and
developed the idea of unication of private international law, including the law of
delict. In the 1960s, the eorts on shaping a general convention were terminated.
Instead, the emphasis was put on the conventions which were to regulate separate
areas of the law of delict. This kind of approach resulted in the Hague Convention
of 4 May 1971 on the Law Applicable to Trac Accidents and Hague Convention
of 2 October 1973 on the Law Applicable to Products Liability.
Beside the Hague Conventions, national provisions included into international
delict law had an indirect eect on the contemporary solutions of the delict statute.
These are, for instance, the Swiss Federal Act on Private International Law and German and French judicial practice10. However, a direct incentive for shaping harmonized rules for non-contractual obligations originates from the Benelux States and
dates back to the 1950s.
Belgium started an initiative for harmonization of collision rules on the territory of the Benelux States11. The rules belonged to the eld of civil obligations. In
8
For more details see Lein, E., The New Rome I, Rome II, Brussels I Sinergy. Yearbook of Private
International Law, vol. 10/2008. Pages 177 198.
9
For more see Sajko, K.: Meunarodno privatno pravo (Private International Law), Narodne Novine,
Zagreb, 2009., page 63.
For more see Bouek, V., Uredba Rim II-komunitarizacija europskog meunarodnog deliktnog prava (Rome II Regulation Communitarisation of European International Delict Law),
Zbornik radova Pravnog fakulteta u Splitu (Collection of Works of the Faculty of Law of Split,
year 45, 2/2008., page 292.
10
11
For more see De Boer, Ted M., Beyond Lex Loci Delicti, Conicts, Methodology and Multistates
Torts in American Case Law, Kluwer Law and Publishers, Deventer, 1987, pages 25 to 36.
ROME II REGULATION
729
1967, the rst step forward was made. A board consisting of six members, all of
them being prominent legal experts from Member States, was appointed to prepare
a draft Convention on the Law Applicable to Contractual and Non-Contractual
Obligations. It took them ve years to draw up the draft Convention which was
made public on 6 December 1972. Articles 10 to 14 of the Convention stipulated
the rules regulating the non-contractual liability in tort/delict12. According to the
draft, the respective applicable law would be the law of the state where the damage
occurred (Article 10 para 1). The second paragraph of the same Article foresaw an
escape clause and referred to the principle of the closest connection. It should be
stated that the principle of party autonomy was completely excluded therefrom.
However, as soon as in 1973, the draft was withdrawn since the new Member
States Denmark, Ireland and the United Kingdom found the draft in the part
dening non-contractual obligations unacceptable. Nevertheless, the years spent
on preparing the draft did not go by in vain and the Rome Convention on the Law
Applicable to Contractual Obligations13 was signed on 19 June 1980.
Until a few years ago, no serious work on harmonization of the rules for regulating
the liability in tort/delict was done. The Hague Programme14 gave priority to this assignment, after which a direct invitation for acting in this direction was announced.
A draft Convention on the Law Applicable to Non-Contractual Obligations15
promulgated in 1998 was an important contribution of the European Group for
Private International Law to the process of unication of the law applicable to contractual obligations. The draft has never reached the level of an international treaty
but its solutions were taken into consideration during the process of the emergence
of the Rome II Regulation.
The Treaty of Amsterdam further encouraged legislative activities of the EU.
As already mentioned in the above lines, the old system of adoption, signing and
ratication of international treaties has been abandoned. Harmonization of laws
has become a task of the Council of the EU whereas regulation and directives (sec-
12
For the Draft Convention see in Lando, The EC Draft Convention on the Law Applicable to Contractual and Noncontractual Obligations, Rabeles Zeitung, 1974, pages 6 and 7.
13
OJ L 266 of 9 October 1980.
14
The Hague Programme: 10 priorities for the next ve years. Partnership for restoration of freedom,
security and justice, OJ C 236 of 24 September 2005.
15
See the text at http://www.gedip-egpil.eu/dokuments/gedip-dokuments-9pf.html
730
Vjekoslav Puljko
ondary EU law) have turned out to be the main source of European International
Private Law.
The process of adoption of the Regulation started in 2002. Due to the complexity of vote on regulations, the codecision procedure16 was applied for the rst time
and thus the adoption period lasted for several years. Skipping unnecessary facts,
here are only the most important moments of the process.
The Commission promulgated the former draft Regulation on the Law Applicable to Non-Contractual Obligations on 3 May 2002 and invited all the interested parties to provide assistance in shaping the nal draft text. All the proposals
and comments were published17 and an appertaining oral discussion took place in
January 2003. A little later, in July 2003, the Commission promulgated its Draft18.
After various discussions and professional critiques as well as after three reading
stages and numerous amendments made by the European Parliament (the Commission adopted 54 of them), not to mention reconciliation procedure due to the
Councils rejection of some amendments, the joint draft text was promulgated on
22 June 2007 and the Council adopted it on 28 June 2007. The Parliament passed
the Regulation on 10 July 2007.
3 GENERAL FEATURES OF THE ROME II REGULATION
As instructed by the European Council and Parliament, the Regulation itself

and its Preamble include the general principles and goals set during the course
of their acceptance. Before all, application of the Regulation should bring to advancement of the general principles of the European Union maintaining and
developing an area of freedom, security and justice where the right to freedom of
movement and proper functioning of the internal market will be granted19. One
of the prerequisites for achievement of these goals is judicial cooperation in civil
matters, so the Rome II Regulation (together with Brussels I Regulation and Rome
I Regulation) is an instrument of their realization. Judicial cooperation cannot exist without mutual recognition of judgements. Harmonized collision norms make
16
Pursuant to Article 251 of the EEC, details on the codecision procedure when adopting the Rome
II Regulation available at http://register.consilium.europa.eu/pdf/en/07/st03/st03619.en07.pdf
17
Available at http://www.ec.europa.eu/justice_home/news/consulting_public/rome_ii/news_summary_rome2-en.html
18
COM (2003) 427 nal, 2003/0168 COD, Brussels, 22 July 2003.
19
Item (1) of the Preamble
ROME II REGULATION
731
judicial proceedings secure and predictable. If courts in Member States apply the
same collision rules in the same legal matters, there will be an increase in proceedings predictability and the applicable law will be determined in advanced, so this
way, legal security will be enhanced and proper functioning of the internal market
will be ensured. Apart from realization of these principles, the purpose of the Regulation reects in prevention of forum shopping20.
The legal basis of the regulation are Articles 61 (c) and 67 of the EEC Treaty.
4 STRUCTURE AND CONTENT OF THE REGULATION
The Regulation consists of a Preamble and seven chapters (1) scope of application, (2) torts/delicts, (3) unjust enrichment, negotiorum gestio and culpa in
contrahendo, (4) freedom of choice, (5) common rules, (6) other provisions and
(7) nal provisions. All together, the Regulation involves 32 Articles.
The Preamble contains 40 items that provide explanations to the Regulation
content and particular solutions, and the goals and principles that the Regulation
is based on.
4 (1) Scope
Pursuant to its content (ratione materie), the scope of application of the Regulation is widely determined by the rst sentence of the rst Article stating that this
Regulation shall apply, in situations involving a conict of laws, to non-contractual
obligations in civil and commercial matters.
The scope explicitly excludes to revenue, customs or administrative matters or
to the liability of the State for acts and omissions in the exercise of State authority
(acta iure imperii)21. Apart from these exceptions, the Regulation also includes a
catalogue of exceptions relating to non-contractual obligations arising out of family
relationships, matrimonial property regimes, bills of exchange and other negotiable
instruments, the law of companies and personal liability of company ocers and
members, relations between the settlors, trustees and beneciaries of a trust created
voluntarily, nuclear damage, violation of privacy and rights in connection with
20
21
For more see in Sajko, K., op. cit. page 208.

Article 1 para 1 of the Regulation
732
Vjekoslav Puljko
personality, including defamation22, accompanied with evidence and procedure,

without prejudice to Articles 21 and 2223
Although being dened by the term of damage in Article 2 para 1 as any consequence arising out of tort/delict, unjust enrichment, negotiorum gestio or culpa
in contrahendo, the term of non-contractual obligation has not been completely
specied yet, which implies various interpretations. Taking this fact into account,
the legislator prescribes that any law specied by this Regulation shall be applied
whether or not it is the law of a Member State24. It means that the interpretations
shall not depend on the national laws of a Member State. Besides, item 7 of the
Preamble stipulates that the substantive scope and the provisions of the Regulation
should be consistent with the Brussels I Regulation and Rome I Regulation, the
latter having existed as a convention at the time of the Regulation adoption. In
compliance with the aforementioned, some legal areas are excluded from the scope
of application, which also calls for various interpretations.
The applicable territory (ratione loci) is specied by special rules for Member
States, i.e. non-EU member states. Article 3 prescribes universal application of the
Rome II Regulation in a way that any law specied by this Regulation shall be applied whether or not it is the law of a Member State. Article 1 para 4 stipulates that
Member State shall mean any Member State other than Denmark.
Concerning application in time (ratione temporis), the scope is dened by the
Regulation itself. Hence, it, like other regulations of the EU, shall enter into force
on the 20th day of its publishing in the Ocial Journal25, i.e. on 20 August 200726.
Therefore, the Regulation shall apply to events giving rise to damage which occur after that day. Furthermore, Article 32 stipulates that the Regulation shall apply from
11 January 2009, which means that its application at court shall refer to proceedings
commenced after that day. However, it shall not be applicable to proceedings commenced after 11 January 2009 if the damage occurred prior to 20 August 2007.
4. 2 Rules for Determining the Applicable Law
22
23
24
25
26
Article 1 para 2 items a-f of the Rome II Regulation

Article 1 para 3 of the Rome II Regulation
Item 11 of the Rome II Preamble
Promulgated on 31 July 2007, OJ L 199
Article 31 of the Rome II Regulation
ROME II REGULATION
733
4. 2. 1 Primary Connecting Factors
The primary link foreseen by the Regulation is party autonomy, even though
a supercial insight into its content does not suggest that. Hence, despite being
specied after the general rule and rules dening special links, party autonomy
is the primary, basic link to the delict statute, of course, if all the requirements
for its application have been met, i.e. if the parties have opted for an applicable
law themselves. Such a solution is in compliance with contemporary tendencies
in comparative law where the will of parties plays the leading role in the choice of
law. Article 14 referring to freedom of choice of law prescribes that such a choice
shall be expressed or demonstrated with reasonable certainty by the circumstances
of the case and that an agreement on the choice of law shall be made after the
event giving rise to damage have occurred, which provides the weaker party with
additional protection. In case both parties are companies or if a contract has been
made after free negotiations, such an agreement can be made prior to occurrence of
damage. This exception additionally conrms the intention to protect the weaker
party (consumer or employees).
Freedom of choice is restrained by means of mandatory (involuntary) rules. Article 14 para 2 stipulates that where all the elements relevant to the situation at the
time when the event giving rise to the damage occurs are located in a country other
than the country whose law has been chosen, the choice of the parties shall not
prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. Similarly, the provision restraining freedom of
choice of law in case all the elements relevant to the situation at the time when the
event giving rise to the damage occurs are located in one or more of the Member
States, determines that the choice of parties relating to the law other than the law
applicable in any of a Member State shall not prejudice the application of provisions
of Community (European Union) law, where appropriate as implemented in the
Member State of the forum, which cannot be derogated from by agreement.
4. 2. 2
Indirect Connecting Factors
The Regulation includes the following general objective links to the delict statute: place where the damage occurred27 (locus damni), the same habitual residence
(country) of the person having caused and the person having suered the damage28
(locus rmae habitationis) and the principle of the closest connection29.
27
28
29
Article 4 para 1 of the Rome II Regulation General rule

734
Vjekoslav Puljko
The Regulation also contains special links to cases of a non-contractual liability

for damage. For instance, when it comes to non-contractual product liabilities, the
applicable law shall be the law applicable in the country where the person sustaining the damage had his or her habitual residence when the damage occurred30,
the law applicable in the country where the product was purchased31 and the law
applicable in the country where the product was marketed32. Article 6 (unfair competition and acts restricting free competition) governs that the law applicable to a
non-contractual obligation arising out of an act of unfair competition shall be the
law of the country where competitive relations or the collective interests of consumers are, or are likely to be, aected, i.e. the law applicable to a non-contractual
obligation arising out of a restriction of competition shall be the law of the country
where the market is, or is likely to be, aected.
Article 8 deals with infringement of intellectual property and foresees locus protectionis as a connecting factor, i.e. the law applicable in the country for which
protection is claimed33. In the case of a non contractual obligation arising from
an infringement of a unitary Community (European Union) intellectual property
right, the law applicable shall, for any question that is not governed by the relevant
Community (European Union) instrument, be the law of the country in which the
act of infringement was committed34.
Let us end this short overview of connecting factors with the conclusion that the
special rules foreseeing special connecting factors in precisely dened cases (Articles
5, 6, 7, 8 and 9) have advantage over the general rules, but sometimes they can also
refer to the latter.
4. 2. 3 Principle of the (Obviously) Closest Connection Escape Clause
The above connecting factors clearly reveal the legislators eort to balance two
contradictory principles. On the one hand, there is predictability, that is legal security, prescribing the place of damage occurrence as a connecting factor, and on
the other hand, there is essential exibility necessary for achievement of the basic
30
31
32
33
34
Article 5 para 1 item a of the Rome II Regulation

Article 5 para 1 item b of the Rome II Regulation
Article 5 para 1 item c of the Rome II Regulation
Article 8 para 2 Rome II Regulation
Article 8 para 3 Rome II Regulation
ROME II REGULATION
735
principle of private international law application of the law closest to the parties
or legal matter. In this context, Article 4 para 3 governs that where it is clear from
all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than the country where the damage occurred, i.e. the
country where both the person sustaining the damage and the person claimed to be
liable for the damage have their habitual residence, the law of the former country
shall apply. Obviously, a closer connection with the other country can be based on
the previous relation between the parties as the agreement is in close connection
with the respective tort/delict.
Since prescribing escape clauses implies a decrease in legal security or predictability, this rule should be strictly interpreted and applied only on occasion of
undisputed existence of a closer connection35.
4. 3 Law Applicable to Obligations Arising Out of Quasi-Contracts
Being a separate way of emergence of non-contractual obligations, quasi-contracts are regulated by Chapter III of the Regulation. Articles 10, 11 and 12 relate to unjust enrichment (condictio sine causa), negotiorum gestio and culpa in
contrahendo.
The basic rule foresees that if a non-contractual obligation arising out of unjust
enrichment concerns a relationship existing between the parties, such as one arising
out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship. In addition,
where the law applicable cannot be determined on the basis of the above lines and
the parties have their habitual residence in the same country when the event giving
rise to unjust enrichment occurs, the law of that country shall apply. Where the law
applicable cannot be determined on the basis of either of the above ways, it shall
be the law of the country in which the unjust enrichment took place. Where it is
clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country
35
The same as in Kunda, I., Uredba Rim II: ujednaena pravila o pravu mjerodavnom za izvanugovorne obveze u Europskoj uniji (Rome II Regulation: Harmonized Rules for the Law Applicable to
Non-Contractual Obligations in the European Union), Zbornik Pravnog fakulteta Sveuilita u Rijeci (Collection of Works of the Faculty of Law of Rijeka), vol. 28, no. 2, 2007., page 1314, see also
Weintraub, R. J., Rome II and the Tension Between Predictability and Flexibility, Rivista di dritto
internazionale privato e procesuale, no. 3., 2005.
736
Vjekoslav Puljko
other than that indicated in any of the above lines, the law of that other country
shall apply36.
With respect to a non-contractual obligation arising out of an act performed
without due authority in connection with the aairs of another person - negotiorum gestio, the Regulation uses the same three connecting factors as with respect
to unjust enrichment. This case foresees an escape clause too37.
Considering the third type of quasi-contracts, a non-contractual obligation arising out of dealings prior to the conclusion of a contract culpa in contrahendo,
regardless of whether the contract was actually concluded or not, the applicable
law shall be the law that applies to the contract or that would have been applicable
to it had it been entered into. Additionally, if the applicable law cannot be determined that way, then the applicable law shall be the law of the country in which
the damage occurs or the law of the country where both parties have their habitual
residence at the time when the event giving rise to the damage occurs.
The legislator included an escape clause in this context as well38. It should be
emphasized that the Preamble involves the instruction that culpa in contrahendo
shall be interpreted as an independent term and not necessarily pursuant to the
terms determined by national laws39.
5.
CHAPTERS V AND VI OF THE ROME II REGULATION
Chapter V regulates other issues common to all the non-contractual liabilities.

One of the most important issues is the scope of the applicable law. The Regulation
enlists only the most frequent issues, so accordingly, the following shall be governed
in particular by the law applicable to non-contractual obligations: the basis and
extent of liability, including the determination of persons who may be held liable
for acts performed by them, the grounds for exemption from liability, any limitation of liability and any division of liability the existence, the nature and the assessment of damage or the remedy claimed, within the limits of powers conferred on
the court by its procedural law, the measures which a court may take to prevent or
terminate injury or damage or to ensure the provision of compensation, the ques-
36 Article 10 of the Rome II Regulation

37 Article 11 of the Rome II Regulation
38
39

Recital 30 of the Rome II Regulation
ROME II REGULATION
737
tion whether a right to claim damages or a remedy may be transferred, including

by inheritance, the question whether a right to claim damages or a remedy may be
transferred, including by inheritance, persons entitled to compensation for damage
sustained personally, liability for the acts of another person, the manner in which
an obligation may be extinguished and rules of prescription and limitation, including rules relating to the commencement, interruption and suspension of a period
of prescription or limitation40.
Chapter V of the Regulation refers to the provision on overriding mandatory
rules41. It stipulates that nothing in the Regulation shall restrict the application of
the provisions of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the non-contractual obligation. Regarding the provisions on the law applicable in the country where the court is situated,
the referring rules are the rules for direct application. The Regulation empowers the
court which, in a particular case, makes decisions on application of national legislation if the provisions of the applicable law are not in accordance with the legal
principles of the country of the court, or on additional protection of legal entities.
One should point out that the Regulation does not involve a substantial denition
of the term of international mandatory (involuntary) rules (unlike the Rome I Provision). Beside this general provision on overriding mandatory rules, the following
Article refers to the special provision on the rules of safety and conduct which were
in force at the place and time of the event giving rise to the liability. These rules
shall be taken into account as a matter of fact and in so far as it is appropriate to
assess the conduct of the person claimed to be liable42. In its introductory part, the
Regulation provides an explanation for such determination and caters for taking
these rules into consideration due to establishment of a reasonable balance between
the parties even where the non-contractual obligation is governed by the law of
another country43.
Although the provision of the public policy of the forum is part of Chapter VI,
it is also connected with the mandatory (involuntary) rules. The applicable law
40
41
42
43

Recital 34 of the Rome II Regulation
738
Vjekoslav Puljko
shall not be applied if it is incompatible with the public policy (ordre public) of
the forum44.
Chapter VI in Article 23 foresees the places of habitual residence, but only for
companies (central administration) and natural persons within the framework of
their principal place of business.
The Regulation explicitly mentions renvoi45. Furthermore, although item 35
of the Preamble states that a situation where conict-of-law rules are dispersed
among several instruments and where there are dierences between those rules
should be avoided, the Commission was fully aware of this situation when approving the Regulation. Therefore, Article 27 regulating the relationship with other
provisions of Community (European Union) law does not prevent the application
of provisions of Community law which, in relation to particular matters, lay down
conict-of-law rules relating to non-contractual obligations. It is important to say
that the Regulation bestows privileges upon these rules of private international law
if they regulate special types of non-contractual obligations. The relationship with
the existing international conventions regulating the conict-of-law rules for noncontractual obligations is stipulated by Article 28 of the Regulation which dierentiates between two types of these conventions. The rst type refers to conventions
concluded with non-EU member states and the second type relates to conventions
concluded between two or more Member States. The former (notably Hague Convention of 4 May 1971 on the Law Applicable to Trac Accidents and Hague
Convention of 2 October 1973 on the Law Applicable to Products Liability) have
advantage over the Regulation to the extent necessary for prescribing the rules for
non-contractual obligations while the latter favours the Regulation and solutions
foreseen thereby. The provisions of this Article indicate the conclusion that despite
proclaimed goals and concrete eorts on harmonization of collision rules in Member States, a system of respective unied law has not become reality yet.
Among other things, the nal provisions of the Regulation include a review
clause. The Commission is requested to submit to the European Parliament, the
Council and the European
Economic and Social Committee a report on the application of the Regulation.
The submission shall take place not later than 20 August 2011. If necessary, the re44
45

ROME II REGULATION
739
port shall be accompanied by proposals to adapt the Regulation. Since the deadline
for report submission is approaching, it will be interesting to see how the Regulation has been implemented in practice, whether the achievements are satisfying or
not and if there is a need for further amendments.
6 Conclusion
Since this paper represents only a short overview of the solutions oered by the
Rome II Regulation, with no intention to perform through analysis thereof, one
can say in the end that the adoption of the Regulation can be characterized as a
success. Attempts to harmonize the rules for regulating the delict statute have been
going on for decades. If the process preceding the adoption, the comprehensive
discussions oering a variety of possible solutions and opposed standpoints, various
interests to be satised and the enactment procedure of the European Parliament are
all taken into considerationone can draw the conclusion that the enactment of
the Rome II Regulation is a great achievement with respect to the EU legislation.
The main goal set by the European legislators was harmonization of the collision (conict-of-law) rules regulating the eld of the non-contractual liability for
damage and thus an increase in legal security and predictability, which lead us to
the major goal of the Community (European Union) and that is maintaining and
developing an area of freedom, security and justice where the right to freedom of
movement and proper functioning of the internal market will be granted.
Legal security and predictability are ensured, before all, by the choice of connecting factors, whereat a reasonable balance between two opposite principles
legal security on one side and the basic principle of private international law, the
principle of the closest connection, on the other side, should be struck. Will the
place where the damage foreseen by the general rule occurs, suce to assure legal
security and predictability despite other connecting factors intended for softening
the general rule, i.e. the fact that the person having sustained the damage and the
person claimed to be liable for damage live in the same country, the principle of the
closest connection and the principle of party autonomy? Since it is unreal to expect
accomplishment of ultimate certainty in the eld of private international law, this
solution seems to be the best possible one. Has it been the best in practice? We will
nd out that in August when the deadline for submission of a report on the application of the Regulation and possible proposals to its adaption expires.
740
Vjekoslav Puljko
REFERENCES:
Bouek, Vilim, Uredba Rim II Komunitarizacija europskog meunarodnog deliktnog prava povijesna skica i opi pravni okvir (Rome II Regulation Communitarisation of European International Delict Law Historical Outline and General Legal Framework), Collection of Works of the Faculty of Law of Split, year 45,
2/2008, pages 287 to 304.
De Boer, Ted, M., Beyond Lex Loci Delicti, Conicts, Methodology and Multistates Torts in American Case Law, Kluwer Law and Publishers, Deventer, 1987.
Kunda, Ivana, Uredba Rim II: ujednaena pravila o pravu mjerodavnom za izvanugovorne obveze (Rome II Regulation: Harmonized Rules for the Law Applicable to Non-Contractual Obligations in the European Union), Collection of Works
of the Faculty of Law of Rijeka (1991), vol. 28, no. 2/2007, pages 1269 to 1324.
Lando, The EC Draft Convention on the Law Applicable to contractual and Noncontractual obligationms, Rabeles Zeitung, 1974.
Lein, Eva, The New Rome I, Rome II, Brussel I Sinergy, Yearbook of the Private
Internatinal Law, vol. 10, 2008, pages 177 to 198.
Sajko, Kreimir, Meunarodno privatno pravo (Private International Law), the 5th
amended edition, Narodne novine, Zagreb, 2009.
Stone, P., EU Private International Law, Cheltenham, UK etc. 2006.
Weintraub, R., J., Rome II and the Tension between Predictability and Flexibility,
Rivista di dritto internazionale privato e procesuale, no. 3, 2005.
Regulation of the European Parliament and Council No 864/2007 of 11 June
2007 on the Law Applicable to Non-Contractual Obligations OJ L 199 of 31 July
2007.
Websites:
European Group for Private International Law (EGPIL) http://www.gedip-egpil.
eu/
Ocial website of the EU http://europa.eu/
Council of the European Union http://register.consilium.europa.eu/
INDUSTRIAL
ORGANIZATION
MEASURING COMPETITION IN CROATIAN BANKING INDUSTRY
743
MEASURING COMPETITION IN CROATIAN BANKING

INDUSTRY
Ivan Kristek, Faculty of Economics in Osijek
Domagoj Karai, Faculty of Economics in Osijek
Draen ui, Faculty of Economics in Osijek
Abstract
The overall objective of this paper is to investigate the evolution of market

power in the banking industry in the Republic of Croatia since 2002. to 2009.
During the last two decade competition has become a frequent topic in the banking literature, great deal of empirical work has attempted to measure the level of
competition and concentration. In particular, the paper has a general objective to
analyze non-structural and direct measure of bank competition such as the Lerner
Index. This measure assumes that each bank set a price to maximize prots, where
the price includes two components: marginal cost and margin which is the basis
of market power. Index is calculated using the regression analysis. This approach
provides more powerful framework to examine industry competition, compared to
the commonly used alternatives of using only industry concentration gures such
as Herndahl-Hirschman index, concentration coecient For our research we
used panel datasets for the Croatian banking industry, provided by Croatian National Bank.
JEL classication: D41, G21
Keywords: banking industry, competition, Lerner index, market structure
1. INTRODUCTION
This paper aims at examining the level of competition in the banking industry
in the Republic of Croatia in the period between 2002 and 2009, while the ocial
data of the Croatian National Bank and Financial Agency were used for the purpose
of the research. The reason why this industry is analyzed is because it is dynamic
and turbulent. Tipuri et al. (2003) says that the banking industry is benecial for
744
Ivan Kristek Domagoj Karai Draen ui
the analysis of the concentration since it has well dened boundaries and a logical
system of identifying a set of competitors. On the other hand, instability of the
industry structure, the existence of discriminating rules, a decrease in the range of
services which are reduced to only the basic ones and lack of clear strategies characterized the banking industry over the initial years in the transition countries. In the
last two decades, in the course of the transition process which took place in most
of the Central and Eastern European countries, major changes in the number and
size of banks have occurred for three main reasons:
1. disappearance of banks due to the liquidation process
2. bank merger and acquisition
3. bank privatization and rehabilitation
It is precisely for these reasons that were shortly outlined that this industry is
ideal for conducting the research on the changes of the industry structure, as well as
for providing empirical evidence for the changes in the intensity of competition.
2. THEORETICAL APPROACH
2.1. General overview of the theory of industrial organization
According to the SCP paradigm (structure-conduct-performance paradigm)

outlined by Mason (1939) and Bain (1951) the industry structure aects conduct of rms in the industry, which aects their performance. According to Mason
(1949) the paradigm is consistent with the Neoclassical Theory of the Firm which
assumes that there is a direct link between the industry structure, entrepreneurial
conduct and performance. The basic principle of this paradigm might be the ability of entrepreneurs to exercise market power in a concentrated industry. High industry concentration is correlated with high prots, especially if the concentration
level exceeds a certain critical level under the condition that there are some barriers
to entry of new entrepreneurs in the industry. In his research Stigler (1964) proved
that there was a positive relationship between the concentration and prot in the
industries where the Herndahl-Hirschman index was above 2.500.
According to the SCP paradigm high prot rates in concentrated industries
result from lack of competition, i.e. exuding industrial power by major rms. SCP
paradigm was a basic framework for empirical research in the period between the
1950s and 1980s. With the application of game theory in the 1980s there were
some deviations from that paradigm. Todays approaches do not follow a strict
745
SCP theory, but suggest that the outstanding prot, which appears in majority of
concentrated industries, is simply the result of economic ecacy and eciency,
and not a consequence of uncompetitive conduct. Research conducted by Sutton
(1991) is worth mentioning. He noticed that the degree of price competition in the
industry aects the degree of competition. Price competition reduces a rms prot
and makes entry in the industry unacceptable. According to this research, erce
competition reduces prot and leads to high concentration, which is in contradiction to the SCP paradigm. Links between SCP paradigm and performance indicators, as well as the relation between concentration and protability, are often weak
and inconsistent. The level of competition is estimated by concentration measures,
such as Herndahl-Hirschman index and concentration ratio. Still, research in the
new recent literature has shown that concentration is in majority of cases a weak indicator of the competition level in the industry. Rosse-Panzar test, Bresnahan-Lau
method and the Lerner index are three non-structural approaches which observe
the competition from the perspective of a new industrial organization. All three
methods are based on the assumption that rms strive towards the maximization
of prot in the condition of equilibrium, which is the main advantage in comparison to other approaches. In late 1980s the new empirical industrial organization NEIO approach was developed, which is based on the conduct of rms in dierent
industry structures, emphasizing that the industry structure was a product of the
strategic decisions of rms which mutually interact. This approach is signicantly
richer than the previous ones and oers a wider range of potential outcomes. According to the NEIO a erce competition is not only about the number of rms in
the industry, but the concentration can also be achieved if there is a real threat of
new potential entries in the industry.
Lipczynski et al. (2005) suggests that empirical research in the new approach to
the empirical industrial organization tried to come up with an equation of a rms
conduct that would dene the manner in which entrepreneurs set their prices and
quantities. The situations with the maximization of prot, i.e. when the marginal
revenue equals marginal cost, cannot be estimated directly, since the data on marginal revenue and marginal cost are often not fully accessible or accurate. Therefore,
we can estimate this relationship only indirectly by providing a model in which
the application of the mentioned rule (marginal revenue equals marginal cost) has
some implications for variations of other variables which can be observed, or which
are familiar to us. A methodological challenge for the NEIO research is to nd a
way to turn the conduct which is in its original form invisible and unnoticeable
746
into the variables which can be observed and examined, so the results could be implemented in the practice. One of such models is the Lerner index which measures
a relative margin of an economic entity, and indicates a total industry power.
2.2. Previous research
Non-structural measures of competition are mostly based on the Lerner index of

the industry power. The main advantage of non-structural measures is their behaviorist approach to individual entities, which allows us to measure the industry power for
each individual entity. In the following part we present some recent research dealing
with the issue of non-structural measures of competition based on the Lerner index.
Schaeck & ihak (2008) included the USA and nine European countries (Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, Switzerland, the
United Kingdom) in their research. They arrived at the conclusion that the Lerner
index was the lowest in Luxembourg, Switzerland and Germany which indicates
a high intensity of competition. Podpiera (2008) has conducted a research on the
banking industry in the Czech Republic in the period between 1994 and 2005.
In the observed period the Lerner index oscillated signicantly, but its decline was
observed from 1999 to 2002 which was explained by the fact that foreign banks entered the Czech banking industry as well as by privatization of major banks. Casu &
Giardone (2009) included ve European countries (France, Germany, Italy, Spain,
United Kingdom) in their research in the period between 2000 and 2005. They
arrived at the conclusion that the banking industry in Germany and the United
Kingdom has the highest Lerner index, i.e. in these countries there is the lowest
intensity of competition in the banking industry. Guevara et al. (2005) included
some European countries (France, Germany, Italy, Spain, the United Kingdom)
in the eight-year research, from 1992 to 1999. They arrived at the conclusion that
while values of the Lerner index dier signicantly among countries, the United
Kingdom has the lowest level of competition, and the Lerner index values were
very small in France (from 1992 to 1998 the index was negative). There has been a
characteristic decrease of the Lerner index in the United Kingdom and Germany as
compared to the rst research year, and the reason for this trend is a higher decrease
of marginal cost in comparison with the decrease of the output price. Weill (2009)
included seventeen countries in his research in the period between 2000 and 2007.
The mean Lerner index value for the research period is 23.71%, while annual mean
values range between 18.80% and 27.13%. The Lerner index peaks between 2000
and 2005, only to decrease between 2005 and 2007.
747
3. METHODOLOGY MEASURES OF INDUSTRY COMPETITION
In recent literature, which examines the intensity of competition in the banking

industry, the Rosse-Panzar test is often used as a direct measure, while most of the
researchers nd it to be the most accurate one as well. The model is based on the
empirical observation of production factors which are used as inputs in the production process, and their impact on the variation of revenue, which proves that
the sum of factor ratios varies from monopoly through monopolistic competition
to perfect competition. The biggest shortcoming of the Rosse-Panzar test is the
condition of the existence of a long-run equilibrium in the researched industry,
which makes it dicult to employ it if we want to compare the competition during
fairly short periods or if we want to examine the competition on a small sample
of entities. Still, the level of the competition can be estimated through the level of
industry power, where greater industry power also indicates a lower intensity of
industry competition (see Angelini & Cetorelli (2003) and Guevara et al. (2005)
for details). Therefore, in order to measure competition in the banking industry
one can use a behaviorist model which is based on a presumption that economic
entities set prices at the level of production that maximizes their prot. Product
prices include two components: marginal cost and margin. As was already stated,
the Lerner index measures relative margin which indicates total industry power.
The Lerner index can be calculated by the following formula:
1
where L is the Lerner index, P the product price and MC the marginal cost.
Its value ranges between 0 and 1, where higher values indicate a lower intensity of
competition and greater market power. Most of the authors dealing with this issue
in their research consider the bank output to be its total assets, in which case we can
claim that the price is a P ratio of the total bank revenue and total bank assets (see
Guevara et al. (2005), Casu & Giardone (2009), Podpiera (2008), Weill (2009) for
details). The marginal cost can be calculated by the translog cost function shown
in equation 2.
748
where TC is total cost (interest and non-interest cost) of a bank i in a year t, Q total asset of a bank i in a year t, and W are prices of inputs in the following order: W1
- is a stochastic
price of labor, W2 price of capital and W3 price of deposits;
variable which represents non-systematic inuences on a dependent variable.
The rations in the equation 2 are calculated by applying the method of Ordinary Least Squares which is used to calculate marginal cost. Marginal cost can be
presented by the following formula:
3
The quotient of logarithm derivation of the total cost and logarithm derivation
of the total output can be calculated by the cost function demonstrated in the equation 2 or as:
4. RESEARCH RESULTS
A constant decrease in the number of entities was recorded in the observed period in the banking industry, because the number of entities leaving the industry
was higher than the number of those entering it. As a rule, the entry of new entities
refers to the acquisition of the existing banks by some foreign banks. After such
acquisition the bank restructuring takes place, while in majority of cases it turns
into a more ecient and stable entity. A trend towards a decrease in the number of
banks has inuenced the intensity of the industry concentration which recorded a
continuous and slight growth in the observed period. This claim can be supported
by the concentration measures such as Herndahl-Hirschman index (HHI) or the
749
concentration ratio of six biggest entities in the industry (CR6), the values of which
are shown in table 2.
Using the Method of Least Squares, with computer and the Stata program support, we calculated the translog cost function shown in the equation 2 for each year
within the research period1. Descriptive statistics of the translog cost function for
the observed period is shown in table 1.
Table 1: Descriptive statistics of the cost function for the period between 2002 and 2009
Total cost
292
Mean
value
464.663
Total assets
292
7.756.818
15.800.000
21.359
92.800.000
Price of labor
292
0.037326
0.029502
0.013822
0.325316
Price of capital
292
0.017426
0.019390
0.000444
0.142820
Price of deposit
292
0.031798
0.011915
0.004774
0.132447
Standard
deviation
877.717
Min
Max
2.489
5.772.860
*Source: authors calculations
Using the ratio from equation 2, we calculated the value of the marginal cost
form each bank in the industry, while the information on the value of the marginal
cost allows the calculation of the industry power by years for each individual bank.
Table 2 shows the values of the Lerner index for the entire industry and allows us to
estimate the level of competition in the banking industry. A high Lerner index suggests low competition intensity. When we compare the values of the Lerner index
through the years, we arrive at the conclusion that the level of competition in the
banking industry has a tendency towards growth. During the rst three years, from
2002 to 2004, the Lerner index remained constant, while its value is approximately
0,398. There is a signicant decrease of the index only in 2004 with the nal value
of 0,281 in 2009.
The values of all the ratios by years in the observed period, together with their p-values are available
exclusively upon request from the author of the paper.
750
Table 2: Measure of competition and concentration in the banking industry between 2002 and 2009*
Year
2002
2003
2004
2005
2006
2007
2008
2009
Lerner index
0.393
0.398
0.401
0.394
0.372
0.346
0.332
0.281
CR6
65.34
71.49
76.06
76.86
76.99
77.00
78.27
81.20
HHI - Prot
1.094
1.155
1.261
1.237
1.224
1.225
1.267
1.325
*Source: authors calculations
The industry concentration, as opposed to the competition, recorded an upward

trend in the observed period. The concentration ratio of six biggest entities in the
industry recorded a continuous growth with a slight stagnation between 2004 and
2006. The Herndahl-Hirschman index (measured by the total bank revenue), as
well as the industry concentration ratio, recorded an upward trend in the observed
period. Still, it is worth mentioning that there is a slowdown in growth and a slight
decline between 2004 and 2006.
Figure 1: Movements of the Lerner index and concentration ratio*
Figure 2: Movements of the Lerner index and

Herndahl-Hirschman index
751
5. CONCLUSION
From what was discussed above, we can draw a conclusion that the industry
competition measured by Lerner index has an upward trend in the observed period
(Lerner index is declining), while the same can be said of the industry concentration. Since the period covered by the research is fairly short and the number of
samples small, although all the banks operating within the observed period were
included in the research, one should be careful about reaching denitive conclusions. In addition to what was said above, the problem with this research is that it
focuses only on a single country with a small number of banks, while at the same
time within the observed period the global nancial crisis has occurred which had
an impact on the decrease of the banks output, as well as on the product price
increase. It might be possible that due to the arguments against the research we
were not able to reach some denitive and consistent conclusions, but it is worth
mentioning that the authors of the paper followed all general rules in calculating
concentration and competition measures.
Therefore, in the observed eight-year period there was a simultaneous growth in
the competition and concentration, which is contrary to the SCP paradigm. Our
results speak in favor of the claim by Casu & Giardone (2009) that in the so-called
non-structural approaches it is not assumed a priori that concentrated markets are
not competitive because contestability may depend on the extent of potential competition and not necessarily on market structure. The reason for such situation in
the industry might lie in the fact that the increase in competition has forced less efcient entities to leave the industry. The increase in competition discourages other
entities from entering the industry which results in the decrease of the number of
entities in the industry, and in turn in the increase of competition.
LITERATURE
Angelini, P. & Cetorelli, N., (2003), The Eects of Regulatory Reform on Competition in the Banking Industry, Journal of Money, Credit and Banking, 35 (5), 21.
Bain, J. S., (1951), Relation of Prot Rate to Industry Concentration: American
Manufacturing, 1936-1940, The Quarterly Journal of Economics, 65 (3), 293-324.
Casu, B. & Giardone, C., (2009), Does Competition Lead to Eciency? The Case
of EU Commercial Banks, Working Paper Series, 01/09 34.
752
Guevara, J. F. D., Maudos, J. & Perez, F., (2005), Market Power in European Banking Sectors, Journal of Financial Services Research, 27 (2), 28.
Lipczynski, J., Wilson, J. & Goddard, J., (2005), Industrial Organization: Competition, Strategy, Policy, 2, Harlow: Pearson Education Limited, ISBN 9780273688020.
Mason, E. S., (1939), Price and Production Policies of Large-Scale Enterprise, The
American Economic Review, 29 (1), 61-74.
Mason, E. S., (1949), The current status of the monopoly problem in the United
States, Harvard Law Review, 62 (8), 1265-1285.
Podpiera, A., (2008), Competition and Eciency in the Czech Banking Sector,
CNB Financial Stability Report 2007: Czech National Bank, Research Department,
86-93.
Schaeck, K. & ihak, M., (2008), How does competition aect eciency and
soundness in banking?, Working paper Series, 932 43.
Stigler, G. J., (1964), A Theory of Oligopoly, The Journal of Political Economy, 72
(1), 44-61.
Sutton, J., (1991), Sunk Cost and Market Structure: Price Competition, Advertising,
and the Evolution of Concentration, Cambridge: MIT Press.
Tipuri, D., Kolakovi, M. & Dumii, K., (2003), Koncentracijske promjene
Hrvatske bankarske industrije u desetogodinjem razdoblju (1993.-2002.), Zbornik
Ekonomskog fakulteta u Zagrebu, (1), 22.
Weill, L., (2009), Do Islamic Banks Have Greater Market Power? , ERF 16th Annual Conference, Shocks Vulnerability and Therapy. Cairo, Egypt.
CHALLENGES IN MANAGING INFORMATION SYSTEMS OF GLOBAL COMPANIES
753
CHALLENGES IN MANAGING INFORMATION SYSTEMS OF

GLOBAL COMPANIES
Slavko Matanovi, M.Sc.
Ph.D. Candidate, Faculty of Economics in Osijek,
[email protected]
Abstract:
The paper analyzes the basic elements of managing global information systems
that are necessary support for the development of global companies in the increasingly global economy and society. The challenges that must be answered by the
management of a company aspiring to global markets start from the selection of international corporate strategy, through structuring the organization that will implement the chosen strategy, to considering the technological aspects of information
systems architecture. Regardless of the chosen strategy and organizational structure
of the system, successful companies, above all, rely on the management team that
is able to properly assess the risks and benets provided by an internationally designed scheme. While overcoming major problems that occur in the development
of international information systems in terms of agreeing on common user requirements, the introduction of changes in business processes, coordination of application development, coordination of software versions and encouraging local users to
support the global system, it is crucial that the top management in headquarters
and managers in foreign business units should be aware of the benets that will
have both companies, and local business units.
Keywords: global information systems, the architecture of the international information system, global environment.
1. INTRODUCTION
The progress of information and related technology has enabled the emergence
of global economic systems, which go beyond local and national borders and inter-
754
Slavko Matanovi
ests. As the highest stage in the development of organizational structures transnational corporations have emerged, truly globally guided companies. These companies optimize their sources of supply and demand, wherever they exist, obtaining
benet from any local competitive advantages, because they are not conned to
their home countries but the entire world.
The focus of this work is on managing global information systems as a necessary
support for the development of global companies. After introductory remarks, the
second chapter briey outlines the development of global information systems, i.e.
the architecture of global information systems, as well as the factors that drive and dene the business in the global environment. The third chapter deals with the organization of global information systems, and, in the rst place, speaks of the mutual conditionality of the organization of business systems and strategies that they follow. The
fourth chapter gives an overview of global management information systems, with
special emphasis on the characteristics of international information systems, global
information systems strategy and management solutions to global information systems. In conclusion, the most important items in previous chapters are synthesized.
2. DEVELOPING GLOBAL INFORMATION SYSTEMS
Advances in IT, networking and communications technologies, have created the

preconditions for the emergence of global economic systems and global world order, which proclaimed the end to many national corporations, national industries
and economies controlled by local politicians. The development of international
trade has radically changed the local economies around the world. The design and
manufacturing of many todays electronic products are distributed between dierent countries. Thus, for example, Hewlett-Packard (HP) laptops are designed and
new drafts are approved in the U.S. headquarters in Houston, graphics processors
are designed in Canada and manufactured in Taiwan. South Korea and Taiwan produce liquid crystal displays and a number of memory chips. Hard drives come from
Japan. Sources from China, Japan, Singapore, South Korea and the U.S. make the
supply of other components. The laptop assembly is done in China. Contractors
from Taiwan in cooperation with Chinese manufacturers are responsible for engineering design (Laudon & Laudon, 2010, 581).
The architecture of an international information system has to be in accord with
the selected strategy of international corporations. The basic principle which must
be adhered to when building an international system is the necessity of understanding the global environment in which companies operate, and that means under-
755
standing the general laws of market, or business drivers, which spur the company to
compete on a global scale. Likewise, we should carefully consider the inhibitors or
negative factors that could halt the development of a global business. After studying
the global environment, we will need to consider a corporate strategy to compete in
a given environment. Companies can ignore the global market and focus only on
the domestic scene, they can sell to the world on the basis of domestic production,
or organize the production and distribution worldwide.
Having delineated the strategy, a company should consider how to structure an
organization that will implement the chosen strategy. It should create a division of
labor in the global environment, in terms of production, administration, accounting, marketing and human resource management functions. The next item that
needs to be addressed is the managerial aspects of the chosen strategy and putting
into eect the organization design, while the key moment is the design of business
processes, the reengineering on a global scale and coordination of the development
of the system. Finally, since the company already has a detailed corporate strategy,
it should consider the technological aspects of the architecture.
Global factors of business can be divided into general cultural factors and specific business factors. Information, communication and transport technologies have
created a global village, where time and geography are irrelevant (Passaries, 2009).
Communicating with the furthest point in the world is nothing more complicated
or expensive than communicating with a neighbor in the same street. The cost of
transportation of goods and services around the world has dramatically fallen.
The development of global communications has enabled the emergence of the
global village in another sense (Gray, 2002; Robertson, 1992; Robertson, 1990). Specically, global culture, created by television, Internet and other globally distributed
media such as lm, has enabled people from dierent cultures to share common beliefs in terms of good and evil, desirable and undesirable, heroism and cowardice.
The last factor to consider is the increase of the level of global knowledge. At the
end of World War II knowledge, education, science and industrial skills were concentrated in North America, Western Europe and Japan, while the rest of the world
eas euphemistically called the Third World. However, Latin America, China, India,
South Asia and East Europe have developed a strong educational, industrial and
scientic centers, which resulted in a more democratic and broad knowledge base.
These general cultural factors have resulted in specic factors of globalization of
business, aecting most industries. The development of powerful telecommunica-
756
Slavko Matanovi
tions technology and the emergence of world culture have created the conditions
for global markets, and global consumers interested in similar products that are
culturally acceptable.
However, although great opportunities for business success in global terms are
opened up, there are forces of resistance that operate to prevent the global economy, to disrupt international business, undermining the idea of a common global
culture, and resisting the penetration of foreign goods and services on the domestic
market. Dierences in cultures produce dierences in social expectations, policies,
and consequently, in legislation. All these negative factors must be taken into account when designing and building international business systems.
3. ORGANIZATION OF THE GLOBAL INFORMATION SYSTEMS
Corporations seeking global position are confronted by three organizational issues: 1) selection of strategy, 2) organization of business and 3) the organization of
company management.
Four main global strategies make the foundation of the organizational structure
of global companies. These strategies are: 1) a domestic exporter, 2) a multinational
corporation, 3) a franchise, and 4) a transnational corporation. Each of these strategies can be implemented with a specic organizational structure: 1) centralized (in
the host country), 2) decentralized (more local foreign units) and 3) coordinated
(all units are equal).
The strategy of domestic exporter is characterized by a strict centralization of
corporate activities in the country of origin. The sales abroad is sometimes dispersed through intermediaries and branches, but even in this case, the external
marketing completely relies on the marketing strategy of the country of origin.
The strategy of multinational corporations means the concentration of nancial management and control in the central home base, while the functions like
production, sales and marketing are organized in other countries. The company
becomes a confederation of production and marketing systems deployed in dierent countries.
Franchising is a mixture of old and new. On the one hand, the product is created, designed, nanced and initially produced in the home country, but, due to
the product specicity, further production cycle has to rely on foreign sta, as is the
case with well-known franchisers like McDonalds and KFC.
757
Transnational companies are companies without the state, truly globally managed companies. They do not have a unique national headquarters, but a number
of regional headquarters instead, and, perhaps, the world headquarters. In a transnational strategy almost all business activities are managed from a global perspective, where the sources of supply and demand are optimized wherever they exist,
reaping benets from any local competitive advantages. These companies are managed from a strong central control center, but much of the competence and nancial powers is distributed between the global departments.
Information technology and new improvements in global telecommunications
are oering more exibility to international companies in shaping global strategies. For reasons of simplicity, we can consider four types of system congurations.
Centralized systems are those where the system development and its functioning
are fully performed on national basis. Duplicate systems are those in which the
development is done on the local basis, but the operations are transferred to the
autonomous units abroad. Decentralized systems are those in which each foreign
unit designs its own, unique, solutions and systems. Network systems are those
where the development of systems and operations are performed in an integrated
and coordinated manner among all business units.
The most ambitious form of system development is the transnational companies. Network systems are developed and operated in a global environment. The
prerequisite for this is a strong telecommunications backbone, the culture of development of common applications, as well as a common management culture
overcoming cultural barriers.
Many successful companies have designed the organizational structure of the
system in accordance with these principles. The success of these companies does
not rely only on organizing their own activities, but also on the key factor - the
management team that is able to understand the risks and benets of international
systems and to plan a strategy for overcoming these risks.
4. MANAGING GLOBAL INROMATION SYSTEMS
The main management problems that arise in the development of international

systems are to agree on common user requirements, the introduction of changes in
business processes, coordination of application development, coordination of software versions and encouraging local users to support the global systems (Laudon
& Laudon, 2010, 590).
758
Slavko Matanovi
4.1. The characteristics of contemporary international information systems
To represent the most common scenario that reects the characteristics of the
contemporary international information systems, we can take the example of a traditional multinational retail company based in the USA, which operates in Europe,
and wants to expand into the Asian market, for which it is necessary to develop a
transnational strategy and to structure an information system that will support this.
Like most multinational companies, it has production and marketing in regional and
national centers, and the world headquarters and strategic management within the
U.S.. The company is allowing each branch abroad to develop their own systems. The
only centrally coordinated systems are the nancial control and reporting. The central
group, located in the U.S., is focused only on domestic production and function.
The consequence of such an organization is a mix of hardware, software and
telecommunications. E-mail systems between Europe and the U.S. are incompatible. Each production facility uses a dierent system for resources planning systems as well as a variety of marketing, sales and human resources systems. Hardware platforms and databases are widely dierent. Communication between
the European headquarters is weak due to high costs of European intercountry
communications.
The question is what could be recommended to th top management of this company, if they wish to pursue a transnational strategy and develop an information
systems architecture that will support such a globally coordinated system? Overseas
business units will resist eorts to achieve agreement on common user requirements,
because they have always cared only about teir own needs. Groups local headquarters in the U.S., focused exclusively on domestic needs, will not easily accept the
guidance by anyone who advocates a transnational strategy. It will not be easy to
convince local managers anywhere in the world about the need to change business
procedures in order to comply with other business units, particularly if this can have
an impact on their local performance. Finally, it will be dicult to coordinate projects development on a global level without a powerful telecommunications network
and, therefore, encourage local users to accept change as their own.
4.2. Strategies of global information systems
Solving the problem of global information systems strategy can be summed up

in several steps. Firstly, not all systems should be coordinated on a transnational
basis. From the standpoint of cost and feasibility, only some of the key, core, sys-
759
tems are worth sharing. Other systems should be partially coordinated because
they share some key elements, but all may not be exactly the same outside national
borders. In these systems local variations are possible and desirable. The last group
of systems is peripheral, indeed provincial, and should only be adjusted to local
requirements.
The manner in which it is best to identify the core processes is to perform analysis of business processes. Every company should be able to identify a set of priorities
in the short list of 10 business processes that are truly crucial for the company.
As the next step, centers of excellence for these processes should be to identied.
Each company should identify one or more functions in which a business unit is
the leader in terms of performances. When you understand the business processes
in the company, they can be ranked.
After identifying the crucial key business processes, the opportunities for transnational systems are beginning to be perceived. Another strategic step is to master
the core systems so that they can be designated as truly transnational. The nancial and political costs of dening and implementing transnational systems are extremely high. It is therefore necessary to reduce the list of core processes as possible,
guided by experience and, if wrong, to err in terms of minimization.
The third step is to select an appropriate approach. Fragmentary approaches
should be avoided, as well as approaches which are trying to do everything at once.
An alternative approach would be that a transnational application gradually evolve
from existing applications, directed by a precise and clear vision about the transnational possibilities for companies that will be reached over the next ve years.
From the very beginning, it is of crucial importance for top management at
headquarters and managers in foreign business units to clearly understand the advantages that will have both companies, and local business units. Although each
system oers unique gains for an appropriate budget, the overall contribution to
the global system lies in four areas:
1. Global systems, truly integrated, distributed and transnational systems, contribute to senior management and coordination. The value of this contribution is reected in the possibility of immediate switching from one supplier
to another in the event of a crisis, ability to switch production to other areas
in the event of natural disasters, and being able to use extra capacity in one
region to meet demand in the second.
760
Slavko Matanovi
2. Another major contribution is the vast improvement in production, operations, supply and distribution. Within the global value chain senior managers can identify those activities that bring the most prot, where they can be
performed in the most economical way.
3. Third, the xed costs of the global system in the world can be amortized on
a much broader base of consumers. This will bring new advantages in reducing operating costs arising from the expansion of the company (economies
of scale).
4. Finally, global systems imply the possibility of optimizing the use of corporate
funds on a much wider capital basis. This means that the surplus capital from
any region can be eciently routed to expand production in regions short of
capital.
All these strategies will not create a global system by themselves. Companies
that adopt them alone are responsible for their implementation.
4.3. Management solutions to global information systems
There are several ways to deal with problems related to the development of the
architecture of global information systems.
Agreeing on common user requirements: By establishing the short list of key
business processes and key support systems, the process of comparison between
many departments within the company will begin, which should be accompanied
by the development of a common language when the business is discussed, which
will naturally lead to recognition of common elements (as well as the unique characteristics that must remain local).
Introducing changes in business processes: The success of individuals as drivers of change will depend on their legitimacy, authority and ability to involve users
in designing the change process. Selecting a feasible strategy for change, which was
previously characterized as evolutionary, but relying on the vision, should help
in convincing others that change is feasible and desirable. Involvement of people
in the process of change, assurance that the changes are in the best interest of the
company and local business units is a key tactic.
Coordination of the applications development: Choosing a change strategy
is a critical point of this problem. At the global level, due to a lot of complexity,
it is far easier to coordinate changes by making small, incremental, steps towards
761
a shared vision. Generally, a ve-year plan of action is better than a two year one,
and it is better to keep the list of transnational system on minimum to reduce the
costs of coordination.
Coordination of software versions: Companies can establish procedures to
ensure that all operational units move to new versions of software simultaneously,
so that software of all units at all times be compatible.
Encouraging local users to support global systems: The solution to this problem is possible if the users are involved in design changes, without giving up control
over the development of the project for the sake of narrow local interests. Proven
tactics for dealing with unfavorable local units within the transnational companies is drawing opposition in the process of designing and implementing solutions
without abnegating control on the direction and nature of changes (co-optation).
As much as possible, application of force should be avoided.
The second tactics consists in developing new transnational centers of excellence, or a single center of excellence. There may be several centers on a global
scale that will focus on specic business processes. Centers of excellence perform
the initial identication and specication of business processes, dene the requirements of information systems, perform analysis work and carry out all the design
and testing. Implementation and pilot-testing are then transferred to other areas in
the world. By recruiting the broad masses of local groups in transnational centers
of excellence, a message is being sent to everyone that all the major groups are involved in the design of change, and will thereby make its own impact.
5. CONCLUSION
Advances in IT, networking and telecommunications technologies, created the

preconditions for the emergence of global economic systems and global world order
that announced the end to many national corporations and the economies. Information, communication and transport technologies have created a global village,
which drastically reduced the costs of communication and transport of goods and
services regardless of the distance. Corporations seeking global position are faced
with the choice of strategy, business organization and the companys management
organization. The major global strategies are: the strategy of a domestic exporter, a
multinational corporation, franchise and a transnational company. Each of these
strategies can be implemented with a specic organizational structure: centralized
(in the host country), decentralized (more local foreign units) and coordinated (all
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Slavko Matanovi
units are equal). When it comes to solving the problem of the development of a
global system, it is necessary to point out that not all systems should be coordinated
on a transnational basis. From the standpoint of cost and feasibility, only a few
key systems, undoubtedly crucial for the organization, are worth sharing. Other
systems should be partially coordinated because they share some key elements, but
all may not be exactly the same outside national borders. In these systems local
variations are possible and desirable. The last group of systems is peripheral, indeed
provincial, and should only be adjusted to local requirements.
REFERENCES
Gray, J. (2002). Lana zora: iluzije globalnog kapitalizma, Masmedia, Zagreb

King, W. R., Sethi, V. (1999). An Empirical Analysis of the Organization of Transnational Information Systems, Journal of Management Information Systems 15, no.
4, Spring.
Laudon, C. K., Laudon, P. J. (2010). Management Information Systems, Managing
the Digital Firm, Pearson Education Inc., Upper Saddle River, New Jersey
Marks, A. E., Lozano, B. (2010). Cloud Computing, John Wiley & Sons Inc.,
Hoboken, New Jersey
Morroni, M. (ed.)(2009). Corporate Governance, Organization and the Firm, Edward Elgar Publishing Limited, Cheltenham, United Kingdom
Passaries, C.E. (2009). The Business of Globalization and the Globalization of Business, Journal of Comparative International Management, June 1, available at
http://www.allbusiness.com/management-companies-enterprises/3958028-1.html
(27.12.2010.)
Roche, E. (1992). Managing Information Technology in Multinational Corporations,
New York, Macmillan.
Robertson, R. (1990). Mapping the Global Condition: Globalization as the Central
Concept, Theory, Culture & Society, 7/2-3: pp. 15-30
Robertson, R. (1992). Globalization: Social Theory and Global Culture, Sage Publications Ltd., London, UK
BUSINESS
ADMINISTRATION
AND BUSINESS
ECONOMICS,
MARKETING,
ACCOUNTING
A LOGIT MODEL OF ELECTRONIC BANKING ADOPTION: THE CASE OF ...
765
A LOGIT MODEL OF ELECTRONIC BANKING ADOPTION:

THE CASE OF KOMERCIJALNA BANKA AD SKOPJE
Vesna Buevska, Ph.D.
Faculty of Economics-Skopje
Jasmina Buevska, Komercijalna banka AD Skopje
Summary
Although online banking has become an increasingly widespread banking channel in the world in the last years, its rate of adoption by the Macedonian retail
banking customers remains still low. The purpose of this paper is to investigate
the factors inuencing the adoption of electronic banking (e - banking) by the
Macedonian retail customers and to identify the key determinants among them. To
achieve this goal we developed a binomial logit model. The ndings indicate that
the demographic factors, age and education are the key determinants of adoption
of the e-banking service of Komercijalna Banka by its retail customers. The results
of this study provides a solid ground for developing an appropriate marketings
strategy to encourage the adoption of e-banking by the Macedonian retail banking
customers.
JEL Classication: G21
Key words: customer behaviour, channels of distribution, electronic banking,
Komercijalna Banka AD Skopje, logit model, Komercijalna Banka, Macedonian
banking industry.
1. Introduction
The development of the banking industry has been signicantly inuenced by

the evolution of the information technologies for over three decades (Chang, 2002;
Gourlay & Pentecost, 2002; VanHoose, 2003). The information technology revolution in the banking industry has been most evident in the distribution channels from
over-the-counter to introduction of the credit card and the automatic-teller-machine
(ATM) in the early 1970s, telephone banking in the early 1980s, personal computer
766
Vesna Buevska Jasmina Buevska
(PC) banking in the late 1980s and most recently electronic banking (e-banking).
Daniel (1999) described electronic banking as the provision of banking services to
customers through Internet technology. Other authors (Daniel, 1999; Karjaluoto,
2002a) indicated that banks have the choice to oer their banking services through
various electronic distribution channels technologies such as Internet technology, video banking technology, telephone banking technology, and WAP technology. However, Karjaluoto (2002a) indicated that Internet technology is the main
electronic distribution channel in the banking industry. In more detail Karjaluoto (2000a) described e-banking as an online banking that involves the provision of
banking services such as accessing accounts, transferring funds between accounts,
and oering an online nancial services.
Electronic banking technologies have contributed to improving of eectiveness of
banks distribution channels through reducing the transaction cost and increasing the
speed of service (Chang, 2002; VanHoose, 2003). Other advantages include mass customization, marketing and communication activities, and maintaining the customers
and attracting new ones, From the customers perspective, e-banking allow customers
to save time and cost (Anguelov, Hilgert & Hogarth, 2004). Due to the advantages of
e-banking for both banks and customers, the adoption of electronic banking recently
has rapidly grown as a channel of distribution of banking products and services.
Despite the rapid acceptance of e-banking worldwide, the level of adoption of electronic banking services by Macedonian retail customers is still low. According to the
latest data of the State Statistical Oce of the Republic of Macedonia (Newsrelease
No. 8.1.10.21 as of 20th October 2010), in the rst quarter of 2010 only 9% of all
internet users in the last 3 months used Internet for e-banking and e-commerce.
Komercijalna banka AD Skopje, as a leading Macedonian bank, was among the
rst banks to oer Internet banking services to retail customers in 2003. Today the
Internet Bankof Komercijalna Banka provides retail customers with a wide range
of services: electronic payment of bills for public utilities other denar payments in
the country; purchase/sale of foreign currencies, transfer of funds from time savings
deposits on demand savings deposits, insight in the accounts and check of the account
balance and the daily movements on the accounts, savings deposits, payment cards
and loans; printing statements of accounts and debit and credit cards.
In the period 2007-2010 the number of users of e-banking service of Komercijalna
Banka AD Skopje signicantly increased from 6,323 customers who used the service
Internet Bank to 7,508 customers in 2010 which represents an increase of 18.74% .
767
However the fact that only 2% of all retail customers of Komercijalna Banka use
the service Internet bank points out that this service is underutilized in spite of its
availability. Thus, an understanding of the determinants of adoption of e-banking by
Macedonian individuals should help the Banks management to formulate marketing
strategy for more ecient implementation of the service called Internet bank.
Although the literature on electronic banking is abundant, the literature on the
determinants of adoption of electronic banking in transition countries is still in its
infancy. The purpose of this paper is to investigate the factors inuencing the adoption of electronic banking (e - banking) by the Macedonian retail customers and
to identify the key determinants among them. To achieve this goal we develop a
binomial logit model.
2. Determinants of adoption and usage of electronic banking
Previous empirical studies (Dwivedi and Lal, 2007; Choudrie and Papazafeiropoulo, 2006; Choudrie and Dwivedi, 2005; So, Wong and Sculli, 2005; Chinn and
Fairlie, 2004; Choudrie and Lee, 2004; Pikkarainen et al., 2004; Venkatesh at. al,
2003; Gerrard and Cunningham, 2003; Chang, 2002; Karjaluoto et al., 2002; Mattila, 2001; Polatoglu and Ekin, 2001; Jayawardhena and Foley, 2000; Tan and Teo,
2000; Daniel, 1999;Sathye, 1999;) have identied a number factors that aect the
adoption and usage of electronic banking services. They are briey presented below,
followed by formulating a testable hypotheses for each factor.
Customers age - Age aects the attitude of individuals towards Internet banking
and their ability to learn how to use it. Barnett (1998) showed that the younger the
consumers, the more comfortable they were in using electronic banking. Similarly,
Karjaluoto, (2002) demonstrated that electronic banking users were younger than
non-electronic banking users. These ndings imply that younger customers are
more likely to adopt electronic banking.
H 1 : Younger customers (up to 35) are more likely to adopt e-banking.

Customers income: Higher paid customers, who have higher value of time than
customers with lower income, are more likely to favor electronic banking. Empirical ndings of income positively inuencing adoption of electronic banking can be
found in Al-Ashban and Burneys (2001), Stavinss (2001) and Karjaluotos (2002)
studies.
H 2 : Higher paid customers are more likely to adopt electronic banking.
768
Education - Al-Ashban and Burney (2001) and Stavins (2001) studies showed
that as consumers increased their educational qualication level, their adoption of
electronic banking would increase as well. Bartel and Sicherman (1998) indicated
that more educated individuals may require less training in response to technological change if their general skills enable them to learn the new technology.
Consequently, well educated individuals will respond more quickly than less educated individuals when Internet banking is introduced. However, the eect of education on adopting Internet banking should also depend on the age of the customer.
For example, the attitude of a college graduate towards adopting e-banking is dierent at age 35 than 55 because the benets and costs of adopting are dierent.
H 3 : Well educated customers are more likely to adopt electronic banking. However, the eect of education on adopting electronic banking also depends on the age
of the consumer.
Gender - a number of empirical studies (Laukkanen & Pasanen, 2008; MacGregor
& Vrazalic, 2006; Chen & Wellman, 2004; Venkatesh & Morris, 2000) show that
males are more likely than females to adopt e-service. Thus the following hypothesis
can be formulated:
H 4 : Males are more likely to adopt the e-service than the females.
Security - Security refers to the ability to protect against potential threats. The results of the previous empirical studies (Lee, 2009; Hua, 2009; Salisbury, 2001; Miyazaki and Fernandez, 2001) have shown that the customers decision to adopt the
e-banking service is signicantly inuenced by their perception of the level of security
control of the banks website. Hua (2009) showed that perceived ease of use is of less
importance than privacy and security and claried that security is the most important
factor inuencing users adoption. Thus, the following hypothesis is formulated:
H 5 : Customers who do not perceive banks web site as secure are less likely to
adopt the e-banking service
Fear of misuse of personal data - Some empirical studies have shown that online
consumers might refrain from using online services because of the fear that their personal sensitive information may be misused (sold to third parties). As such the following hypothesis is tested:
H 6 : Customers who are afraid that their personal data will be misused are less e
likely to adopt this service.
769
Perceived ease of use - A signicant number of studies found that the perceived
ease of use has an important eect on customers decision to adopt a new technology
(Chau & Lai, 2003; Venkatesh & Davis, 2000; Venkatesh & Morris, 2000). In the
online context perceived ease of use was found to aect e-service adoption signicantly,
reecting the importance of the role of the ease of use variable on adoption of e-services
(Chau & Lai, 2003; Venkatesh & Davis, 2000; Venkatesh & Morris, 2000).
Therefore the following hypothesis can be formulated:
H 7 : Customers who perceive e-banking as easy to use are more likely to adopt
the e-banking service
Access to Internet at home Access to Internet at home gas been identied as one
of the most important factors for adoption of electronic banking in European Union
candidate countries and Macedonia is one of them. Hence, the following hypothesis
can be formulated:
H 8 : Customers who can access Internet at home are more likely to adopt the ebanking service
3. Data and model
The data for this research was obtained through a telephone survey of 1000
retail customers of Komercijalna banka who are non-users of its electronic banking
service Internet Bank which took place in March 2011. The names and addresses
for the phone survey were randomly drawn from the data bank of Komercijalna
banka of those retail customers who were willing to use their personal data for
marketing purposes. Out of 1000 contacted reatil customer, 900 were willing to
answer the questionnaire.
In order to identify the determinants of adoption of the electronic banking
service of Komercijalna Banka called Internet Banka, to measure the signicance
of each one and to determine the key factors that improve the decision of the retail
customers to adopt the e-banking service of this bank, we estimate a binomial logit
model using the computer package EViews 6.
The discrete dependent variable EBANK measures whether an individual is an
electronic banking or non-electronic banking user. The dependent variable is based
on the question asked in the telephone survey: Are you a user of the e-banking
service of Komercijalna Banka?
770
In our model we assume that the decision of individuals to use e-banking is a

function of the following 13 variables: information about e-banking service, user
friendliness, willingness to use alternative channels of distribution, personal computer skills, access to Internet at home, trust in Komercijalna Banka, security of
the banks web site, fear of misuse of personal data, customers gender, education,
occupation, monthly income and customers age. In our model we do not explicitly
introduce cost and speed of transactions. These determinants of adoption of e-banking are parameterized in terms of the constant.
The proposed logit model has the following form:
USERS = f (GENDER, AGE, INTERNET, INCOME, SERVICE. EDUCATION, FEAR, SECURITY, ) (1)
Where:
USERS
0
= Use of e-banking; 1 if the respondent is an electronic banking user;
otherwise
GEN (+) =
Gender; 1 if male; 0 otherwise
AGE (-) =
Age level; 1 if respondent is below 40; 0 otherwise
INTERNET (+) = Internet access at home; 1 if the respondent has access to Internet at home; 0 otherwise
INCOME (-) = Monthly income; 1 if respondents monthly salary is below MKD
30,000; 0 otherwise
SERVICE (+) = Perceived user friendliness; 1 if e-banking is perceived as user
friendly service; 0 otherwise
EDUCATION (+) = Education level; 1 if respondent completed high school; 0
Otherwise
FEAR (-) =
Fear of misuse of personal data; 1 if respondent if afraid that hi/her
personal data will be misused; 0 otherwise
SECURITY (+) =
Perceived security; 1 if respondent perceives Komercijalna
Bankas
= Error term
771
Through the above logit model, it is possible to determine which factors will signicantly aect consumers adoption behavior for Internet banking.
4. Empirical results
The results of our binomial logit model are presented in Figure 1
Figure 1: Results of the binomial logit model in EViews 6
The results of our binomial logit model indicated the demographic factors,
age and education are signicant factors for adoption of the e-banking service of
Komercijalna Banka. Customers age is found to be the most signicant factor affecting the adoption of Internet Banka of Komercijalna Banka AD Skopje. Retail
customers who are younger that 40 are more likely to adopt Internet banking. This
nding is in line with the results of the previous empirical studies which found that
772
the typical online banking customer is a young person who is familiar with PC
and Internet navigation. Education also had a signicant impact on the adoption
of Komercijalna Bankas e-banking service. Retail customers with higher education
are more likely to adopt electronic banking than those with secondary education.
Other variables were denoted as non-signicant variables for the adoption and usage of the e-banking service of Komercijalna Banka AD Skopje.
5. Conclusion
Our research has shown that the development of the e-banking service of Komercijalna Banka AD Skopje is not sucient alone to ensure its adoption by the
retail customers. A complex set of dierent determinants aect the adoption of the
e-banking service. The results of our binomial logit model indicated the demographic factors, age and education are the key determinants of adoption of the ebanking service of Komercijalna Banka by its retail customers. These demographic
factors can provide basic information for Komercijalna Banka to segment its retail
customers and approach them in the most eective marketing way.
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Technology: The Case of Saudi Arabia, The International Journal of Bank Marketing, 19(4/5), 191-200.
Anguelov, C. E., Hilgert, M. A., & Hogarth, J. M. (2004). U.S. consumers and
electronic banking, 1995-2003, The Federal Reserve Board.
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Bartel, A. P., & Sicherman, N. (1998). Technological change and the skill acquisition of young workers, Journal of Labor Economics, 16(4), 718-755.
Barnett, C. (1998). Virtual Communities and Financial Service: On-Line Business
Potentials and Strategies Choice, The International Journal of Bank Marketing,
16(4), 161-169.
Chang, Y. (2002). Dynamics of banking technology adoption: An application to
Internet banking, Working Paper, University of Warwick.
Daniel, E. (1999). Provision of electronic banking in the UK and the Republic of
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Gefen, D., Karahanna, E. & Straub, D. W. (2003). Trust and TAM in Online
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among Singapore consumers, International Journal of Bank Marketing, 21(1), 1628.
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Internet banking in the UK. Internet Research: Electronic Networking Applications and Policy, 10(1), 19-30.
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CONSUMER ETHICS: ATTITUDES TOWARD COUNTERFEIT LUXURY FASHION PRODUCTS
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CONSUMER ETHICS: ATTITUDES TOWARD COUNTERFEIT

LUXURY FASHION PRODUCTS
Kasim Tati, Ph.D.
Merima injarevi, M.Sc.
Sarajevo School of Economics and Business
University of Sarajevo
ABSTRACT
The purpose of this paper is to examine the eect of personality factors (materialism, status consumption and integrity) on consumers attitudes toward counterfeits and their willingness to knowingly purchase counterfeit luxury fashion products. A self-administered questionnaire was designed using established scales. The
research was carried out on a convenience sample of 347 business students at Sarajevo School of Economics and Business. The ndings indicate that integrity and
status consumption are the signicant inuencers of consumers attitudes toward
counterfeits, where materialism had no impact on consumers attitudes toward
counterfeits. In addition, personality factors (materialism, status consumption and
integrity) do not have any signicant inuence on consumer willingness to knowingly purchase counterfeit luxury fashion products. Attitudinal factors (positive
attitudes towards counterfeits by economic and hedonic benets) have a positive
inuence on consumer willingness to knowingly purchase counterfeit luxury fashion products. The research results presented in this paper can help policy makers
and managers of genuine luxury fashion products to gain useful insight how the
demand for counterfeit products could be decreased.
Key words: Consumer ethics, Counterfeiting, Attitudes, Status consumption,
Luxury fashion products
INTRODUCTION
Counterfeiting is a signicant and growing problem worldwide, occurring both

in less and well developed countries. Counterfeiting exists in almost all product
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Kasim Tati Merima injarevi
categories including clothing and accessories, pharmaceuticals, automotive parts,

cosmetics, electronics such as television sets and mobile phones, software, media,
and currencies. Counterfeiting of luxury fashion products is particularly widespread and these can include clothes, handbags, shoes, watches and jewelry, just
to name a few. The International Trade Commission estimates counterfeit sales
worldwide grew from $5.5 billion in 1982 to over $500 billion in 2009. And this
growth trend is expected to continue (Perez et al., 2010). Regardless of the damage
caused by counterfeit products, the Anti-Counterfeiting Group survey found consumers disregard the negative eects of counterfeit products. The survey revealed
that about one-third of consumers would knowingly purchase counterfeit goods
if the price and quality of the goods were right, and 29 percent of subjects see no
harm in product counterfeiting as long as the products do not put the purchaser
at risk (Bian and Veloutsou, 2007). Unlike counterfeit automotive parts, drugs,
or pharmaceutical products, counterfeit luxury fashion products do not cause any
physical harm to its consumers. Therefore, many consumers consider purchasing
luxury fashion counterfeits perfectly acceptable and think their contribution to
this shadow economy will not make any dierence. However, counterfeit luxury
fashion products tarnish companies valuable and intangible assets such as intellectual property and brand by erosion of the equity, reputation, and positioning in the market (Green and Smith, 2002). To ght against the counterfeiting
industry, companies selling luxury fashion products, such as Louis Vuitton, Gucci,
and Cartier, spend approximately 2 percent of their revenues to protect their trademarks (Ha and Lennon, 2006). They have hired private investigators to protect
their brands from counterfeiters and have attempted to educate the public about
counterfeiting through campaign, advertisements, and special events. National and
international organizations and individual governments also enforce intellectual
property law and apply pressure on countries that have slack laws to decrease counterfeiting (Ha and Lennon, 2006). The eorts of both the legitimate companies
and governments focus on the supply side. However, the demand for counterfeits
is still very strong globally, particularly in luxury good markets where consumers
often knowingly purchase counterfeits (Nia and Zaichkowsky, 2000). To eectively
ght against the counterfeiting industry, it is important to identify consumers motivations for counterfeit purchases and educate consumers on the negative impacts
that counterfeiting has had on society.
The present study attempts to ll the gap in the counterfeit literature that views
the problem from the demand side. The purpose of this study is to investigate
777
whether personality factors namely materialism, status consumption and integrity

inuence consumers attitudes toward counterfeits and willingness to knowingly
purchase counterfeit luxury fashion products.
This paper is organized into four sections beginning with a discussion of extant literature and development of the research hypotheses. This is followed by a
description of the research methodology. Then, the discussion of the ndings and
analysis are presented. Finally, the concluding comments and managerial implications of the study are highlighted.
RELEVANT LITERATURE AND HYPOTHESES DEVELOPMENT
During the last couple of decades, the phenomenon of the counterfeiting has
increasingly become an area of interest by academicians. Cordell et al. (1996, p. 41)
dened counterfeiting as any unauthorized manufacturing of goods whose special
characteristics are protected as intellectual property rights (trademarks, patents, and
copyrights). Review of the academic literature on counterfeiting reveals a several
denitions of counterfeits or counterfeited products. Wilcox et al. (2009) dened
counterfeits as genuine fakes that are copies of original products which have high
brand value in the market and are made to deceive consumers in the market.
The majority of research in counterfeiting has focused attention on the supplyside issues such as production, distribution, and market operations of illegal products and ways to ght against the growth of illicit producers. Researchers have
also investigated the demand side of counterfeiting. This research stream includes
investigations into consumers purchase intentions, willingness, and attitudes that
result in favorable or unfavorable behavior toward counterfeit products. From the
demand side of research stream under counterfeiting, consumers are considered
to contribute to the crime of counterfeiting by creating favorable attitudes and
demands for such products.
According to the theory of planned behavior (TPB), purchase behavior is determined by the purchase intention, which is in turn determined by attitudes.
However, the TPB also stated that the opportunities and resources, such as the
accessibility of counterfeit products, must be present before purchase behavior can
be performed. Without such circumstances, regardless of how favorable attitudes
are, it would be dicult to perform a purchase. Unethical decision making such
as the purchase of counterfeits is explained largely by attitudes, regardless of product category (Wee et al., 1995). This means that if a consumers attitude toward
778
counterfeit products is more favorable, then it is more likely that the consumer
would consider purchasing a counterfeit product. Similarly, the more unfavorable
attitudes toward counterfeiting are, the less likely are the chances of purchasing a
counterfeit product (Wee et al., 1995).
Two major reasons that make consumers develop positive attitudes toward buying counterfeit products are economic benets and hedonic benets (Yoo and Lee,
2009; Ergin, 2010). Because counterfeits prices are a mere fraction of genuine
products prices, consumers enjoy economic benets and feel values (Albers-Miller
1999). A counterfeit is a lower-quality, lower-price choice whereas a genuine product is a higher-quality, higher-price choice (Gentry et al. 2006). However, counterfeit consumers do not mind low quality and poor materials because they do not
see counterfeits as inferior choices when they experience budget constraints and
appreciate economic benets of counterfeits (Nia and Zaichkowsky 2000). The hedonic benets of counterfeit purchases are also strong. Consumers buy counterfeit
luxury products because they want to demonstrate that they can aord those goods,
to show that they belong to a particular social group, or to use the product for
symbolic self-extension (Ergin, 2010). They view that the brand, the label, various
design characteristics such as logo, color, accessories are themselves valuable. Counterfeit luxury fashion products, in particular, satisfy a desire for symbolic meanings
such as social and nancial status, recognition and superiority. Status conscious
consumers resort to counterfeits to satisfy their status seeking needs if they perceive
the genuine product to be inaccessible due to price point (Wilcox et al., 2008;
Phau and Teah 2009). The desire to own the branded product often outweighs any
disadvantages associated with the product being a counterfeit or of lower quality
than the genuine item (Phau and Teah, 2009). Therefore, when consumers pursue
hedonic rather than utilitarian needs, they will easily accept counterfeits.
Another issue to point out is the wide degree of counterfeit product availability in Bosnia and Herzegovina. Consumers have ample opportunities to purchase
counterfeit luxury fashion products since these products can be easily found in local markets and high street shops scattered across most urban cities in the country.
Since counterfeit luxury fashion products are more prominent and more widely
available than genuine items in this country, the ease of access to counterfeit products strengthens the link between intention and behavior. In the context of this
study, this further reinforces the use of willingness to purchase counterfeit luxury
fashion products as in indicator of actual purchase behavior. Therefore, it can be
postulated that:
779
H1a: A consumers likelihood of knowingly purchasing counterfeit luxury fashion products will be positively related to his/her attitude toward buying counterfeits by economic benets.
H1b: A consumers likelihood of knowingly purchasing counterfeit luxury fashion products will be positively related to his/her attitude toward buying counterfeits by hedonic benets.
Prior research has identied several factors that explain the demand of counterfeit products. Based on literate review, Eisend and Schuchert-Guler (2006) classied these factors into four categories: (1) person (demographic variables, psychographic variables and attitudes toward counterfeiting), (2) product (price, product
attributes, and scarcity), (3) social and cultural context in which the counterfeit
purchase decision is made, and (4) purchase situation and mood.
In accordance with its aims this study will highlight the impact of personal factors. Among many other personal factors, we examined the impact of materialism,
social consumption, and integrity on consumers attitudes toward counterfeits and
willingness to knowingly purchase counterfeit luxury fashion products.
An orientation based on consumption, materialism is dened by Belk (1985) as
the importance a consumer attaches to worldly possessions which also provide the
greatest source of satisfaction. According to Belk, (1985), possessions help dene
ourselves and often through materialistic acquisition consumers can measure their
success. The value of possessions stems not only from their ability to confer status,
but from their ability to project a desired self-imagined perfect life. Materialists
view themselves as successful to the extent they can possess products that project
these desired images (Belk 1985). Richins and Dawson (1992) dened materialism
as acquisition centrality, acquisition as the pursuit of happiness and possession-dened success. The motivation materialists derive for acquiring possessions is driven
by the need to display wealth and social standing to signicant others (Eastman et
al., 1999). In particular, luxury fashion products are categories that project style
and image. The extreme desire to acquire possessions that signal status becomes
the focus in the materialists life. In the same vein as the status consumers who
are without the nancial support to achieve this lifestyle, they are likely to turn to
counterfeit luxury fashion products as alternatives. Based on this, we hypothesized
the following:
780
H2a: Materialism has a positive inuence on consumer attitudes toward buying

counterfeits.
H2b: Materialism has a positive inuence on willingness to knowingly purchase
counterfeit luxury fashion products.
Past literature on the theory of consumer demand suggested that consumers
often consume products in order to demonstrate their superior status to themselves
and to others. That gives rise to the concept of status consumption as a motivational
process by which an individual strives to improve his or her social standing through
consumption of products that project this image (Eastman et al. 1999). It is inaccurate to assume that only the wealthy are prone to status consumption. Status
consumption is for consumers who are seeking self-satisfaction as well as to display
their prestige and status to surrounding others usually through visible evidence
(Eastman et al., 1997). Status consumers seek to possess products that exude brand
symbols that reect their self-identity. Consumers, who wish to be considered as
belonging to a higher social class but do not have the income to support it, will
purchase the counterfeit alternative over the genuine, regardless of ethical standing
(Wee et al., 1995). Thus, the following can be hypothesized:
H3a: Status consumption has a positive inuence on consumer attitudes toward
buying counterfeits.
H3b: Status consumption has a positive inuence on consumer willingness to
knowingly purchase counterfeit luxury fashion products.
In accordance to moral competence theory, consumers behaviors are aected
by their personal sense of justice. The inuence of basic values like integrity will affect the judgment towards engaging in unethical activities (Phau and Teah, 2009).
Integrity is determined by personal ethical standards and obedience to the law. If
consumers view integrity as crucial, the chances of them viewing counterfeits in a
positive light would be much smaller (Wang et al., 2005). Also, those consumers
who have lower levels of integrity are expected to feel less guilty when buying a
counterfeit. Rather, they rationalize their behavior in a way to reduce the cognitive
dissonance of an unethical behavior. Using this rationale, the following can be
postulated:
H4a: Integrity has a negative inuence on consumer attitudes toward buying
counterfeits.
781
H4b: Integrity has a negative inuence on willingness to knowingly purchase

counterfeit luxury fashion products.
RESEARCH METHODOLOGY
A convenience sample was chosen among business students at a Sarajevo School

of Economics and Business. Respondents were asked to complete a self-administered survey form. Student samples are justiable for this study, given the nature of
the research design. First, the vast majority of university students fall into the 18-25
years age group. This age group has consistently been found to contain individuals
who are most likely to purchase counterfeits (Gentry et al., 2001; Bian and Veloutsou, 2005). Furthermore, students do not have the income required to purchase
genuine luxury fashion products. Thus, they resort to counterfeits to gain the benets associated with use of luxury fashion products (e.g. status consumption).
Based on the literature, the survey instrument was built, using scales that were
already validated in previous research. Section A measured the personality factors
(materialism, status consumption and integrity). Materialism was measured using a
Richins and Dawsons (1992) 18-item scale. Status consumption was measured by
the Eastman et al. (1999) 5-item scale. Finally, integrity was measured using the
the Rokeach value survey (Rokeach, 1973). Section B examined the attitudes toward counterfeits and purchase intention toward counterfeit luxury fashion products. Attitudes toward counterfeits were measured using a six-item scale of positive
attitudes toward buying counterfeits by economic benets and a ve-item scale of
positive attitudes toward buying counterfeits by hedonic benets (Yoo and Lee,
2009). Section C comprised demographic information of respondents. Participants
answered these items using Likert scales varying from 1 (completely disagree) to
5 (completely agree). Only the purchase intentions used a dierent format, with
anchors varying from 1 (very unlikely) to 5 (very likely).
RESEARCH FINDINGS AND DISCUSSION
In total, 365 questionnaires were collected, and of these 18 responses were discarded due to being incomplete. The remaining 347 usable responses were analyzed
using SPSS Version 17. The mean age of the respondents was 19.71 years. A total
of 66 percent of the respondents were female and 34 percent male. Over forty percent (45.5%) of the sample came from households with parental monthly income
ranging from 500-1,000. More than twenty percent (26%) of the sample had
782
household monthly incomes of 1,000 and more. The remaining students came
from households where parents earned less than 500 per month. The percentage
of buyers of counterfeit luxury fashion products (70 percent) was higher than nonbuyers (30 percent).
Standard regression was conducted to determine whether attitudes toward
counterfeits have positive inuences on consumer willingness to knowingly purchase counterfeit luxury fashion products. Positive attitudes toward buying counterfeits by economics benets (t=7.453, =0.363, R2=0.373, p<O.01) and positive attitudes toward buying counterfeits by hedonic benets (t=7.141, =0.348,
R2=0.373, p<0.01) were found to be signicant in predicting consumer willingness
to knowingly purchase counterfeit luxury fashion products. These results fully support H1a and H1b. These relationships were supported by previous studies that
used TPB in the context of purchasing illegal products such as pirated music CDs,
software, and counterfeit fashion products (Yoo and Lee, 2009, Kim and Karpova,
2009). Additionally, Tom et al. (1998) found that consumers who are supportive
of counterfeit products sold in the market actually purchase them as it makes them
feel smarter than others. Wee et al. (1996) also found a positive relationship between attitudes and intention toward purchasing counterfeit fashion products and
pirated software.
Standard regression was conducted between the three personality factors, namely materialism, social consumption and integrity, and consumer attitudes toward
counterfeits. Based on the results in Table 1, integrity was found to be signicant,
as well as status consumption. Thus, consumers who have higher levels of integrity
and consider values such as honesty, politeness, and responsibility as important are
more likely to hold unfavorable attitudes toward counterfeits. Also, results revealed
that status consumption had a positive inuence in determining consumer attitudes towards counterfeits.
Table 1 Standard regression results of personality factors to attitudes toward counterfeits

Dependent variable: Attitudes
toward counterfeits (R2)
Materialism
Status consumption
Integrity
Source: Authors own research and calculation
B values
SE
t -value
Sig.
(0.102)
0.058
0.113
-0.299
0.078
0.044
0.071
0.044
0.156
-0.223
0.751
2.599
-4.213
0.453
0.010
0.000
783
Wee et al. (1995) also supported the positive relation between status consumption and attitudes toward counterfeits which can be explained by the bandwagon
eect (i.e., the desire to consume those products/brands that are in use by others).
The result for this hypothesis was further supported by Garza (2006) who pointed
out that even though the products are not original, they are still associated with
status if they resemble to genuine products. This means that consumers who seek
to enhance their social status prefer to have the ownership of highly visible counterfeit luxury fashion products and hence have favorable attitudes toward purchasing
them. Since counterfeit luxury fashion products are typically constructed with the
same designs, colors, and raw materials, they have high resemblance to those of
the original ones, and hence are likely to be purchased (Wilcox et al., 2009). This
perception of new luxury obtained by purchasing counterfeit versions of genuine products at aordable prices explains the positive relationship between status
consumption and attitudes toward purchasing counterfeit luxury fashion products.
Lastly, materialism was found to have no inuence in consumers attitudes toward
counterfeits.
Standard regression was used to predict the inuence of the three personality
factors (materialism, social consumption and integrity) on consumer willingness
to knowingly purchase counterfeit luxury fashion products. These results (Table 2)
revealed that none had any signicance with all signicance ratings above the critical level (p>0.05). These results did not support H2b, H3b and H4b.
Table 2 Standard regression results of personality factors to consumer willingness to knowingly purchase
counterfeit luxury fashion products
2
Dependent variable: CW (R )
Materialism
Status consumption
Integrity
B values
(0.008)
0.091
0.028
-0.141
SE
t -value
Sig.
0.136
0.076
0.124
0.041
0.023
-0.063
0.667
0.336
-1.137
0.505
0.715
0.256
Note: CW consumer willingness to knowingly purchase counterfeit luxury fashion products

Source: Authors own research and calculation
The result for H4b in particularly is interesting. When taken together with the
ndings in H4a, integrity was found to be a factor that inuences on consumer attitudes toward counterfeits. However, that does not necessarily reect the consumers buying intentions. The non-signicant relationship between integrity and con-
784
sumer willingness to knowingly purchase counterfeit luxury fashion products could

be attributed to the fact that consumers may view counterfeit products as illegal but
may not realize that purchasing those products is a serious problem. Such a phenomenon may further be backed by the lack of legislative regulations to prosecute
individuals who purchase and consume counterfeit products. For the H3b, the
relationship between status consumption and consumer willingness to knowingly
purchase counterfeit luxury fashion products, a non-signicant positive coecient
was found. This result is not in the line with the ndings from previous studies that
showed status consumption to be a signicant predictor of consumer willingness
to knowingly purchase counterfeit luxury products (Wilcox et al. 2009). However,
conicting ndings can be found in the literature. For instance, Grossman and
Shapiro (1988) found that counterfeit brands may impose a negative impact on
selfimage and may degrade the status associated with the counterfeit products,
indicating a negative relationship between status consumption and intention to
purchase them.
CONCLUSION
Research results revealed that the three personality factors (materialism, social
consumption and integrity) are not useful predictors of consumer willingness to
knowingly purchase counterfeit luxury fashion products. First, this may be attributed to the fact that materialists are not likely to fulll their needs for material
possessions by purchasing counterfeit variants of luxury fashion products. Second,
status consumers, fearing of rejection from reference groups if they are discovered
using a counterfeit, can develop a strong determination against buying counterfeits.
Besides, attitudes toward counterfeits were found to have a signicance impact on
consumer willingness to knowingly purchase counterfeit luxury fashion products.
Results suggest several implications for genuine luxury fashion brand managers. Since consumers who seek status have favorable attitudes toward counterfeits,
it is necessary for brand managers and practitioners to plan and execute strategies
that help in reducing the consumption of counterfeit luxury fashion products, especially if the consumption is driven by the status seeking motivation. One of the
ways that may reduce this type of consumption is by oering a branded product
range at lower price that specically targets young consumers. As an example, Vera
Wang has a brand extension called Simply Vera Vera Wang that targets young middle
to upper middle population who cannot aord the luxury line of Vera Wang. Sim-
785
ply Vera Vera Wang shares a similar concept with the parent brand; however, it still
maintains an aordable option for young consumers who have a taste for style and
status but have lower income. Also, genuine luxury fashion brand managers should
develop advertisements directed at consumers to highlight the harms associated
with the consumption of counterfeits. Moreover, aggressive publicity of possible
prosecution for purchasing counterfeits may evoke a sense of fear and punishment,
and hence may result in forcing consumers to develop a strong determination
against buying counterfeits.
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luxury brands?, Journal of Product and Brand Management, 9 (7), 485-497.
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Advances in Consumer Research, 36, 280-287.
COMPANY FINANCING THROUGH CAPITAL INCREASE IN THE HOSPITALITY INDUSTRY
787
COMPANY FINANCING THROUGH CAPITAL INCREASE IN

THE HOSPITALITY INDUSTRY
Florin Duma
Drago Pun
Universitatea Babe - Bolyai
Abstract
The Romanian hospitality industry is one that relies mostly on classical methods
of nancing, which include among others bank loans and the capital of owners.
Throughout our paper we will present classic methods of attracting capital but
other forms of nancing that could help the development of business in this area.
The best practice example presented in the paper will be Casa Bucovina - Club
de Munte. This company was the rst from the hospitality industries to engage in
an initial public oering through the Bucharest Stock Exchange. It has increased
its capital and now remains a landmark on the stock market for SMEs and for the
whole hospitality industry.
Keywords: hospitality industries, nancing
For most hospitality industry owners, only a few methods of nancing their activity are known. Mostly when faced with the need of capital, they tend to choose
either a loan, from a bank or from another nancial institution, or they invest
their own private money. Our paper will focus on other ways to raise the necessary
capital because as we have noticed the rst two classical approaches are during this
period very hard to obtain.
Because of the nancial crisis that has spread throughout the world in 2007,
loans, especially bank loans, are very hard to obtain because most banks require
companies to provide assets to guarantee the return of the loan. What happens if
it does not own such assets, or if the assets are already being used for other loans?
Then the owners would be forced to bring their private capital into the company.
788
Florin Duma Drago Pun
But also because of the economic conditions that we are facing at present, this is
very hard to accomplish, and the risk of losing the money is high.
Thus, our main focus in the current paper is to provide some other alternatives of nancing the activity of a company. One alternative is capital increase. An
increase in capital can be obtained through: the issuance of shares, debt conversion,
incorporation of reserves and the incorporation of share premium.
Increase of capital through the issuance of shares
Through the issuance of new shares, the company seeks to obtain capital in
order to carry on its activity or to expand. Through the issuance of shares, the
company is exempt from an immediate nancial eort or one that is exceeding its
nancial possibilities (Wolfgang Lang; 2004, 50).
In this case, we are witnessing an improvement in the nancial structure of the
company, which translates into an increase in working capital, growth equity and
therefore liquidity. The new nancial structure will be altered, because liquidity will
be used for acquiring new assets (Wohe et al.; 2009, 70).
Capital growth can only occur when the old capital has been fully paid. In order
to be practicable, the issue price of new shares must be smaller or at most equal to
the old shares. Otherwise, prospective underwriters would prefer to buy old stocks
whose price is lower than the issuance price of new ones.
In order not to cause a substantial reduction in the old stock, new shares may
be issued at their nominal size plus a premium issue. This is because the company
making a capital increase often has other equity, which makes the real value of
shares higher than their nominal value.
The premium issue is the price paid by new shareholders and is meant to equalize the rights of old shareholders, when there are other reserves of equity (Rudolph
Bernd; 2006, 277).
Preferential right to subscription of shares issued is given to former shareholders
in proportion to the number of old shares held; practically every old share has a
subscription right attached. Shareholders can use the subscription right to acquire
new shares or they can sell it to other investors interested in subscription, which
do not have enough (Halpern et al.; 1998, 783). The subscription right is a title of
securities, whose value depends on the law of supply and demand. It can also be
viewed as a subscription privilege or a preemptive right.
789
Increase of capital by incorporating reserves
The decision to enlarge the capital by incorporating reserves belongs to the general shareholders assembly. The increase in credibility, creating a balance between
the nominal value and stock value of the shares is just one advantage that arises
from this procedure.
Reserves are basically capitalized benets of an enterprise until a contrary decision of an authorized body is taken. Reserves are thus shares of the prots distributed during the nancial year. In exceptional cases, reserves may be constituted
from other resources such as dierences in capital and initial review.
Structurally, in terms of nancial accounting, reserves are divided into four categories: legal reserves, in Romania at least 5% of the annual gross prot but not more
than 20% of the capital; reserves for own shares are established in case the company
has acquired its own stocks and when payment will be made available in reserve or
distributable prot; statutory or contractual reserves; other reserves.
Capital increase by incorporation of reserves is done in two ways: allocating new
shares free of charge; raising the nominal value of old shares.
The above mentioned may be used separately or combined. Thus, raising the
nominal value of old shares should be chosen when their nominal value is low,
making them uncompetitive. Allocation of new and free shares to shareholders
proportional to their participation in capital formation is the most used route, because it enables shareholders to negotiate shares (in this case the stock value suers
a decrease)
Increase of capital by debt conversion
Debt conversion is another source of investment nancing. The debt of companies, contracted for investments (from equipment suppliers, from banks or raised
by issuing bonds) can be converted into shares of that company by increasing its
capital. Such operations are called debt consolidations and their implementation
requires a waiver of preferential subscription rights that is usually granted to old
shareholders.
The operation resulting from the agreement between the company and interested creditors reduces debt without diminishing the treasury. The capital increase
is not achieved through new contributions, but by converting debt into shares of
the company, which can no longer pay creditors. Thus the former creditors become
790
shareholders. In some cases, the debts were specically contracted in order to be

converted (Perrindon et al.; 2007, 390).
In developed countries, such operations are made especially by SMEs who face
diculties with cash or suer a nancial burden caused by excessive borrowing.
The most important instruments used to conduct such operations are: bonds convertible into shares; bonds redeemable in shares; bonds with share subscription
warrants;
1. Increasing the capital can be accomplished in several ways, such as:
1. converting current debt into shares. Such a solution can be found in companies that face serious cash diculties. Thus, it allows creditors to take rm control
of the business, avoiding judicial liquidation; on the other hand, the company will
restore its nancial structures and reduce nancial costs (interests) or service costs
(penalties).
2. the conversion of convertible bonds into shares. In this situation, the bonds
were issued in the prospect of changing them into shares, when the owners desire,
or at a specic term.
1.1. The conversion of current debt into shares
Like the incorporation of reserves, capital growth through debt conversion

seems not to have an eect on the nance company. In this case, an amount that
previously gured in the debt accounts is transferred to equity, without changing
the overall size of resources, i.e. the sum of liabilities. The operations still have three
connections to direct or indirect nancing. To the extent that debt is transformed
into equity, it is released from a future maturity of a debt and it thereby increases
its funding stability. For the converted amount, debt decreases and equity increases,
thus the company improves its nancial structure, and could now be eligible to
solicit. Debt conversion will allow reconstructing its debt and nancing capacity. If
the maturity of the debt converted is close, the performed operation reduces pressure on the companys treasury and reduces the immediate nancing needs. But
unlike incorporating reserves where the shareholder structure remains the same,
after this operation the former creditor receives shares for the amount of money
invested. Thus, having invested its money, the former creditor will have a nancial
interest in the future success of the company.
791
1.2. The conversion of convertible bonds into shares
This conversion must be desired and motivated by the debenture owner in order
to become a shareholder. The bearer of bonds, securities with xed interest, should
be interested in transforming them in securities with variable income (dividends).
For this purpose, the shares issued must be close to the theoretical value of the
bonds. The conversion premium of the bonds occurs when the nominal value of
bonds is higher than the shares. This operation appears only in consolidated nancial statements (Rudolph Bernd; 2006, 300).
The Stock Exchange - the ideal place to conduct nancing by means of social
capital increases
All these means of nancing presented above involve a change in the number
of stocks (or, less commonly, in their nominal value), a process that can occur in
optimal conditions chiey in the case of companies that are listed on the stock
exchange, where subscribing new shares, buying and selling are easy to accomplish.
Furthermore, on the stock exchange, new shareholders (as well as old ones) are sure
of their possibility to conduct their exit easily and at a fair price, while current
shareholders, who do not have the possibility to subscribe, can protect themselves
very well by selling on the stock market the subscription rights they benet from in
the process of social capital increase.
In this paper, we have decided to have an insight into companies belonging to
the eld of hospitality.
On our countrys capital market there are several listed companies that are active
in the area of hospitality (hotels and restaurants), more precisely 81 commercial
companies. Most of them began to be listed on Rasdaq (the Over-the-counter stock
market in Romania) in the course of the Mass Privatization Programme, during the
mid-90s. Some of them did not wish to be listed, while others failed to comprehend why they were at the quota of the stock exchange and, hence, they were not
transparent and used to a very small extent the nancing opportunities provided by
the capital market, and their stock transactions are sporadic.
Nevertheless, there are a few companies, such as: Turism Covasna SA (Covasna Tourism JSC) (TUAA), Baile Tusnad SA (Tunad Baths JSC) (TSND), Hebe
SA Sangeorz-Baiu (HEBE), International SA Sinaia (INTE), Durau SA Durau
(DURN), Lido SA Bucuresti (LIDO), Calipso SA Oradea (CAOR), Bega Turism
(Tourism) SA Timisoara (SCDE), Capitol SA Bucuresti (Bucharest) (CABU) etc.,
792
which have each nanced themselves by means of the capital market, by undergoing several social capital increases during the last few years, using one of the abovementioned techniques.
Unfortunately, however, only three companies are listed in the BVB section:
Marea Neagra SA (Black Sea JSC) (EFO), Turism Felix SA Baile Felix (Felix Baths
Tourism JSC) (TUFE) and Bucovina Club de Munte SA (Bucovina Mountain Club
JSC) Gura Humorului (BCM). Moreover, of these three companies, one has moved
up from Rasdaq, namely Turism Felix SA.
Why are there so few companies in the BVB section? It is quite complicated for
us to nd a pertinent answer. Of course, access conditions and, subsequently, those
pertaining to the maintenance of the quota of the stock exchange are stricter than
on Rasdaq; and so are the rules regarding transparency with respect to the transactions conducted and the reporting of nancial data. All these arguments do not
hold out, because they are normal requirements, obeyed by all listed companies
from countries with a well-developed market economy. In a cost-benet analysis
of stock exchange listing, we consider that the benets are much greater, mainly in
terms of access to nancing and the notoriety a company acquires.
A good example in this respect - unfortunately unique over the last years among
tourism companies - is SC Bucovina Club de Munte SA, (Bucovina Mountain Club
JSC) from Gura Humorului, which became listed on the stock exchange, in the
BVB section, in 2008.
Best practice Bucovina Mountain Club
SC Bucovina Club de Munte SA (Bucovina Mountain Club JSC) (BCM) decided to become listed on the stock exchange through an increase in social capital,
achieved by means of an initial public oering (IPO).
An Initial Public Oering (IPO) is the process through which occurs the rst
public sale of a certain companys shares, in order for it to obtain additional capitals
and, subsequently, the transacting of shares on the stock exchange. Basically, we
may say that a particular company becomes public, since it opens to any investor,
indiscriminately, who is interested in purchasing newly-issued stocks.
In order to achieve an IPO, a company turns to a brokerage house, which will
draw up an emission prospect, in the purpose of oering all the necessary information about the company to potential investors. Furthermore, the intermediary
793
counsels the company with regard to the type of shares it should issue, the value of
the oer and, most importantly, the emission value of new shares. Facilitating an
IPO can be accomplished in many ways: rm commitment, the best eort method,
the all or nothing method, the stand-by method and the Dutch auction method.
Careful choice and correct evaluation of these elements are decisive in the success
or failure of an IPO.
The main motive behind an IPO is the access to relatively cheap capital, in the
long run. Apart from this, an IPO presents several more advantages: enhancing the
structure of capital by increasing ones own capitals, publicity and notoriety.
IPOs are a current and widely-spread practice chiey in the United States, which
is - we believe - not coincidental, but due to the fact that the US has the best-developed capital market and a particular entrepreneurial and investment culture.
Coming back to the Romanian capital market, the lack of an investment culture, along with the poor understanding of the capital markets functioning mechanisms, have been the main factors (although not the only ones) to have rendered
the number of IPOs extremely low: only 15 IPOs during 15 years of functioning,
namely on average one IPO per year!
Companies in Romania have preferred other sources of nancing, especially
bank credit, which has greatly aected them after the start of the economic crisis.
The capital attracted through IPOs or capital increases would have been not only
cheaper that bank credit, but it would have also meant increased comfort for the
company due to the much more distant exigibility. Although the premises of organizational, legislative and institutional nature for resorting to an IPO exist and
are fairly clear, Romanian companies have shown particular reticence in becoming
public. The causes for this mostly stem either from not knowing the procedures,
as well as the advantages of an IPO, namely listing on the stock exchange, or from
the reticence of founders to split control of the company or submit to transparency regulations demanded by the stock exchange. Nevertheless, stock exchange
representatives or intermediaries have quite a big responsibility, as they have not
suciently explained and promoted among companies the opportunities coming
along with an IPO.
In the table below we present the few IPOs from our country that have been
successfully conducted in the modern period of the Bucharest Stock Exchange.
794
One can notice that in almost every situation, they had something to gain, which
means they experienced oversubscription:
Table 1. Successfully conducted IPOs on the Bucharest Stock Exchange

Releaser
MJ Maillis
Int. Leasing
Broker Cluj
Vrancart Adjud
Flamingo Int.
Transelectrica
Alumil Rom Industry
SNTGN Transgaz
Casa de Bucovina
STK Emergent
Contor Grup Arad
Teraplast
OTPWise
OTP Green Energy
iFond Financial
IPO
Date
2001
2001
2004
2005
2005
2006
2006
2007
2008
2008
2008
2008
2009
2009
2010
Field of activity
Wrapping producer
Leasing
Financial investment services
Paper production
IT retailer
Electrical energy transport
Aluminium processing
Natural gas transport
Hotels and restaurants
Investment fund
Water meter producer
PVC processor
Closed investment fund
Oer value
mil lei
3.9
0.3
9
17.5
45
123.1
28.75
225.97
10
49.98
11.7
49.6
6
8
2
Over-subscription
degree (%)
117%
100%
287%
129%
323%
505%
1647%
2800%
149%
42%
101%
103%
149%
108%
350
Variation after
1st day
+16%
-7%
+159%
+10%
+5%
+36%
+90%
+77%
-0.5%
-64%
-47%
-16%
+10%
0%
-
An essential factor in the success of an IPO is its timing. As the table above
shows, companies that turned to an IPO after the start of the crisis have had to
suer with regard to both the number of subscriptions and the yield oered to customers. Over the last few years, there has been a single IPO that was not subscribed
and failed, that of construction company Pomponio SA Alba Iulia, its cause also
lying in poor timing.
Apart from large, well-known companies, there have also been smaller and less
notorious companies to date that have nonetheless resorted to successful IPOs.
One such example in the last few years has been provided by Casa de Bucovina
Club de Munte SA (BCM), which decided to become listed on the stock exchange
by means of an increase in social capital, achieved through an initial public oering (IPO). Casa de Bucovina Club de Munte is a rm that activates in the eld of
795
hospitality, operating a four-star hotel, aliated to Best Western, with a capacity

of 130 rooms, and a motel (Arini). The hotel complex is located in Gura Humorului, in a tourist area with great potential, in the vicinity of the beautiful, pained
monasteries from Bucovina (Vorone, Humor etc).
Given the very good year 2007 for the Romanian capital market, the majority
stockholder, SIF4 Muntenia SA, took the decision of trying to gain capital by listing
this company with tourism-based activities on the stock exchange. The public oering took place at the end of 2007 and during the rst weeks of 2008, amounting to a
total of 9.1 million lei. Practically, 45.500.000 shares were put up for sale, at a value
of 0.2 lei per share. The value of the IPO was not large, compared to other, previously conducted IPOs, but, if we take into account the size of the company, it has a
signicant value, amounting to 37% of the total social capital of the company at the
time, so a lot more, from this point of view, than in the case of some previous IPOs.
For this reason, we believe that the target was ambitious enough, if we consider the
somewhat low notoriety of the issuer. To support these ndings comes the provision
related to IPOs stating that the oer would have been considered to be successfully
closed regardless of the level of subscription. Things developed much better than
that, eventually rendering the oer oversubscribed, by almost 50%.
This IPO was conceived in such a way as to support the investment strategy of
Casa de Bucovina, launched several years before. The capitals attracted were aimed
at nancing the development and modernizing the hotel infrastructure, improving
the personnels skills, as well as promoting the services oered.
The oer conducted by BCM was eventually successful, even though the issuer
was a small and not very notorious company, but one activating in an interesting
domain, with potential for growth, which may determine other companies in the
area of tourism to follow its example and nance themselves by means of an IPO.
Conclusions
Obtaining capital through capital increases is not always simple, but justied,
given that it is more aordable than credits and, especially, it oers the company a
higher nancial safety degree, due to its long exigibility.
Moreover, capital increases may help companies overcome delicate situations,
when, for lack of cash-ow, that are no longer able to pay their debts and decide to
convert them into shares, i.e. to integrate them into their social capital.
796
The primary role of a stock exchange is to facilitate the process of obtaining

capital for rms which are looking for nancing. The instrument through which
this is best achieved consists of Public Oerings. Initial Public Oerings (IPOs)
are the most important ones, but they are merely a rst step, aiming not only to
attract capital, but also to list the company. However, secondary public oerings
can follow: of sale, purchase or exchange. We have mostly focused on IPOs, as we
have considered it to be one of the most important nancing instruments for companies. Unfortunately, so far it has been scarcely used by companies from Romania,
although there have been greatly successful examples, such as Transgaz, Transelectrica, along with smaller companies like Casa de Bucovina. In spite of this, it is our
view that the Romanian capital market has immense potential that has not yet been
exploited, and it is sucient to take for example neighbouring countries (especially
Poland). We believe that the companies from Romania which will rush to conduct
IPOs will have only to gain from this.
Acknowledgment
The authors wish to thank for the nancial support provided from the program
co-nanced by The Sectoral Operational Program for Human Resources Development, Contract POSDRU 6/1.5/S/3 Doctoral studies, a major factor in the
development of socio-economic and humanistic studies.
References
Bernd R., (2006). Unternehmensnanzierung und Kapitalmarkt, ISBN 978-3-16147362-3, Tubingen

Draho, J. (2004). The IPO decision: why and how companies go public, ISBN
1-84376-613-2, Cornwal
Halpern P., Weston, J.F., Brigham E.F. (1998). Finane Manageriale, ISBN 973590-0430-2, Bucharest
Lang, W. (2004). Unternehmensnanzierung, ISBN 3-636-01100-6, Frankfurt
Perridon L., Steiner M., (2007). Finanzwirtschaft der Unternehmung, ISBN 9783-8006-3359-3
http://www.bvb.ro
http://www.kmarket.ro
PRACTICAL ISSUES REGARDING INSURANCE INTERMEDIARIES IN ROMANIA
797
PRACTICAL ISSUES REGARDING

INSURANCE INTERMEDIARIES IN ROMANIA
Gavriletea Marius
Babes Bolyai University, Faculty of Business, Cluj Napoca, Romania
[email protected]
Abstract:
The insurance industry can not be analyzed without taking into account the
intermediaries in insurance. They represent the distribution channel in this particular industry and theirs role is very important. In this paper we will do a research
regarding insurance intermediation in Romania the way intermediation is mentioned in the existed law, the problems that agents and insurance brokers are facing
with in the nancial crisis. We also present an evolution during the last years of
the brokers the most complex part of the distribution channel. At the end of the
research it will be presented the conclusions and recommendation for the involved
persons in insurance sale process.
Keywords: insurance, intermediation, agent, broker
1. Introduction
Intermediaries in insurance have a very important role they are realizing the
connection between insurance companies and the insured or potential insured
clients. They are prospecting continuously the market; identify the needs of the
clients, makes clients aware of risks. Some insurance companies appreciate the intermediaries as market makers.
All the specialists in insurance appreciate that the most important role in insurance distribution channel is represented by insurance agent and insurance brokers.
Insurance brokers
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Gavriletea Marius
The specialists in the insurance market appreciate that insurance brokers may be
split in three big categories:
- The global broker represents the insurance broker that acts all over the world
and are specialized in insurance selling, risk placement and services in case of
risk occurrence
- The regional or niche player are similar to the rst category but they are
operating regional
- The wholesale broker are specialized in risk expertise and oer theirs services
to others categories of brokers
In case of global brokers, they are involved also in reinsurance contracts, transferring risks to the reinsurance market traditionally or using the alternative transfer
market (captive solutions, nite risks, CAT bond and others).
2. Practical Research
In Romania, insurance companies are selling the insurance policies by dierent

distribution channels with an emphasis on coordinators, insurance agent and
brokers of insurance. The rst category the insurance inspectors has the working
license to the insurance company, for these employees the Romanian insurance
law makes no mention. They are paid with constant salary plus bonus in case of
realizing a complex selling plan. This plan is split in dierent insurance classes: motors insurance, property insurance, homeowners insurance, third party and casualty
insurance, workers compensation and life insurance. In this way the inspectors are
encouraged to sell all types of insurance and not only the most convenient ones
(motors vehicle is quite easy to be sold but it is very unprotable for insurance
companies).
Another responsibility for the insurance inspectors refers to coordination the
relationship with insurance agents and insurance brokers. Further more they have
to continuously train these two categories, to inform them about the changes in
existing insurance product and about the new insurance policies.
They are reporting their activity (and the group of brokers and agents coordinated) and explain the situations regarding:
- the reasons why clients refuse to renew the insurance contract
- the reasons why the clients do not pay anymore theirs insurance installments
799
- the reasons why new clients choose for an insurance company

From time to time the insurance inspectors verify the existence of the blank insurance policies. Also they verify the accuracy of subscribing the insurance polices
by agent and brokers, in order to eliminate mistakes in insurance pricing or risk
inspections.
In some cases, the competence of the insurance agent is limited to dierent
insured sum (for example at a Romanian insurance company the subscribing individual limit for an agent is of 20,000 euro per insured sum at motors insurance)
in order to prevent insurance fraud. The insurance inspector supervises in this case
the subscribing of the insurance policy, and further more even sign it together with
the insurance agent.
Insurance agents represent a very important part in insurance distribution channels and are licensed producers appointed by insurance companies to oer their
products for sale.
In Romania, the insurance agent is dened by law 32/2000 and represents only
the interest of one insurance company. So, a person may act as insurance agent if
he holds a written valid authorization from an insurance company, in order to sell
policy under its name.
The insurance agent, as individual, must be recorded at the Working Chamber
in order to pay the legal contributions for social insurance funds and pension fund,
and its activity to be counted for the retirement age.
An insurance agent is not allowed to intermediate the same classes of insurance for two insurance companies. Therefore, an insurance agent may intermediate
property insurance for an insurance company and life insurance for another insurance company (if the rst insurance company does not sell life insurance policies).
In the moment when a client buys an insurance policy sold by an insurance
agent, the insurance company became responsible toward the insured person for
all deed and omissions of the agent. Beside this, the insurance agent is responsible
for its actions regarding insurance policies selling, so each mistake of the insurance
agent toward the insured person is entirely covered by the insurance company.
After this, the insurance company will recover that amount from the guilty agent
(by subrogation).
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Gavriletea Marius
Law Nr. 403/2004 bring supplementary modication related to the insurance

agents activity, they have to meet the following requirements:
a) They must have specialized professional background, knowledge and skills in
order to act on this particular market, all of them being mentioned by Insurance Supervision Commission (I.S.C.);
b) To have an individual professional casualty/third party insurance or an equivalent warranty, provided by the insurance company that the insurance agent
are representing;
c) Not to have juridical record for patrimonial crimes or for other mentioned in
nancial and scal legislation;
d) To respect the legal requirements and to set up cash warranties deposited in
the insurance companies accounts;
e) To held a good reputation.
The legislation gives the possibility to the insurance agents to be organized as a
small company. In that case, the insurance agent with juridical personality should
meet the next requirements:
a) To have the only activity insurance intermediation,
b) To held a liability/third party insurance;
c) Not to be previously declared in bankruptcy and not to be involved in juridical reorganization in the moment of authorizing;
d) To have a good reputation and its name to enclose insurance agent;
e) The CEO must have the necessary qualication and experience in order to
hold this position.
No matter of the insurance agent type, they must follow supplementary requirements established by the insurance company they are working for. They must
inform the insurance companies about all the particular situations they are confronting with.
Also, the activity of the agents is continuously supervised by the insurance
company, and after analyzing their performances the level of commissions may be
higher. This status can be reached by fullling some criteria:
- number of subscribed insurance policies
- the level of insurance premium intermediated
- number of years worked for the insurance company
801
- the lack of complaints from the clients

Another distribution channel in insurance is represented by insurance brokers.
Insurance legislation in Romania mentions the fact that the insurance may be
sold using insurance brokers as distribution channels. A company may act as insurance broker if it held an authorization from Insurance Supervising Commission. In
order to receive the authorization from I.S.C. and to continuously activate on the
insurance market, insurance brokers have to meet the following requirements:
a) To have juridical personality and to have a subscribed social capital at a specied level (level updated periodically by I.S.C. by its norms);
b) To have a valid insurance policy (brokers casualty/third party insurance);
c) The only activity must be insurance intermediation;
d) To respect the I.S.C. requirements related to reports, taxes and activities
Dierent from the insurance agents, the insurance brokers may intermediate insurance policies from more insurance companies. The insurance brokers represent
the interests of theirs clients; they negotiate for them insurance prices (individuals,
companies, insured persons, potential insured clients), sign insurance policies in
theirs names, assist the client prior and post signing the insurance contracts and
supervise the loss adjusting claims procedures.
Insurance intermediaries are needed in the insurance market by all types of
insured people or companies. The rst category some individual persons agree
most to be informed about insurance product by someone else rather than do some
research in the market. Others, because of the lack of time, prefer to pay insurance through intermediaries that are going themselves to the insured domicile or
jurisdiction.
In case of the companies, taking into account the risk management process and
the variety of exposures, they prefer to use the services of an insurance agent or an
insurance broker. If the exposures are simple ones and the company is a small one,
it can easy choose the services of an insurance agent.
The bigger companies are, the greatest risk exposures are. In this situation, the
insurance broker services seem to be more needed. This is why the personal of the
company has no time to analyze the insurance companies oer for theirs exposures
and in case of special exposure the client do not know what insurance company has
the needed insurance policy in the portfolio.
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Gavriletea Marius
Another advantage of using a broker is referring to the entire risk exposure.

All the insurance policies (property, vehicles, casualty, workers compensation and
other) will begin in the same time and it will end after one year. This is a major
advantage for both parties:
- The insurance brokers can negotiate with insurance companies the prices for
all insurance policies, for all exposure into an insurance bucket. In this case
the entire insurance price is lower than in case of multiple dierent insurance
policies
- The insured company has no problem regarding to the dierent contractual
period variance in cases of individual policies
- The insured company has a clear information about installments
There is another strategy done by brokers in order to win the competition in this
harsh market. Some of the brokers oer a paying back commission to the insured
company at the end of the contract. This situation is happening if the entire loss
ratio of the company is lower than an expected percent.
If we assume that a big company pays for an insurance bucket 100,000 Euro
per year, the broker commission will be around 12% this means 12,000 Euro per
year. The insurance broker has a special clause in the contract with the insurance
company if the loss ratio will be lower than 30% the insurance broker will receive
an extra commission of 5%.
In this case the losses plus commissions expenses for the insurance company will
be at a level of maximum 47%. This is a very good percentage of combined loss
ratio, and even if we add the other expenses (reinsurance and xed costs) there will
remain an important prot per the company insured.
Further more; the broker may cede to the insured company a back commission
of 2-3% this mean 2 - 3,000 Euro. This amount is not quite insignicant. Also, this
sum reects a good risk management program implemented by the broker.
In Romania, some brokers are acting quite unethical. They are selling to theirs
clients the insurance products for the insurance company that oers them the higher commission. Therefore the insured interest are not respected, the brokers abuse
of the clients condence. In these cases it is very possible that the clients should not
receive the desired risk coverage.
803
The insurance market dene a particular situation for insurance brokers or/and
for insurance agent with important insurance portfolio, as a contingent commission. So, contingent commissions are payments made by an insurance company to
an insurance agent or insurance broker based on some complex index of businesses
placed by them (and not individually for each insurance policy). There is taken
into account the protability of the intermediated risks. In some cases, contingent
commissions may be applied at dierent levels depending on dierent classes of
insurance.
In countries with a developed an experienced insurance market proves the fact
that the majority of the insurance/reinsurance contracts are sold by insurance
brokers.
This trend starts to be found in Romania also, where the volume of the insurance premiums intermediated by insurance brokers is growing every year. Also, the
number of insurance brokers is growing every year. Using the statistics of ISC the
number of brokers increase every year from 2002-2008 with an average of 40.33%
every year.
Table nr.1 Insurance Brokers evolution in Romania

Year
Number of insurance brokers
Source: www.csa-isc.ro
2002
150
2003
174
2004
234
2005
281
2006
313
2007
348
2008
392
According to the same source, the borkers revenues from insurance premiums
intermediated in 2008 was aproximativ of 122 mil. Euro with an 14% increase
from 2007. In 2007 the revenues from insurance intermediation was approximativ
of 107 mil. Euro that represented an increase of 50% from the level recorded in
2006 volume of approximativ 71 mil. Euro.
The reasons of both of these increasing (intermediated of insurance premiums
and number of brokers) are:
- The companies pay the greatest part of the insurance premiums. Because of
theirs risk complexity, assets value, responsibility level the companies choose
the insurance brokers
- Individual insured persons have an increasing trust in services oered by an
insurance brokers
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Gavriletea Marius
If we analyze the rst reason, there must be recognizing the fact that companies
need a complex risk management program. Insurance brokers may oer consultancy in risk management process, they can oer solutions for controlling some
risks and for the risk that cannot be controlled they may oer the optimal insurance
policy.
Because insurance brokers intermediate more insurance companies, they can
oer to their clients the best insurance policies that correspond better to theirs
personalized needs/exposures, taking into account the risks coverages and insurance premiums.
In the moment of loss occurrence, brokers services are very useful. A company
prefers to choose the services of an insurance broker because if the broker is dealing
with loss adjusting this fact represents time eciency for the client (the broker will
send its employee to deal with the loss). The broker will be remunerated for this
service by the client, with an initial established amount or with a percent from the
total cost for repairing the damaged insured asset.
Beside this revenue, companies may remunerate the insurance brokers for the risk
management process. Therefore we must mention that the main important revenues
for insurance brokers are the commissions from the insurance intermediation.
Judging after the competition in the Romanian insurance market a great number of insurance brokers decide to oer free of charge risk management consultancy
and even free loss adjusting claim management. The existence of the company as a
client in brokers portfolio is more benec and important.
The specialists in insurance appreciate that in Romania only 5% from the entire
brokers oer specialized consultancy in risk management. This percent may be easy
associated to the number of famous international insurance brokers that are active
in Romania also (Marsh, AON, Gras Savoye). Because of theirs international experience in risk management process they oer charging services with proven results
in insurance eld.
Another dierence between insurance agents and brokers that must be notice
is referring to the commissions scale for intermediating insurance. Usually brokers
receive a higher commission than agents. The reasons for this fact are:
- Insurance companies try to motivate brokers to intermediate policies for them
despite others (in some cases the commissions may dier from an insurance
company to other)
805
- The insurance premiums volume intermediated by insurance brokers are higher than the ones intermediated by insurance agents
- In the moment of a loss occurrence insurance brokers may be involved in
claims adjusting, helping loss agents of the insurance company to solve quicker
the damage
- The insurance brokers may hire insurance agents to intermediate insurance
policies for dierent companies, giving them a lower percentage of commission, but these agents have the possibility to oer to the potential clients the
same insurance policy from many insurance companies.
3. Conclusions
The competition in the actual insurance distribution market is very rough. Brokers are competing each others and also with some experienced agents. The reality
proves us that many of the big insurance contracts in the Romanian insurance
market are done under two principles:
- splitting the commissions between the agent/broker and the persons involved
in negotiations from the insured company
- these contract take into account the existed friendly relationship between the
agent and a manager from an insured company
Beside these mentions we would like to let all companies know that in some
cases insurance brokers do not represent entirely theirs interest. It is better that
risk managers from the insured companies to ask from brokers the insurance oers,
analyze them (in order to see the entire risk coverage) and only after this they will
choose the insurance company.
Following this idea, the brokers that are acting with lack of ethic (following
only the higher commissions) will be exposed and in this case they will eliminate
themselves from the insurance market.
In this nancial crisis, the most successful broker insurance are the one that may
oer dierent services at no charge, because in this way the risk management costs
for insured companies will decrease.
Regarding to insurance agents there is needed further measures for theirs authorization: continuously learning, more professional test and exams with trainers
from outside of the insurance company they are working for. In this case, the agents
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Gavriletea Marius
will be more qualied, the chances to make mistakes will decrease and they may
represent a real competition for the brokers alternative.
References:
Dorfman Mark S. Introduction to Risk Management and Insurance, Pearson

Education, Prentice Hall USA, pag.108-139, 2008
Cummins David J. The Economics of Insurance Intermediation, Ed. Wharton
School USA, pag.55-91, 2005
Insurance Information Institute Background on Insurance Intermediaries, November 2004, pag.11-19, USA 2004
Rejda George E. Principles of Risk Management and Insurance, Pearson Education USA, pag.208-229, 2003
Swiss Re, 2004, Commercial Insurance and reinsurance Brokerage, Sigma 2/2004
Zurich
Law Nr. 32/2000 (Romanian law)
Law Nr. 403/2004 (Romanian law)
www.csa-isc.ro
LEAD MARKETS IN THE EUROPEAN TEXTILE INDUSTRY IMPLICATIONS FOR ...
807
LEAD MARKETS IN THE EUROPEAN TEXTILE INDUSTRY

IMPLICATIONS FOR EUROPEAN INNOVATION POLICY
Thomas Clea,b,1, Christoph Grimpeb,c, and Christian Rammerb
a
Pforzheim University, Germany
b
ZEW Centre for European Economic Research, Mannheim, Germany
c
Copenhagen Business School, Denmark
Abstract
This paper employs the so-called Lead Market approach to assess for European
Union member states the attractiveness of the national market as a test market for
innovations in the Textile Industry that later will become successful also in other
countries. The basic idea behind the Lead Market Approach is that country-specic
demand-side factors shape the design of an innovation (i.e. its technical specications). At the same time, this innovation design is critical for the global success of
innovations. National markets that prefer designs that later become globally accepted may be called Lead Markets. Literature has identied ve factors of national
demand that determine a countrys Lead Market potential: price advantage, demand
advantage, export advantage, transfer advantage and market structure advantage.
The aim of this paper is to identify and operationalise indicators to measure and
compare the Lead Market properties of EU countries. The indicators used are taken
from the Community Innovation Surveys (CIS-3), the Eurostat/OECD PPP and
Expenditure Database at BH level, the UNCTAD FDI-Database, the EU Business
Demography Statistics, and the Eurostat Foreign Trade Database (Comext). Based
on the Lead Market analysis, implications for policy makers are outlined.
JEL classication: L60, O33
Keywords: Lead Markets, Innovation, European Union, Sectoral Analysis
Corresponding author; Pforzheim University, Tiefenbronner Str. 65, D-75175 Pforzheim, Germany,
Phone: +49 7231 28 6075 (secretary), Fax: +49 7231 28 6070, E-mail: thomas.cle@hs-pforzheim.
de
808
Thomas Clea Christoph Grimpeb Christian Rammerb
1. Introduction
A large number of empirical studies show that customer proximity is of great

importance for innovation success (Gemnden, Heydebreck, and Herder 1992;
Cooper and Kleinschmidt 1987). Both politics and innovation management, however, tend to concentrate on supply-side assessments of rms innovative potential. Company innovation strategies that dene additional benet exclusively in
terms of the technological eciency of products ultimately run the risk of producing goods that are inappropriate for customers in dierent markets. There is no
argument about the fact that innovative sectors like the Textile Industry - are, on
the whole, supported rather than driven by technology (Wengenroth 2002). The
focus of this paper is on a particular aspect of demand as a driver for innovation.
Many innovations are either deliberately designed for a specic group of customers
or are adjusted to specic requirements of clients in terms of technical specications and technical details. We assume that customer preferences for innovation
designs dier by country, and that the design preferred in a specic country can
either be idiosyncratic or transferable. Idiosyncratic designs will be valuable for the
customers in that specic country, but dicult to transfer to other regional markets
while transferable innovation designs will meet the requirements of other regional
markets, too. Countries that demand transferable innovation designs early in the
process of developing and marketing an innovation may be called lead markets as
they will tend to lead innovation. This paper attempts to shed some light on likely
dierences in the lead market potential of European countries for innovations in
the Textile Industry.
According to the OECD Oslo Manual (2005, p. 31) an innovation is considered as the implementation of a new or signicantly improved product (good or
service), or process, a new marketing method, or a new organisational method in
business practices, workplace organisation or external relations. In this paper, innovation refers to product innovations. Such innovations include all types of novel
products and services that are directly relevant to the clients of textile producers. It
may include new smart textile products such as functional clothing as well as new
marketing methods to enlarge sales in sports or leisure markets. It may also include
new services for product maintenance through the product lifecycle. The Textile
Industry includes manufacturers of textiles (e.g. preparation and spinning of textile
bres as well as textile weaving, nishing of textiles and wearing apparel, manufacture of made-up textile articles, manufacture of knitted and crocheted fabrics and
articles thereof (e.g. socks and pullovers)) as well as manufacturer of clothes (tailor-
809
ing in all materials and of all items of clothing and accessories, including furskins
and wearing apparel). The Textile Industry as dened here is equal to divisions 17
and 18 of the European industrial classication (NACE rev. 1.2).
The research is carried out within the framework of a Lead Market analysis a
methodology that has been developed to assess the Lead Market potential of the
Textile Industry in the EU member states and to provide targeted policy recommendations on how to stimulate innovation activities in these markets.2
2 Customer acceptance for innovation in the European Textile Industry
The results of the third European Community Innovation Survey (CIS-3)3 once
again conrm the prominent role of clients in providing momentum for innovation in the Textile Industry. Almost every fourth company (24 percent) of the
4,957 rms of the European Textile Industry said that the customers are the most
important information source for innovation (Cle, Grimpe and Rammer 2007).
This raises the question of how the importance of demand for the innovation process should be ranked in comparison to other key sources of information from
outside the rm. To reect this, gure 1 compares clients and customers roles as a
source of innovation with their role as a hampering factor. This is done by plotting
the relative frequency of innovative rms that cite clients and customers as an important source of innovation against the relative frequency of those that list clients
and customers as a hampering factor, provided that they have named at least one
important source of innovation and at least one important hampering factor.
Another version of this paper has been prepared as part of the Innovation Watch Systematic
project, which has been sponsored by the European Commission, DG Enterprise and Industry, to
monitor innovative capabilities of rms in the EU member states (excluding Romania and Bulgaria
which have not been members of the EU at the time when this research started) and to provide implications for policy makers within the course of the Lisbon agenda to foster innovation in Europe. See
Commission of the European Communities (2005) and Cle, Grimpe and Rammer 2007.
3
The Community Innovation Survey is a survey on innovation activity in enterprises covering EU
member states, EU candidate countries, Iceland and Norway. Analyses in this section are based on
CIS-3 data which include all rms (with 10 or more employees) belonging to the Textiles Industry
(NACE 17 and 18).
810
Figure 1: Demand as source and hampering factor of innovation

Lack of customer responsiveness to innovation as an high
important hampering factor for innovative firms with at least
one highly important hampering factor [%]
25%
Industry Mean
R&D Services
Other Vehicles
20%
Wholesale
Technical Services
Food & Drink
Glass
15%
Wood/Paper
Telecommunication
Chemical
Automotive Industry
Industry
Plastic
Transport
ICT
Furniture/Toys
Financial Services
Textiles
10%
Industry Mean
Machinery/Equipment
Metal
Medical/Optical
Instruments
Energy Production
5%
0%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
Clients and Customers as a highly important source of innovation for innovative firms
with at least one high important source of innovation [%]
Source: CIS-3, unweighted, ZEW calculations.
The companies of the European Textile Industry consider demand - compared

to other sources of information - to be highly important more frequently than the
average of all other industries. At the same time, the frequency with which innovations are hampered is below average. It seems that the innovations of the European
Textile Industry meet the consumer acceptance exceptionally well. Nevertheless it
is to be asserted that the relative importance of demand compared to other sources
of innovation increases as soon as rms become active mainly in international markets. In markets with a strong international focus, innovations must also aim to
meet the needs of foreign customers. It is more dicult to take such international
customer needs into account, because customer preferences can vary between different countries/markets. A total of 43 percent of all national and international
textile companies with at least one high important source of innovation name the
customer a highly important source. Among the internationally active textile companies 52 percent state this. This is the crux of the problem for innovation strategy.
The companys customers may be in dierent regional or national (legal) contexts
811
and sometimes at dierent stages of technological development. Nonetheless, they

all expect innovations perfectly adapted to their respective technical applications.
How does the European Textile Industry manage to utilise demand as a source
of innovation in a way that leads to success, not only on the home market but
also on international markets? Increasing costs for R&D and the increasing need
for standardisation and interface compatibility mean that there are economic and
practical barriers to national or customer-specic solutions. These barriers compel
innovators to choose a particular path for their technological development or to opt
for a particular design of innovation. In this context the term innovation design
denotes the technical specication and conguration of an innovative idea. Dierent designs of an innovation fulll the same function but can have dierent modes
or specications (see Utterback 1994, p. 18).
Customers will only be prepared to forgo innovations tailored to their needs
if the cost savings oered by a new design, which result from standardisation and
network eects, are high enough to justify abandoning the current technology. The
question remains, however, of where i.e. in which region and with which customers the successful innovations of the future will be designed. We can consider
successful designs to be those which rstly enjoy early national success and which
are then successfully commercialised worldwide and force other innovation designs
out of the market in the medium term, to become the world standard. The answer
to this question goes hand-in-hand with the answer to another, the question on
which customers a company must concentrate in its future R&D and innovation
activity. That is to say, which customers have a close relationship to the so-called
Lead Market?
3 Lead Market Analysis of the European Textile Industry
A Lead Market can be dened as a country where users prefer and demand a
specic innovation design that appeals to domestic users and can subsequently be
commercialised successfully in other countries as well (Porter 1986, Bartlett and
Ghoshal 1990). Beise (2001) and Beise and Cle (2003) developed a system of
ve particular country-specic attributes, the so called Lead Market factors, that
increase the international competitiveness of innovations and increase the probability of the market becoming a Lead Market: the demand advantage, the price
advantage, the export advantage, the transfer advantage and the market structure
advantage.
812
In this section we attempt to analyse which European countries in particular

have Lead Market attributes in the Textile Industry. It should be noted that these
Lead Market potentials refer to the aggregated sector. In reality, Lead Market potentials within a sector can vary from one product group to another, or even between individual products. The loss of accuracy that results from such aggregation
must be taken into account in the analysis. That being said, observations of Lead
Market potential that are aggregated at the sector level are still of great interest, as
they oer a means of explaining the future competitiveness of dierent markets.
3.1 Demand Advantage
A market has a demand advantage if its environmental conditions foster an

innovation design that also anticipates future customer preferences in other markets. Lead Markets are able to anticipate global trends and innovation designs from
these markets as well as to oer other markets the answers and solutions to their
questions and problems of tomorrow. Therefore the dierence between dierent
countries markets does not lie in the direction in which they develop, but merely
in the speed with which they move in the direction of the global trend. One reason
for the dierent speeds at which markets adapt to or adopt an international trend
comes in the form of demand advantages. The idea behind this is that the demand
for goods from a certain industry varies from country to country and that this affects the innovative performance of the companies based there. Companies make
greater eorts to develop and improve products in sectors that account for larger
proportions of a countrys aggregate demand (Porter 1990). A greater share of the
Textile Industry on the overall demand of all sectors is a sign that consumers in a
country place more value on products coming from this sector. This concept can be
used to compare the situation among EU countries. Eurostats Purchasing Power
Parities (PPP) statistics can be used to give a dierentiated picture of the segmentation of a countrys nal demand.4 Data for the observation period between 2000
and 2004 are available for academic research purposes.
It is possible to directly compare the sector-specic demand of dierent countries by subtracting the weighted average share of total demand within the EU-25
from the share of demand for one country. Economists call that index demand
4
For detailed information about the conversion of the PPP-Basic-Headings to the NACE nomenclature and the conversion of dierent national currencies please see Cle, Grimpe and Rammer
(2007).
813
specialisation: If the share of total demand accounted for by products from a given
sector in one country is lower than the average share for these products in the other
EU-25 countries, the country in question has a low demand specialisation with respect to the sector. In this case, the value of the specialisation index is negative. The
index takes on a positive value when the propensity to demand such products in a
particular country is higher than in the EU-25 average. Figure 2 shows the results.
Figure 2: Demand specialisation in the Textile Industry compared to the weighted EU-25 average, 2000 to 2004
Greece (**)
Portugal (*)
Italy
Cyprus
United Kingdom
Malta
Austria
Denmark
Lithuania
Germany
Slovenia
Estonia
Latvia
Spain
Netherlands
Belgium
Sweden
France
Finland
Czech Republic
Luxembourg
Poland
Ireland (*)
Hungary (*)
Slovakia (*)
-3%
-2%
-1%
1%
2%
Demand Specialisation
Note: (***), (**) and (*) means signicant at 1%, 5% and 10% respectively.
Source: Eurostat/OECD PPP-Statistics for 2000 to 2004, ZEW calculations.
3%
4%
814
The countries with a demand specialisation well above the EU-25 average are
Greece, Portugal, Italy, Cyprus, UK, Malta and Austria, all of which scored above
one percentage point above the average. Compared to the overall development in
Europe (EU-25), the demand propensity in all EU-25 countries remains stable.
What options in the innovation process are left open to companies from sectors
with below-average shares of demand? Demand preferences are very much culturally determined and can therefore only be changed in the long term. One possibility is to substitute the inadequate demand in the home country with international
demand (see the sections below on price and export advantages). This creates a
necessity to involve foreign customers in the innovation process to a greater extent.
Another option is to lower relative prices in order to stimulate the domestic and
foreign demand. However, this can only be sustained in the long-term if cost advantages are realised.
3.2 Price Advantage
It is obvious that decreasing prices of goods accelerate the diusion of these

goods. In the context of a Lead Market analyses, price advantages refer to the situation when a certain innovation can squeeze out other innovation designs by a lower
price (Levitt 1983). The eects of price competition tend to be stronger the higher
price dierences were at the start of the innovation competition. Its eectiveness
also increases with increased dynamism of the relative price development in favour
of the innovation design. A price advantage of a Lead Market will occur only if the
price dierence is large enough to exceed the transaction costs incurred in changing over to cheaper innovation design. Such transaction costs can be considerably
high, however, particularly when using a certain innovation design is associated
with xed investment, learning, adoption of production and distribution processes
and other types of xed costs.
Price advantages can only be considered as a Lead Market factor as long as a
product market is characterised by price competition. In highly regulated or isolated markets rms will have diculties to exploit a price advantage of an innovation
design. Competitive markets exist for most goods produced by the Textile Industry.
This means that price advantages are indeed of relevance in this context (Beise et
al. 2002). For this reason, it is worth investigating which countries already have
long-term price advantages. The size of the price advantage can be estimated from
Eurostats Purchasing Power Parities (PPP) statistics. These statistics contain data
815
on the price level for certain groups of goods, controlled for dierences in quality
and for country-specic dierences in per-capita income. PPPs are price relatives
that show the ratio of the prices in national currencies of the same goods/services in
dierent countries. The negative logarithmic quotient of the Textile Industrys relative PPP level in a certain country k and the average price level of all sectors (Sl)
for the same country is a direct indicator for price dierences between countries in
the Textile Industry.
PPPkT
Equation 1: ln
n
Sl
l =1
PPPk
(1)
A positive indicator for a country means that the country-specic price level of
the Textile Industry is below the average for the EU-25 countries, and vice versa.
Figure 3 shows the price dierences of the EU-25 countries for 2004, calculated
from the smoothed time series for the years 2000 to 2004 in the Textile Industry.
816
Figure 3: Price advantages and disadvantages of dierent markets in the Textile Industry, 2000 to 2004
Denm ark (**)
Ireland (*)
France (***)
Netherlands
United Kingdom
Finland (*)
Sweden (***)
Luxem bourg
Germ any (**)
Belgium (***)
Portugal (***)
Italy (***)
Austria (***)
Spain (**)
Cyprus (**)
Greece (**)
Malta (**)
Slovenia (***)
Hungary (***)
Poland (***)
Estonia (***)
Slovakia (***)
Latvia (***)
Lithuania (***)
Czech Republic (***)
-0,7 -0,6 -0,5 -0,4 -0,3 -0,2 -0,1 0,0 0,1 0,2
Price
Disadvantage
Advantage
Note: (***), (**) and (*) means signicant at 1%, 5% and 10% respectively.
Price advantage is dened as the ratio between the PPP price level in a country and a countrys total PPP price level, average for the
years 2000 to 2004.
Source: Eurostat/OECD PPP-Statistics for 2000 to 2004.
It becomes apparent that the relative prices in the Textile Industry are higher in
Eastern European countries, Greece, Spain, Portugal, Austria, Italy and Belgium
than in the remaining Western European countries. Comparatively low relative
817
prices can be found in Denmark, Ireland, France and the Netherlands. When considering these statistics, it is important to be aware that the price level is not the
only indicator of a price advantage, because it is strongly inuenced by company
strategies and competitive behaviour. Nevertheless, a low price level and relatively
high propensity to consume can be a sign of a price-dependent demand advantage.
When this is the case, the demand reacts to a low price level with an above average
increase in the demand for the product. In other words, the price elasticity is very
high. Unfortunately, there are no countries with both: a low relative price level and
a high propensity to consume. When the opposite is true and a high price level is
found with high demand specialisation, this suggests that the price elasticity on the
market is low. The fact that this group of goods makes up a large proportion of total
demand is essentially due to the high prices, while the propensity to consume remains comparatively low. Typical examples of this are Greece, Portugal, Italy, Great
Britain, Cyprus, Malta and Austria. On the whole, these markets are often unfavourable for innovators. Finally, a group of countries can be identied in which the
price level is relatively high and the demand specialisation below average. In such
cases, the high price level leads to a higher than average drop in demand. The high
price level is a disadvantage for export-oriented innovators, as it prevents lowercost innovation designs from coming into being. The Eastern European countries,
Spain, Germany and Belgium are particularly faced with this problem.
3.3 Export Advantage
Interaction with customers and demand orientation are not export factors as
such. Only interaction with the right customer and the presence of the right
market conditions actually lead to innovations that will be taken up in the world
market. The exportability of innovations is likely to increase by the proximity of
demand characteristics in exporting and importing markets in terms of consumer
preferences, industry structure and distribution systems in the retail sector. In addition, international marketing of innovations is certainly eased if innovators consider peculiarities of potential export markets and foreign demand in their innovation
projects from the beginning. This is particularly important with respect to allowing
for exible adjustments of product characteristics to local requirements or tastes.
Export advantage as a Lead Market factor is thus strongly depending on the past
export orientation of a country as this provides the companies with inputs of how
demand may dier in dierent national environments.
818
To measure a countrys export advantage, we calculate the so-called comparative

advantage of country k in trade with another country i in product group p in year
t (CAtikp). The comparative advantage in bilateral trade is the ratio of export surplus
(exports x minus imports m) in total trade (exports plus imports):
Equation 2: CA tikp =
x tikp - m tikp
(x
tikp
+ m tikp
).
Product group p represents sub-categories of products of the Textile Industry

on the 8-digit-aggregational level of the Combined Nomenclature of the European
Foreign Trade Statistics (see Cle 2006). In total, 630 product groups p are distinguished. The average export advantage of all countries that export product group
to European countries is used as a reference to evaluate export success. Countries
with a product-specic comparative advantage signicantly above the average for
the past ten years (1996-2005) are considered to have an export advantage in that
product group. If a country has a high share of export advantages in the total number of Textile products considered, we assume that this country has an export advantage in the Textile Industry. Figure 4 shows the share of Textile products with an
above-average relative export advantage for each of the EU-25 countries, assessed
against the average share for EU-25 countries, which is 0.21.
819
Figure 4: Share of product-specic relative export advantages in the Textile Industry, 2005
Mean of EU 25
Italy
Germany
Spain
France
United Kingdom
Belgium
Netherlands
Czech Republic
Austria
Portugal
Slovenia
Estonia
Lithuania
Poland
Denmark
Greece
Sweden
Hungary
Luxembourg
Ireland
Finland
Latvia
Slovakia
Malta
Cyprus
0,0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
Share of products with relative export advantages [in %]
Source: ZEW: Global Sourcing Management Tool, 2007.
Italy, Germany, Spain, France, UK, the Netherlands and Belgium have particularly large export advantages, with more than 30% of products of the Textile Industry respectively proving successful abroad. The Czech Republic and Austria follow,
although their export advantages in the industry are essentially slightly above average. The other countries have values well below average.
820
It is assumed that a Lead Market is always present when the demand in a country provides innovating companies with a considerable quantitative impulse to innovate and, at the same time, the companies generate a large proportion of their
turnover abroad. Conversely, it is a sign of an idiosyncratic market, when companies only export a small share of their goods, because they respond too much to the
eccentric customers wishes at the home market. Therefore if a countrys various
export successes, measured as the share of products with above average relative export advantage, can be put down to above-average customer demand, this is a sign
that the country has a particular Lead Market characteristic.
Figure 5 shows the extent of demand advantage against the size of the export
advantage for the Textile Industry in the form of a portfolio. In the upper right
quadrant of the portfolio are countries that develop innovations driven by demand
and at the same time exploit the lead-market properties of home demand for successful exports (Lead Market sectors). The home markets in these countries oer
particularly favourable conditions for the launch and testing of new products, with
the aim of successfully marketing the innovation designs tested at home in other
countries. In the eld of fashionable clothing Italy for example turns out to be a
Lead Market. It has a decisive inuence on global trends due to fashion-oriented
Italian customers. England could advance to become a trendsetter as well, with
London as centre of the fashion scene. Big textile companies like Levi Strauss have
settled their market research here. A crucial issue with clothing is in addition the
combination of weather protection and wearing comfort. Functional clothing was
mainly introduced by American companies (W.L. Gore, DuPont Northface), and
nowadays there is a great demand for it in wet and cold regions like Great Britain.
821
IT
Above Average
DE
FR
ES
BE
UK
NL
CZ
Below Average
Export Orientation: Share of

products with relative export surplus
Figure 5: Export orientation and demand specialisation in the Textile Industry of European countries
HU
SK
AT
SI
LU SE EE LT
IE FI LV DK
PL
PT
MT
CY
Demand Disadvantage
Demand Advantage
Demand Specialisation
Source: ZEW: Global Sourcing Management Tool, 2007 and Eurostat/OECD PPP-Statistics for 2000 to 2004, ZEW calculations.
Exportable innovations may also originate from sources other than the home
market. Innovating companies that are highly export-oriented, but do not, to any
great extent, rely on home demand as a source of innovation, can be categorised
into three dierent types. In the rst type, the drive behind innovations that are
suited to the world market comes from the companys own R&D or technological know-how purchased externally (e.g. from technology suppliers or academic
research). The second possibility is to base new products on the innovations of foreign competitors, i.e. imitation. The third category comprises rms that are driven
to innovate by demand from abroad. This could indicate that the home market is a
successful lag market. In this case, home companies may not be leaders in launching product innovations that have international staying power, but they are good at
quickly picking up on new trends from abroad and then converting them into export success. For simplicity, we shall denote all of these eects as technological impulses to export. The upper left quadrant in the diagram above contains Germany,
Spain, France, Belgium, the Netherlands and the Czech Republic. These countries
tend to generate innovations driven by technology and then translate these innovations into export success. In Germany the exporting success can be explained by
the demand for technical textiles, especially by customers in the automotive industry, in medical technology and in the environmental and construction industry.
With limitations this is true for the French textile manufacturers of the automotive
822
industry; however the French clothing industry converts the demand into exporting success. Finally, if product innovators have little export success and the home
demand plays no meaningful role as a source of innovation, companies focus on
technology specic to the home market. In this case, innovators concentrate on
product innovations which are based on their own R&D or external sources of
knowledge, but which do not provide solutions suitable for export. We can speak of
idiosyncratic technology in this context. In the diagrams above, the countries in the
lower left quadrant - in particular the Baltic and Scandinavian countries, Ireland
and the Eastern European countries - belong to this group of markets.
The most problematic area from an innovation strategy perspective is surely the
lower right quadrant. Countries positioned there are largely depending on demand
to drive their innovation activities, yet the demand on their home market tends to
be idiosyncratic, resulting in a low export orientation. The home market acts as an
obstacle to export activities, since catering for home demand makes for innovations
that are dicult to sell in other countries. Malta, Cyprus and Portugal are notable
examples of countries with such markets.
3.4. Transfer Advantage
The decision to adopt a particular innovation design in a country often depends

on the technology which has already been adopted in the Lead Market and on
the experiences gained during the use of this technology there. The Lead Market
serves as an example for the evaluation of problems and dangers in the introduction
of new technology, thereby reducing uncertainty. In general we can establish that
Lead Markets can be characterised by a high transfer advantage if they have strong
communication ties with other countries (Takada and Jain 1991). This transfer
advantage of Lead Markets is dicult to quantify, however (Beise and Cle 2003).
Cle (2006) used the amount of foreign direct investment (FDI) as a proxy for
the strength of communication ties to other countries, though FDI is certainly
only one out of several mechanisms through which experiences about innovation
designs can be transferred across countries. We use this indicator since the Lead
Market approach focuses on international diusion of innovations and FDI certainly can help to export innovations to other countries. In order to determine the
international orientation of the Textile Industry (T) of country k, we evaluate the
total value of outward FDI in this industry (ki) against the value of inward FDI
(i.e. investment by foreign companies in countrys k Textile Industry; ik) and
823
relate this index to the national total of all sectors (Sl). The resulting specialisation measure has a positive value if the Textile Industry in country k has a stronger
international orientation than the national economy in average. The measure of
specialisation is calculated as follows:
Equation 3:
DI S=T
t, k i
S=T
DI t, i k
Specialicationk = hyptan
n
Sl
l =1
DI t,
ki
n
Sl
l =1
DI t,
ik
Figure 6: Specialisation of FDI in the Textile Industry (average for the given period)
Germany [2001-2003]
United Kingdom [2001-2002]
Italy [2001-2003]
France [2001-2003]
Austria [2001-2002]
Poland [2000]
Czech Republic [2000]
Portugal [2000]
-1
-0,5
0,5
Source: United Nations Conference in Trade and Development (UNCTAD) 2007.
Unfortunately, data on the amount of FDI of the Textile Industry is only available
for eight EU-25 countries. We come to the results shown in Figure 6. It becomes
apparent that the specialisation of FDI in the Textile Industry in Germany and UK
is more than average, while the other countries have below-average values.
3.5. Market Structure Advantage
Empirical studies on successful innovation designs show that sharp competition

tends to facilitate the emergence of Lead Markets (see Beise 2001). Customers in
competitive markets can be choosier than in oligopolies or monopolies (Porter
824
1990). Faced with strong competition, rms are compelled to react immediately to
new technological developments (Manseld 1968, p. 144). Competition between
dierent innovation designs often leads to rened innovative solutions that better
ts customers needs than the original innovations. Competition can therefore be
understood as a process of decentralised coordination, by which all the participants
attempt to achieve a better innovation design, so that the nal design will also have
a better chance of succeeding in international markets.
There are dierent approaches to measure the degree of competition in a certain
product market, including concentration indices (e.g. share of sales generated by
the four largest companies), the level of prots as well as entry and exit rates (see
Boone 2008). In terms of a Lead Market analysis, barriers to market entry are a
useful indicator since the formation of new rms not only intensies competition
but also promotes innovation and the introduction of new innovation designs by
market entrants (Geroski 1991). The entry rate, i.e. the share of newly founded
rms in a given period divided by the number of existing rms at the beginning
of that period, is a commonly used measure for the signicance of entry barriers.
The logarithmic quotient of the Textile Industrys average market entry rate in a
given country and the respective entry rate in the EU is an indirect measure to
compare the sector-specic competition in dierent countries. A negative (positive)
log-value for a country means that the entry rate and thus also competition on
that market is below (above) the average for the EU countries.
825
Figure 7: Standardized Entry Rate in the Textile Industry (average of the given period)
Latvia [2001-03]
Lithuania [2001-02]
Estonia [2001-03]
Slovakia [2001-03]
Czech Republic [2001-02]
France[2001-03]
Hungary [2001-02]
United Kingdom [2001-03]
Spain [2001-03]
Finland [2001-02]
Luxembourg [2001-02]
Sweden [2001-03]
Netherlands [2001-02]
Italy [2001-03]
Portugal [2001-02]
Germany [2001-03]
Slovenia [2001-02]
-100%
-50%
0%
50%
100%
150%
200%
Standardized Entry Rate [2001-2003]
Source: Eurostat and ZEW Foundation Panel.

In the Textile Industry, markets with comparatively high entry barriers are to
be found in particular in Slovenia, Germany, Portugal, Italy, the Netherlands and
Sweden. Competition in the Baltic countries, Slovakia, the Czech Republic, France
and Hungary, on the other hand, is well above the European average.
4. Conclusions and implications for innovation policy
The Lead Market analysis covers a broad spectrum of application areas in the
Textile Industry and is therefore rather rough. In addition, only those indicators
were used, for which there exists international data. Product specic innovations
could not be considered. The signicance of our results is thus limited to the Textile Industry as a whole rather than observing individual innovations. Nonetheless,
a look at the derived Lead Market factors of the entire Textile Industry allows to
derive some fundamental insights into a countrys Lead Market position in this
specic industry.
826
A Lead Market analysis attempts to capture whether innovations favoured by

demand in a certain national market will meet a high demand abroad as well.
Findings about the Lead Market potential of dierent national markets can have
impacts on business and policy strategies for innovation. For these reasons, an attempt was made to determine the Lead Market potential of the EU-25 countries
in the Textile Industry on the basis of quantitative indicators. Table 1 summarises
these results.
Table 1: Lead Market potential of the EU-25 countries in the Textile Industry
Country
Austria
Belgium
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
United Kingdom
Price
[PPP Statistics]
+
+
+
+
+
+
+
Demand
[PPP Statistics]
+
+
+
+
+
+
+
Export
[Trade Statistics]
+
+
+
+
+
+
+
+
+
Note: +: above average advantage; -: below average advantage; NA: Not Available
Transfer
[FDI]
NA
NA
NA
NA
NA
+
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
+
Market Structure
[Entry Rate]
NA
NA
NA
+
NA
+
+
+
NA
+
NA
+
+
NA
NA
+
+
+
827
One can see that the United Kingdom has the largest number of Lead Market
advantages in the Textile Industry. All the ve Lead Market factors show above
average values. The British companies tend to be the most successful in aligning
their innovations to the preferences of international customers. This advantage results mainly from Great Britains strength in home textiles (carpets, wallpaper),
high-tech textiles for medical goods but only partially from advantages in the area
of clothing. For this reason the British Market should be regarded as Lead Market
especially for high-tech textiles. Companies in other countries have, for at least
two Lead Market factors, below average values (France). Of course, France has
Lead Market advantages for fashionable clothes, but in other textile sub sectors
the French industry is technology-driven. Italian manufacturers lack apart from
fashionable clothes economically competitive sub-sectors in the textile industry.
What does this mean for the companies in these markets? Innovation strategies that
utilise a Lead Market analysis should target market research in the development
stage of innovations on the Lead Market rather than on the home market or on
the market that is currently the most important one of a company. Companies in
countries with little Lead Market potentials should target their product innovations
to t the preferences of users in the Lead Market.
Lead Market analysis can also be relevant to innovation policy. A country can
seek to improve its Lead Market position by strengthening its Lead Market factors
and by dealing with any disadvantageous characteristics of home market demand.
Only few of the ve Lead Market factors are of an inherent nature and thus cannot be changed. When formulating innovation policy or deciding on what basis
to award subsides in a particular industry, more emphasis should be placed on the
situation in the relevant Lead Market. Several factors can make a great dierence
in this case: Does the demand in a country promote innovation on the part of the
companies in a way that strengthens these companies position in international
competition (i.e. they can play a Lead Market role)? Is demand at home following
a unique path of its own (i.e. the home market is idiosyncratic)? Or are innovations
driven by technology rather than by demand? In case a country already posses Lead
Market attributes, policy action should focus on securing the working of the Lead
Market factors:
Forcing or maintaining strong competition (including the promotion of startups, especially in the fast-changing eld of cutting-edge technologies).
828
Dismantling regulatory frameworks which prescribe technological solutions

that are too narrowly dened.
Supporting companies eorts to internationalise (making direct investment
easier, breaking down barriers to trade, unifying international standards).
Countries that tend to take up innovations that have proved successful in other
countries before may be termed lag markets. Lag markets should not be confused
with a lack of innovativeness. Companies in lag markets would often like to develop and adopt certain national innovation designs, but the advantages of doing
so are outweighed by those of using an innovation design from abroad. This often
occurs when the home market is small or when there is a high degree of uncertainty
about the reliability of the home innovation design. It is dicult to inuence these
mechanisms on a lag market in a decisive manner by policy measures. Innovation
policies should abandon subsidising local technologies in favour of promoting instruments that make it easier to take over designs from the Lead Market. This will
serve to prevent the production of idiosyncratic innovations, which would later be
crowded out by the Lead Market design worldwide.
For lag markets, it is advisable to design internationally oriented innovation
policies and to leverage cost advantages of new technologies quickly. Such policies
could include supporting small and medium-sized enterprises in their eorts to
adopt technologies or in their applied research, provided it is targeted at nding
new solutions within the scope of the dominant innovation design. Fast diusion
also creates opportunities to develop the dominant design further, either with a view
to occupying new niches in the market, or in order to oer complementary products and services and win market share from Lead Market companies. Countries
that are fast followers can often attain a high share of the world market, because
they are able to learn from the pioneers, but do not bear the same development
costs. However, any strategy of being a fast follower should also be Lead Market
oriented. To this end, it is advisable for rms to have some direct, on-the-spot presence, enabling them to receive signals from customers and to continue developing products. The information disadvantage for lag market companies can also be
redressed by means of cooperation with rms from the Lead Market. Schemes to
promote research should also be open to such international cooperation projects.
Idiosyncratic markets, on the other hand, are characterised by the adoption of
a national innovation design which competes unsuccessfully with other innovation designs, limiting the industrys export potential. The challenge for innovation
829
policy here is to combat idiosyncratic demand structures. Possible ways of doing so

are to relax national regulations or adapt them to better t with Lead Markets, internationalise technical norms and pluralise government and monopolistic demand
by opening the relevant markets. Policy should be aware that implementing such
fundamental structural changes to the basic functioning of a sectors innovation
system is a dicult process which requires long-term commitment.
It should also be stressed again that the Lead Market approach by no means
claims to be the single valid model to explain the international success of innovations. Instead, the aim of this approach is to highlight the role of demand features
as an additional explanatory factor that complement input factors such as R&D.
Considering the Lead Market approach in innovation policy should be used to
rene traditional instruments such as R&D subsidies and regulation rather than to
substitute them.
Literature
Bartlett, C.A., Ghoshal, S. (1990): Managing innovation in the transnational corporation, in: Bartlett, C., Doz, Y. and Hedlund, G. (eds.): Managing the global
rm, London, 215-255.
Beise, M. (2001): Lead Markets: Country specic Success Factors of the Global
Diusion of Innovations, ZEW Economic Studies, Vol. 14, Heidelberg.
Beise, M., Cle, T. (2003): Assessing the Lead Market Potential of Countries for
Innovation Projects, Discussion Paper Series No. 142, Research Institute for Economics and Business Administration, Kobe University.
Boone, J. (2008): A New Way to Measure Competition, The Economic Journal
118, 1245-1261.
Cle, T. (2006): Using International Trade Data for evaluating the Product Specic
Competitiveness and Supplied Product Quality of Countries: A Successful Example
of Applied Theory, Gadjah Mada International Journal of Business 8, 229-246.
Cle, T, Grimpe, C. and Rammer, C. (2007): The Role of Demand in Innovation
- A Lead Market Analysis for High-tech Industries in the EU-25, ZEW Documentation No. 07-02, Mannheim.
Cooper, R.G., Kleinschmidt, E.J. (1987): Success Factors in Product Innovation,
Industrial Marketing Management 16, 215-223.
830
Gemnden, H.G., Heydebreck, P. and Herder, R. (1992): Technological Interweavement: A Means of Achieving Innovation Success, R&D Management 22,
359-376.
Geroski, P.A. (1991): Market Dynamic and Entry, Oxford.
Levitt, T. (1983): The Globalisation of Markets, Harvard Business Review 61, 92102.
Manseld, E. (1968): Industrial Research and Technological Innovation: An
Econometric Analysis, New York.
OECD/Eurostat (2006): Methodological Manual on PPPs, Paris.
OECD (2005): Oslo Manual. Guidelines for Collecting and Interpreting Innovation Data, Paris
Porter, M.E. (1986): Changing Patterns of International Competition, California
Management Review 28, 9-40.
Porter, M.E. (1990): The Competitive Advantage of Nations, New York.
Utterback, J.M. (1994): Mastering the Dynamic of Innovation, Boston, Havard
Business School Press.
Wengenroth, U. (2002): Vom Innovationssystem zur Innovationskultur. Perspektivwechsel in der Innovationsforschung, in: BMWi (ed.): Die innovative Gesellschaft. Nachfrage fr die Lead Mrkte von morgen. Ergebnisse der Fachtagung am
19. April 2002 in Berlin, Berlin.
831

Einige Gedanken zum Thema Systemtransformation und
internationaler Wettbewerb
Hans-Joachim Hof, Pforzheim
Abstract
The central issue in establishing competitive markets is the question which measures need to be taken in order to create a system of workable prices at the end of
a transformation process. Such a system requires a certain number of external institutions (a system of trading rules), whose characteristics are the subject of our
research programme.
JEL classication: L43, L51, M38
Keywords: spontaneous order, transformation policy, regulatory systems, workable prices, competition, regulatory monopolies
1. SPONTANE ORDNUNG
Unter einer Ordnung soll ein erkennbares Muster einer Anzahl von Elementen
und deren Beziehungen zueinander verstanden werden, das sich im Zeitablauf
reproduziert, also stabil ist. So bilden Menschen und deren aufeinander bezogenes
Verhalten eine Sozialordnung; Menschen und die Summe ihrer wirtschaftlichen
Beziehungen zueinander die Wirtschaftsordnung.
Dass die Beziehungen der Menschen in einer bestimmten Weise geordnet sind,
versetzt sie in die Lage, das zuknftige Verhalten ihrer Partner mit einer gewissen
Wahrscheinlichkeit vorauszusagen und damit mit Zukunftsunsicherheit besser umgehen zu knnen. Das Vertrauen, der Akteure, dass die gegenseitigen Erwartungen
erfllt werden, ist auf die Tatsache zurckzufhren, dass sie ihr Handeln an Regeln
orientieren, derer sie sich nicht einmal bewut zu sein brauchen.
F.A. von Hayek verwendet fr den Entstehungsproze dieser Art von Ordnung
im Gegensatz zu einer Organisation das Attribut spontan, wenn sie in ihrer Gesa-
832
Hans-Joachim Hof
mtheit nicht Ergebnis eines absichtsvolles Handelns eines Einzelnen ist. Z.B. sind
die Kultursprachen nicht die Ergebnisse eines Entwurfs eines Einzelnen. Ebenso ist
das Geld und dessen Gebrauch, also das, was man allgemein als Geldwesen bezeichnet, nicht auf die Erndung des Geldes zurck zufhren. Adam Smith belegte
die Krfte, die die Regelhaftigkeit bewirkten und zu relativ stabilen Mustern der
Beziehungen der Menschen untereinander fhrten, mit der Metapher Unsichtbare Hand.
2. FUNKTIONSFHIGE PREISE - DAS ZENTRALE PROBLEM DER TRANSFORMATION
Das zentrale Problem der Etablierung von Wettbewerbsmrkten besteht in der

Frage, welche Schritte notwendig sind, damit am Ende des Transformationsprozesses ein System funktionsfhiger Preise entsteht. Welche Strategie der Transformation
hochregulierter sozialistischer Wirtschaftssysteme in Systeme von freien Mrkten
ist aber erfolgversprechend? Wann ist das Preissystem funktionsfhig und woran
erkennt man, ob der Weg dorthin vernnftig ist? Die Antwort auf diese Frage ist
kontrovers. 1 Es bestehen diesbezglich keine gesicherten Erfahrungen, an denen
sich die Transformationspolitik orientieren knnte.
Kontrovers ist vor allem die Auassung darber, ob man die Wirkungen von
staatlichen Eingrien in ein System entstehender Wettbewerbsmrkte vorhersagen
kann und damit, welche Transformationspolitik berhaupt planbar ist2. Oder anders formuliert: Je mehr man ber konkrete Verlufe von Entwicklungen wei,
desto mehr lt sich auf diese Prozesse zielgerichtet Einu nehmen. Das Fatale an
vergangenen Entwickungsexperimenten, so F.A. von Hayek, sei jedoch der weitverbreitete Irrtum der Verantwortlichen ber das Konstruier- und Beherrschbare gewesen.3
Die Literatur zu diesem Thema ist vielfltig. Ihr Schwerpunkt liegt allerdings in der Transformationsproblematik ehemals zentralgeleiteter Wirtschaften Mittel- und Osteuropas. Vgl. z.B. Axel D.
Schulz (1994):Transformationsproze in Mittel- und Osteuropa, Eine kommentierte Bibliographie, (Universitt Bayreuth)
2
Im Jahre des 100sten Geburtstags des Nobelpreistrgers F.A. von Hayek bietet sich der Versuch an,
einige Denkmuster auf diese Problematik anzuwenden, obleich er sich sich mit der Transformationsproblematik im Zusammenhang mit dem internationalen Wettbewerb nicht geert hat.
3
F.A. von Hayek (1996): Die verhngnisvolle Anmaung: Die Irrtmer des Sozialismus,
Tbingen
833
Es ist aus heutiger Perspektive sicher nicht bertrieben zu sagen, dass innerhalb der Zunft der konomen die Auassung vorherrscht, dass man mehr darber
wei, wie man die Entwicklung eines marktwirtschaftliches Systems zum Stillstand
bringt, als man darber sagen kann, welche Eingrie notwendig sind, damit die
Wohlfahrt insgesamt, und zwar an konkreten Zielen gemessen, gefrdert werden
kann.
3. FREIE PREISE UND WETTBEWERB
a) ber die funktionalen Aspekte des Preissystem soll nicht gehandelt werden.
Wichtig ist aber, daran zu erinnern, dass freie Preise eine Unzahl an Informationen,
Erwartungen und Absichten, welche das Handeln der einzelnen Teilnehmer am
Marktgeschehen leiten und geleitet haben, zu einem einzigen Ausdruck fokussieren. Ein Einzelner oder eine Behrde kann ber dieses Wissen nicht verfgen. Und
deshalb knnen letztere ber dessen zeitliche und lokale Relevanz keine Aussagen
und schon gar keine konkrete Voraussagen machen. Der Grund liegt darin, dass
die Kenntnisse ber die konkreten Umstnde von Ort und Zeit bruchstckhaft und
gestreut bei den Individuen zu suchen sind, also nur in den Kpfen unendlich vieler Akteure existieren. Dieses Wissen mte eine Behrde aber besitzen und zusammenfgen, wollte man auf zuknftige Ereignisse bewut und geplant Einu nehmen4. Freie Preise haben die Eigenschaft, fr jene die sie nutzen wollen, all diese
Informationen und all das know how, was relevant fr die interessierten Akteure
ist, zu einem einzigen Ausdruck zu bndeln, Vergleiche zu erlauben und damit ihre
Handlungen zu leiten. Die durch das Preissystem bewirkte Reduktion der Transaktionskosten ist durch keine andere Methode ersetzbar. Die Bewltigung dieser Aufgabe durch das Preissystem ist aber nicht Ergebnis eines zentralen Willen, Plans
oder konstruktivistischen Eingris einer Behrde mit Regelungsmacht, sondern
das Resultat eines spontanen, ungewollten Prozesses, - wiewohl solche Ordnungen
Ergebnis menschlichen Handelns sind.
4
Wir mssen das Preissystem als einen solchen Mechanismus zur Vermittlung von Informationen
ansehen, wenn wir seine wirkliche Funktion verstehen wollen...Das Bedeutungsvollste an diesem System ist die Wirtschaftlichkeit, mit der es das Wissen ausntzt, d.h. wie wenig die einzelnen Teilnehmer zu wissen brauchen, um die richtigen Handlungen vornehmen zu knnen. In abgekrzter Form,
durch eine Art von Symbol, wird nur die wesentliche Information weitergegeben und zwar nur die,
welche es angeht F.A. von Hayek (1946): ber die Verwertung des Wissens in der Gesellschaft, in:
Ders. (1952): Individualismus und wirtschaftliche Ordnung, Erlenbach-Zrich S.115
834
Hans-Joachim Hof
b) Eine weitere Vorbemerkung betrit den in der Hauptthematik des Symposiums verwendeten Begri Wettbewerb. Wenn man wei, mit welchen Eigenschaften und Handlungsmglichkeiten die Akteure (Anbieter und Nachfrager)
ausgestattet sein mssen, damit daraus ein bestimmtes Marktverhalten und damit
wiederum bestimmte Marktergebnisse abgeleitet werden knnen, wre es einfacher, durch Eingrie in die Marktbedingungen sowie durch die Kontrolle des
Verhaltens der Akteure auf die Ergebnisse Einu zu nehmen, sie zu regulieren.
Die Regulierung durch Kontrolle der Ergebnisse ist aber deshalb anmaend, weil
die Ergebnisse gar nicht priori bekannt sind, die der Wettbewerb hervorbringt.
Man kann also an den Ergebnissen prinzipiell gar nicht erkennen, wie weit sie abweichen von jenen, die unter Wettbewerb zustande gekommen wren, wenn man
z.B Wettbewerbsversagen unterstellen wollte. Natrlich sind die Verhaltensweisen
der Akteure von den aktuellen Marktstrukturen abhngig und auch die Ergebnisse.
Aber nicht nur! Sie sind abhngig von den uerst vielfltigen und komplexen Umstnden und Einssen, von den Eigenschaften und Motiven der einzelnen Teilnehmer 5, von einer unbekannten Anzahl von Ereignissen in der Zukunft, die sich
bezglich ihres zeitlichen und lokalen Auftretens einer Prognose entziehen. Genau
deshalb ist es ntzlich, sich des Wettbewerbs als eines Verfahrens zur Hervorbringung
und der Nutzung von Wissen und Fhigkeiten zu bedienen, das ohne ihn unentdeckt
geblieben wre (Wettbewerb als Entdeckungsverfahren).6 Wenn man z.B. wte,
welche die beste Fuballmannschaft ist, bruchte man die Bundesliga nicht; wenn
man andererseits wissen mchte, wer die beste architektonische Lsung fr ein
Bauprojekt liefert, dann wird man einen Architektenwettbewerb durchzufhren.
Wettbewerb ist ntzlich, wenn man etwas entdecken mchte, was bisher unentdeckt war.
Die naheliegende Konsequenz dieser Sichtweise ist, die Aufmerksamkeit der
verantwortlichen politischen Akteure mehr auf den Zugang aller Akteure zu den
Mrkten (und Institutionen), die Angreifbarkeit durch potentielle Marktteilnehmer zu konzentrieren, damit nicht Wissen und Knnen verloren geht und, natr5
Der Systemwechsel ist die Stunde der Unternehmer. Das gilt in einem bertragenen Sinne auch
fr politisch Handelnde. Erst recht und unmittelbar trit es fr den wirtschaftenden Brger zu. ...,
Manfred E. Streit (1990): Aufbruch in das Unplanbare, FAZ Nr. 99, S.15.
6
F.A. von Hayek (1968, 1969): Wettbewerb als Entdeckungsverfahren, in: ders.: Freiburger Studien, Tbingen, S. 249- 265. ber Die Dimensionen des Wettbewerbs (1997), Karl von Delhaes und Fehl,
Ulrich (Hrsg.), Stuttgart, insb.: Helmut Leipold: Der Zusammenhang zwischen der Entstehung
und dem Wettbewerb von Ordnungen, ebenda, S. 397 - 427.
835
lich auf faire (gleiche, angemessene und relativ abstrakte) Spielregeln; denn an den
Ergebnissen kann man nicht erkennen, ob es wirklich die Besten und Fhigsten
waren, die sie hervorgebracht haben. Die Ergebnisse sind somit Produkte eines anonymen evolutorischen Prozesses insgesamt, dessen konkrete Ausgnge niemanden
von vornherein bekannt sein knnen und deshalb, wie oben schon bemerkt, nicht
vernnftig plan- oder regulierbar sind.
4. DIE VERFASSUNG EINES FUNKTIONSFHIGEN PREISSYSTEMS - DIE USSEREN INSTITUTIONEN7 EINER MARKTWIRTSCHAFT
Vom Standpunkt einer evolutorischen Betrachtungsweise aus ist die Frage der
Transformationstrategie eng mit der Frage nach der Verfassung eines funktionsfhigen Preissystems verbunden. Transformation mte daher zu allererst die Bedingungen fr die Entwicklung des Preissystems setzen.
Wir unterstellen, dass die politischen Akteure in den Tranformationskonomien
die Leistungen eines marktwirtschaftlichen Regelsystems (Preissystems) nutzen
wollen, vielleicht mssen, um nicht in der Entwicklung ihres Landes Stagnation
und/oder Rckschritt zu riskieren. Vor diesem Hintergrund knnte an die fr die
Entstehung eines Preissystems konstituierenden und regulierenden Bedingungen Walter Euckens8 erinnert werden, der sie vor einem hnlichen Erfahrungshintergrund
mit dem Interventionsstaat in den 20ern und 30ern sowie der Kriegswirtschaft,
vermutlich mit einer vergleichbaren Absicht ordnungstheoretischer Politikberatung
zum Ende des zweiten Weltkriegs in Deutschland ausformulierte.9
7
8
9
Walter Eucken (1955): Grundstze der Wirtschaftspolitik, 2.A. Tbingen, S.254 -324.
Walter Eucken (1948): Das ordnungspolitische Problem, ORDO Bd.I, S.56-90.
836
Hans-Joachim Hof
Abb.: Konstituierende und regulierende Prinzipien eines funktionsfhigen Preissystems

Monopolkontrolle
Einkommenspolitik
Primat der
Whrungspolitik
Offene
Mrkte
Privateigentum
Grundprinzip:
funktionsfhiges
Preissystem
Vertragsfreiheit
Haftung
Konstanz der
Wirtschaftspolitik
Vorkehrung gegen
anomale Angebotsreaktion
Korrektur externer
Effekte
Quelle: A. Schller u. Dirk Wenzel (1991), S.29810
Sie sind in ihrer Summe unabdingbar und vor allem, darauf weist Eucken hin,
sie gehren zusammen, und der Erfolg ist gefhrdet, wenn ihnen nicht zeitgleich Aufmerksamkeit gewidmet wird. W. Euckens Grundstze der Wirtschaftspolitik widerspiegeln, analog zur Problemen in den Transformationslndern in der
Gegenwart, den ordnungspolitischen Handlungsdruck der Verantwortlichen, die
Orientierungslosigkeit der politischen Akteure sowie seine Befrchtung, dass die
ordnungspolitische Aufgabe an partikulren Interessen scheitern zu knnen.
5. DAS AKZEPTANZPROBLEM
Die Transformation des wirtschaftlichen Handelns- und ordnungspolitischen

Bedingungssystems ist eine Aufgabe, die vielleicht F.A. von Hayek sicher mit dem
Attribut konstruktivistisch versehen htte. Mit Blick auf die Rolle des Wettbewerbs, die Sicherung des Geldwesens und das Prinzip der Oenheit der Mrkte,
lagen allerdings von Hayek und Eucken enger beieinander, als manche seiner Kollegen dem Kreis der Freiburger Schule.
10
Alfred Schller; Wentzel, Dirk (1991): Die Etablierung von Wettbewerbsmrkten: Zur Herstellung eines funktionsfhigen Preissystems, in: Karl-Hans Hartwig, Thieme, H. Jrg (Hrsg.): Transformationsprozesse in sozialistischen Wirtschaftssystemen, Heidelberg.
837
Die Krux jeder nderung institutioneller Rahmenbedingungen (Transformation) besteht aber darin, dass sie die Interessen der Betroenen in sehr unterschiedlicher Weise tangiert. Es gibt Gewinner und es gibt Verlierer. Vor allem wird
dieser Proze von der nicht unberechtigten Angst beherrscht, dass es mehr Verlierer
als Gewinner geben und dass man selbst zu den ersteren zhlen knnte . Damit
sind Widerstnde und Interessenkonikte programmiert, selbst wenn sich spter
herausstellen sollte, dass insgesamt alle dabei mehr protieren wrden als verlieren
und letztere von den Gewinnern kompensiert werden knnten.11
a) Das Koniktpotential ist wohl am niedrigsten, wenn die Handelnsregeln in
einem Entwicklungszustand zu wirken beginnen, in dem die berwiegende Mehrzahl der Akteure mit den gleichen Chancen und Risiken der Ausgnge ihrer Handlungen konfrontiert sind, sie also gleichermaen mit Zukunftsblindheit geschlagen
sind. Eine solche Situation war es wohl weitgehend in der Bundesrepublik nach der
Whrungsreform 1948 anzutreen.
Um die Akzeptanz der Akteure zu gewinnen, mten wohl die Regeln so gestaltet sein, dass es ihnen leicht fllt, sie ohne weiteres auch gegen sich selbst gelten
zu lassen. Die Akteure drften dazu um so mehr bereit sein, als sie nicht wissen, ob
sie zu den Gewinnern oder Verlierern zhlen werden. Allerdings mte Gewiheit
bestehen, dass grundstzlich die positiven aber auch negativen Ergebnisse der an
ihnen orientierten Handlungen auch ihnen zugerechnet werden.
Die uere Handelnsregeln (uere Institutionen) schrnken die Freiheit
des Handels der Akteure ein. Letztere drften solche am ehesten akzeptieren, die
Handlungspielrume aller gleichermaen beschneiden, auch die der Herrschenden.
Ausnahmen drften vorwiegend bezogen auf solche Handlungen akzeptiert werden, die sich erwiesenermaen unabhngig von Ort und Zeit als schdlich herausgestellt haben (Betrug; Sittenwidrigkeit; Gewalt, Willkr) (Universalisierbarkeit
von Regeln).
b) Wichtig fr die Frderung der Akzeptanz ist, dass solche Regeln mit den
spezischen Traditionen, Sitten und Gebruchen kompatibel sein mssen, welche
sich bewhrt haben und teils noch verinnerlicht sind. Da in Tranformationskono-
11
Wesentlich einfacher wre es, es gelnge das Koniktpotential durch eine ruhige, allerdings zeitraubende Art und Weise einer stckweisen Befreiung der Marktkrfte vom Regulierungsdruck niedrig
zuhalten, zu isolieren und zu lokalisieren.
838
Hans-Joachim Hof
mien solche spezischen Regeln vielfach Opfer einer konstruktivistischen Kultur

wurden, drfte diesem Feld besondere Aufmerksamkeit zu widmen sein.
c) Die Regeln mten ferner als hinreichend frei und fair empfunden werden.
D.h. sie mten inhaltlich so abstrakt sein, so dass der Raum fr beliebige Akteure,
in dem Lsungen gesucht werden knnen, nicht unntig, vor allem willkrlich
und anmaend, eingeschrnkt wird. Dies bedeutet Freiheit fr staatsfreie, private
institutionelle Arrangements (interne Institutionen) auf der Ebene der einzelnen
Individuen (Vertragsfreiheit).
d) Die Ausfhrungen zum Thema Akzeptanz von Handelsregeln mten die
Forderung einschlieen, dass die Macht der Legislative und der Herrschenden
zu beschrnken wre, soll sie nicht von Interessengruppen okkupiert werden.
Erfahrungen in Marktwirtschaften verdeutlichen die Schwche Regierungen, wenn
es darum geht, Regulierungen durch freie Preisbildung zu substituieren.
6. GESUNKENE KOSTEN DER RAUMBERWINDUNG
Das gemeinsame Interesse an der Ausdehnung und Intensivierung des internationalen Austausch und an der internationalen Arbeitsteilung drfte fr die Brger
eines kleinen Landes das Interesse an Isolierung berschreiten. Mit der nung
der Grenzen expandiert der nationale Markt. Die Folge wird aber sein, dass das
gesamte System an gewachsenen und gesetzten Regeln wirtschaftlichen Verhaltens
herausgefordert und deren Schwachstellen oenbar werden.
Die Grnde fr die Ausdehnung des Marktsystems ber die Landesgrenzen
hinaus sind seit David Ricardos Theorie der komparitiven (Kosten-) Handelsvorteile bekannt. Es sind prinzipiell die gleichen Vorteile, die zu einer Intensivierung der nationalen Arbeitsteilung zwischen den Regionen eines Landes fhren.
Beispiele fr kleine Staaten sind sicherlich die Schweiz und die Niederlande, die
ihren Wohlstand diesem Umstand verdanken.
Da vielfach Transformationskonomien auch gleichzeitig konomien mit
relativem Entwicklungsrckstand sind, ist der Aufholproze in der Entwicklung
gleichzusetzen mit der ezienteren, mglicherweise ganz anderen Nutzung seiner
komparativen Vorteile. Zu ihnen zhlen mglicherweise auch Teile des gesamten
System an gewachsenen und gesetzten Regeln wirtschaftlichen Verhaltens sowie
839
die Regeln der Sitte und Moral12, welche das Handeln und die Ausgestaltung der
institutionellen Arrangements leiten.13
Der Unternehmer einer groen Fabrik, der durch pltzliche Freigebung der
heimischen Mrkte genthigt wrde, sein Geschft aufzugeben, wrde ohne Zweifel sehr empndlich leiden. Der Theil seines Kapitals, der bisher zum Ankauf von
Stoen und zur Bezahlung der Arbeiter verwendet wurde, kann vielleicht ohne
groe Schwierigkeit eine andere Verwendung nden. Aber derjenige Teil desselben,
der in den Fabrikgebuden, Maschinen u.s.w. festgelegt ist, liee sich schwerlich
ohne groen Verlust veruern. Die billige Rcksicht auf sein Interesse fordert
daher, dass Vernderungen dieser Art nie pltzlich, sondern langsam stufenweise,
und nach einer sehr langen Ankndigungszeit eingefhrt werden. Adam Smith
(1775; 1878)14.
Ohne den auf die konkreten Umstnden bezogenen angemessenen Einsatz von
Realkapital sowie dem Einsatz des zu ihm komplementren aktuellen technischen
Wissens ist Entwicklung erfahrungsgem schwer zu bewirken. Mit der Grundentscheidung, die Freizgigkeit fr Gter, fr Dienstleistungen, von know how, fr
Personen sowie fr Kapital zu gewhren, werden a) die relativen Standortvorteile
(komparative Kostenvorteile), das sind die immobilen Faktoren)15, sowie b) die Kosten der berwindung rumlicher Distanzen fr prinzipiell mobile Produktionsfaktoren und Produkte zum entscheidenden Faktor fr das Ausma, zu dem ein
Land Wohlfahrtsgewinne aus der internationalen Arbeitsteilung aneignen kann.
Das Hauptproblem fr aufholende Lnder ist, dass die Kosten der Raumberwindung (Transport von Nachrichten, Gtern und Personen) hin zu hher entwickelten Regionen und Lnder erheblich gesunken sind. Daraus resultieren aber auch
Chancen; denn dort, wo dies der Fall ist, wachsen die Mglichkeiten der Verech12
In der angelschsichen Literatur und in den deutschsprachigen Bereich bernommen, werden Verhaltensregeln Institutionen genannt. In der Tradition W. Euckens sind ist dies die Wirtschaftliche und
soziale Ordnung.
13
So sind die Besonderheiten der Regeln, Sitten und Gebruche, die das Handeln der Schweizer
Brger leiten nur zum Teil das Ergebnis eines konstruktivistischen Entwurfs, sondern sie sind ebenso
spontan entstanden, wie das britische Recht, das sich stndig fortentwickelt hat, ohne dass es kodiziert werden mute.
14
Untersuchung ber das Wesen und die Ursachen des Volkswohlstandes, (Aus Engl. bers. v. F
Stlpel), 2. Bd., Berlin 1878, S. 252.
15
W. Eucken spricht von Daten (1950): Grundlagen der Nationalkonomie, 6.A., Berlin, Gttingen und Heidelberg, S. 156 -162.
840
Hans-Joachim Hof
tung. Fr die Produzenten und fr Newcomer in seither isolierter Regionen wird

das Absatzgebiet grer und damit deren Mglichkeiten, Grenvorteile zu nutzen, die sie vor dem nicht besaen. Die Verbesserung der Nachrichten-, Gter- und
Personentranporttechnologie erlauben eine rasante Ausdehnung der Mrkte bis hin
zur Internationalisierung der Handels- und Finanzstrme sowie den Grad arbeitsteiliger Verechtungen.
Dieser Proze drfte zunchst Regionen erfassen, verstrkt sich und erreicht fr
manche globale Dimensionen. Die Entwicklung der Nachrichten- und Transporttechnik hat fast schockartig dazu gefhrt, dass Finanzstrme und technologisches
know how praktisch berall in der Welt eingesetzt werden knnen, wenn nur die
Verwertungsbedingungen entsprechend attraktiv sind.
7. ANGREIFBARKEIT VON REGELUNGSMONOPOLEN
Die relativ geringen Raumberwindungskosten sind im Gegensatz zu vergangenen Zeiten oensichtlich kein nennenswerten Schutz fr regionale Monopole,
insofern sie prinzipiell international handelbare Produkte anbieten und/oder nachfragen. Wie A. Smith schon an gleicher Stelle betont, ist es deshalb wichtig, schon
lange vor der nung der Grenzen, dafr Sorge zu tragen, dass die Voraussetzungen
fr das Entstehen und Wachsen nationaler Monopole beseitigt werden.
Die hohe Mobilitt investierbaren Kapitals sowie des technischem Wissens
macht traditionelle Produzenten aus bisher geschtzten Regionen und Lndern mit
Regelungsmonopolen16 (Landesspezische Rechtssysteme; Systeme von punktuellen Eingrien, Verboten, Frderungen; willkrlicher Regulierungen; geschtzten
Grenzen) angreifbar17. Dies gilt fr private Produzenten international handelbarer
Gter und Dienste gleichermaen wie fr staatlich verordnete Regulierungssysteme.18 Finanzkapital entzieht sich dem regulierenden Eingri und lt die immobilen Faktoren zurck. Das sind all zu oft die Arbeitskrfte und Zulieferer sowie
die Regierungen als Fiskus. Andererseits haben Regionen groe Chancen, die Handlungsfreiheit fr die Akteure, Rechtssicherheit, Vertrauen und gute Regeln anbieten, als
16
Unter Regelungsmonopole sollen z.B. gesetzgeberische Willensbildungssysteme verstanden werden, die einen Alleinanspruch des Setzens von Rechtsregeln und Verordnungen konstituieren..
17
Vergl.:Horst Siebert (1998): Nationale Wirtschaftspolitik und internationale Kapitalmobilitt,
in: Schriften des Vereins fr Socialpolitik NF, BD. 261, S. 41 -67.
18
Die konomischen Aspekte von Systemen von Handelsregeln sind Gegenstand der Neuen Institutionen konomie; Die private Nutzung von Regeln sind institutionelle Arrangements.
841
Standort fr die Produktion von Gtern und Diensten gewhlt zu werden. Vielfach
fallen die Motive der Marktprsens und die Transaktionskostenorientierung von
Investoren gerade in den Transaktionskonomien zusammen.
Die Reaktionen von Regierungen sind Beispiele fr ihre Angreifbarkeit im
Regulierungswettbewerb: So werden deutsche Unternehmen, fr den Fall, dass sie
Zugang zu internationalen Kapitalmrkten gewinnen wollen, gezwungen ihre
Jahresabschlsse nach den Grundstzen der International Accounting Standards
(IAS) oder US- GAAP zu orientieren. Natrlich ist auch Druck seitens der Finanzanalysten festzustellen, insbesondere, wenn sie bezglich der gewnschten Informationen Einu darauf gewinnen, was sie als wesentlich (materiality- principle
nach IAS) in der Rechnungslegung ansehen. Das deutsche Recht pat sich an die
internationale Herausforderung an, indem es ihnen die Wahlmglichkeit nach IAS
zult. Die Alternative wre, hhere Risikoaufschlge fr den Zugang zu internationalen Kapitalmrkten zu entrichten. Die deutsche Regierung ist andererseits
nicht imstande, nationale Rechtsregeln auf fremde Kapitalmrkte auszudehnen, eine Folge der Internationalisierung.
Aber die Anpassung nationalen entlichen Rechts oder gar internationaler Abkommen sind oft gar nicht ntig, wie das Beispiel des Entstehens spontaner Regelungen in Form von Schiedsgerichtsverfahren bei internationalen Handelsvertrgen
erhellt. Sie werden frei vereinbart, auch weil sie preiswerter angeboten werden, als
staatliche Regeln. Handelns- und Schiedgerichtsbruche unterscheiden sich aber
vor allem in ihrer Attraktivitt, je nach dem sie ihren Sitz in London, Tokio oder
New York oder sonstwo haben. Hier spielen internationale Handelskammern eine
wesentliche Rolle und die einzelnen Handelszentren hten ihre Besonderheiten als
relativen Standortvorteil.
Die Regierungen als ehemals monopolistische Anbieter Regulierungssystemen
geraten unter den Anpassungsdruck des internationalen Wettbewerbs. Der Anpassungsdruck ist abgeleitet. Er schlgt gleichsam von den Gter und Faktorenmrkten auf die Systeme von Handelnsregeln durch. Das Problem der privaten Akteure
ist es, dem Verfall des Tauschwerts ihrer Verfgungsmglichkeiten ber ihre Ressourcen durch die Entdeckung neuer Produkte, neuer Verfahren, neuer Wege der
Organisation und des Absatzes entgegenzuwirken, Synergien durch Allianzen mit
anderen Unternehmen zu suchen, ein neues Management zu generieren, dass kompetenter ist, Wissen aufzuholen, u.a. mehr.
842
Hans-Joachim Hof
In entwickelten Lndern kann die Beschleunigung dieses Proze seit lngerem

beobachtet werden. Etablierte Firmen versuchen ihre relativen Positionen durch
Fusionen oder Allianzen zu sichern, um ihre relative Position zu vorauseilend
halten, vielleicht auch gegenwrtig absolut zu verbessern. Sie versuchen ihre Krfte
sich auf das zu konzentrieren, wofr sie glauben, komparative Vorteile zu besitzen
(Kernkompetenzen). Sie stellen sich als attraktive Arbeitgeber fr jene Arbeitskrfte
dar, die versprechen, modernstes technisches Wissen anwenden zu knnen und
mobil sind.
Andere schaen es nicht und geben auf. Der Wettbewerb prsentiert sich nicht
nur als ein sozialer Mechanismus zur Entdeckung von bisher Unbekanntem, das
ohne Wettbewerb nicht entdeckt worden wre. Ohne Wettbewerb htten die Akteure keinen Anla, auf Entdeckung zu gehen. Die komparativen Vorteile wren
nur partiell genutzt. Mglicherweise sind vermeintliche Vorteile nur partikulr und
gehen zu Lasten anderer, vielleicht der Mehrheit. Er wirkt auch als Schock; dann
nmlich, wenn innerhalb relativ kurzer Zeit, das Rechtssystem von einem Schutzund Interventions- und Rationierungssystem in Richtung Rahmenordnung fr ein
Marktsystem transformiert werden soll oder durch Schieagen gezwungen wird.
Anpassungskosten entstehen und traditionelle werden Existenzen bedroht.
Das Problem der politischen Akteure ist es, ihnen den Suchraum fr
Anpassungslsungen und das Finden von komparativen Vorteilen nicht knstlich
einzuschrnken, sie in ihren Aktivitten durch Interventionen in den Preismechanismus zu lhmen, der Folgewirkungen sie nicht abschtzen knnen.
Wenn ein Land die Vorteile eines freien Preissystems (Systemvorteile einer
Marktwirtschaft) nutzen mchte, wird das Problem sein, ein System landesspezischer aber marktkompatibler konstituierender Handelnsregeln zu entwickeln, die
es den Besitzern von Kapital wnschenswert erscheinen lt, Kapital im Lande zu
lassen und /oder Kapital dort anzulegen. Dies wird, wie o.a. als die Voraussetzung
dafr angesehen, dass ein Land seine komparativen Kostenvorteile nutzen kann.
Im Gegensatz zu administrativen Systemen funktionieren Marktwirtschaften aber
auf der Nutzung von dezentral verfgbarem Wissen, das sich nicht aggregieren
und bei den Institutionen sammeln lt, die fr die Produktion von Handelsregeln
zustndig sind. Regulierungen Verbote und Eingrie in das Preissystem schrnken
den Suchraum fr Lsungen ein, diskriminieren und verhindern das Entstehen
spontaner, sachgerechter Arrangements.
843
8. WETTBEWERB AUF DER EBENE INSTITUTIONELLER ARRANGEMENTS
Grundstzlich unterliegen Regelsysteme (Institutionen) ebenso der Selektion

evolutorischem Wettbewerbs19, wie die Produkte verschiedener Anbieter. Sie mssen entdeckt werden und sich bewhren. Sie knnen auch bernommen werden,
wenn sie sich als ntzlich erweisen. Ihre Sicherung und Entdeckung kann anfangs
hohe Kosten im Sinne von mangelnder Akzeptanz in der Gesellschaft und Vertrauen
in ihre Wahrhaftigkeit und Bestndigkeit erzeugen. Die Kosten fallen gewhnlich
nicht nur bei denjenigen an, die sie setzen im Sinne der Pege und Unterhaltung
und Fortentwicklung der Institutionen des Rechts. Sie entstehen bei denen, die
sie nutzen wollen und die deren Konsequenzen tragen mssen. Haben sich solche
Handelnsregeln etabliert und knnen die Akteure darauf vertrauen, dass ihre gegenseitigen Erwartungen im groen und ganzen erfllt werden, versinken die ursprnglich entstandenen Kosten weitgehend.
Systeme wirtschaftlicher Handelnsregeln (Institutionen einer Marktwirtschaft)
knnen Ergebnisse zielgerichteter Absichten politische Akteure sein, die mit ihnen
ganz bestimmte, konkrete Ergebnisse hervorbringen oder verhindern mchten. Gesetzte Regeln gar mit Verfassungsrang knnen sich, wie Beispiele in Deutschland
zeigen, sich fatal fr die Entwicklung und die Wohlfahrt erweisen.
So hat sich eine an der Marktstruktur und an den Marktergebnissen orientierte Eingrispolitik zur Frderung des Wettbewerbs eher ebenso als unwirksam,
unangemessen und willkrlich herausgestellt, die vermeintlichen segensreichen,
verhaltensregulierenden Wirkungen der Besteuerung und der Subventionen. Da
der Marktwert von Realvermgen von dessen Ertragskraft in der Zukunft, diese
jedoch vor dem Hintergrund schneller Vernderungen der relevanten Umstnde
(z.B. neuer Technologien) von niemanden prognostiziert werden knnen, ist z.B.
eine Vermgenssteuer reine Willkr und wegen ihres notwendigerweise selektiven
Charakters diskriminierend. Die Beispiele fr Regulierungen durch politische Akteure knnten beliebig fortgefhrt werden und es drfte eine Illusion sein anzunehmen, dass sie sich der Folgen im Klaren sind, die ihre Regulierungen auslsen.
Ihnen gengt ihre berzeugung und ihr guter Wille, dass die Regeln, die sie den
Akteuren auferlegen, ihren Absichten darber entsprechen, was sie hervorbringen
sollen.
19
Vergl. jngst zu diesem Thema: Peter Oberender und Monty Cachej(1999) Wettbewerb der Systeme, Chancen und Risiken fr die europische Integration, WiSt H.11, November, S. 577-581.
844
Hans-Joachim Hof
Andererseits bietet die inhaltliche Oenheit von Vertragsregeln eine Vielzahl an

Mglichkeiten der spontanen Entwicklung von Subsystemen (institutionellle Arrangements), die auf den unterschiedlichsten Ebenen gemeinsame Interessen der
Akteure frdern knnen. Individualisierung der Beziehungen entschrft soziale
Dilemmata (Akzeptanzprobleme), denen konstruktivistische Lsungen immer ausgesetzt sind. Art und Aussehen solche Regelsysteme, sowie die Prinzipien an denen
sie sich orientieren, sind ohne weiteres nicht vorhersehbar und deshalb nicht konstruier- und planbar. Sie mssen entdeckt werden bevor sie genutzt werden knnen. Sie entstehen aber innerhalb eines System uerer Regeln, die konstitutiv fr
ein marktwirtschaftliches System sind.
Zusammenfassung:
Das zentrale Problem der Etablierung von Wettbewerbsmrkten besteht in der

Frage, welche Schritte notwendig sind, damit am Ende eines Transformationsprozesses ein System funktionsfhiger Preise entsteht. Es setzt eine spezische Menge an
ueren Institutionen (System von Handelnsregeln) voraus, deren Eigenschaften
Gegenstand eines Forschungsprogramms sind.
Der Wandel in der Rechtsordnung (Transformation) schat Gewinner- und
Verliererpositionen. Sie werfen Probleme der Akzeptanz eines institutionellen Wandels auf. Diese Probleme verschrfen sich, durch die Internationalisierung.
Die Verantwortlichen werden versuchen, dem Verfall des Tauschwerts ihres
Standorts (Wechselkursprobleme; Kapitalucht; hohe Risikoaufschlge bei der
Kreditaufnahme; u.a.) niederschlgt, entgegenzuwirken. Sind Interventionen
und selektive, regulierende Eingrie der angemessene Weg auf dem Transformationspfad?
Der Wettbewerb prsentiert sich nicht nur als ein sozialer Mechanismus zur Entdeckung von bisher Unbekanntem, das ohne Wettbewerb nicht entdeckt worden
wre. Ohne Wettbewerb htten die Akteure keinen Anla, auf Entdeckung zu gehen. Die komparativen Vorteile wren nur partiell genutzt. Mglicherweise sind
vermeintliche Vorteile nur partikulr und gehen zu Lasten anderer, vielleicht der
Mehrheit. Ohne ihn wrden auch keine Schwachstellen aufgedeckt. Er wirkt aber
als Schock; dann nmlich, wenn innerhalb relativ kurzer Zeit, das Rechtssystem
von einem Schutz- und Interventions- und Rationierungssystem in Richtung Rahmenordnung fr ein Marktsystem transformiert werden soll oder durch Schief-
845
lagen gezwungen wird. Anpassungskosten entstehen und traditionelle Existenzen

werden bedroht.
Im Gegensatz zu administrativen Systemen funktionieren Marktwirtschaften
auf der Nutzung von dezentral verfgbarem Wissen, das sich nicht aggregieren und
bei den Institutionen sammeln lt, die fr die Produktion von Handelsregeln
das Monopol haben, den Regierungen und Parlamenten. Man wird sich der unsichtbaren Hand des Entstehens von institutionellen Arrangements (also des Wettbewerbs als Entdeckungsverfahrens) bedienen mssen. Regulierungen Verbote,
Beihilfen: kurz: Eingrie in das Preissystem schrnken den Suchraum fr Lsungen ein, diskriminieren und verhindern das Entstehen spontaner, sachgerechter
Arrangements.
Regelsysteme knnen konstruiert und gesetzt werden, sie entstehen aber auch
spontan. Gesetzte Regeln gar mit Verfassungsrang knnen sich, wie Beispiele in
Deutschland zeigen, sich fatal fr die Entwicklung und die Wohlfahrt erweisen.
Andererseits bietet die inhaltliche Oenheit von Vertragsregeln eine Vielzahl an
Mglichkeiten der spontanen Entwicklung von Subsystemen (institutionellle
Arrangements), die auf den unterschiedlichsten Ebenen gemeinsame Interessen
der betroenen Akteure frdern knnen. Art und Aussehen solche Regelsysteme, sowie die Prinzipien an denen sie sich orientieren sind ohne weiteres nicht
vorhersehbar und deshalb nicht konstruier- und planbar. Sie mssen entdeckt
werden bevor sie genutzt werden knnen.
Fr ein Land, das ber keine Erfahrung mit bewhrten Regelsystemen verfgt, kann die Oenheit fr deren Entdeckung zweckmiger und international
vorteilhafter Arrangements von entscheidender Bedeutung sein.
Boris Marjanovi Barbara Marunik Klaudio Tominovi
846
MODERN ORGANIZATIONAL MODELS BASED

ON A NEW PARADIGM
Boris Marjanovi, univ. spec. oec.*
Barbara Marunik, univ. spec. oec.*
Klaudio Tominovi, PhD**
* Lecturer on Polytechnic University of Pula
** Professor on Polytechnic University of Pula
Abstract:
A businessproduction system must be dynamic, exible and fast in the implementation of changes to its product range in order to exist and be competitive on
the global marketplace.
Previous studies of transition from complex products to highly sophisticated
products indicated the need for polyvalent knowledge and new organizational
models.
The paper examines the implementation of a modern organizational model of
a businessproduction system, based on the new paradigm and knowledge-based
economy, aimed for the production of highly sophisticated products.
JEL classication: L16, L22
Key words: new paradigm, polyvalent knowledge, organizational models, highly sophisticated product
INTRODUCTION
The modern business world and successful business system, the share of knowledge in the corporation property in signicant cases exceeds the value of tangible
assets. This means that knowledge begins to represent the maximum value for a
business system. In order to exist and be competitive in the global market, the business system must be dynamic, exible and fast in introducing changes.
MODERN ORGANIZATIONAL MODELS BASED ON A NEW PARADIGM
847
On the example of a complex business-manufacturing system through the introduction of new and highly sophisticated products is noticeable a shift in the
concept of organization through the introduction of new forms of organizational
structures as a response to rapid market demands.
Highly sophisticated and complex product requires the implementation of an
appropriate organizational structure therefore complexity of the product dictates
new organizational structures.
Changes are related to products with high share of knowledge (sophisticated
products) and to the introduction of new forms of organization in which knowledge and skills come to the fore.
NEW PARADIGM KNOWLEDGE BASED
Modern organizational models based upon the new paradigm are founded on
human knowledge as key factor in the concept of creating new values. Measuring the success of modern organizational models is based on measuring the basic
resources eectiveness as human, structural and nancial capital on which depend
the success of value creation.
The success of value creation depends on the activation and use of creative potential and idea generation through the use of knowledge, talents and skills of
people. The basic resources eciency are inuenced also by organizational models.
There is a need to introduce new, contemporary models of organizational structures
because a functional organizational structure that was used until now had many
defects.
Contemporary organizational models allow the release of the potential and
achieve the optimum. Among contemporary models there is the process model
that covers the following elds of strategy: customers, partners and processes
(Tominovi, et al., 2005). It includes: a process orientation, process management
and a continuous process improvement. (Binner, 2005)
Among contemporary models, besides the process model, is included also the
Hypertext organizational structure or organization of the so-called related elds. Its
main advantage is fast and ecient creation of new knowledge with the purpose of
introducing new products or creating new and innovative solutions. The basis on
which this concept is built is the Nonakas the spiral of knowledge.
848
SPIRAL OF ORGANIZATIONAL KNOWLEDGE CREATION
Ikudjiro Nonaka proposed the concept of classify the knowledge as tacit and explicit. Tacit knowledge is subjective by nature and is not easy to formalize and communicate through words, sentences, and numbers. Explicit knowledge is objective
and rational knowledge, unlike tacit, that can be converted into words, sentences
and numbers. (Nonaka, 1997) Mutual complementarity and knowledge conversion from one form to another, as shown in Figure 1, are their characteristics.
Without their interaction is not possible to convert knowledge nor to create
new knowledge.
Figure 1: Spiral of Organizational Knowledge Creation
Source: Adapted according to (Nonaka; 1997)

Because the essence of implicit knowledge is individual (subjective) it cant
be shared within the organization if it does not turn into explicit and formalized
knowledge.
Through this dynamic process of interaction between personal knowledge is transformed into organizational knowledge.
In Figure 1 are shown tacit and explicit knowledge interactions which lead to four
models of knowledge conversion: socialization, externalization, combination and
internalization. (Scharmer, 2000)
Socialization is the process of converting individual hidden, tacit knowledge
into common tacit knowledge through social interaction. Externalization is the
849
process of converting hidden, tacit knowledge into explicit knowledge, which is

manifested as written concepts, diagrams, sketches, etc., ie knowledge that can be
clearly transmitted.
Combination is the process of converting and tting separate explicit knowledge in a systematized form of knowledge which is explicit in nature, such as specications for a new product, while the internalization is the process of converting
explicit knowledge into tacit operational knowledge (such as know-how), which is
documented through text, audio and video formats.
Important is to notice that through the Spiral of knowledge new knowledge is
constantly created that is spread from individuals to groups, from groups to divisions and from divisions to all levels of a business-production system, and thus
becomes a collective knowledge.
Successful companies are those companies that are able to constantly create new
knowledge and disseminate it throughout the organization and quickly implement
it in new technologies and products. (ugaj & Schatten, 2008, 19)
MODERN ORGANIZATIONAL MODELS
One of modern organizational models is the Hypertext organizational

structure.
Hypertext organizational structure or organization of the related elds is based
on the assumptions of the Spiral of knowledge.
It is a combination of a hierarchical and a team organizational structure combining the benets of both models and its characteristics makes it superior to traditional organizational structures.
Hierarchical structure is more eective in implementation, usage and accumulation of knowledge through combination and internalization, while the team
structure is required in order to create new knowledge through socialization and
externalization.
Hypertext organizational structure consists of three layers, ie structures as shown
in Figure 2. The rst is called Project-team layer, the second layer is the Businesssystem layer and the third is the Knowledge- based layer.
850
Figure 2: Hypertext organizational structure (Nonaka, Konno)

Project-team layer
Collaboration among
project teams to promote
knowledge creation
Market
Teams are loosely coupled

around organizational
vision
High acessibility to
knowledge base by
individual
members
Team member from a

hypernetwork across
business system
Dynamic knowledge cycle

continously creates,
exploits and accumulates
organizational knowledge
Business-system layer
Knowledge based layer
Corporate vision, organizational
culture, technology, databases, etc.
Source: (Prusak; 1997,107)

The Team- project layer is not hierarchically structured and is engaged in knowledge based activities for new products creation or new solutions. It connects the
other two layers and within it are performed multi-disciplinary activities that enhance the overall knowledge in the organization. (ugaj & Schatten; 2008, 22)
The Business-system layer has a traditional hierarchical structure and can be
described as a layer in which are carried out daily routine operations in the organization, or from a business point of view, its the layer where business processes are
taking place.
The Knowledge-based layer generates knowledge required for the previous two layers. It performs the categorization and storage of newly created knowledge. True, this
layer does not exist as an actual organizational entity, but is embedded in the vision of the
company, its organizational culture and technology. (Sikavica & Novak, 1999, 269)
Further in the paper will be shown on the example of a complex business-production system the application of the Hypertext organizational model in combination
with the Process organizational structure.
851
The application of modern organizational structures on the example of a

complex business-production system
The basic application of the Hypertext organizational structure is in creating

new knowledge or nding new solutions for the purpose of the introduction of a
new product.
Thus, we could say that it satises the criteria that are reected in rapid nding
of relevant informations, knowledge and solutions for new products creation, in
order to become also a competitive advantage in the marketplace. However, this
structure does not give emphasis on the very manufacturing process. Specically,
for each product is created twice, the rst time in a mental stages (product design,
specications, technology, documentation, etc.) and the second time in a phisical
phase that is the manufacturing of the product.
Since Hypertext does not give an emphasis on physical development of products, in the Business-system layer is embedded the Process organizational structure.
Its advantages are critical when it comes to optimizing the business-production
process. In the process model thinking is not conned to departments, optimization covers all departments, has a small number of layers and the production ow
is faster.
Thus, there is no unnecessary and redundant coordination activities because
all of the activities are carried out horizontally within the process. In the Process
organizational structure there are three main groups of processes. These are: basic
(fundamental) processes, managing processes and supporting processes. Each of
these processes consists of subprocess such as strategic management, which is part
of the managing processes or subprocess such as construction, which is part of the
basic processes and subprocess maintenance, which is part of the support.
Figure 3: Process organizational structure

BPS
MANAGING PROCESSES
F1
F2
Fn
A
B
I
J
Source: Authors
PROCES
G
E
FUNDAMENTAL PROCESSES
PROCES
M
L
C
U
S
T
O
M
E
R
SUPPORTING P ROCESSES
C
U
S
T
O
M
E
R
852
Figure 3 shows a graphical representation of processes and Process of organizational structures.

During the of manufacturing process there is a wide range of interactions with
the project-team structure who have created the solution and the business-system
structure in which management approves each phase of production (Figure 4). It is
important to emphasize that the solution that was created in the Project-team layer
must meet the technical and business criteria. For the technical criteria is responsable the multidisciplinary team that examines the solution from many dierent
aspects. While for the business criteria is responsable the business management,
which looks at the solution in terms of vision, mission and goals of the businessproduction system.
Figure 4: Hypertext organizational structure

BPS
F1
F2
Fn
A
B
G
E
I
J
M
L
PROCES
H
PROCES
Source: Authors
The solution shown in Figure 4 combines the Hypertext and Proces organizational structure in one optimal organizational model for a complex businessproduction system that is focused on eective knowledge application and on new
value creation.
This model, rstly, allows to quickly nd information and knowledge for innovative solutions generation and new product introduction, secondly, enables continuous process improvement through comprehensive optimization.
This analyzed model is designed to create new, highly sophisticated products
which by its nature are highly complex and require a multidisciplinary approach,
new technologies and solutions, a knowledge based organization, organizational
structure exibility and a capable intellectual capital which eectively creates a new
value that must be conrmed in the market.
853
Conclusion
Competition in the market takes place under very turbulent circumstances.

There are many competitors, a large-scale supply, and only the best win. Imposed
performance criteria are: high levels of knowledge, ecient intellectual capital, a
quick solution nding, modern technology (which allows faster production), a
multidisciplinary approach and customized organizational structure. In this paper,
in accordance to the above, is presented an organizational model that optimally
meets these criteria.
The model is adapted for the introduction and manufacture of new highly
sophisticated products. Hypertext organizational structure satises the needs for
speed and quality of creation, dissemination and application of new knowledge,
while the process model meets the needs for product manufacturing through the
optimization process. From the foregoing, it is concluded that this model allows a
quick response to market demands in accordance with the above criteria and therefore a sustainable competitive advantage.
Literature:
Binner, H. F.(2005). Handbuch der prozessorientierten Arbeitsorganization-Methoden und Werkzeuge zur Umsetzung, 2. Auage, REFA-Fachbuchreiche Unternehmensentwicklung Carl Hanser Verlag, Darmstadt.
Nonaka, I. (1997). Organizational Knowledge Creation, Knowledge Advantage
Conference, November 11-12. On-line: http://www.uky.edu/~gmswan3/575/nonaka.pdf (15-03-2011).
Prusak, L. (1997). Knowledge in organizations, Butterworth-Heinemann, Boston,
etc.
Scharmer, C. O. (2000). Conversation with Ikujiro Nonaka, Reections, Vol. 2,
N. 2. On-line: http://www.ottoscharmer.com/docs/interviews/Nonaka_interview.
pdf (15-03-2011).
Sikavica, P. & Novak, M. (1999). Poslovna organizacija, Informator, Zagreb, tree,
izmijenjeno i dopunjeno izdanje, str. 182.
Tominovi, K. & Abram, M. & Petrovi, S. (2005). Izrada procesnog modela
specinog za Brodogradilite - Erstellung eines werftspezischen Prozessmodells
Management Review No.4, u suradnji sa Prof. Dr.-Ing Hartmut F. Binner, Dipl.-
854
Ing. Michael Leidenfrost, Dr Binner Consulting & Software, Hannover Hannover

Pula, razvojni projekt SBPM Uljanik Brodogradilite d.d. Pula, lipanj 2005.)
ugaj, M. & Schatten, M (2008). Informacijski sustav za upravljanje znanjem u
hipertekst organizaciji, Ekonomski vjesnik, br. 1-2, 19-30, ISSN:0353-359X eISSN:1847-2206. On-line: http://hrcak.srce.hr/le/66762 (15-03-2011)
MEASURING CUSTOMER SATISFACTION USING THE TEST METHOD
855
MEASURING CUSTOMER SATISFACTION USING

THE TEST METHOD
HRVOJE BUDI
POLYTECHNIC SCHOOL OF POZEGA, CROATIA
Tel: +38534311459
ABSTRACT
Managing customer satisfaction is a very important aspect of modern business.

For the organizationals survival in the long run it is indisputable to have the ability
to retain the customers. Retaining customers is more protable than attracting new
ones because it is easier to sell a product or service to a someone who has already
used it, rather than someone to whom is product or service completely unknown.
Today, in order to achieve optimum customer satisfaction, companies must provide
total product that includes service and support. In that way the more expressed
customers preferences can be satised and the foundation for long term partnership
establishment with clients can be created. In order to measure customer satisfaction primary datas were collected using a test method on a sample of 180 students,
by a questionnaire in a physical form, analyzing the basic elements of educational
process. Using this test, using its strengths, structuring the questions in a way that
provides the achievement of testing objectives, we collected datas which contributed to the creation of facts on which the determination and the measurement of
attitudes were done in relation to the basic elements of the educational process.
In this way, the students satisfaction with the quality of educational services was
measured. Also, by reviewing relevant national and international professional and
scientic literature the test method was described, and all of its models. Finally, in
the conclusion, the basic thoughts about the paper are revealed through the presentation of practical advantages and disadvantages of test method, and reviewing
recent trends in communication with respondents.
JEL classication: D03
Key words: satisfaction, test method,questionnaire, customer.
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Hrvoje Budi
1. MANAGING CUSTOMER SATISFACTION
In marketing, the customer satisfaction is recognized as a central concept for a

long time. Customer satisfaction can serve as an indicator of rms success in the
past, present, and in the future. Organizations survival in the long run is in a direct
relationship with its ability to retain and attract new customers. It is easier to sell
to someone who is already a client, and who experienced the value of products or
services, than taking over clients from other rms (Vranesevic, 2000, 179). It is
primary to retain customers and expand business with them. Each lost customer
is more than just a loss of future sale, the company loose future prot from future
purchases of that customer. In addition, there are costs of acquiring customers to
replace those lost (Kotler, 2006, 129). Retaining customers is 5-12 times cheaper
in average than attracting the new ones. The cost of attracting a new customer
is relatively high in relation to the unit price of the product and it is necessary to
persuade him on repurchasing. Retention rate of clients is never 100 %. Retaining
customers is based on actual or cognitive value for customers. The real value must
be demonstrated in the products or services usage, and in some way it is connected
with the expected value which overbalanced in order to choose particular product
or service. If such value is higher in relation to competitive products, the customer
will prefer the initiative product respecting the priority of purchasing. Preference
to products in terms of their repurchasing come on the basis of positive experience.
Satised client will brag out, and dissatised will complain.
Today, in order to achieve optimum customer satisfaction, companies must provide total product that includes service and support. Marketing literature often
discusses how corporations shouldnt only pay attention to the needs and desires
of its own customers, but also to the needs of customers customers. This is often
called the marketing concept. The aim is to vivify the concept of marketing above
the traditional levels of manufacturers, wholesalers, retailers and consumers in marketing channels (Svensson, 2005, 5-15). Retailers who have a higher level of customer participation, greater level of innovations and orientation towards creation
of brand will probably have greater advantage in creation of brand. On the other
hand, they will have more loyal customers and superior nancial performance of
the brand (Huang&Huddleston, 2009, 975-992).
The key of the successful products is in their adaptability to changes in customers attitudes and habits. In order to successfully adjust to market changes company need to establish and accept the ways of clients products or services valuing. Certain products or services have dierent values, and all of those values in
857
combination make cognitive value and set clients expectations. Cognitive value
shouldnt be isolated, it must be supported by all the elements of the marketing
mix and modern marketing which contains all the elements of traditional marketing in which people devise, monitor and manage the process in order of achieving
continuous progress in all activities (Budic, 2010, 79). There are certain universal
dimensions of value; dimensions related with the product (interrelation of price to
quality, product quality, product benets, product features, product dimensions,
durability and reliability of the product, range of product or services), dimensions
related to the service (warranties or insurances, delivery, complaints management,
problem solving), dimensions related to the purchasing (courtesy, communicativity, simplicity and availability, rms reputation, rms competence). Combination
and coordination within each factor individually, and the combination and the
coordination of their independence creates preconditions of quality achievement.
Today, quality is not assumed only as a technical quality of the product, but
must have some other features. Quality is not assigned in advance, it is a dynamic
category, and it is not based, in any case, only on its or services quality or their tangible characteristics. The quality of today conrms at the market and the optimum
measurement instruments are clients. Market-perceived quality implies clients attitudes about products or services quality in relation to the competition. According
to that there are some basic assumptions of the quality process improving:
quality must be experienced by clients,
quality must be included in all activities of the company,
quality requires commitment of all employees,
quality requires high-quality partners,
quality can always be improved,
quality improving sometimes requires great leaps,
quality does not cost more,
quality is essential, but not necessarily enough,
stimulation of quality cant save weak product.
2. SERVICE QUALITY
Main dierence beetwen service and product is in intangibility of the service.

Therefore, quality isnt inuenced by a technical features, like in product case, but
the customers are the ones who determine quality. For the quality of the service it is
essential the concept of Total Quality Management (TQM). TQM isnt based only
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Hrvoje Budi
on error elimination in creating products/services, but also in ambition of improving delivered value to the customers. The main goal of the system based on the philosophy of TQM is to achieve maximum possible value for consumers, as well as
high eciency and eectiveness for the company. Unlike TQM, which has found
its origins primarily in companies that have marketed products, a concept called
SERVQUAL (Service Quality) is developed, because of the specicity of services.
This model provides a conceptual framework for examining the quality of services.
It is based on denition of quality, as a comparison of expected and resulting, and
on consideration of gaps in the process of services provision. Based on many years
of using the SERVQUAL model, many researchers drew many lessons from the
services quality study, and the most important are: need to constantly listen to the
customers; reliability has the greatest impact on satisfaction; it is necessary to impress a
client and in that way create an impact on satisfaction and loyalty; need to be extremely
honest in services provision, because the service is largely invisible; design of the service
must be impeccable. In order to understand this more closely we can look at specic
dimensions of services. The most important dimension of service is its reliability.
Promises regarding to service must be fullled in order of consistency of services
success. There cant be no space for manoeuvres because future of business cant be
guaranteed. If service isnt reliable, other dimensions will have small, almost negligible impact on quality. Reliability is a assumption of success of other dimensions,
and it is valued and based on the nal result of the received service. Also, very important is an individual approach to each client. This primarily refers to adapting to
his individual needs and desires. The third dimension is competence and courtesy,
and also it is the third in relative importance. The fourth dimension is facility, and
it is related on willingness to provide prompt service and help to the customer. The
fth dimension of service is its tangibility, and it has the lowest relative importance.
It includes physical, visible things in the process of providing services.
3. TEST METHOD AND ITS PROCEDURES
Test method implies asking questions to people from which we collect datas in
written or oral form. It is the most spreaded method for collecting primary datas and
its advantage is reected in huge possibilities and versatility of implementation.
Test method can be clasied according to several criterias. The most important
are the following: form of communication with the respondent; structuring degree
of questions; clandestinity of research goals.
859
Form of communication with the respodent - it implies the method in which

respodent gives the answers. There are three basic forms of communication with
the respodent: in person, by telephone and mail.
personal test questionnaire is widespreaded and useful instrument. It conducts in a direct communication between examiner and respodent. One of
the major advantages of personal test is a direct possibility of feedback about
the asked question. Also, the amount of collected datas is usually higher than
other forms of communication with respodent can manage. Simultaneously,
with this form of test the observing can be organized. This form of test increases the number of potential respodents, and thus it reduces costs. Such test
is appropriate for testing less educated people. Using this form of testing the
accuracy of datas is very high. It requires examiners organization, his training
and motivation.
telephone test it conducts by phone, and in developed countries it becomes
increasingly popular way of communication. Telephone test sometimes uses
to form panels of consumers which can be tested continuously to measure
changes in their attitudes and behavior. One of the major advantages of this
form of testing is relatively easy accessibillity of respodents. Also, the speed
of data collection is large and the examiner can immediately enter them into
the computer. There are no travel costs and the time for conducting the test is
reduced. Some of the disadvantages of telephone communication are reected
in a less personal contact with the respondent and in a possibility of limitation of telephone conversation by the respodent.
mail testing questionnaires are delivered to the respodents by mail, and after
fullling them they return it by mail. Individual authors called this testing
correspodence testing. However, besides mail, questionnaire can be delivered
by print (newspapers, magazines), together with the product, in fairs or other
appropriate places. Advantages of postal survey are reected in rather large
eciency of the procedure, covering possibilities of widely dispersed respodents, and in promotional activities of the elements attached to the examination. Major limitation of postal survey is impossibility of determination the
number of returned questionnaires in advance. Satisfactory rate of a return is
15-30 % of all sent questionnaires. In order to increase the response to a postal
survey organizers seek to stimulate respodents on answers, usually by sending
gifts along with the questionnaire, before or after the testing.
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Hrvoje Budi
Structuring degree of questions - structured question is a question which gives

the respodent possibility to give response by limited number of answers. There are
three main types of question relating to structuring degree:
dichotomous questions it gives possibility of two answers, such as yes and
no. It is use in order to classify the respodents into the two main groups.
Dichotomous questions with only two answers are usually answered by yes or
no, but there are variations of them such as agree or disagree
multiple choice questions are formulated to give several possible answers
on nominated question. In this case it is necessary to have a good knowledge
about the research area.
open questions they require more detailed answers from the respodents without suggesting possible answers by the examiner. Also, there is a wide possibility and freedom of expression by the respodents. In open questions there
are no answers oered to the respodent, so the respodent have to give answers
by his own words (Pavii, 2003 62). Such questions are very useful for the
research project and they provide better insight into the core of the problem.
However, regarding to that, the problem of data processing appears. The task
of the researcher is to notice their similarities and sort them into the groups
to easy the data processing. Open questions are very useful in the early stages
of the research and for understanding and determining the essence of the
problem.
Clandestinity of research goals we distinguish questions with concealed targets from those with undisguised targets. Question with undisguised target is a
direct question in which we assume that the respodent is willing to give an answer.
The vast majority of questions in questionnaires is that kind. Question with concealed (hidden) target is indirect question which assumes the necessity of covering
objectives of the study from the respodents.So there are:
structured questions with undisguised targets these are questions that are used
more often.
unstructured questions with undisguised targets questions are opened, mainly
they are used in in-depth and group interviews.
structured questions with concealed targets very rare combination. The intention of this kind of testing is to use the advantages which structured questions
have in data processing, and the advantage which clandestinity of targets have
at detecting motives and attitudes.
861
unstructured questions with concealed targets mainly they are used in in-depth
and group interviews and in projective techniques.
4. METHODOLOGY AND RESULTS
This testing was focused on researching students satisfaction with the quality
of educational services on Polytechnic School of Pozega, Croatia (at 2 study departments, 4 study directions, and all 3 enrolled years of study). The research was
conducted in order to accept, or reject three assumed hypothesis, and one of them
will be sawn further on. To test the satisfaction we set up a group of specic questions related to the 4 main elements of educational process (program and process
of study, teaching sta, non-teaching sta, infrastructure), as well as other general
questions. For this purpose, structured questionnaire was conducted. According
to the form of communication with respondents personal test was conducted on
a sample of 180 respodents. According to the structuring degree of questions, dichotomous questions and questions with multiple choices were used. Dichotomous
questions were used in order to clasiy subjects (the rst and the second question
in the group of general questions) and to faciliate the testing due to various settings
of the assumed hypothesis. Questions with multiple choice were formulated to give
a several possible answers to the question (the third and the fourth question in the
group of general questions, and all questions in the group of specic questions).
Questions in the group of specic questions were asked in a way of easily getting to
the desired target of the research. All answers were coded in advance, so therefore
data processing was facilitated. According to the clandestinity of researches goals
structured questions with undisguised goals were used because it was assumed that
respodents are willing to give an answers. It is necessary to mention that the pilot test (pretest) was conducted on a smaller part of respodents in order to see
whether the questionnaire is appropriate and understandable (in order to increase
the transparency of the questionnaire before each group of questions was a legend
which facilitated its fulllment) and whether there is any problems related to its
fulllment. Afterwards, the questionnaire was ready for data collection. Methods
of induction, deduction, analysis, synthesis, generalization and specialization were
used also. Comparative methods also were used. Hypotheses were proven using the
statistical methods with the use of relative numbers, percentages and mean values;
arithmetic mean and mode. In the Figure 1. we can see the part of the questionnaire which is related to this research.
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Hrvoje Budi
On Figure 1. we can see how we set up dichotomous question (in group of

general questions) in order to classify respodents into the two basic groups according to the assumed hypothesis: The level of students satisfaction with the quality of
educational service on Polytechnic School of Pozega depends on enrolled study department. Also we can see how we set up questions in order to determine satisfaction
with one of the four basic elements of educational process, which is the case of
teaching sta. Based on asked questions we could use mentioned methodology to
determine students satisfaction with the elements of educational process. In Table
1. we can see that the overall level of students satisfaction is equal on both study
department, and it is 3.59. However, looking at each individual element of the
educational process we come to the conclusion that marks are not equal for each
element individually, on both department, so it is in the case of teaching sta. The
level of satisfaction with the teaching sta is higher at Agriculture Department, and
it is 4.11 (located in the category between 4 and 5, between satised and extremely
satised), while it is smaller at Social Department, and it is 3.73.
Guidelines for fulllment the questionnaire:
(CIRCLE THE CORRECT ANSWER) ONE QUESTION MAXIMUM ONE ANSWER!
General:
1. Are you study with the support of Ministry of Education and Sport, or for personal needs?
MES
Personal needs
2. Which study department do you attend?

Social department
Agricultural department
3. Which study direction do you attend?

AdministraAccountancy
Market
tive study
4. Year student enrolled?
Viticulture, fruit growing

and wine
rst
second
third
fourth
PLEASE RATE VARIABLES ACCORDING TO THE PROPOSED ASSESSMENTS!
Legend: Satisfaction measurement of these variables: (5-extremely satised; 4-satised; 3-neither satisfied nor dissatised; 2-dissatised; 1-extremely dissatised).
Teaching staff:
1.Expertise of teaching staff?
2.Using modern teaching methods?
3.Methodological and tecahing abilities?
4.Availability and timeliness?
Figure 1. Part of the questionnaire for determining the level of student satisfaction with the quality of educational services
Source: Reseaching students satisfaction with the quality of educational services: Masters thesis, Budic, H., Faculty of Economics
Zagreb, 2010. UDK 339.1(049).
863
Table 1. Students satisfaction with the quality of educational services on Polytechnic School of Pozega according to the enrolled study department.
Elements of educational process
Program and process of the study
Social
3,56
Agricultural
3,14
Total
3,35
Teaching staff
Social
3,73
Agricultural
4,11
Total
3,92
Non-teaching staff
Social
3,50
Agricultural
3,42
Total
3,46
Infrastructure
Social
3,55
Agricultural
3,70
Total
3,63
Average mark
3,59
3,59
3,59
Source: Reseaching students satisfaction with the quality of educational services: Masters thesis, Budic, H.,
Faculty of Economics Zagreb, 2010. UDK 339.1(049).
5. CONCLUSION
Test method has a great possibilities of application. It is used to discover facts,

events, behavior, habits, prejudices, opinions, judgments, attitudes, motives, desires, and other numerous quantitative and qualitative characteristics. Its main
advantages are in the versatility of application possibilities, in the speed of data
collection, and in the lower costs than the method of observation has. Also, it is
not limited only to the present, but it reveals quantitative and qualitative features
in the future and in the past. All advantages of test method are shown in this research, and thus it contributed to the achieving of the research objectives. Possible
disadvantages of the method can be seen in the incompetence of the people who
conduct the research process, as well as their bias and subjectivity, and negligence
during the process of implementation. Regarding to the students satisfaction with
the individual elements of educational process it can simply be said that it is very
good, which is conrmed by the average mark on both enrolled study department,
but it could be some improvement. Also,the satisfaction can be seen in the marks
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Hrvoje Budi
that are related to a teaching sta (average mark is 3,92). Related to the teaching
sta, it can be said that overall satisfaction is very good, but some improvements
were done recently. Today, Polytechnic School in Pozega has 85% of its own teaching sta. The vast majority of teaching sta has a degree of Master of Science and
there are few Ph. Ds. Most of them have a rank of faculty lecturer and senior lecturer. Also, many of the lecturers enrolled doctorals studies in Croatia. Thus they
develop their knowledges further, and they pass it on the students. Some of them
were in vocational training abroad. European Union structural funds also enabled
the inclusion of teaching sta in various project activities implemented by the Polytechnic School in Pozega. In this way teacher further develop their skills and gain
experiences of dierent ways of doing business. They also networks with foreign
colleagues through Information Technology. Information Technology enables new
ways of communicating with respondents such as CATI, CAPI, CSAQ, CAWI.
Literature:
Budic, H. (2010). Istraivanje zadovoljstva studenata kvalitetom usluga obrazovanja, magistarski rad, Ekonomski fakultet Zagreb, UDK 339.1(049).
Huang, Y.&Huddleston, P. (2009). Retailer premium own brands: creating
customer loyalty through own brand products advantage, , International Journal
of Retail & Distribution Management Vol. 37, 975-992, ISSN 0959-0552.
Kotler, P. (2006). Kotler o marketingu: Kako stvoriti, osvojiti i gospodariti
tritima, Masmedia, ISBN 953-157-494-4.
Pavicic, J., (2003), Strategija marketinga neprotnih organizacija, Masmedia,
ISBN 953-157-4448, Zagreb.
Svensson, G. (2005). The spherical marketing concept: A revitalization of the
marketing concept, European Journal of Marketing Vol. 39, 5-15, ISSN 03090566.
Vranesevic, T. (2000). Upravljanje zadovoljstvom klijenata, Golden marketing,
ISBN 953-212-018-1, Zagreb.
ECONOMIC
DEVELOPMENT,
TECHNOLOGICAL
CHANGE
AND GROWTH
THE FUTURE THINKS ELECTRIC
867

Developing an electric mobility value chain as a foundation
for a new energy paradigm
Prof. Dr. Guy Fournier, Pforzheim University
Matthew Stinson, Pforzheim University
Abstract
Traditional mobility faces the inevitability of oil shortages in the future, which,
combined with the negative economic and environmental eects of fossil fuelbased mobility, will force humanity to rethink the way it moves. In this paper, the
authors analyze the current state of mobility in terms of resource availability, as well
as environmental and economic eects, in order to initially ascertain the urgency
of change.
Having determined that fossil fuel-based mobility is unsustainable in all three
categories, several of todays leading alternative approaches to mobility are evaluated
based on eciency in terms of well-to-wheel energy utilization and CO2 emissions.
Additionally, properties specic and/or unique to each of the alternative mobility
approaches are taken into account.
The authors reach the conclusion that electric mobility is currently the best
alternative to oil-based mobility, but only under specic circumstances; namely,
through the integration and harmonization of electricity generation, IT and electric mobility. The integration of the three branches is presented as a new energy
paradigm whose potential synergies could allow for the realization of environmental and economic benets.
JEL classication: Q42
Key words: electric mobility, smart grids, renewable energy, sustainable
mobility
868
Guy Fournier Matthew Stinson
1. INTRODUCTION
Currently, all new homes in Germany are mandatorily equipped with so-called
smart meters, and the rst smart home appliances are being sold in stores1. Millions
of homes are now equipped with solar panels while excess electricity fed into the
power grid by wind turbines is frequently exported at extremely low prices, with
negative prices occurring on occasion2. On the mobility front, numerous major
car manufacturers are announcing the releases of their rst Electric Vehicles (EVs).
These developments represent not only new business opportunities, but also the
opportunity to realize synergies between power generation, electric mobility and
IT. The authors of this paper intend to investigate potential alternatives for sustaining mobility in the absence of oil while considering these opportunities. This
integrated approach to sustainable mobility and the synergies contained therein
represent the primary focus of this paper.
In Chapters 3 and 4, the authors present data which indicate that current fossil
fuel-based mobility is unsustainable, and weigh various alternative mobility options, with special focus placed on each modes energy eciency and emissions per
kilometer travelled. Having determined that electric mobility combined with
increased renewable energy production and smart grids is currently the best option for sustainable mobility, the authors provide a detailed description of this new
energy paradigm in Chapter 5, analyze its implications on the technical, environmental and economic levels in Chapter 6, and, in Chapter 7, discuss the prerequisites for its implementation.
2. THE NECESSITY OF RETHINKING MOBILITY
Fossil fuels currently provide energy for the vast majority of transportation3.
Mobilitys dependency on oil is problematic in that it is unsustainable in two main
respects: (1) oils niteness and (2) environmental damage resulting from the burning of oil-based fuels.
2.1. Depletion of oil reserves
As is true of every non-renewable energy source, oils inability to provide humanity with unlimited power is inherent in its niteness. Contrary to logic, oil
1
2
3
German Federal Ministry of Justice 2005, Paragraph 21b

Mihm 2009
Popp, A., et al. 2009 p. 72
869
reserves often appear to not continually diminish, or even increase over time. In
fact, this is merely a statistical phenomenon: typically, an oil eld is initially listed
as being only as large as its veried oil content and, as the previously unveried
reserves are conrmed, the oil elds volume is corrected upwards.4 The World Energy Outlook 2009 editions reference scenario foresees an increase in oil extraction
from 85 mb/d in 2008 to 105 mb/d in 2030; 97% of the increase is attributed to
increasing energy demands in transportation.5 The same report predicts that oil
supply capacity will increase to 93.4 mb/d in 20146. As shown in Figure 1, these
estimates are dependent on oil elds classied as yet to be found and yet to be
developed, as well as on an increased eectiveness in enhanced oil recovery (EOR)
methods, which have been in use for over 30 years.7
Figure 1: Oil production 1971-20308
The point in time at which peak oil might be reached - a theoretical point in
time at which the maximum possible rate of oil extraction is reached, followed by
4
5
6
7
8
Schindler, J., Zittel, W. 2005 p. 29

IEA: World Energy Outlook 2009 p. 6
EIA: International Energy Outlook 2009 p. 40
Schindler, J., Zittel, W. 2005 p. 45
IEA: World Energy Outlook 2009 p. 103
870
an unavoidable, continually diminishing rate of extraction - is uncertain.9 It is expected, however, that non-OPEC oil production will peak as early as 2010, leaving
OPEC members with the responsibility of meeting the globally increasing demand
for oil into 2030.10 The 2010 Joint Operations Environment report predicts that
oil surplus could be nonexistent by 2012 and, by 2015, the oil supply could fall
20mb/d short of the quantity of oil demanded.11
2.2. Environmental issues
Studies by international organizations including the IEA, IPCC and WWF indicate that global warming is occurring. The IPCCs 2007 fourth assessment report
boldly stated the following: warming of the climate system is unequivocal, as is
now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level.12
The same report estimates a minimum 90% likelihood that anthropogenic greenhouse gases have been the primary driver in most of the global warming observed
since the mid 20th century.13 Serious dispute concerning the global warming exists,
however, and the Mann et al. hockey stick diagram, which shows a temperature
spike over the last 50 years, has come under intense criticism in light of inaccuracies. This debate emphasizes the necessity of reliance on multiple reliable data sets.14
Figure 2, compiled by the Met Oce Hadley Centre, shows temperature trends
from 1850 to 2009 while taking into account uncertainty in the accuracy of temperature measurements. The diagram indicates a relatively steep increase in average
global temperatures in recent decades.
Hubbert 1971 p. 39
IEA: World Energy Outlook 2009, p. 4
11
United States Joint Forces Command 2010, p. 29
12
IPCC: Synthesis Report 2007, p. 30
13
IPCC: Synthesis Report 2007, p. 39
14
For more information on the Mann, et al. controversy, see, for example, Spiegel Online - Klima:
Die Wolkenschieber, 29. March 2010
10
871
Figure 2: Global average temperature 1850-200915
The Leibniz Institute for Oceanic Research in Kiel, Germany, states that the
extent of global warming could be partially masked over the next ten years by two
natural oceanic processes, namely Pacic Decadal Oscillation (PDO) and Atlantic Multidecadal Oscillation (AMO). According to these claims, by 2020, global
warming could accelerate as the oceans move into their next warming cycle.16
The worlds oceans decreasing ability to absorb CO2 represents another potential global warming catalyst. Popp et al. conclude that the earths decreased ability to absorb CO2 is responsible for 18% (plus or minus 15%) of the increase in
atmospheric CO2 concentration observed between 2000 and 2006.17 An increase
in oceanic acidity has also been ascertained, an eect resulting from the oceans absorption of atmospheric CO2. Having absorbed an estimated 27%-34% of anthropogenic CO2 emissions since the industrial revolution, the potential of the result-
15
16
17
Met Oce Hadley Centre observations datasets 2010

Lingenhhl, D. 2009
Popp, A., et al. 2009, p. 9
872
ing oceanic acidication to damage sea life has already been observed in reduced
shell weight in planktonic Antarctic calciers.18
2.3. Economic issues
Meeting increasing global energy demand while the rate of oil discovery decreases requires an increase in extraction eort beyond the typical enhanced oil recovery
(EOR) methods. Oil location and recovery are associated with high nancial and
environmental risk. For example, the drilling of an o-shore dry hole, or the
missing of expected oil, can cost up to $200m, according to BP.19 The increasing
cost of oil extraction, combined with higher taxes on fossil fuels, will cause the
price of oil for consumers to rise, with the IEO2009s low and high price cases
estimating $130 and $200 per barrel in 2030, respectively.20 The increasing cost
of fossil-fueled mobility combined with the damage it inicts on the environment
represents a missed opportunity for savings and investment not only for countries
that import the vast majority of their oil, but also for countries economically dependent on oil exports.
Predicting the economic impact of climate change is inherently dicult and
estimations vary greatly. The Stern Report, for example, estimates that mitigation
costs could equal 1% of global economic output per year while the cost of inaction
could amount to 5% of global GDP from now on.21 The World Energy Outlook
2009 calculated the cost of mitigation in order to reach a goal of a temperature
change of two degrees between 2010 and 2030 at $10.5 trillion, with a penalty
of $500 billion for each year of delay.22 In order to achieve the EUs proposed
450ppm, 0.1% to 1.4% of GDP would have to be spent on climate change mitigation.23 Despite evidence that early action is signicantly less costly than late action,
it is arguable that a more technologically advanced posterity stands to benet from
the mitigation eorts whose cost is born by the current population. Technical inno-
18
19
20
21
22
23
Turley, C., Scholes, M. 2009, box 5

The Economist, March 6-12, 2010, p. 16
IEA: World Energy Outlook 2009, pp. 17-18
Stern, N. 2006, p. vi
IEA: World Energy Outlook 2009, p. 14
Popp, A., et al. 2009, p. 6
873
vation might make mitigation cheaper than is currently estimated, but mitigation
might contain signicant hidden costs and could thus surpass current estimates.24
Transportation of goods and people represents a vital pillar of the global economy and has become an essential component of modern human life; however, the
lack of oil-based mobilitys sustainability technically, environmentally and economically, will force humanity to reinvent the way it moves. Approaches to securing
long-term mobility are weighed in Chapter 3.
3. WEIGHING THE OPTIONS FOR LONGTERM MOBILITY
In the following, several approaches to sustainable mobility will be evaluated in

terms of energy eciency, CO2 emissions, cost, (monetary, environmental, social,
etc.), practicality, and technological feasibility, among other factors. All dimensions
are evaluated from a well-to-wheel perspective, meaning that the entire energy
chain is considered. In doing so, mere shifts of ineciency from, for example, the
tank-to-wheel segment of the energy chain to the well-to-tank segment are identied as such and ranked realistically. Each mobility concept carries with it specic
advantages and disadvantages, and several concepts have established considerable
promise while nding favor in the eyes of national governments. The authors of
this article have chosen to briey examine ICEVs (Internal combustion enginepowered vehicles) optimization (including hybridization), the burning of biofuels in traditional ICEVs, hydrogen fuel cell-powered vehicles and battery-powered
electric vehicles.
3.1. Optimization of internal combustion engine-powered vehicles (ICEVs)
In 1911, Alois Riedler (1850-1936) performed tests on a 20/30hp Renault, a

75hp Adler and a 100hp Benz. Riedler assessed the Renaults eciency at 12,5%,
as shown in the original Sankey diagram inFigure 3 below.
24
House of Lords (The Economics of Climate Change) 2005 p. 43
874
Figure 3: Riedlers Sankey diagram for a 20/30hp Renault at 60km/h25,26
Eective energy in ICEVs has not increased signicantly since 1911, as evidenced in Figure 4 below.
25
The authors would like to thank Prof. Schmidt for bringing Riedlers 1911 study to their attention.
For a more detailed account of Riedlers investigation and for a brief history of the Sankey diagram,
see Mario Schmidts ,,Der Einsatz von Sankey-Diagrammen im Stostrommanagement (Beitrge der
Hochschule Pforzheim Nr. 124, December 2006).
26
Riedler 1911
875
Figure 4: Sankey diagram for modern automobiles27
Despite the lack of major eciency gains, the traditional ICEV has set a challenging benchmark for future mobility concepts in terms of performance, range,
cost and convenience. At 13 kWh/kg and 12.7 kWh/kg respectively, gasoline and
diesel have energy densities approximately 100 times higher than current lithium
ion batteries at 16 kWh/kg.28 Modern ICE improvements, such as homogeneous
charge compression ignition (HCCI), which combines the fuel eciency of a diesel engines functionality with the relatively low emissions of a gasoline engine,
and small, powerful, turbocharged engines in place of larger, naturally-aspirated
engines, oer signicant reductions in power loss, translating to 30% less fuel consumption.29 Mild, basic and full hybridization of ICEVs alone present CO2 savings of 10-15%, 15-20% and 25-30%, respectively.30 In combination with friction
27
28
29
30
Kallenbach, R. 2008
Baden-Wrttemberg (ed.) 2006, p. 20
Valentine-Urbschat et al. 2009, p. 32
Buschmann et al. 2005, pp 129-131
876
reduction, thermodynamic optimization and hybridization, gasoline ICEVs CO2

emissions can be reduced by over 40%.31
ICEVs are inherently inecient, however, as only a relatively small portion of
the liquid fuels energy is used to turn the crankshaft, with upwards of 70% of fuel
energy being lost as heat (see Figure 4). Other ICEV improvements such as reduction in total vehicle weight and the use of electric, rather than hydraulic, power
steering systems, also have the potential to increase ICEVs power eciency. In
2020, small and large optimized ICEVs will cost between 400 and 2,500 Euros
more, respectively, than their traditional counterparts.32
Despite the CO2 savings oered by ICEV optimization and potential for consumer savings, especially when combined with government incentives, optimized
ICEV eet emissions would be unlikely to drop below 95 g/km by 2020, which
wont allow the European CO2 goals to be met.33 Though ICEV optimization certainly makes sense; it represents an approach to short- to medium-term mobility
rather than sustainable mobility. Optimized HEV CO2 emissions and energy efciencies are shown in Figure 5 below.
Figure 5: Fossil-fuel-powered HEV emissions and energy consumption 34
31
32
33
34

Ibid. p. 32
Valentine-Urbschat et al. 2009, pp. 32-33
Data obtained using the Daimler AGs Optiresource Tool, 2010
877
3.2 Biofuels
In their high degree of compatibility with existing ICE technology and infrastructure, biofuels possess an inherent advantage over other mobility options. Biodiesel and ethanol save 30-70% in CO2 emissions while second generation biofuel
CO2 savings range from 50-90%.35 In comparison to traditional fossil fuels, wellto-wheel CO2 savings of 10-30% can be achieved. Brazils widespread use of ethanol provides an example of successful biofuel implementation in mobility, where
cane sugar-derived fuels enable tank-to-wheels CO2 savings of 90%.36
Second generation biofuels are derived from plants and include stems and leaves.
Thus, they may less compete with food crops, as was the case with rst generation
biofuels. Microalgae has the potential to yield much more fuel energy per hectare
than traditional fuel plants. Due in part to its ability to grow on a vertical plane
and in non-cultivated areas, microalgae could oer a signicant environmental advantage over traditional fuel plants.37 Microalgae are sometimes seen as a third
generation biofuel.
Risks associated with the use of land for growing fuel plants include monoculture, soil degradation, emission of nitrous oxide, biocide dependency and
groundwater pollution.38 Investment in biofuels simultaneously represents an intensication of mobilitys dependency on liquid hydrocarbon infrastructure and
engine technology, which represents a missed chance for technologies that could
oer signicantly larger cuts in CO2 emissions and other environmental damage.
Also, additional land use required for fuel plants can reduce the earths ability to
act as a natural CO2 sink.
Biofuels and fossil fuels are substitution goods, meaning their respective prices
bear an inverse relationship. Thus, biofuel use stands to increase as a result of rising oil prices in the future. Nonetheless, alternative fuels are not meeting growth
expectations, which is likely due in part to doubt in the fuels ability to reduce CO2
emissions signicantly.39 In 2030, 1,880 thousand barrels of biofuels (ethanol and
35
36
37
38
39
International Transport Forum 2008, p. 18

International Energy Agency (CO2 Emissions from Fuel Combustion) 2009, p. 15
Lahl, U. 2009, p. 99
International Transport Forum 2008, p. 7
878
biodiesel) will be produced per day.40 The IEO forecasts that biofuel production
will rise to 5.9 mb/d in 2030 at an average growth rate of 8.6% with the United
States and Brazil producing the most biofuel at 1.5 mb/d and .74 mb/d, respectively.41 Currently, production costs pose the most signicant hurdle to the widespread
addition of rst- and second-generation biofuels to the fuel mix.42 Emissions and
energy eciency values for biofuel-powered ICEs and biofuel-powered HEVs are
provided in Figures 6 and 7, respectively.
Figure 6: Biofuel-powered ICEV emissions and energy consumption43
40
41
42
43
Energy Information Administration 2009, p. 27

Ibid. p. 30
International Energy Agency 2009, p. 15
879
Figure 7: Biofuel-powered HEV emissions and energy consumption44
3.3. Hydrogen fuel cell-powered vehicles
Vehicles can be powered by hydrogen either indirectly by means of electricity

produced by a fuel cell or directly through the combustion of a hydrogen-air mixture in an ICE. Hydrogen fuel cell-powered vehicles are essentially electric vehicles
that carry energy in the form of liquid hydrogen, which is then converted into electricity for the vehicles electric motor. As is the case with EVs, Fuel cell technology
achieves high eciency through the decoupling of primary energy provision and
drive torque production45. Hydrogen fuel cell-powered vehicles are emissions-free
from a tank-to-wheel perspective and have the potential to reduce smog in high
trac areas. However, the production of hydrogen is highly energy-intensive. In
addition to the high cost of fuel cells, hydrogen fuel is not compatible with the current fossil fuel infrastructure. According to a 2009 A.T. Kearny study, equipping
every fth gas station in Europe with hydrogen lling equipment would cost tens
of billions of Euros.46
Alternative to the fuel cell, a hydrogen-air fuel mixture can be used to power a
modied ICE. Here, extremely lean fuel mixtures can be burned homogenously;
44
45
46

Trenger et al. 2005, p. 157
Klink et al. 2009, p. 4
880
an air factor of =10 is attainable.47 In contrast to the fuel cell, whose emissions
are limited to water, the direct burning of hydrogen in ICEs releases nitrous gases,
which must be treated before being released into the atmosphere.48
Hydrogen is a byproduct of oil renement, gasoline reforming, as well as ethane, methanol and Chlorine production49 and is currently in use in various city
bus programs throughout the world. However, the use of hydrogen fuel in transportation is currently not a feasible solution to establishing sustainable mobility, as
it essentially transfers tank-to-wheel emissions to the well-to-tank segment of the
transportation energy chain while resulting in a net deterioration in both energy efciency and CO2 emissions. A 2009 A.T. Kearny study predicts that hydrogen fuel
cells are unlikely to nd widespread use by 2020, citing high cost as the primary
barrier.50 The CO2 emissions and energy eciency for fuel cell vehicles are provided
in Figure 8 below.
Figure 8: Hydrogen fuel cell emissions and energy consumption51
47
48
49
50
51
Eichlseder / Klell 2008, p. 162

Ibid. p. 164
Ibid. p. 49
Klink et al., 2009, p. 3
881
3.4. EVs
Electric mobility is currently generating great interest in many countries as a

viable alternative to traditional ICEVs; particularly in the United States and in
France. EVs produce no emissions from a tank-to-wheel perspective and are quieter
than traditional vehicles, making EVs a particularly interesting means of transportation for inner-city trac. Furthermore, electric motors produce full torque
throughout the RPM range, allowing relatively high rates of acceleration while
circumventing the need for a gearbox. The EV shares these desirable characteristics,
as well as the aforementioned decoupling of primary energy provision and torque
production with the Hydrogen fuel cell vehicle. The EV diers substantially from
the Hydrogen fuel cell vehicle in its power storage (battery vs. compressed liquid
hydrogen) and in its refueling procedure (recharging via electricity grid vs. relling
of hydrogen tank). EVs forego energy-intensive hydrogen production and are more
energy-ecient from a well-to-wheels perspective than all previously discussed sustainable mobility options.
Presently, battery technology poses the EVs main hurdle, in terms of both functionality and cost. The various battery types specic energies are compared to those
of traditional hydrocarbon fuels in Table 1: Specic energies below.
Table 1: Specic energies of current batteries and traditional fossil fuels52
Specic energy
(Wh/kg)
Gasoline
Diesel
12,194
11,889
Lithium-polymer Zinc-air Lithium-ion Zebra
100-200
146
115
100
Nickel-metal
hydride
Lead- acid
220
35
Notably, no current battery types specic energy is comparable to that of traditional hydrocarbon fuels, thus requiring that an EV carry a battery pack that is
much heavier than a full tank of fuel in order to achieve range and performance
comparable to that of an ICEV. Additionally, the fuel payload retains its full weight
at all times for EVs while liquid-fueled vehicles fuel payloads become lighter as
they are burned. For trips requiring power beyond that which is contained in a bat52
Shukla 2001, pp. 54-55
882
tery pack, EVs must be charged either overnight or using a quick-charge stations.
Due to the high cost of Lithium-ion batteries, it is expected that EVs will still cost
7,000-10,000 Euros more than ICEVs in 202053.
Naturally, an EVs impact on emissions depends on the source of the electricity
by which it is powered, thus allowing an EV powered by wind-generated electricity
to produce a theoretical zero grams of CO2 emissions. Conversely, the powering of
EVs with coal-powered electricity produces more CO2 emissions than, for example,
HEVs. Therefore, the EV is currently not a logical mobility option in regions in
which electricity production results in particularly high levels of emissions. Currently, the average work commute by car in Germany lies under 35 km per day54,
well within the range of todays EVs. Longer journeys, however, will require either
quick charging stations or battery switch centers. Figure 9 provides energy eciency and emissions values for two EV scenarios.
Figure 9: Electric Vehicle emissions and energy consumption55
Selecting the best option for future mobility
Having evaluated some of the most promising approaches to powering personal

vehicles in the future in terms of CO2 emissions, energy eciency and other factors
specic to the respective personal mobility approaches, a side-by-side comparison
53
54
55
Technisches Kongress des Verbands der Automobilindustrie / VDA 2009/2010, p. 162

Leohold 2008, p. 29
883
helps summarize the results of the preceding quantitative analysis. The discussed
mobility approaches and several others are plotted in Figure 10 in X/Y space in
terms of CO2 emissions and energy eciency, respectively. Here, points plotted in
the bottom left-hand corner of the graph are most desirable and points plotted in
the upper right-hand corner are least desirable.
Figure 10: Well-to-wheel comparison of various alternative mobility concepts56
Obviously, additional factors such as vehicle and fuel costs, safety, reliability,
land use requirements and technological feasibility must be considered in order to
provide a balanced evaluation of the various mobility concepts. Here, the relatively
high cost and low specic energy of current batteries, combined with the lack of
an infrastructure capable of quickly charging vehicles or switching batteries, relativize the wind-powered EVs absolute advantage in terms of emissions and power
eciency. Nonetheless, as evidenced in Figure 11 and Table 2, the EV oers a
considerable advantage in land use eciency (using solar panels) and competitive
energy pricing in comparison to other alternative fuels.
56
884
Figure 11: Comparison of distance driven on one hectare (10,000 m2) of land57
Table 2: Comparison of energy costs of driving 100 kilometers by energy type58

Energy type
Fuel cost
Bioethanol
0,50 / l
Biodiesel
0,90 / l
Rapeseed oil
0,70 / l
BtL (Biomass-to-Liquid)
1,10 / l
Solar energy
0,25 / kWh
Consumption for 100 km

7,4 l / 100km
6,1 l / 100km
6,1 l / 100 km
6,1 l / 100 km
15 kWh / 100 km
Cost for 100 km

3,70 Euros
5,49 Euros
4,27 Euros
6,71 Euros
3,75 Euros
It is also noteworthy that the EVs advantages are dependent on the integration
of renewable energy into the power grid. Here, synergies between electric mobility
power management can be achieved; these are discussed in Chapter 6.
4. The new mobility value chain: integrating power generation, e-mobility
and IT
As previously visualized in Figure 10, optimization of CO2 emissions levels and

energy eciency of EVs is largely dependent on the method of electricity genera57
58
Fachagentur Nachwachsende Rohstoe e.V. 2008, p. 11; own calculation

Fachagentur Nachwachsende Rohstoe e.V. 2009 p.11
885
tion. Here, particular focus is placed on potential synergies between the integration
of a high percentage of renewable resources and EVs into a so-called smart power
grid, in which power can be sent to or from the EV, depending on factors such as
current aggregate power demand, electricity price and the EV owners driving range
requirements for a given day. In this chapter, the signicance of the Energy Grids
(EG) connection to the power grid via V2G (vehicle-to-grid) will be elaborated.
For an in-depth analysis of other EV power grid integration concepts, including
V0G (convenience charging), V1G (smart charging) and V2H (vehicle-to-home),
see Fournier, Baumann, Seign 2010 (German language).
4.1. Integrating renewable energy sources into the power grid
Political leaders are beginning to set concrete goals for the implementation of
large percentages of renewable energy sources into power grids worldwide. Germany, for example, aims to increase its current share of renewable electricity from
16% to 30% in 203059, and to 80% in 205060,61. The United States derived 10.4%
of its electricity from renewable sources in 2009 and aims to double this percentage by 2012.62 If such goals are to be realized, weaknesses specic to these energy
sources must be addressed. In particular, the characteristics of wind and solar-derived electricity will require that grid storage above and beyond current pumpedstorage hydroelectricity be established. Due to the volatile and irregular nature of
solar and wind power, the amount of renewable energy being fed into the power
grid can be either too low or too high. The amount of renewable power is at times
insucient, e.g. on cloudy days and/or when the wind is too weak to turn wind
turbines. However, the amount of renewable energy being fed into the grid is often
too high and, to prevent overloads, wind turbines are slowed down and/or electricity is exported to grids with excess capacity, often in foreign countries.63 In extreme
cases, particularly at night, when wind turbines tend to be most active and when
electricity use is normally lowest, grid operators are forced to choose between reducing production at plants whose turbine speeds cannot be quickly changed, or
diverting the excess electricity to other power grids. In the former case, considerable
59
60
61
62
63
Stratman 2010
Flauger 2010
Bundesministerium fr Wirtschaft und Technologie 2010, p.23
U.S. Energy Information Administration 2010
Schnfelder M. et al. 2009, pp. 373-380
886
costs result from the changing of a plants production rate. Furthermore, revenue
may be lost if power demand increases at a rate faster than that at which the plants
production rate can be accelerated.64 In the former case, low or negative electricity
prices result. When negative prices occur, entities willing to use or store the excess
electricity are paid by the power provider to do so. In western Denmark, wind energy is excessive approximately 70 days per year65. Between October of 2008 and
November of 2009, 71 hours of negative electricity prices were recorded on the
day-ahead market of the European Energy Exchange. The lowest price of 500/
MWh, recorded on October 4th, 2009, resulted as a combination of low grid load
and a high amount of wind energy.66
4.2. EVs as grid storage capacity and decentralized power provision
Had these overloaded grids possessed adequate power storage capacity, the nancial losses resulting from the negative prices could have been avoided by directing excess electricity into power reservoirs rather than to other grids. Here, EVs
could be charged at night using excess energy produced by wind turbines at night
(grid energy storage). Container-sized batteries are being developed by companies
such as Evonik with a capacity of 700KWh each in order to fulll this purpose.67
EVs could assume the role of a decentralized power plant that could deliver its
full power to the grid quickly (spinning reserve) when needed, thereby allowing
traditional power plants to maintain a lower reserve power level (peak load leveling). Peak load leveling and grid energy storage pertain to supply-side power management while load management focuses on demand-side load management. The
latter element comprises load shifting, by which demand at times of peak usage is
shifted to low-load times (load shifting) and the increasing of power use at low-load
times (valley lling).68 In order to enable the use of EVs for both peak load leveling
and grid storage, a grid capable of bi-directional communication and power transfer, i.e. a smart grid, is required.
64
Energiewirtschaftliches Institut an der Universitt zu Kln (EWI) 2010 p. 13

Christian Dymn and Anu Henriksson: Spatial Planning and its contribution to climate friendly
and sustainable transport solutions, Stockholm 2009, p. 21
66
Energiewirtschaftliches Institut an der Universitt zu Kln (EWI) 2010, pp. 7, 36
67
Flauger 2010
68
Rocky Mountain Institute 2009
65
887
4.3. The necessity of smart grids
The vehicle-to-grid (V2G) concept entails a bidirectional IT network over

which vehicles identify themselves and communicate via a standardized protocol;
applied to all devices connected to the power grid, an Internet of Things is created in which customers can manage their energy consumption automatically and
precisely using smart meters, which in turn could provide near real-time consumption data to grid operators. Cisco envisions a network of devices 10 to 100 times
larger than the Internet that would use Internet Protocol (IP) and whose establishment could represent an investment requirement of 20 billion Euros per year until
2015.69 Fournier, et al. 2010 nd that, while a large number of EVs integrated into
current dumb grids could in fact have negative economic and ecological consequences, the integration of EVs and a large proportion of renewable energy sources
into smart grids could address the economic implications of oil dependency and
scarcity, reduce the amount of emissions released into the atmosphere and provide
additional real income for families and businesses.70 The smart grid provides both
producers and consumers of electricity with transparency, allowing customers to
manage their energy use more eciently through, for example, precise activation
and deactivation of smart grid-connected devices depending on factors such as time
of day, temperature, which rooms are occupied and the current price of electricity. Cisco predicts that smart grids will allow homeowners to use up to 15% less
electricity.71 On the supply side, power plants can produce based on near real-time
consumption data and, provided access to online EVs, would eectively maintain a
higher level of spinning reserve. The implications of lower energy prices combined
with lower electricity consumption balanced against a more cost-eective delivery
of electricity are discussed in Chapter 6.
Currently, small-scale, individual smart grid simulations and experiments are
being carried out in various countries. Perhaps most notable is the Danish island of
Bornholm, whose then 35 on-shore wind turbines generated 30 MW of the total
53 GWh produced in 2007.72 Bornholm aims to attain 50% renewable energy by
2025 and 100% renewable energy by 2050 and intends to reach this goal in part
through the integration of a large number of electric cars integrated into a smart
69
70
71
72
LaMonica 2010
Fournier et al. 2010, p. 15
Cisco 2009
Heussen, Pillai 2009, p. 8
888
grid, via which the island will produce the entirety of its consumed electricity without external power feeds.
5. Implications of the new energy paradigm
The realization of the synergetic opportunities presented in Chapter 4.2 is associated with numerous technical, economic and environmental implications. In
this chapter, the additional load placed on the power grid by EVs is discussed, in
addition to the economic eects on various market actors, including governments,
fossil fuel suppliers, power plants and households. Lastly, the environmental implications of a substantial EV eet are analyzed.
5.1. Technical implications
An increase in the number of EVs being charged on the power grid results in a
net increase in the amount of electricity required by EV-driving consumers. Using
the statistics in Table 3 below, the additional required power can be easily calculated for any given number of EVs.
Table 3: Driving habits and power production statistics for Germany73

Total cars in Germany
Average energy consumption per EV
Distance driven per year
Power generated in 2008
41.3 mil.
15 kWh
13,000 km
636.8 tWh
Assuming an EV saturation level of 20% in Germany, the following formula

shows that approximately 2.5% more electricity would be required in order to
power the EVs:
41,300 ,000 total vehicles .20 15 kWh / EV p.a. 13,000 km p.a. = 16 tWh p.a.
16 tWh additional EV load

2.5% increase
639.1 tWh total production
The additional 16 tWh required each year to power the EVs correspond to an
approximate 2.5% increase in power production.
73
KBA 2009, p. 9; BP 2010, p. 2
889
5.2. Environmental implications
As discussed in Chapter 5.2, the integration of smart grids and EVs allows volatile renewable energy sources to be stored by EVs when power demand is low and to
then be fed into the power grid when power demand is high. The spinning reserve
provided by EVs allows power production to cover demand peaks that would otherwise have to be covered by the largely non-renewable energy-fueled base power
production level. In Chapter 5.3, smart grids were shown to enable more ecient
power consumption through improved power management in homes and businesses while simultaneously providing near real-time power consumption data to
electricity providers, who can thus produce closer to real demand, thus reducing
excessive power waste and black-outs through over- and underproduction, respectively. The higher proportion of renewable energy sources in the electricity mix
combined with improved power eciency allows for a lower base level of electricity to be produced using non-renewable resources, thus reducing emissions on the
power production side.
On the mobility side, replacing ICEVs with EVs would reduce direct emissions
from mobility and could provide public health benets in the form of reduced air
pollution, particularly in urban areas in which the concentrations of humans and
vehicles are particularly high. A recent Price Waterhouse Cooper study nds that,
in Austria, road trac CO2 emissions could be reduced by 16% if 20% of vehicles
are EVs by 2020. 74 Table 4 below summarizes this nding.
74
Pricewaterhousecoopers 2009 p. 18, Table 5
890
Table 4: Road trac CO2 reduction potential in Austria through 20% EVs in national vehicle eet75
Here it is important to note that countries with higher proportions of renewable energies in their respective power mixes stand to reap greater environmental
rewards, as the charging of the car does not represent a mere shifting of emissions
from cars to power plants.
5.3. Economic implications
It is estimated that, in Austria, a density of 20% EVs (approximately one million

vehicles) would result in a net gain for the domestic economy of 1.3 billion Euros.76
The aforementioned European study cites savings on crude oil imports as the primary driver in the overall cost benet for the Austrian economy. Money that would
otherwise be spent on imported oil could instead be spent domestically, translating
into increased real disposable income for households and increased tax revenue for
75
76
Ibid.
Ibid. p. 20
891
the state. Here, it is assumed that many businesses in the crude oil sector will be
able to adapt in order to, for example, supply power either through charging stations or in the form of exchangeable batteries, in the case of gas stations.
A recent U.S. publication by The Electrication Coalition describes a modeling
exercise in which the University of Maryland Inforum LIFT U.S. economic model
is used in order to illustrate the economic eects of electric mobility in conjunction
with smart grids. The study paints a positive picture in which, between 2010 and
2030, employment, federal revenue, real household income and the trade decit,
among other points, stand to benet under the results returned by the LIFT model.
The study cites a reduction in dependency on oil as the single most signicant benet resulting from the implication of the studys policies. Electric mobility would
lessen the U.S. economys susceptibility to recession during energy crises, according
to the study. Specically, a simulation using The Electrication Coalitions policies
resulted in the savings of 1.05% of real GDP, 1.6% of real disposable income and
1.4 million jobs during the rst year of an oil crisis-induced recession.77
Both the Austrian and Maryland studies emphasize the importance of government subsidies that bring the purchase prices of EVs down to a level comparable to
that of ICEV purchase prices. Without such incentives, the EVs total cost of ownership today is higher than that of a comparable ICEV. As a result of economies of
scale, combined with higher fuel prices, EVs might become cheaper to own (drive?,
ist das nicht zu optimistisch?) than ICEs by 2012, as shown in Figure 12 below.
77
For more detailed information see the study: Economic Impact of the Electrication Roadmap
2010, by The Electric Coalition.
892
Figure 12: EV and ICEV Total cost of ownership curves (including ARRA Tax Credit)78
Due in part to the higher degree of eciency in power use and supply aorded
by smart grids in combination with EVs, it is predicted that, despite an increase in
electricity demand resulting from the charging of EVs, electricity prices could fall.
In Germany, an EV eet share of 10% could lead to a 3% reduction in the normal
price of electricity while a 6.6% price reduction could be achieved at an EV saturation rate of 30%.79 Additionally, EV owners connected to a smart grid would be
able to, their individual power needs allowing, buy electricity cheaply at night and
sell it at a prot during the day.
6. Prerequisites for realizing the new energy Paradigm
The realization of the energy paradigm created through the fusion of power
production, electric mobility and IT discussed in this paper necessitates the fulllment of specic prerequisites. These prerequisites pertain to the technological state
of power infrastructure, households and EVs, as well as to conditions in micro- and
macroeconomic environments.
6.1. Technical prerequisites
Technical prerequisites for the realization of synergies between power production, electric mobility and IT presented in this paper include the provision of additional electricity for the additional load created by EV charging, the ability of EVs
78
79
The Electric Coalition 2010, p. 14

Schuft, W./Brumme, D. 2009, p. 34
893
to provide surplus electricity to the grid, and the establishment of an easily accessible charging or battery swap network. Signicantly, the environmental impact of
electric mobility hinges largely on the cleanliness of power plants and EVs ability
to communicate and interact with the power grid, and, as summarized in Chapter
5.3, simply switching from ICEs to EVs without modifying power production and
power grids could, in fact, result in a net negative impact on emissions in the worst
case scenario.80 Thus, the integration of renewable energy into smart grids represents a core technical prerequisite on the supply side of the equation. The necessary
grid storage could be provided by EVs connected to the power grid via V2G, as
discussed in Chapter 5.2.
In order for EVs to compete with ICEs, the former must function approximately
as well as the latter. Here, range, performance, comfort and reliability play decisive
roles. Currently, EVs work as well or better than ICEs in all aforementioned areas
except for driving range, as ICEs can be refueled quickly at any given gas station
while EVs require longer charging periods in typically shorter intervals (quick
charge option allows a battery to be partially charged in under an hour). However,
recharging away from home is a task unlikely to be experienced by most drivers on
a regular basis, as evidenced in Figure 13 below.
80
Fournier et al. 2010, p. 12
894
Figure 13: Average driving distance per day in Germany81
For the vast majority of drivers, a range of 40km is sucient for daily driving.
Current Lithium-metal-polymer battery technology can power a Golf-sized vehicle
for up to 500km before recharging is necessary82. In order to compete with ICEVs
and PHEVs for single-car-families and individuals who also take long trips via car,
the establishment of an extensive EV refueling infrastructure, by which batteries are either quickly charged or switched, is essential. Demand for higher range
necessitates the implementation of batteries with greater storage capacities, thereby
resulting in higher material costs for the vehicle. Thus, a car sharing system that
more closely matches vehicle type to application or, alternatively, a system by which
standardized, interchangeable batteries containing dierent charge capacities could
be circulated and rented on an as-needed basis, could help lower the purchasing
prices of EVs while simultaneously allowing any given EV to be provided with an
extended range on demand. Consumers who are not willing to share a car might be
willing to share batteries instead.
6.2. Economic Prerequisites
In order for the emergence of the new energy paradigm to take place, a holistic
approach is required in which incentives and penalties accurately reect the ben81
82
Leohold 2008, p. 29
Lwer 2010, p. 60
895
ets for and harm to society resulting from various actions taken by businesses,
respectively. Specically, power plants should be economically motivated to save
energy rather than to sell more of it; eciency could be measured in (gCO2/kWh)
and producers rewarded premiums accordingly. Car manufacturers should be encouraged to produce more ecient vehicles, measured in (kWh/km), rather than
in miles per gallon or liters per 100 kilometers, units which pertain exclusively to
ICEVs. Finally, consumers should be encouraged to try electric mobility through
government rebates that bring the prices of EVs down to those of ICEVs, and/or
given the option of leasing in order to allow consumers to try out EVs without the
outright buying of young technology.83 It is unlikely that a single player will go it
alone; joint assumption of risk by all aected branches requires a level of cooperation that could prove dicult for companies competing for dominance in new
markets.
As the energy and mobility value chains transform and fuse, companies such as
the German Telekom and RWE are vying for control of new, smart grid-specic
service areas, such as smart meter installation and power billing.84 Meanwhile, other
companies such as Tesla and BYD are emerging at the forefront of electric mobility
with revolutionary business models. The technical construction of EVs, whose motors permanent magnets require rare earth materials extracted almost exclusively in
China, and whose batteries require Lithium, which is found mostly in Chile and
Bolivia, could aord new players such as China to, with access to vital materials
and an abundance of cheap labor, the chance to pull ahead in the production of
inherently simpler EVs as economies of scale are achieved.
Considerable investment in infrastructure, research and development, and incentives is necessary. The Electric Coalition proposes seven policies, at a total cost
of 127.1 billion U.S. dollars, with approximately 70% of the sum allotted to tax
credits for vehicles and infrastructure.85 Clearly, the necessary coordination of all
players for the realization of the new energy paradigm will be neither simple, nor
quick, nor cheap.
83
84
85
Kendall 2008, p. 156; Valentine-Urbschat et al. 2010, p. 79

Flauger, Louven (Handelsblatt 18.08.2010), p. 1
Wescott, R., Werling, J. 2010, p. 10
896
CONCLUSION
Based on the evidence presented in this paper, electric mobility is at present

probably the best way to replace fossil fuel-powered mobility, whose unsustainability and harmful environmental side eects preclude its dominance in the future.
Furthermore, electric mobility also presents the opportunity for more regenerative
energy to be integrated into electricity mixes worldwide, assuming the introduction
of smart grids. Without smart grids, areas in which renewable energy proportions
are highest stand to prot from electric mobility in terms of emissions. Meanwhile,
electric mobility without smart grids in countries whose power is supplied by fossil
fuels such as coal could represent a long tailpipe, by which emissions from cars
are simply shifted to power plants and, in the worst case, could increase net emissions. Thus, it is essential that synergies between power generation, electric mobility and IT are realized in order for the environmental and economic opportunities
discussed in this paper to be made possible.
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Mladen Vedri Ruica imi
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CROATIA AT THE DOOR OF THE EU:

CURRENT RISKS AND NEW POSSIBILITIES
Prof.dr. Mladen Vedri1
Ruica imi2
Summary
The Republic of Croatia is facing dilemmas (developmental, political, and social) related to its impending full membership i the European Union (EU). For its
part, the EU is fatigued by the existing and future expansions, especially from the
aspect of the process of harmonizing viewpoints and decision-making, while in
the Republic of Croatia there are present economic and social consequences of an
insuciently successful transition. What must be done to nd a way to transform
the economic crisis, national and global, into a chance for development is the basic scientic-research interest of this work. The authors are convinced that on the
basis of best practices achieved by individual group of countries to date, such a step
forward can be made in the Republic of Croatia, especially by the used of new potential available with its upcoming membership in the EU.
JEL classication: F12, G01
Key words: global economic crisis, national economic crisis, EU membership,
EU 2020, Euro plus pact, public policies, development models, competitiveness.
INTRODUCTION
The expected impending entry of the Republic of Croatia into the European
Union (EU) it is assumed that negotiations will conclude in 2011 and ratication by member states will follow in 2012 opens questions that are now almost
a decade old in relation to the rst possible term for entry into the EU (2004, the
1
Mladen Vedri, Ph.D., Professor, Department of Economic Sciences, Faculty of Law, University of
Zagreb
2
Ruica imi, MA, Assistant, Department of Economic Sciences, Faculty of Law, University of
Zagreb
CROATIA AT THE DOOR OF THE EU: CURRENT RISKS AND NEW POSSIBILITIES
901
entry of the transition countries) on what Croatia must do in order for this new
economic and geopolitical positioning to be a signicant factor in promoting economic growth in a national sense.
The circumstances in which that process is being denitively achieved is characterized on one hand (the EU) by a kind of expansion fatigue, created by the fact
that not all countries (especially Romania and Bulgaria) could not easily integrate
into the normative framework of the EU, the process of expansion also led to an
intensication of the tensions in the decision-making system and stronger pressures
for use of the subsidy mechanism. All of this occurred in during the time of the
global economic crisis, which after the US passed into Europe, which it has also
lasted longer, as can be seen from the lower rates of economic growth, the higher
unemployment rates, and accordingly, greater social tensions that area creating the
urgent need for unied EU policy in several areas ranging from energy and ecology
to a joint foreign policy.
How the Republic of Croatia can construct a new, active position in all such
circumstances, which are the limits in creating such options and strategies, is a
question of vital interest in this work. Also, recent analyses of the achievements of
individual transition countries, which today are EU members, point to the conclusion that almost all of these countries, to a lesser or greater extent, used EU
accession as an important push factor for structural changes and the development
of their national economies. Also important are the institutional factor and the
relevant environment that makes overcoming the consequences of the global crisis
within their own national boundaries easier.
Aggregate quantication of the results achieved is apparent from a review of
a graph on GDP of transition countries (per capita, parity purchasing EU 15 =
100) of Central and Eastern Europe in the last thirty years (1980-2010). This is a
period that embraces the gradual dissolution of the once monolithic Easter Bloc of
the former USSR, then the beginning of the transition process (1990-1995), and
the phase of accelerated recovery and growth, especially present since 2004 among
countries that became EU members.
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Graph 1. GDP per capita based on parity purchasing power (EU 15 = 100), 1980-2010
Source: Becker, T., Daianu, D., Darvas, Z., Gligorov, V., Landersmann, M., Petrovic, P., Pisani-Ferry, J., Rosati, D., Sapir, A. and Di Mauro,
B.W, Wither growth in central and eastern Europe? Policy lessons for an integrated Europe, Bruegel Blueprint Series, Vo. XI, Bruegel,
Brussels, 2010, page 4.
It is apparent that Slovenia, the Czech Republic, and Slovakia were the most
successful in passing through the transition process. The rst two began from a relatively more satisfactory starting position; they went through the fewest oscillations
and have relatively successfully taken advantage of the time period after entry into
the EU (since 2004), especially in the context of overcoming the consequences of
the global economic crisis (2008 - ). Poland registered a high degree of oscillation,
but it still took advantage of the period after EU entry to register extremely robust
economic growth by which it reached the level of Hungary (GDP, parity purchasing power).
The next group of transition countries (today EU members) Estonia, Lithuania, Latvia, Bulgaria and Romania experienced oscillations even deeper than
those in Poland. Together they passed through a period of conjuncture (2000-
903
2008), but also sharply evident consequences of the global crisis on their national
economies.
In the group of countries with which it is usually compared (Serbia, BiH, Macedonia, Montenegro countries of the former Yugoslavia - and Ukraine and Albania) Croatia had a relatively high starting position (1990), more satisfactory than
the examples of Slovakia and Hungary, with troughs and decits in the period of
aggression and war (1991-1995) and a gradual recovery in the last 15 years. Its
position today (2010) corresponds with the position at the beginning of the transition period (1990). The data clearly indicate that today Croatia is (again) at the
beginning of the convergence process, but it is no longer measured against the EU
15, but against the entire European Union - the EU 27.
I. THE EUROPEAN UNION TODAY: KEY GOALS AND PRIORITIES
The accelerated process of globalization forcefully stimulated by the sudden disappearance of the ideological, but also the possible military, confrontation between
East and West (the fall of the Berlin Wall), confronted the European Union in the
1990s with the fact that it had to create a competitive framework for the acceleration of its own economic growth, not for internal reasons, but primarily because of
the growing competitive pressure in the global environment: on one hand North
America (the US and Canada) and on the other hand the Far East (Japan and the
little Asian tigers Singapore, Hong Kong, Malaysia, South Korea and then the
new great challenge of China). Therefore, in March 2000, the European Commission adopted a development document at a meeting in Lisbon that became the
fundamental strategic act with goals and guidelines for the next decade.
The main goal of this Lisbon Strategy was to signicantly boost the EUs economy, particularly compared to Japan and United States. In the rst phase the focus
was on the implementation and introduction of its mechanisms in the member
states. The European Commission would take the lead role in monitoring and coordinating the implementation processes. The Open Method of Coordination was
specically created as a governance method to be used with the Lisbon Strategy in
order to ensure the spread of best practices and convergence to achieve the goals of
the Lisbon Strategy.
Despite some progress, the overall results of the Lisbon Strategy were below
expectations, mainly because of ambiguous responsibilities. After a mid-term review in 2005, the Lisbon Strategy was re-launched. The new Strategy focused on
904
growth and jobs; other objectives were concerned as long-term goals. Within that
framework of growth and jobs framework the following areas were considered the
most important: research and innovation, human capital, the labor market, entrepreneurship, and climate change. In 2008, a third cycle of the Lisbon Strategy was
launched for the period 2008-2010. It focused on implementation and emphasized
the environment, climate change and energy, social aspects, and the connection
between the Lisbon Strategy and cohesion policy.
Further, due to the activities and time using the demonstrated realization and
experience created in the general application of the Lisbon Strategy, a new framework for common growth and development was created. But for the new time,
and in new circumstances it was necessary to structure a new conguration, which
required a new relationship of power and new priorities created by a new wave and
the new requirements of globalization.
How the EU intends to achieve its development priorities under todays circumstances is apparent from this detailed and carefully balanced document.
Table 1. Europa 2020 Flagship Initiatives
Innovation Union
The aim of this is to re-focus R&D and innovation policy on the challenges facing society such as climate
change, energy and resource eciency, health and demographic change. Every link should be strengthened
in the innovation chain, from blue sky research to commercialization.
Youth on the move

The aim is to enhance the performance and international attractiveness of Europes higher education institutions and raise the overall quality of all levels of education and training in the EU, combining both excellence
and equity, by promoting student mobility and trainee mobility, and to improve the employment situation
of young people.
A Digital Agenda for Europe

The aim is to deliver sustainable economic and social benets from a Digital Single Market based on fast
and ultra fast Internet and interoperable applications, with broadband access for all by 2013, access for all
to much higher Internet speeds (30 Mbps or above) by 2020, and 50% or more of European households
subscribing to Internet connections with more than 100 Mbps.
905
Resource-ecient Europe
The aim is to support the shift towards a resource-ecient and low-carbon economy that is ecient in the
way it uses all resources. The aim is to decouple economic growth from resource and energy use, reduce CO2
emissions, enhance competitiveness and promote greater energy security.
An industrial policy for the globalization era

The framework will address all elements of the increasingly international value chain from access to raw
materials to after-sales service.
An agenda for new skills and jobs

The aim is to create conditions for modernizing labor markets with a view to raising employment levels and
ensuring the sustainability of our social models.
European Platform against Poverty

The aim is to ensure economic, social and territorial cohesion, building on the current European Year for
Combating Poverty and Social Exclusion to raise awareness and recognize the fundamental rights of people
experiencing poverty and social exclusion, enabling them to live in dignity and take an active part in society.
Source: Samardija, V., Butkovi, H., From the Lisbon Strategy to Europe 2020, IMO, Zagreb, 2010, p. 12.
As already stated, the program EUROPA 2020 arose as a result of: a) a focused process to continue to achieve the important development goals of the Lisbon Agenda, expanded by new challenges; b) ever greater awareness of the need
keeping step in development with the primary partners and competitors the US
and China; c) an awareness that managing a joint development policy, and consequently a coherent economic policy, is the sine qua non for the successful functioning of the EU and maintaining the consistency of the euro zone project. In order
to make it possible to achieve all of this, The EU Commission adopted Integrated
Guidelines that open the way for a continuation of the reforms that have been initiated. In concrete terms, this includes the following actions:
906
Table 2. EUROPE 2020 INTEGRATED GUIDELINES

1
Ensuring the quality and sustainability of public nances.
Addressing macroeconomic imbalances.
Reducing imbalances in the euro area.

Optimizing support for R&D and innovation, strengthening the knowledge triangle and unleashing
the potential of the digital economy.
Improving resource eciency and reducing greenhouse gas emissions.
Improving the business and consumer environment and modernizing the industrial base.
Increasing labor market participation and reducing structural unemployment.

Developing a skilled workforce responding to labor market needs, promoting job quality and lifelong
learning.
Improving the performance of education and training systems at all levels and increasing participation
in tertiary education.
Promoting social inclusion and combating poverty.
8
9
10
Source: European Commission, 2010 - Provjera Sourcea

http://ec.europa.eu/europe2020/targets/eu-targets/index_en.htm
It is planned that these guidelines be achieved by the middle of the year 2014,
when their contribution will be analyzed, both in formulating national economic
strategies and in overall competitiveness: meeting important goals at the EU level.
There are more detailed expectations (European Commission) stating that they
must be the basic goals of this programmatically demanding document.
Since the global economic crisis to a great extent stressed the weaknesses of EU
economic policy, the Europe 2020 strategy was additionally set with goals that not
only focused on a recovery from the crisis, but also on more proactive ways to avoid
crisis situations in the future. In addition, Europe is concerned by the growing
number of its competitors, including Japan, the United States and the increasingly
threatening emerging markets. (Samardija, Butkovi: 15).
Stated more precisely, and as a lesson in the soft way of managing the goals of the
Lisbon Agenda, it is expected that there will be a rmer structural concept for monitoring the achievement of the ve important goals of the EU 2020 Program.3
Five targets of new European strategy for jobs and growth: aiming to raise to 75% the employment rate for women and men aged 20-64, including through greater participation of
young people, older workers and low-skilled workers and better integration of legal migrants;
907
This viewpoint is clearly and directly formulated in the proposal for the establishment of new management mechanisms for monitoring the implementation of
agreed upon policies within EU member states. The new concept is apparent in the
framework for permanent monitoring that has been set up.
Graph 2. EUROPE 2020 FIVE HEADLINE TARGETS
Source: Source: Samardija, V., Butkovi, H.: From Lisbon Strategy to Europe 2020, IMO, Zagreb, 2010, str. 17
improving the conditions for research and development, particularly with the aim of raising
combined public and private investment levels in this sector to 3% of GDP; the Commission
will elaborate an indicator reecting R&D and innovation intensity; reducing greenhouse gas
emissions by 20% compared to 1990 levels; increasing the share of renewables in nal energy
consumption to 20%; and moving towards a 20% increase in energy eciency; the EU is committed to reaching a decision to move to a 30% reduction by 2020 compared to 1990 levels as
its conditional oer with a view to a global and comprehensive agreement for the period beyond
2012, provided that other developed countries commit themselves to comparable emission reductions and that developing countries contribute adequately according to their responsibilities
and respective capabilities; improving education levels, especially by aiming to reduce school
drop-out rates to less than 10% and by increasing the share of 30-34 years old having completed
tertiary or equivalent education to at least 40%; promoting social inclusion, in particular
through the reduction of poverty, by aiming to lift at least 20 million people out of the risk
of poverty and exclusion. (Source: European Council, Conclusions from 17 June 2010, EUCO
13/10, Brussels, 17 June 2010, http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/115346.pdf )
908
Such an orientation and such decisions are the result of direct experience in
managing crisis and remedying its consequences, which have been present in the
European economy since 2008, and with an increasing accelerating pace: territorially Greece, Ireland, Portugal but also structurally increasing pressure on the
euro as a common currency, lower rates of economic growth comparable to other
global economies, an increased degree of social polarization. In this context, it is
realistic to expect and to require a system of monitoring of the implementation of
macroeconomic policy at the national levels and program of reform within individual countries and national economies. It is also clear that scal supervision relying on the principles of the Stability and Growth Pact is an important precondition
for an approach to using the resources earmarked from the European Stabilization
Mechanism, as a new, extremely important instrument of a joint EU economic
policy.
Considered more generally, it is becoming clear at the EU level that since the
beginning of the concept of union in a common European market and todays integrated form, a European Union, requires a dierent, considerably more elaborated,
demanding and better dened mechanism for mutual economic cooperation. This
awareness became more realistic after the introduction of the euro (monetary policy), when a divergence in managing the scal policies of the member states (revenue and expenditure sides), and the degree of economic growth (national competitiveness, under conditions of the rising global crisis, drastically and dramatically
questioned both the eciency and overall sustainability of the common policies of
the EU. The recognition of this type of (re)action to a crisis situation (beginning
from 2008) has its empirical stronghold on a documentary base, that demonstrates
the economic growth that has been achieved, but also the failed opportunities in
the last decade. 4 The following data show this more exactly:
4
The question remains whether the achieved decits in potential GDP
growth would have been greater if in the same period within the EU the it had
not devised (sooner or later, in a more organized way or more spontaneously)
the concept of the Lisbon Agenda.
909
Table 3. Output gaps: Deviations of actual GDP from potential GDP as a percentage of potential GDP
Source: OECD Economic Outlook 2010, Preliminary Edition, http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1

,00.html
Negative values (deviations, decits) of achieved compared to potential GDP

were considerably more present in the period under consideration in the European
Union, comparable to OECD countries, but also to a great extent in part of the
previous period in comparison to the United States.
Following all of the above, a mid-range platform was created in the (crisis) year
2010 for reforms that, as was then estimated, had to begin immediately, with the
adoption of the EU 2020 Program. But even more, the last quarter of 2010 and the
beginning of 2011 have revealed a deepening macroeconomic, development, and
increasingly, scal crisis after Greece and other member countries like Ireland and
910
Portugal5 (and potentially Spain and Italy) which requires further activity both in
harmonizing macroeconomic policy within the EU and in creating public and still
more clearly dened rules of behavior that will apply to all members of the euro
zone and beyond. This also means other members of the EU, who wish or want to
join in that initiative and to accept the newly created rules, but also possible support from the new institutional framework. 6
The rst option was: the Competitiveness Pact proposed by German and France
(4 February 2009), which called for a joint (harmonized) in the following areas
of structural changes: a) stimulation of employment; b) sustainability of public
nance; c) development of a system of wages linked with the growth of productivity and d) adaptation of the pension system to current demographic trends and
limitations on early retirement. All of these reforms (structural changes) were a
consequence of facing weaknesses that have, because of the global economic crisis,
lead to the implosion of parts of the national economies within the EU accompanied by the danger of a chain reaction in the future.7
The guiding principle was the decisive actions that had been started in the direction of raising the level of competitiveness of the member countries (signatories)
of such a pact, for the purpose of encouraging a successful economic convergence.
Along with Greece and Ireland, Portugal is the third EU country to apply for support from the
European Stabilization Mechanism, which is i Irsku, Portugal je trea zemlja EU koja apparent from
a statement by the Portugese government and their (published on 6 April 2011) to submit an urgent
request to the European Commission for the resources.
(Source: http://news.yahoo.com/s/ap/20110406/ap_on_bi_ge/eu_portugal_nancial_crisis)
6
The European Community and the IMF announced the creation of a new European stabilization
mechanisam, capable of providing up to 500 billion of nancial assistance over a three-year period,
with up to 250 billion of matching funding fromn the IMF. These funds, plus the loans for Greece
are equivalent to close to 9 per cent of euro area GDP. The interest rate charged on the new funds
appears likelya to be similar to that charged on the bilateral loans to Greece, at around 5%. (Source:
OECD Economic Outlook 2010, Preliminary Edition, http://www.oecd.org/home/0,2987,en_2649
_201185_1_1_1_1_1,00.html)
7
In response to criticism and comments (especially from trade unions) that this was a dismantling
of the system of benets and social protection, Herman Van Rompuy, at the public presentation
of the document, stated: Just the opposite. The goal of the measure is to rescue them. We want
to provide sucient competitiveness of the economy in order to be able to create new jobs and
to maintain the living standards of our citizens. It is only about that. (Source: Summit EU,
http://www.europeanvoice.com/article/2011/february/merkel-sarkozy-present-competitivenesspact/70165.aspx, February 2011)
911
In this context, three indicators were proposed (the Merkel-Sarkozy Proposal) to

measure competitiveness as the national level:
1) An indicator to measure price competitiveness (e.g., stability of real labor
cost, realigning labor cost according to development of productivity);
2) Stability of public nance, from a comprehensive point of view (assessment
measure still to be xed, under consideration of explicit and implicit public
debt);
3) A minimum rate for investments in research, development, education and
infrastructure of x% of gross domestic product (value still to be xed).
Furthermore, agreement was reached at the same level and a joint six-point proposal for raising the level of competitiveness was formulated that could be applied
at the national level over the next 12 months. The points are as follows:
1. Abolition of wage/salary indexation systems;
2. Mutual recognition of and agreement on education diplomas and vocational
qualications to promote mobility of workers in Europe;
3. Call for the creation of a common tax assessment basis for corporate income
taxes;
4. Adjustment of the pension system to demographic developments (i.e., average age of retirement);
5. Obligation for all member states to include the debt alert mechanism into
their respective constitutions;
6. Establishment of a national crisis management regime for banks.
We will review on a regular basis the implementation of the pact.
We will establish the necessary procedures and adopt the necessary institutional
provision in view of the organization of our work and of our supporting decisions.
8
These principles, after an intensive but not very long period of discussion (and
somewhat edited) became the center of the Pact for the Euro Plus as the lower
limit and common denominator of the agreed upon obligation that members-signatories of the pact accept for the purpose of: a) overcoming the current crisis
8
Source: The full text from Angela Merkel and Nicholas Sarkozy outlining their plans for closer economic governance, http://www.europeanvoice.com/article/2011/february/merkel-sarkozy-presentcompetitiveness-pact/70165.aspx, veljaa 2011.
912
economic and monetary with its constant tendency and threat to create a domino
eect and b) overcoming structural weaknesses of individual national economies,
but also the EU community as a whole in relation to global trends and the global
environment.
In summary, an extreme acceleration is apparent in conceiving, formulating and
(the expected) implementation of agreed upon policies compared to a decade ago
and the Lisbon Agenda as a framework of behavior (2000-2010), which had only
one correction and supplement (2005-2007). The EU 2020 Program was adopted
in the fall of 2010 and awareness of the need for the creation of a narrower, operational act with important rules and obligations for behavior, the Competitiveness
Pact occurred in the spring of 2011) and within 30 days it was reshaped into a
jointly agreed upon and adopted Euro Pact Plus. What can be expected from the
new development concept, expressed in rates of GDP growth, can be discerned
from projections at the level of the euro zone in the period to the year 2014.
Table 4. Real GDP: Achieved and expected rates of growth - Annual
Source: Ernst &Young Eurozone Forecast, Winter Edition, December 2010, p. 39

http://www.ey.com/Publication/vwLUAssets/Eurozone_Forecast_Winter_2011/$FILE/Eurozone_forecast_winter2010.pdf
913
The average expected growth in the euro zone for the period to 2014 (1.8%) is
considerably below the expected growth at the level of global projections and especially in emerging markets. There is an evident development pessimism in comparison to counties where structural reforms are lagging or are late (Italy, Spain,
Portugal, Ireland, Greece), but also a dynamism is those national economies that
were successful in the previous period (beginning with Finland and Slovakia).
The established and stated rules of the game are becoming the framework (economic, social) of behavior that they are also expecting from the Republic of Croatia
(prospectively) by the end of 2012. In this context, it is reasonable to begin the
preparations in real-time, which means immediately.
II. CROATIA OPPORTUNITIES AND LIMITATIONS
Statically (and statistically) considered, it seems that the Republic of Croatia, in

terms of both population and territory is not a large country, will have to seek for
room for its economic growth as a niche player in the framework and context of
larger economic and social events. But it is possible to consider these same values
in the context of the general success of the nation and people in another way. That
other niche is positioned in the evaluation of what one country, of the size and location of Croatia can and must do (Juri, 2010: 872).9 Croatia is a small country.
It share in European or global production is much less than one percent. By only
taking advantage of its natural resources and location it cannot ensure a suitable for
its citizens. The absolute advantages of Croatia are too small for the country to live
from them. Those comparative advantages as a basis for competitive advantages on
the global market must be acquired. Comparative advantages under the conditions
of globalization can be acquired by education, modern technologies and organization of the country with clear goals about what, how and for whom to produce for
the next 50 years. This is the content of an industrial policy that Croatia still does
not have. The most successful countries in the world, based on several indicators
(GDP, employment, exports) are closer to Croatia in their population than the
leading countries in the world. And this includes the Nordic countries Finland,
Sweden, Denmark and the Asian tigers Singapore, Hong Kong or even to
those countries whose territory is less than Croatia the Netherlands and Taiwan.
Therefore, the basic question is what is the quality of the overall exchange of gov9
Source: Juri, Lj.: Hrvatska atipian model gospodarenja, Ekonomski pregled, Zagreb, god.61
(12), 852-880 (2010)
914
ernment policy, and how are the public policies that must ensure the achievement
of important national goals are formulated. Related to this, it is important at the
beginning to dene the methodology of the behavior of the state so that it is capable of stimulating and managing successful development processes. How to create
and build such frameworks in the analysis of the shape and types of public policies
is clearly dened (Petak, 2009: 269).10
In the literature on public policies and public management the expressions
joined-up government or sometimes whole government are increasingly being used,
which points to the importance of the questions of coordination for the modern
shaping of public policies (Christensen, 2006; Christensen, Leagreid, 2007; Parsons, 2001, 2004; Peters, 1998a, 1998b, 2004, 2005, 2006; Pollitt, 2003). Regardless of which expression is used, the meaning that comes to mind in the use of such
terminology relates to increasing the level of coordination of the executive power
and to improving the quality of its work. Such terminology is at work especially
in countries that have accepted an orientation to new style of public management,
such as Great Britain and the other Anglo-Saxon countries (Christensen 2006:
460).
The problem of coordination is apparent on several successive levels of achieving
coherence in the shaping of public policies. Guy Peters has precisely dened them
(Peters, 2004: 5-7). The lowest level includes negative integration, which is characterized by the fact that in the operations of agencies for public administration and
a variety of other types of agencies there is no overlap in their work. Positive integration does not include only the avoidance of overlap in the operation of various
agencies and organizations, but also a clear agreement on cooperation and the delivery of services. It is a higher form of linking policy-coordination, which not only
includes cooperation in the delivery of services, but also the fact that organizations
must pursue common goals. At the end are several developed government strategies,
which not only ensure cooperation in the provision of services and common pursuit of goals but also gives a clear picture about the future of some sector of policy
and the role of the government in it. This methodology is an important tool that
the Republic of Croatia must also recognize and use in the context of creating its
own catch-up strategy of evaluating the possible positive eect of it future membership in the EU. In this way it would also leave behind to a considerable extent
10
Source: Petak, Z.: Oblikovanje javnih politika u Hrvatskoj i problem policy-koordinacije, Anali
Hrvatskog politolokog drutva, 2008., Zagreb
915
the consequences of the actions until now in the sphere of political and economic
decision-making from the beginning of the transition process (the early 1990s). A
related evaluation for this group of countries is apparent in a statement on the quality of their transition (Drakovi, 2010: 201).11
Economic development of the post-socialist countries in the SEE region is
based on a permanent discrepancy between rhetoric on pluralistic institutional
changes and monistic implementation of neoliberal recipes of macroeconomic politics. The latter has been extremely motivated by interests of insatiable appetites of
state nomenclatures, which represented the main obstacle for institutional changes,
apart from the noticeable socio-pathologic milieu. All of this resulted in long-term
destabilization of economic systems through disinvestments and the spilling over of
positive eects in spending instead of production. The evaluation, however much
it contains the aggregate experience of several countries in the region with a varying
degree of incidence of individual transition events, contains an important message
in the form of achievements: the degree of economic success and social cohesion
of a society measured by the level of GDP, by the degree of employment, foreign
debt, the level of competitiveness, by security under the law for its citizens and
business sector, and by the degree of overall satisfaction of its citizens, both from
the aspect of the overall quality of life (happiness index) and of expectations (degree
of optimism) in relation to the future..
How to achieve qualitative changes, how to achieve structural changes, and in
which areas are question for which fundamental must be found urgently and without postponement. One of the relevant views is contained in statements (Juri,
2010: 875/876)12 about the possible ways and forms of activating ones own potential. Increasing domestic production can be achieved in sectors in which there
are unused resources, unused capacities, for which there is infrastructure and an
educated and experience work force. To unused potentials of specic activities, to
the ways of taking advantage of them and to solving problems one must add that
it is necessary to ensure that they are employed and engaged in industrial policy.
An integral part of industrial policy if a policy of technological development, and
11
Source: Drakovi, V.: Real Institutionalization as a Condition of Ecient Economic Politics and Economic Development of the SEE States, Croatian Institute of Finance and Accounting: Facing the Future
of South East Europe, Zagreb, November 2010
12
Source: Juri, Lj.: Hrvatska atipian model gospodarenja, Ekonomski pregled, Zagreb, god.61
(12), 852-880 (2010)
916
along with it, a policy of education. Both technology and education are production
inputs, and because of that their policies are made from industrial policy. Industrial
policy is primarily a structural policy. It is a policy that has as a goal employment
of all production resources in activities in which the greatest added value will be
achieved, but which will also create the conditions and raise a physical institutional
infrastructure for new activities in which production resources will result in even
greater added value. Its task is also to ensure a painless closing of old and to
provide support to new industries. The author further states that there are unused
potentials in almost all sectors. By increasingly taking advantage of these potentials,
domestic production and employment will be increased, imports will be reduced,
and the conditions for increasing exports will be created. Raising the technological
level and the corresponding level of education will increase the eciency and competitiveness of domestic industries. The belief is that eciency and competitiveness
must be protected and stimulated by market competition and protection from monopolistic behavior. Under the rubric industry the author means all activities from
agricultural and the metal industries to the services sector: for example - tourism
and banking, which is in accordance with modern understanding of the linking of
the interactions of primary, secondary and tertiary sectors.
In other words, Croatia must establish its own Competitiveness Pact, a kind of
national agreement among essential partners: the government and public sector,
labor and capital, in order to rst formulate and then implement the necessary
reforms. One of the possible directions is also contained in recommendations for
Croatian economic policy that point to the following, and for the author required,
areas of activity for the protagonists of executive power: industrial policy, which
will enable a (re)industrialization of the Croatian economy and be a powerful stimulus of the domestic oer; a modern agricultural policy, which will enable the sustainable development of rural areas and certain regional areas of Croatia and be a
powerful stimulus to the domestic agricultural oer; tourism with a greater reliance
on quality and on that basis have a greater nancial eect; solving the problems
of low employment, also including the possibility of the re-employment of certain workers who have retired early, along with corresponding scal (tax) stimuli;
resolving the relationship of relative prices (including the exchange rate) for the
purpose of apparent disproportions between activities and relations abroad (the BS
eect); an eective and appropriate investment policy; measures to encourage saving; improving the system of inow of remittances from abroad; a systematic policy
for investment in R&D and knowledge; resolving the relationship of the tradable
917
and non-tradable sectors; encouraging greeneld investments; de-stimulating the

outow of capital (prots) to foreign banks and companies whose ownership is
non-resident; a systematic solution to the framework of the social infrastructure;
health care reform, so that it is no longer an increasing burden to development
advancement of the traditional small farmers; enable development of traditional
industries, especially shipbuilding, the wood industry, the textile industry, the electrical and metal industries; a comprehensive and systematic transportation policy,
enable strengthening of large companies that would lead development in a region;
landlocked countries, opportunities and linking with them, the accumulation of water for the development of agricultural and tourism. (Domazet, 2009: 73) 13
The stated assessments of the situation and recommendations for possible solutions in Croatia have been repeated cyclically from a variety of analytical sources
for a long time, with one important addition: each time they have become more
urgent and with more substantiated numbers point to structural debalance (employed unemployed non-self-supporting population, a decit in the current accounts balance, the level of overall foreign debt, the degree of indebtedness of some
sectors of the population, etc.) Therefore, it might be of conceptual importance to
state here: While the report does not recommend the ultimate strategy or policybundle to be chosen, it does propose a framework for decision-making. Once the
set of the rst-best policies is mapped, policy-makers must identify what policies are politically feasible. Next, politically feasible strategies need to be checked
for their consistency with the overall objective of raising and sustaining economic
growth. Third, politically feasible and consistent reform-packages need to generate institutional requirements that are commensurate with the existing institutional
endowments of Croatia. 14
The actions of the government in managing a consistent industrial (development) policy in the above-mentioned areas are the chief point of responsibility of
that same government in achieving the goal of enduring and sustainable economic
growth. This development requirement is becoming an imperative, as a logical aberration from the long period of oscillation in economic policy, beginning from the
(neo) laissez faire (consumer syndrome, balance of payments imbalance, the growth
13
Domazet, T.: Kriza, ekonomska politika i izlazna strategija, zbornik radova Kriza i okviri ekonomske politike, HAZU i HIZFIR, Zagreb, srpanj 2009.
14
Croatias EU Convergence Report: Reaching and Sustaining Higher Rates of Economic Growth (In
two volumes), Vol. I: Overview, Report No. 48879-HR, World Bank, June 2009, str. 50
918
of unemployment), to direct state intervention (shipbuilding, agriculture, unilateral nancing of the construction of some infrastructure).15 Persevering under the
current model is no longer sustainable, the degree of foreign indebtedness and the
servicing of these obligations has become a serious limitation on development,
and the existing real potential and possibility for development, beginning with
an evaluation of the transportation and geopolitical position to attracting foreign
capital for investment in, at the global level, lucrative areas such as agriculture,
energy, intermodal transportation, and the tourist industry are becoming questionable mortgages from the aspect of the interest of the investor and possible overall
protability and overall complex development (the creation of clusters).
CONCLUSION
The Republic of Croatia nds itself in a (classic) development dilemma: how

and when will it be possible to transform the problem into an opportunity. To start
from how and by quoting scientists and practitioners of economic policy who managed to do this at the moment (The Great Depression of 1929) when it became completely apparent that the level of economic disturbances could endanger not only
economic but also overall social stability of the developed world.. Therefore, even
today the following evaluation is still valid (Baleti, 2010: 41): Keynes, however
clearly warned that an individualistic society left to itself does not function well,
and is not even bearable. The more unsettled the time, the more poorly laissez-faire
works. The three evils of liberal society are: proteering, uncertain expectations,
and unemployment, and all three arise from it, maintain it, from instability of the
standards of value I want to warn the lords of the City and high nance that for
The long-run path of economic growth in Croatia is a central point in the economic agenda
of politicians and policy makers. In spite of the sustained long-run path of economic growth
observed during the last years there still exists concern about whether the current growth path
(steady state) is enough for Croatia to achieve convergence with respect to the EU in a reasonable
period of time
The starting point to move to a new steady state is a positive structural change (shock) that would
ignite Croatias growth reserves. Such a change could be triggered by good economic policies,
improvements in the terms of trade and changes in political preferences. One challenge in identifying such economic policies, however, is that the economic literature is less than conclusive in
terms of possible prescriptions. Indeed, the main conclusion of a recent review of 80 instances of
rapid and sustained economic growth in the last half century is that growth accelerations are very
hard to predict (See Hausmann, Pritchett and Rodrik, 2005). (Source: Ibidem, p. 14)
15
919
those who do not listen to the voice of reason, their days are numbered. I speak
to this great city as Jonah spoke to Nineveh. I predict that if they do not accept
wisdom in time, the system by which they live will function more poorly and will
be inundated by things that they themselves will hate more than the mild and limited medicines that are now being oered. 16 Such lucidity, and at the same time
a call for practical action it a platform that the Republic of Croatia now needs in
order to produce its concept of a great transformation. The turnaround achieved by
the successful transition countries (the Czech Republic, Slovakia, Poland), or some
other group of countries before them (the Nordic countries, the Asian tigers) is a
call and a signpost for the establishment of a national development pact based on
best practices from the immediate and/or global surroundings. But, for such a turnaround a powerful institutional matrix and the interconnection of its components
is a decisive importance. A transparent legal system, the security of ownership, an
eective nancial system, and a consistent macroeconomic policy are the basis for
that mechanism.
The view that competitiveness is a choice of every nation, that it support eorts
that will lead to an increase in the level of well-being in a country, means that a
country must nd the optimal way to engage its own (always limited) resources.
How to optimize the use of (existing) natural riches in combination with the countrys human potentials, the available technology, and to attract investors is the key
question.
In the EU today, in addition to the vulnerable economies (Greece, Ireland, Portugal, Spain), there are those that demonstrate both stability and long-term prospects for growth (German, Austria, the Netherlands), based not on the concept
of a low level of wages and a lower degree of social protection of employees. The
foundations of sustainable growth are based especially on long-term investments in
industry that create products of high added value. This mean that the state provides
a powerful and durable stimulus to innovations and new technologies, which even
in times of crisis permit a continuity of exports to diversied markets which renews
technology companies and sectors and in reality transforms theoretical guidelines
during a crisis into opportunities.
Therefore, the Republic of Croatia cannot and must not wait for the formal
date of accession to the EU to begin to apply the development policies that the
16
Baleti, Z. : John Maynard Keynes teoretiar drutvene krize, Sveuilite u Zagrebu, Ekonomski
fakultet: J.M. Keynes i hrvatska ekonomska misao, Zagreb, 2010.
920
EU has recently applied (the EU 2020 Program of 2010 and the Euro Plus Pact, of
2011) as the basis of it economic and overall development policy. In this context,
the extremely condensed evaluation A strategy for smart, sustainable and inclusive
growth and its chapter, An industrial policy for the globalization era may be
applicable:17 Industry and especially SMEs have been hit hard by the economic
crisis and all sectors are facing the challenges of globalization and adjusting their
production processes and products to a low-carbon economy. The impact of these
challenges will dier from sector to sector, some sectors might have to reinvent
themselves but for others these challenges will present new business opportunities. The Commission will work closely with stakeholders in dierent sectors (business, trade unions, academics, NGOs, consumer organizations) and will draw up
a framework for a modern industrial policy, to support entrepreneurship, to guide
and help industry to become t to meet these challenges, to promote the competitiveness of Europes primary, manufacturing and service industries and help them
seize the opportunities of globalization and of the green economy. The framework
will address all elements of the increasingly international value chain from access
to raw materials to after-sales service. If all of these stated principles are clearly
read and communicated at the national level, then systematically transformed into
a harmonized tailor-made concept of economic development policy, it is realistic
to expect that entry into the EU will be neither a threat nor an increased risk nor
a competitive pressure. To the contrary, it will be a chance to act more quickly and
more successfully to remove the structural disbalances whose deepening are becoming a threat to the present, and even more, to the (immediate) future stability of
society and the state, which examples from the EU clearly conrm, both among the
successful and the unsuccessful members.
The above activities, immediately prior to entry into the EU, are becoming an
unavoidable framework of activity primarily in economic policy. This is especially
true if we look at the reality until now of continual postponement of the beginning
of such changes, whose character in the midst of the global crisis (2009), within
national borders is clearly established. Such an assessment of the situation, but
also a possible way to resolve it is apparent from document of the World Bank.
Despite apparently quite high rates of technology adoption at the company level,
Croatias innovation capacity is relatively low when compared to similar countries.
17
Communication from the Commission EUROPE 2020: A strategy for smart, sustainable and
inclusive growth, European Commission, Brussels, 3.3.2010, p. 15.
921
The EUs 2007 Innovation Scoreboard, for example, shows that Croatias overall
innovation status lags behind the EU average and has been falling further behind
over the past ve years. Croatias 2007 Summary Innovation Index (SII) is 0.23
(out of 1), one of the lowest in the sample, higher only than those for Romania
(0.19), Latvia (0.18) and Turkey (0.08). Croatia is grouped among the catching up
countries that have scores signicantly below the EU average. With the exception
of Croatia, all other countries in this group have seen their scores increase towards
the EU average over time. 18
This source and analysis conrm the results of a series of research eorts, some
of which are presented in the work (IMF, World Bank, Vienna Institute) in the
area of transition changes that speak about the relatively more satisfactory position
of the Republic of Croatia compared to its position in relation to the EU a decade
or more ago than what it is at this moment. Therefore, in summary, on the benet
side of an acceleration of structural reform there is also the achievement of several
important goals: convergence with EU criteria and requirement, as a momentary
imperative but also a solution a part of the mortgage in your own life, created in
the last several years. At the same time, such a path and such activities also provide
for overcoming the consequences of the global crisis in the national economy, and
its ability to participate in the global market, which, once the current crisis is over,
will be even more demanding and more competitive.
LITERATURE:
Baleti, Z. (2010): John Maynard Keynes teoretiar drutvene krize, Sveuilite u

Zagrebu, Ekonomski fakultet: J.M. Keynes i hrvatska ekonomska misao, Zagreb.
Becker, T., Daianu, D., Darvas, Z., Gligorov, V., Landersmann, M., Petrovic, P.,
Pisani-Ferry, J., Rosati, D., Sapir, A. and Di Mauro, BW (2010): Wither growth in
central and eastern Europe? Policy lessons for na integrated Europe, Bruegel Blueprint
Series, Vo. XI, Bruegel, Brussels.
Communication from the Commission EUROPE 2020 (2010): A strategy for smart,
sustainable and inclusive growth, European Commission, Brussels.
18
Croatias EU Convergence Report: Reaching and Sustaining Higher Rates of Economic Growth (In
two volumes), Vol. I: Overview, Report No. 48879-HR, World Bank June 2009, p. 20.
922
Craig, D., Porter, D. (2006): Development Beyond Neoliberalism? Governance,

Poverty Reduction and Political Economy, Rutledge Taylor & Francis Group, London and New York, 2006.
Croatias EU Convergence Report: Reaching and Sustaining Higher Rates of Economic
Growth (In two volumes), Vol. I: Overview, Report No. 8879-HR, World Bank,
June 2009.
Domazet, T. (2009): Kriza, ekonomska politika i izlazna strategija, zbornik radova
Kriza i okviri ekonomske politike, HAZU i HIZFIR, Zagreb.
Drakovi, V. (2010): The Real Institutionalization as a Condition of the Ecient
Economic Politics and Economic Development of the SEE States, Croatian Institute of
Finance and Accounting: Facing the Future of South East Europe, Zagreb.
Eicher, T.S., Garcia-Penalosa, C. (2006): Institutions, Development, and Economic
Growth, CESinfo Seminar Series, the MIT Press, Cambridge, London.
Ernst &Young Eurozone Forecast, Winter Edition, December 2010., p. 39.
http://www.ey.com/Publication/vwLUAssets/Eurozone_Forecast_
Winter_2011/$FILE/Eurozone_forecast_winter2010.pdf
European Council, Conclusions from 17 June 2010, EUCO 13/10, Brussels, 17
June 2010.
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/
ec/115346.pdf
Fukuyama, F. (2000): Povjerenje Drutvene vrline i stvaranje blagostanja, Sourcei, Zagreb.
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Kohli, A. (2004): State-Directed Development: Political Power and Industrialization
in the Global Periphery, Cambridge University Press, Cambridge.
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e/0,2987,en_2649_201185_1_1_1_1_1,00.html
OECD Insights Fisheries: While Stocks Last?, OECD Publishing, September
2010.
923
OECD Reviews of Regulatory Reform - Risk and Regulatory Policy: Improving the
Governance of Risk, OECD Publisling, May 2010.
Perspectives on Global Development 2010 Shifting Wealth, OECD Development
Centre, OECD Publishing, August 2010.
Petak, Z. (2008): Oblikovanje javnih politika u Hrvatskoj i problem policy-koordinacije, Anali, Hrvatsko politoloko drutvo, Zagreb.
Reich, R.B. (2007): Supercapitalism The Transformation of Business, Democracy
and Everyday Life, Alfred A. Knopf, New York.
Rodrik, D. (2007): One Economics Many Recipes: Globalization, Institutions and
Economic Growth, Princeton University Press, Princeton and Oxford.
Samardija, V., Butkovi, H. (2010): From the Lisbon Strategy to Europe 2020,
IMO, Zagreb.
Strategija Industrijska politika Republike Hrvatske u svjetlu skorog lanstva u EU,
draft, June 2007
The full text from Angela Merkel and Nicholas Sarkozy outlining their plans for
closer economic governance,
http://www.europeanvoice.com/article/2011/february/merkel-sarkozy-presentcompetitiveness-pact/70165.aspx, February 2011.
The Growth Report Strategies for Sustained Growth and Inclusive Development,
Commission on Growth and Develpment, IBRD and World Bank, Washington,
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www.http://ec.europa.eu/europe2020/targets/eu-targets/index_en.htm
Marina Budimir Irena Bosni
924
NEW WORLD ORDER INFLUENCED BY GLOBALIZATION AND

INFORMATION COMMUNICATION TECHNOLOGIES
Marina Budimir, dipl. oec.,
Irena Bosni, mag. oec.
ABSTRACT
Global economic trends and inuence of information communication technologies made local, regional and national markets became unique world market
per se. Competitiveness and inevitable communication and information trends imposed new market rules where high criteria of business, successful systems, quality
and eciency have inuence on exhaustion of human and natural resources striving to achieve higher prots, the spread of black and gray economy, environmental
disasters, disrupted moral values and non ethics. The eects of market laws and
interweaving of international political and economic interdependence between the
national governments in new world order made new market trends violating national borders under the pressure of global information and communication connectedness of one world. Therefore, enormous nancial losses caused by a wave of
negative market trends left a mark on the national and local economic order creating unpredictable and unexpected develope direction. Is the new world order beneted the past decade or choking deep into the consequences of greed and idealized
relationship of the world into a unied place? This work will answer about.
JEL classication: D83, F01
Key words: globalization, information communication technologies, new
world order
I. INTRODUCTORY CONSIDERATION
Interconnection of local, regional and national markets in the unique world

one inevitable changes economy structures creating interdependence of each other
on a global scale while resources rivalry forms conservation at the expense of the
longer term. Combination of political, economic, cultural, technological, social
NEW WORLD ORDER INFLUENCED BY GLOBALIZATION AND INFORMATION ...
925
and other factors made interaction of the global progress inuenced by information communication technologies inevitably accelerating the connection between
economies, but also setting the way of business and economic develop world order
in new and unpredictable direction. Periods of economic prosperity and decline
have contributed to the seemingly unrelated economic events, often unexpected
and unforseen. Fundamental postulates of the free market economy had become
questionable while networking led inevitably to the virtual e world. Globalization as a process of strengthening economic relations relentlessly widening gap
between developed and undeveloped world by creating an almost disastrous eect
of opposite expectations. Why globalization and inuence of information communication technologies had become so controversial and contradictory leaving a
trace locally, regionally, nationally and globally in private and business spheres by
far reaching consequences not sparing even the most resistant systems?
II. LOCAL, REGIONAL AND NATIONAL OPPOSITE GLOBAL
Globalization was impossible to avoid. All sizes of economic globalization today

speed, volume, interconnected movement of goods and information around the
world are far greater than those that have ever existed in earlier periods of history
(Gray;2002,79). Global open market, as opposed to local, regional or national imposed high standards of operations, quality, eciency, technological progress, openness and transparency of deep international integration, the knowledge economy and
economic developement in new way. Also, developing unevenly has inuenced differently with consequences far from benign. In that context, growing environmental
problems, widening inequalities within societies and among them is one of the most
serious challenges the world faces in the 21st century (Giddens;2007,69).
Globally, factors of production, natural and human resources, capital, technology, unsued informations and datas, goods and services interwoven with new market
trends by creating economic interdependence. Business attitudes, values and ways
of changing the alternating patterns of behavior established seemingly unrelated
industries creating highly protable business systems as high tech hot spots accelerated growth at the expense of traditional industries (Chossudovsky;2008,103). In
the past was almost impossible to see globalization as intriguing and contradictory
in its foundations. In the 19 century, you could take for granted the fact that every
big industry will give special technology but technologies from various industries
will never meet (Drucker;2006,66). However, today not only met but at the same
926
time create a dependency on each other by using new methods of work applied
only under the inuence of information communication technologies. Unused
informations and datas, the same ow rate and successfully cope with constant
changes forced organizations, individuals, society and national governments to new
global ways of thinking where an unwillingness of adaption, disorientation in new
situations, the pressure of new technologies often lead to destruction of uncompetitivness and market weakness. New technologies made up the policy of tradicional
full employment inapplicable where results placed social work in constant change.
Precisely because change at the local, regional and national basis globalization inevitably create guidelines for a new global world order.
III. GLOBALIZATION WITHIN INFORMATION - COMMUNICATION
TECHNOLOGIES
Organizing the economy as a global free market erase individalizam at local, regional and national basis. In giving freedom to the world markets the age
of globalization will be remembered as another round in the history of slavery
(Gray;2002,220). New technology development had contributed to the progress
in business and networking at the expense of the weaker economy, government, resources and ultimately individuals. If you believe in the market, you might be surprised by the future. No personal spacecraft or shiny mega cities these are fantasies era of cheap energy. The future will be very similar to the past (Rubin;2010,172).
Results are exploited available resources only for the benet of competitive advantage, prot growth over stagnation, progress and development over conservation of
human and natural resources. If the benet brought by globalization is not as much
as announced by its proponents, the price paid for globalization is even higher since
the environment is destroyed, corrupted the political process, a rapid change of the
countries have not had enough time to culturally adapt (Stiglitz;2004,28).
The impact of technological development and information communication
trends unsurpassable gave positive changes, but also negative ones are visible at the
global level like also local, national and regional markets creating almost seamlessly
the new rules of business in which only the strongest and the most resistant systems
can survive. The changes that are happening in the world today are much more
interdependent than they ever were before. While informations changes rapidly,
what happens in one part of the world directly aects other parts. Furthermore, the
development of information communication technologies adapt to global change
and global way of thinking. Inevitably the future economic development trends
927
force the world to reect in unique and direct way. Why is globalization the force
that has brought so much good has become so controversial (Stiglitz;2004,28)?
The issue of globalization as a historical phenomenon is not nearly the impact,
either positive or negative, or only the impact on local, regional, national and global
scene, but the manner in which each economy cope with the changes. Thus, the
problem is not in globalization but in the way it manages. Organizational inuences
driven exclusively in external direction have made much on an internal level. Information communication technologies enhances the organizational competitive
position and market dominance. In addition to reduced operating costs, quality and
quantity of controlled operations, improvement of existing business systems, changes in business relations, enhanced cooperation and coordination within and outside
the organization, information communication technologies as inevitable resource
operations becomes a strategic tool in the competitive struggle on the market.
Transparency and dislocation of business globally is certainly to make changes
in business spheres. Therefore, when organizations can separate business and locate them virtually anywhere in the world, when services can be arranged in a
remote country using information technology and nancial assets may be sold in
cyberspace all protectionist policies are hopeless (Gray;2002,216). In that context,
Figure 1. contains charts demonstrating the dynamycs of the changes which have
occurred during 3 year period in the attitude of using Internet world wide. To make
comments on the inuence of using information communication technologies
in in everyday activities making globalization eaven more inuenting in new world
order, it is necessary to notice that Internet users increase rapidly. If positive trend
goes on, till the end of decade Internet will bee avalible to half world population
(Varga et al;2007,43).
Figure 1. World Internet users 2008. 2010.
Source: Own gure with data from http://www.internetworldstats.com/stats.htm
928
Globalization may not be devastating to the local, regional and national basis
because of encourage the introduction of new technologies and new markets to
creating new trends and new values. Globalization under the inuence of information communication technologies radically change the basic activities, encourages
new ways of working and communicating, and trading business is simplied, and
the management and organization facing with new everyday challenges. Productivity and competitiveness of the information economy depends on the ability of its
participants to eectively create, manage and apply information based on knowledge (Castells;2001,99).
Table 1. contains datas about world Internet usage with population statistcs in
2009. and 2010. year demonstrating the dynamycs of the global Internet use by
geographic regions. To make comments on the Internet usage, it is necessary to notice that in 2009. 81.5% of world Internet users are from 3 regions: Asia (41.2%),
Europe (24.6%) and North America (15.7%). Only 18.5% Internet users are from
regions Latin America / Carebbean (10.9%), Africa (3.4%), Middle East (2.9%)
and Oceania / Australia (1.3%). Trend in 2010. is: 79.7% of world Internet users
are also from Asia (42.0%), Europe (24.2%) and North America (13.5%). Only
20.3% Internet users are in Latin America / Carebbean (10.4%), Africa (5.6%),
Middle East (3.2%) and Oceania / Australia (1.1%). Figure 2. is demonstrating
2010. datas above. Networked regions inevitably becomes part of the information communication world where basic economic indicators and competitiveness
depend solely on knowledge and new usable informations.
Table 1. World Internet usage and population statistics in 2009. 2010.

World Regions
Africa
Asia
Europe
Middle East
North America
Latin America/Caribbean
Oceania/Australia
WORLD TOTAL
2009.
Population
975.330.899
3.780.819.792
803.903.540
196.767.614
337.572.949
581.249.892
34.384.384
6.710.029.070
2010.
Internet Users Users % Population
54.171.500
3.4%
1.013.779.050
657.170.816 41.2% 3.834.792.852
393.373.398 24.6% 813.319.511
45.861.346
2.9%
212.336.924
251.290.489 15.7% 344.124.450
173.619.140 10.9% 592.556.972
20.783.419
1.3%
34.700.201
1.596.270.108 100.0% 6.845.609.960
Source: http://www.internetworldstats.com/stats.htm
Internet Users
110.931.700
825.094.396
475.069.448
63.240.946
266.224.500
204.689.836
21.263.990
1.966.514.816
Users %
5.6%
42.0%
24.2%
3.2%
13.5%
10.4%
1.1%
100.0%
929
Local, regional and national economic activities depend on the dynamics of

global economic trends, while contrary to global economic trends determine and
aect the ow of activities locally, regionally and nationally. Many coutries will
need to confront with slow growth and rising debts, but in a period of globalization conditions and impact of information communication technologies need to
ensure changes that caused the run it was ment to prevent, especially on key global
markets.
Figure 2. World Internet Penetration Rates by Geographic Regions 2010
Source:Own gure with datas from http://www.internetworldstats.com/stats.htm
In this context, did increase of Internet users in one year per almoust 105% in
Africa inuenced on saving people from beeing poor? Although Muhamed Yunus
got Nobel price for Greenman Bank project, on longterm basis did not do much on
global level to decrease poorness in Africa. Internet users in Asia in great precentage of 42.0% in 2010. could not done much on global level to predict natural and
nuclear disasters for which world does not have sollution att this point. From the
other side, small precentage of users in the Middle East done little to save world
peace itself. Globalization and inuence of Internet usage in Europe could not
done much on nancial level dealing with diculties in containing euro on normal
level where market risks increased debts, rising costs and economic pressures. Inuence of information communication technologies in America did not done much
on system vulnerability and weakness where risk has been transferred from private
to public sector slowing down growth and rising indebtedness in global. So, world
market is still in a period of signicant uncertainty and economic recovery still
remains to achive. Although the recovery is expected to continue in recent year still
930
uncertainteies on dierent key markets persist. Mature economies are transitioning

from temporary support to more self sustaining private demand (International
Monetary Fund;2010,IX).
IV. GLOBAL FUTURE THROUGH NEW ECONOMIC REALITY TODAY
Globalization inevitably creates a new networked information society based on

new information technology facing economy with inventive and innovative way
of thinking to achive development. Furthermore, information communication
technology allows openness to new ideas through an unbreakable connection between technological progress with eciency, eectiveness and protability. Above
all, intensive use of ICT in business to create new products and services, better
service levels to customers, creating new distribution channels and the reshaping
process, organizational structure and goals (Spremi;2004,46). The impact of information - communication technologies in this context enables touch any part of
the business world locally, regionally and nationally by providing access to competitive global market. More information will certainly encourage better decisions
with better results (Stiglitz;2004,16). Of course, impact of information communication technologies enables it.
Inuence of globalization changes everyday life, especially in developed countries, and simultaneously creates a new supranational system and power (Giddens;1999,40). Global impact of devastating consequences are creating a new daily
routine. It is not surprising return of the ancient roots of the global Keynesian school
visible hand that leaves the impact on new economic order. Unbridled market is
not designed to solve social problems and, possibly, to be truly concerned with the
eradication of poverty and disease, to ght against pollution, corruption, crime and
inequality (Yunus;2009,18). Result of the development inevitably causes changes
in the nancial, commodity, capital, oil and other markets followed the same basic
postulates of economic struggle for survival and remain, struggle for the balance of
supply and demand with whom they are local, national, regional and world economies met for decades and centuries ago and which will inevitably lead to the beginning of market developments and the search for new ways of working, producing
and thinking. New Keynesian school after almost a century gained in importance.
While a large increase in transportation costs caused by energy prices return the
global economy on the local one, we suddenly have to become generalists and need
to refocus on smaller, locally markets that may not be large enough to support the
specialization, which once provided a wider global market (Rubin;2010,177).
931
Globalization is possible to manipulate by allowing economies to participate in

decisions that aect the formation of the new world order in which it is possible
to create a new global economy with sustainable growth and balanced division
of labor, resources, nally prots. For humanity of the modern era of globalization technological modernization of sustained world economic life will progress
regardless of the fate world free market (Gray;2002,42). The impact of science and
technology development in everyday life may be largely driven by economic factors, but changes under the inuence of globalization today are dierent cultures
and societies more interdependent than ever before. Knowledge workers, regardless
of gender, professionals, use and apply the same knowledge, doing the same job,
are governed by the same standards and evaluated on the basis of the same results
(Drucker;2006,180). Furthermore, globalization has reduced the sense of isolation
in most developing countries and many people enabled knowledge as a hundred
years ago (Stiglitz;2004,24).
V. CONCLUDING REMARKS
Globalization of economy and information revolution are the transitional period which will be adjusted in new world order by creating a single global world
market imposed with other rules of conduct on the world economic scene. The
process of globalization progress and the impact of information communication
technologies to economic life and society leaves a direct impact on economic activity in the world. However, on the other side as much as globalization had an impact
on economic activity one part of the economic life of society will remain intact,
almost protected from the world market. In this context, both negative and positive
impacts and the consequences are impossible to avoid.
Globalisation and the inuence of information communication technologies
is a natural and necessary process of action in creating a new world order led by the
new market laws, international economic policy, a new way of market and competitive considerations and market rules. Globalization is a transition period from
which global economy should pull out only the best. Negativity will be needed to
grow beyond the natural course of economic trends continued on simple postulates
of economics of supply and demand which will lead to extremely clear unbreakable
bond between nations, states, unity of the world in general. The struggle to deal
with daily economic and other problems is a long process which is inevitably necessary to grow beyond, to live and survive in order to resume normal economic trends
932
in the expected direction. Still striving for the establishment of a unied world and
unbreakable struggle to overcome the negative connotations and to benet from
those positive only makes globalization a step towards the establishment of new
global trends, new values and new rules of conduct that will give a better global
economic conditions in the competitive struggle led exclusively unique ancient and
simple laws of supply and demand.
REFERENCES
Castells, M. (2001). Uspon umreenog drutva, CARNET, Zagreb

Chossudovsky, M. (2008). Globalizacija bijede i novi svjetski poredak, Prometej, Zagreb
Drucker, P. (2006). Upravljanje u buduem drutvu, M.E.P. Consult, Zagreb
Giddens, A. (2007). Sociologija, Nakladni zavod Globus, Zagreb
Giddens, A. (1999). Trei put Obnova socijaldemokracije, Politika kultura,
Zagreb
Gray, J. (2002). Lana zora Iluzije globalnog kapitalizma, Masmedia, Zagreb
International Monetary Fund (2010). Global Financial Stability Report, Washington DC
Panian, . & urko, K. (2010). Poslovni informacijski sustavi, Element, Zagreb
Puljiz, V. (1998). Globalizacija i socijalna drava, Revija za socijalnu politiku, Zagreb
Rubin, J. (2010). Zato e se va svijet jako smanjiti, korpion, Zagreb Safranski,
R. (2008). Koliko globalizacije ovjek moe podnijeti, Naklada Ljevak, Zagreb
Severance, D. G. & Passino, J. (2009). IT u primjeni, Mate, Zagreb
Spremi, M. (2004). Primjena informacijske i komunikacijske tehnologije u poslovanju, Hrvatska udruga revizora, Revizija br.2, Zagreb
Stiglitz, J. E. (2004). Globalizacija i dvojbe koje izaziva, Algoritam, Zagreb
Thurow,
L.
(1997).
Budunost
kapitalizma,
Mate,
Zagreb
Yunus, M. (2009). Za svijet bez siromatva, V.B.Z., Zagreb
Varga, M. & urko, K. & Panian, . & eri, V. & Bosilj Vuki, V. &
Sria, V. & Pogaj, . & Strugar, I. & Spremi, M. & Peji Bach, M. &
Vlahovi, N. & Jakovi, B. (2007). Informatika u poslovanju, Element, Zagreb
http://www.internetworldstats.com/stats.htm (27-09-2008, 15-05-2009, 23-012011)
PUBLISHING IN E-ENVIRONMENT
933
Vlasta ibali, univ.spec.oec.
Financijska Agencija, Podrunica Vukovar
Olajnica 19, 32000 Vukovar
Telefon: +385 32 492 665
Fax: +385 32 441 815
E mail: [email protected]
Abstract
With mass-scale Internet availability along with information and communication technology development begins the e era. The habbit of paying bills using on
line banking services, shopping for groceries and clothes, reading news on line and
nding and buying books through on line bookstores is now evolving into buying
e books and e newspapers and reading them in digital form on technologicaly
improved devices that are now specially made with particular regard for reading.
Electronic publishing diers from traditional one promarily in its form. Publishing books, newspapers or magazines in e form means making the work available in one of formats that are supported by electronic book readers or any other
device that can open given form of electronic document by downloading adequate
software from the Internet.
Headway in screen technology evolution introduces e ink which makes reading e editions on special devices easier and more comfortable. Reading text displayed on e paper using e ink is very simillar to reading it on a printed page,
which makes reading more enjoyable.
Reading books, newspapers and magazines on small-dimension-light-weightportable devices and the accessibility of required literature at any time of the day
makes e editions much more practical to people in 21. century than the traditional printed versions.
JEL classication: H75
Key words: technology, publishing, e publishing
934
Vlasta ibali
1. INTRODUCTION
Search for the new ways of publishing books and magazines in the electronic
formats is a logical development after the Internet and digital media appearance
and the great amount of information available on-line.
The development of technology and the communication network infrastructure
enabled the development of online publishing, i.e. the publishing of books, newspapers and magazines in electronic formats. Dierent standards of logging on to
the Internet is followed by the increasing number of its users. The improvement in
the stability and reliability of the Internet, net coverage of certain areas and faster
data transmission is ment by dierent standards. With the appearance of the broadband Internet access and mobile broadband Internet access later, and the increased
mobile Internet service usage, great advantage of the books, newspapers and magazines in electronic formats has been noticed by dierent groups of readers.
This opportunity was rst recognized by Amazon, an american company and
the biggest on-line bookshop. The e-books popularization has started with the production of Amazons Kindle, an e-book reading device. High price of the reading
device and the necessity of IT knowledge kept the e-book at low level of sale. However, other companies started with the production of the reading devices which
enabled the price competition and led to the dropping of the prices. Consequently,
the dropping of the prices of the reading devices and the e-books as well, led to the
increase in demand. Nevertheless, the biggest impact on the e-book sale was made
with the appearance of Apples iPAD, the device which combines perfomances of a
laptop computer and a smartphone.
2. THE EFFECT OF THE INFORMATIONAL TECHNOLOGYS DEVELOPMENT ON
THE APPEARANCE OF ON-LINE PUBLISHING
In 1969, ARPANET1 was created by the US Department of Defense. In 19832,

the Internet was born as a result of dividing ARPANET to military net and general
public net.
The most frequently used Internet service is World Wide Web which enables
gaining the inter-linked hypertext documents interrelated by so-called hyperlinks.
1
ARPANET (Advanced Research Project Agency Network); the worlds rst operational packet
switching network and the core network of a set that came to compose the global Internet.
2
http://inventors.about.com/library/weekly/aa091598.htm, visited on 24th February 2011
935
Only with the appearance of the World Wide Web in 1989, the Internet became
popular among general public. Early 1990s mark the rise of the Internet era. Further popularization of WWW was enabled by the development of network technologies which enabled data transmission at higher speed and reasonable price. The
new millennium web sites contents are becoming multimedia intensied and visually more attractive so the minimal speed to access the content is higher. Finland
has become the rst country in the world to make broadband a legal right for every
citizen. From 1st July every Finn will have the right to access to a 1Mbps (megabit
per second) broadband connection3. The improvement is even more observable in
the development of wireless technologies which leads to the increase in the number
of the mobile Internet users.
Drastic increase in the number of the mobile Internet users leads to a web operators load. Overloaded web results in lower Internet access speed and thus lower
quality. An average user needs a 1Mbps broadband connection. To achieve such
broadband connection it is necessary to ensure it by progressive capacity dimensioning at any time. It can be done by implementing the latest technologies (Petric
D., 2010, p. 72).
2.1. E-PUBLISHING HARDWARE SUPPORT
Book reading can be easier and more enjoyable with each day. There are still
those who prefer turning the pages but only until they try reading an e-book.
E-book reading device is a hardware item used for saving and displaying electronic les and e-books4. It can be a mobile device or PDA, a specialized e-book
reading device or a personal computer. Nowdays, e-book reading is most popular
on e-book reading devices or tablets.
Some of the e-book reading devices enable just reading, while others contain
a touch screen, a dictionary, memory card reader and text reader. Enhanced ereaders oer Internet access, WiFi, 3G and Bluetooth connection, and only some
of them even oer reproduction of pictures and MP3 formats. The best e-readers
are equiped with e-ink electronic displays. The primary usage of e-ink electronic
displays is to replicate the look of a printed page. Fonts on the ink-based display
http://www.bbc.co.uk/news/10461048; visited on 10th March 2011
http://bestebookreader.com/, visited on 24th Feb 2011
936
Vlasta ibali
look smoother and more natural than on an LCD (liquid crystal) display found at
other electronic devices such as monitors and PDA device screens.
Among other things, readers can be distinguished by software support designed for
e-book reading, which can be pre-installed or gained from a providers web site. There
are dierent e-book formats, and the most frequent are PDF, TXT, HTML, mobi
pocket, RTF and ePUB. PDF and TXT are supported by almost every e-reader.
E-book reading devices can further be distinguished by the number of greyscale
levels (usually between 4 and 16), battery life (up to 2 weeks), weight (174-343 g),
size and etc. They can also contain an electronic bookmark and enable an immediate access to the worlds biggest bookshops and libraries available on the Internet.5
High e-readers price kept the reading audience away from the e-books, despite
the low price of the books. As soon as the Amazon released its Kindle the popularization of the e-books started. Amazon lowered book prices to encourage e-book
and Kindle, its own reading device, demand. When other manufacturers started
with the production of e-readers, the market competition increased; the e-readers
are containing better features and their prices are dropping. In June 2010, Amazon,
one of the nations largest booksellers, announced that for the last three months,
sales of books for its e-reader, the Kindle, outnumbered sales of hardcover books.
In that time, Amazon said, it sold 143 Kindle books for every 100 hardcover books,
including hardcovers for which there is no Kindle edition.6 The next new thing
from Apple that follows is the release of the Apple iPAD on the market which
stimulates the increase in e-book demand. Besides having a bigger screen for e-reading (9,7 inches) comparing to other e-readers screens (5-6 inches), iPAD oers
better options such as the possibility to use multimedia and search the Internet
easily. All in all, if its purpose is just for e-reading than e-reader is a better choice
because of the e-paper and e-ink technology which is eye-friendly technology. On
The technical characteristics data have been gained at the providers web-sites: www.amazon.com/
kindle-store-ebooks-newspapers-blogs/b/ref/=sa_menu_kstore4?ie=UTF8&node=133141011, www.
barnesandnoble.com/nook/features/index.asp, http://ebookstore.sony.com/reader/, http://eeepc.asus.
com/ProductGroup1.aspx?PG_ID=7dDelmkESu9DXgVB, http://bookeen.com/en/cybook/?id=2&
Select=Specication, http://koboereader.com/cad/kobo-e-reader-features/, www.pocketbookreader.
com/, www.notionink.com/techspesc.php, visited on 24thFeb 2011
6
Claire Cain Miller (2010): E Books Top Hardcovers at Amazon, available at www.nytimes.
com/2010/07/20/technology/20kindle.html, visited on 14th Feb 2011
937
the other hand, the widespread usage of Tablet PC may speed up the development
and commercialization of colour e-paper.7
3. DIFFERENCE BETWEEN PUBLISHING PRINTED BOOKS AND ONLINE
PUBLISHING
Publishing is an activity which includes a process of creating literature, whether

it deals with books, newspapers, magazines, technical literature, business media
and brochures, or information. The process of creating literature and information
consists of several steps- idea development, information gaining, pattern arranging
and layout, authors nal compilation, printing, marketing and distribution.
With the appearance and development of information and communication systems and the Internet, printing area is growing fast. Today it includes the distribution of electric books, newspapers, magazines and other kinds of literature as well.
The process of creating the literature and information remains the same, i.e. to
maintain the quality the same steps in its creation are necessary. However, online
publishing doesnt require printing and physical distribution any more. To sum
up, the simplest denition of online publishing is that it is a kind of publishing
which doesnt include printing and distribution of books, newspapers, magazines
and other kinds of literature.
Business world has become familiar with the online publishing and electronic
brochures have been used for sending ocial letters, labour instructions and mailouts for some time. Most of those electronic publications are available at the companys web sites or it can be delivered via the e-mail to employees, associates and
clients. On the other hand, general public hasnt become so familiar with this type
of publishing nor with its capacity, advantages and disadvantages.
3.1. E-BOOKS
The Oxford Dictionary denes the term e-book as an electronic version of a

printed book which can be read on a computer or a specically designed handheld
device8. Electronic book is similarly dened by Gardiner and Musto (The Electro7
www.computextaipei.com.tw/en_US/news/info.html?id=A7822875757CA13F, visited on 16th

July 2010
8
http://oxforddictionaries.com/view/entry/m_en_gb0254330#m_en_gb0254330, visited on 12th
January 2011
938
Vlasta ibali
nic Book, in Suarez & Woudhuysen: The Oxford Companion to the Book, 2010.,
p.628): An electronic book (also e-book, ebook, digital book) is a text- and image-based publication in digital form produced on, published by, and readable on
computers or other digital devices.
There are some of dierences between printed books and ebooks. The printed
books dier in electronic format, binding, paper quality, binding quality, cover
design Because you can feel them with your ngers, a potential buyer will take
the book, ick through it and eventually read the summary at the back of it before
buying one. Because of everything mentioned, the publishers will have to put more
eort and money in printed book quality and appearance than it will be needed
in publishing ebooks. On the other hand, ebooks cannot be touched so all the
physical characteristics can be ignored. However, cover design is important because
ebooks are presented in online bookshops. They can be found on virtual shelves arranged according to the author and genre, as if they were in traditional bookshops.
Book cover, or better to say its design, and the title of ebook should attract the
buyer equally. On the other hand, font and the size of the letters, line spacing, grey
shades of ink, margins and other characteristics of the text are not so important for
ebooks. The reader can change any of the mentioned characteristics according to
his or her needs. To sum up, the font and the size of the letters and the color and
the margins of the text are adjustable, so the ebook sale depends on its content. The
cover design should attract the clientele on the rst look; plot description (if it is a
ction book) or the content (if it is technical literature) should make the clientele
buy the ebook; authors style, readability and expertise should keep the clientele.
Students in other countries prefer the ebooks because of the small amount of
memory required for its storage, easy transport, the ability to save number of ebooks
on a single memory card and the fact that they dont need so many shelves for books
because everything they need is in the same place. Everything mentioned above
results in the increase of the ebook sale rate. As a result of the expected ebook breakthrough in schooling system ASUS designed Eee Tablet, an ereader with the possibility to make notes with its stylus pen. Nanyang Girls High School has started with
the application of electronic in the School. Students and 10 teachers have been given
150 iPADs in the pilot project. The students connect their tablets to the Internet
and download books and course material. In the case of satisfying results, the whole
school will start with electronic reading and writing, i.e. electronic schooling.9
9
www.reuters.com/article/idUSTRE70D1MH20110114, visited on 14th January 2011
939
3.2. E-NEWSPAPER
Newspaper is a printed publication appearing daily or weekly and containing

news, advertisments and articles on various subjects. (A. S. Hornby 1995, p.782).
E-newspaper is a paper published electronically.
According to the format and content, the e-newspaper can be exactly the same
as printed version of the traditional newspaper, it may also have some additional
features available only to the subscriber or there may be independent web only
newspaper.
E-newspaper can also be divided according to its availability. There is an enewspaper available exclusively through the e-mail inbox, and in this case it is not
an on-line newspaper because it is not available on its web site, i.e. it is not reachable by its URL address. On-line newspaper can be generally available, or available
to its subscribers only. The subscriber can open the newspaper content by signing
in with his or her users name and pasword.
Many of the established newspaper publishing houses today publish hybrid
newspapers, newspapers which are predominantly an online newspaper, but also
provide limited hard copy publishing, e.g. The New York Times, USA Today, The
Washington Post, Los Angeles Times in the USA, The Guardian in Great Britain,
The Australian in Australia and even some Indian newspaper such as The Hindu. In
Croatia, Poslovni dnevnik is the only example of e-newspaper with the possibility
of subscribing.
One of the advantages of the e-newspapers is the ability to personalise it. This
refers to the readers ability to choose the sections for his or her newspaper, so two
readers can read dierent samples of the same newspaper. Another advantage is
newspaper availability. The subscriber can get newspaper by downloading it from
the Internet or from his or her inbox. Once downloaded, e-newspaper can be read
whenever one wants during the day. Moreover, because they need little storage
space you dont need to erase them after reading, so you can have the entire enewspaper archive always with you. However, the biggest advantage of e-newspaper
over hard-copy newspaper is that e-newspaper is that newspaper journalism can
now compete with braodcast journalism in presenting breaking news due to the
fact that hard-copy newspaper publish yesterdays news.
News published on-line or in traditional newspaper are of greater importance
then the news read on dierent forums, blogs, discussion groups or social networks.
940
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Online newspapers are much like hard-copy newspapers and have the same legal
boundaries, such as laws regarding libel, privacy and copyright, also apply to online
publications in most countries.
3.3. E-MAGAZINES
E-magazines are electronic version of magazines. They are either only online version of a hard back magazine or some features may be added. Magazines are usually
published on a weekly or monthly basis, but there are also quarterly and bi-annual
technical magazines.
Due to the Internet development, lower price of the Internet service and its
availability, there is an increase in the number of Internet users which resulted in
creating of social networks and blogs, as well as web sites containing various information. One of the disadvantages of e-magazines is that they are published less frequently than information on the Internet, so the publishers should consider their
publishing more frequently in order to maintain their readers. Home or garden
decoration magazines are the example, because news in building and interior and
exterior design are published daily on sponsored and non-sponsored web sites.
The advantage of technical magazines is their professional quality, narrowly professional texts and the authors knowledge of the eld. Based on the typical topic,
magazines have particular audience that will be kept with the magazines quality. It
is not a rare case that magazines have their own website. For example, in Croatian
BUG magazine has its portal which is refreshed daily with the information about
information and communication technologies, but with few whole articles. To read
the whole article one has to buy the magazine, i.e. its printed version. Considering
the IT knowledge of the BUGs audience it is reasonable to expect electronic version of Bug magazine soon.
In the eld of technical literature, it is very likely that they will have the possibility of buying only certain articles. This option can help the publishers to keep
a record of the most popular articles and charge less just for article than for the
whole magazine.
4. ADVANTAGES AND DISADVANTAGES OF ELECTRONIC PUBLISHING
Printed books still have higher sale rate than electronic books. One of the reasons
for that is the ignorance of the audience. Another reason is that readers still prefer
941
printed books. The third reason is the high price of the tablets and e-readers for
general public. Nevertheless, there are many advantages of electronic publishing.
4.1. ADVANTAGES OF ELECTRONIC PUBLISHING
Lets start with imagining the situation of relocating books in printed form and
those in digital form. The cost of the relocation of printed books (to other part of
the world or just to a neighbouring town) can be very high and can even go beyond
the price of the book. Moreover, it is time-consuming. Now, books in digital form
can be delivered almost immediatelly and at minimal cost by moving bits instead
of atoms. Informational products manufacturers save delivery time and delivery
money, reducing them almost to zero (D. Rui et al.,2002, p. 293). This can also
be applied to e-newspaper and e-magazines. Internet is the global market and products from all over the world are available to every customer. There had been few
subscribed readers of foreign nespapers before the e-newspaper and e-magazine in
Croatia appeared. Regardless the distance, any kind of newspapers or magazines are
at readers disposal at the same price. Besides its global availability, e-newspaper are
available all the time. Online book shops dont have working hours and they dont
have to pay the over-time rate and nigh-shifts to their employees.
Almost every modern electronical reading device has its own online book shopKindle has over 600.000 titles at Amazon, Nook has over million titles at Barnes &
Noble, Sonys readers have over about a million titles at its Reader Store (Ilievi,
2010, p. 62). Purchase at Amazon and Barnes & Noble are stored in the cloud10
so the buyers are able to re-access the purchased content incase they lose their
device.
The advantages are transport and storage, as well as the performances of ereaders and the price of e-books. Hundreds or thousands of books, newspapers or
magazines can be stored on a computer, depending on the memory of the device
available all the time. Beside the low price of e-books, there are books available at
online stores that are free of charge. For example, all ction published before the
year 1900. is in the public domain.
10
in the cloud or cloud computing- computation, software, data access, and storage services that
do not require end-user knowledge of the physical location and conguration of the system that delivers the services
942
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Ecological side should not be neglected. Paper, ink and electric power for printing machines are being saved with the production of e-books. In addition, e-books
dont need physical distribution so the emission of the dangerous gases in the atmosphere is reduced.
The writers can update the text easily and with no cost. This is useful especially
for the texts related to the fast-growing industry such as computer technology. Epublishers dont have to invest in the book printing so the new, updated versions of
texts can be oered for sale very soon.
4.2. DISADVANTAGES OF ELECTRONIC PUBLISHING
High prices of portable electronic reading devices isnt the only disadvantage of
e-publishing. Minimal IT knowledge is required. Fast technological development
and the appearance of the new reading formats will result in the necessity of copying e-books on new devices. E-book format requires having certain applications for
text reading. Every book is not available in every format, so Sony Reader cannot
read a Kindle e-book. Moreover, not all books are available in electronic formats.
From ecological aspect, technology development has its negative sides. Because of
the fast gadget changes and the fact that devices become out-of-date very soon,
there will soon be large amounts of dangerous waste which are not as biodegradable
as paper. Tablets and e-readers, as well as personal computers need to be specially
taken care of and labeled as e-waste.
If e-readers and printed books are compared, e-readers will be more damaged if
they fall down. If there are hardware or software failures, e-reader failure and data
loss may appear. Every purchase is lost with the e-reader lost ot failure, except the
purchase at Amazon or Barnes & Noble.
Because of the DRM11 e-book buyer cannot resell or lend an e-book to other
buyer or device.
5. CONCLUSION
Higher e-book selling rate in comparison to printed books at Amazon in 2010 is

the rst sign of the e-book upward trend. The appearance of iPAD and e-newspaper
11
Digital Rights Management systems that restrict the use of digital les in order to protect the
interests of copyright holders
943
of the increasing number of publishing houses is the conrmation of such trend. It

is realistic to expect the overbid of e-books and e-newspapers in the future.
With the e-book school breakthrough, new reading generation appears. They
will nd it hard to imagine reading printed books and newspapers and will apply
the habit of reading from the screens later in life.
E-environment has been present in the world for more than two decades and
it slowly enters all aspects of human life saving time and making its work easier.
Publishing is not an exception and the participants of the publishing market should
be prepared for the e-environment and the changes it brings along. The music
industry went through the similar process. Maintaining the reading audience will
be reserved for those publishing houses that adapt fast and in high quality to new
conditions.
BIBLIOGRAPHY
Gardiner, E. and Musto, R. G. (2010.): The electronic book, In Suarez, M.F. and
Woudhuysen, H.R.: The Oxford Companion to the Book, Oxford University Press,
ISBN 0-19-860653-6, Oxford
Hornby, A.S. (1995.): Oxford Advanced Learners Dictionary of Current English,
Oxford University Press, ISBN 0-19-431423-5, Oxford
Rui D., Tomi Z., Turkalj . (2002.): Razmjenski odnosi u marketingu organizacija i provedba, Ekonomski fakultet u Osijeku, ISBN 953-6073-68-4, Osijek
Petri D.(2010.) Spojeni uvijek i svugdje, BUG magazine, number 212-213
2010.
Ilievi S. (2010.) Papir na struju, BUG magazine, number 212-213 2010.
Miller Claire Cain (2010.): E Books Top Hardcovers at Amazon, available at www.
nytimes.com/2010/07/20/technology/20kindle.html, (accessed 14-02-2011)
www.computextaipei.com.tw/en_US/news/info.html?id=A7822875757CA13F,
(accessed 16-07-2010)
www.e-hrvatska.hr/sdu/hr/e-hrv/vijest.html?h=/hrve-hrv/contentParagraph/0111
111111111111111111111111117&c= , (accessed 21-07-2010)
http://oxforddictionaries.com/view/entry/m_en_gb0254330#m_en_gb0254330,
(accessed 12-01-2011)
944
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http://inventors.about.com/library/weekly/aa091598.htm, (accessed 24-02-2011)

http://bestebookreader.com/, (accessed 24-02-2011)
www.amazon.com/kindle-store-ebooks-newspapers-blogs/b/ref/=sa_menu_
kstore4?ie=UTF8&node=133141011, (accessed 24-02-2011)
www.barnesandnoble.com/nook/features/index.asp, (accessed 24-02-2011)
http://ebookstore.sony.com/reader/, (accessed 24-02-2011) http://eeepc.asus.com/
ProductGroup1.aspx?PG_ID=7dDelmkESu9DXgVB, (accessed 24-02-2011)
http://bookeen.com/en/cybook/?id=2&Select=Specication,
2011)
(accessed
24-02-
http://koboereader.com/cad/kobo-e-reader-features/, (accessed 24-02-2011)

www.pocketbookreader.com/, (accessed 24-02-2011)
www.notionink.com/techspesc.php, (accessed 24-02-2011)
URBAN,
RURAL
AND
REGIONAL
ECONOMICS
IDENTIFICATION OF CRITICAL INDUSTRIAL ACTIVITIES CONCENTRATION IN THE...
947
IDENTIFICATION OF CRITICAL INDUSTRIAL ACTIVITIES

CONCENTRATION IN THE CROATIAN PANONIAN REGION
1
Mirjana Radman-Funari1
Polytechnic of Poega, Croatia, [email protected]
Summary
In the recommendation to increase the competitiveness of Croatia, the Clusters

Policy in Croatia highlights the objectives, the uniformity of regional development, human resource development, with the intent to keep the population in
a particular area with opening perspective for employment, strengthen competitiveness and economic restructuring on the basis of facilitating access to technologies, information resources, nancing and market information. Some measures are applied according to the needs of the individual
clusters, which carries the characteristics of the region in which has been
or will occur. Already present concentration of certain activities in a given region is
a consequence of natural resources and / or industrial capability. It is precisely to the
specic circumstances of developing the competitiveness of specic region.
This paper presents one way of determining the concentration of key industry
in a particular region, based on generally accepted Porter initial narrow denition of regional clusters, which was later extended, that the regional cluster can be
dened as a geographical concentration of related independent companies. In this
paper, the key is to determine the concentration of industrial activities using the location quotient in the NUTS II region of Pannonian Croatia and NUTS III regions Brod-Posavina and Pozega-Slavonia County. Determining the concentration
of industrial activity, shown by coecient, represents the rst stage within all measures to be applied in order to more actively link economic development actors in
the region.
JEL classication: O14, R11
Key words: concentration of activity, coecient of locations, cluster
948
Introduction
Starting from the generally accepted Porter initial narrow denition of regional clusters that regional clusters can be dened as a geographical concentration of related independent companies (Porter, 1990) this paper presents one
way of determining the concentration of key industrial activities in a particular
area. Porter later as an element that makes the cluster includes the institutions,
citing examples from practice, where some clusters contain institutions, and
others do not. (Porter, 1998).Necessary feature of clusters are active channels for
business transactions, dialogue and communication. Without active channels associated companies do not make the welfare system and therefore do not operate
under the wing of the cluster. The success of some regional clusters has refocused
attention on the creation of external economies and the role of knowledge and
the local environment to promote the competitiveness of related businesses. There
are two main criteria that determine regional clusters. First, regional clusters are
limited by geographical area with a relatively large number of companies and employees within a small number of related industrial activities. That is why clusters
are specialized to gather a small number of industries, as opposed to economic,
technological and entrepreneurial activities in specic industrial sectors that lead
to agglomeration. (Baldwin and Martin, 2004). Second, although the company capital in regional clusters are collaborating with other companies and institutes
for research and development, they are part of local networks, in particular production systems and therefore they are called regional innovation networks. According to the European Commission, Observatory of European SMEs, Regional
Cluster in Europe, there is a hierarchy of three concepts in the clustering: Regional
cluster is a concentration of independent companies within the same or similar
industrial sectors in small, limited area; a regional innovation network is more organized, contracting, cooperation companies, encouraged by trust, norms and
agreements, to encourage innovation activities; regional innovation systems are
co-societies and various organizations to develop and spread knowledge. These systems tend to linking subjects, while at the same time including horizontal cooperation. The concept of regional innovation system encourages innovation process ow of ideas, information and knowledge within the cluster by co-operation
of enterprises and educational institutions such as universities, colleges, centers for
courses, departments, agencies, technology transfer and nancial institutions. These organizations possess important competencies, gathering work force, collect the necessary funds to support regional innovation. (Porter 2000). The applica-
949
tion of common technology, knowledge or equal resources, can connect enterprises

from specic geographic area. Size of the area depends on the disposition of the
production system. Regional clusters often cover the local labour market area,
or commuting. (Rosenfeld, 2002). Companies within the same industry often come together in a special area (Marshall, 1919). According to him the appearance of clusters can be explained by the existence of additional external eects
of specic locations, such as: specialization in the economy is causing the concentration of companies that are able to attract and win the support of specialized suppliers; the existence of the workforce with specic knowledge and skills
to attract companies which creates greater specialization of labour; the eects of
knowledge, ow of knowledge and information is easy between actors located
in a cluster rather than those who are away which in turn leads to higher returns using companies that are located in clusters such as the unique local culture,
regional skills, knowledge and other favourable conditions. In the framework of
the recommendations and experiences of various countries and regions, it was
found that clusters are not uniformed, that competitive advantage can work in specic circumstances, and this is usually the case when the cluster was built on wellestablished natural resource or industrial capability. Accumulated, geographically
localized companies over time are developing and maintain strong social ties of
trust and reciprocity that lead to specialization and innovation.
In European countries there are dierent approaches to the development of
clusters. Countries such as Denmark, France, the Netherlands, Portugal and Great
Britain have dierent cluster policies for national and regional level, Ireland has had
a long tradition of competition in which clusters occupy a special place. Sweden
launched a national program for clusters development among the last developed
countries, while in Belgium and Spain cluster policies explicitly dene the regional
level. Germany, Italy, Austria, Belgium and Denmark have their own specic cluster policies. But it is essential that policies to promote clusters of related economic
development and structural change, often by increasing the (regional) innovation
capacity, based on the improved business collaboration and networking that may
require stimulation of social processes, policies also include connecting companies
with a regional technology infrastructures, education and research institutions and
development. The particular tendency is to introduce new technologies in regional
networks of SMEs and the creation of regional innovation systems. The policies
emphasize the role of public organizations as intermediaries in encouraging the
creation of entrepreneurial networks and joint projects. Especially in the initial
950
stage of clustering presence of a third party is required that would help in building
mutual trust of members of the cluster and formation of business networks. All
policies emphasize the need to increase innovation capacity and knowledge management. Particularly important are policies that focus on the need to encourage
the creation of specialized factors and specialized knowledge in regional clusters.
Moreover, each country in achieving its policy of clusters used various measures to
encourage the development of clusters as non-nancial support measures such as
strengthening the ow of information, cooperation of companies with research institutes and development, manpower training, support for joint marketing and exports. Certain measures are consistent with the needs of the individual cluster. In
some countries the most important activities were the establishment of science parks,
centres of support for innovation at the regional level, sectoral centers for technology transfer and advice at the local level. Mainly centers are managed at the regional
level, by the regional nancial institutions, chambers of commerce, private companies and business associations. The subsidy of operating costs, support and counselling partners related to construction of clusters networks, support in the form
of consultant advice, education, loans and guarantees for research and development as well as innovation projects, dialogues between clusters and representatives
of cluster policies at national and regional level are common measures to achieve
cluster polices.
Cluster policy in recent European Union member states also shows the various cluster policies. Five OECD case studies on cluster experiences from Slovenia,
Slovakia, Poland, Hungary and Czech Republic reviewed various policy tools and
initiatives to foster cluster development directly or indirectly. Some good practices,
such as Slovenias top-down/ bottom-up approach forming both inter-ministerial and inter-rm networks, approach of dynamic concentric circles, Hungarys
Pannon Growth initiative oering an integrated concept of regional development
with an emphasis on excessive dependence on foreign direct investment, the Czech
co-operative cluster model and the Polish regional-based innovation approach
where the networking process took place through self-governed communes which
developed in parallel with decentralisation reform stand out. (Dermastia, 2005;
Gecse, 2005; Mikolas, 2005; Wojnicka, Brodzicki i Szultka, OECD, 2005).
Despite recommendations by European Commission no cluster approach is
used in Slovakia beside that certain parallels to the cluster approach can be found
in the policies pertaining to the Slovak automotive industry and to industrial parks,
and these are result the inux of foreign direct investment (FDI) and employment
951
policy concerns. Slovakia cluster study investigated the location of foreign and domestic companies, in order to determine the concentration of industries in certain regions, and their concentration is shown in location quotient (sorghum and
Rehak, OECD, 2005.85). Although in Slovakia no cluster approach has been applied, the methodology to set concentration of key business in a particular area was
very good. This work is similarly performing calculation of the location quotient,
calculated by using quotient, for certain areas of the NUTS regions.
Methodology
Coecient location is calculated based on the quotient, and it is dened as

Location quotients LQ=(NCIR/NCR)/(NCIC/NCC), where NCIR is the numbers of companies in industry in region, NCR is the total number of companies in
region, NCIC is the total number of companies per industry and NCC is the total
number of companies per country. Mapping of clusters is normally undertaken
using comparative calculations between a number of regions and the country as a
whole based on two-digit or one-digit Standard Classication of Activities (SCA)
code.
Identication of concentrations of key industrial activities based on location
Coecients (LQ)
Location quotients (LQs) in this study were calculated for the NUTS II region
Continental Croatia and jointly for the two NUTSS III regions, namely: BrodPosavina and Pozega-Slavonia County.
The quality of this work would be contributed by the calculation of employment, gross value-added (GVA) generated per company and the GVA generated
per employee by industry, but they did not assessed due to the short timeframe
for the preparation of this document. On the basis of this simplied analysis, LQ
criteria were dened to identify key activities in a region, which could form the core
of a potential cluster.
Activities that whose LQ scored above 1.5 on the location criteria criterion outlined above were identied as possible leading regional industries.
Both county and regional data were used by this calculation. The following tables show the calculation of the locations (LQ), the most frequent activities of Pannonian Croatia, Brod-Posavina and Pozega-Slavonia County.
952
Tablica 1. Coecient of location for business Metal processing in NUTS II Croatian Panonian Region and in
NUTS III Brod-Posavina and Poega-Slavonia counties
Metal processing
NCIR
NCR
NCIR/NCR
NUTS II Panonian Croatia Region

302
11153
0,027077916
Brod-Posavina and Pozega-Slavonian counties

87
1755
0,04957265
NCIC
NCC
NCIC/NCC
1636
78509
0,020838375
1636
78509
0,020838375
LQ
1,299425506
2,378911458
Source: Calculation of author - data used from Brod-Posavina County, Department for Development and European Integration, Study
and Exploitation Plan of Clusters in the Broader Region of Central-South Slavonia
Tablica 2. Coecient of location for business Furniture manufacturing in NUTS II Panonian Croatia Region and
in NUTS III Brod-Posavina and Poega-Slavonia counties
Furniture
manufacturing
NCIR
NCR
NCIR/NCR
NUTS II Panonian Croatia Region Brod-Posavina and Pozega-Slavonian counties

155
11153
0,013897606
24
1755
0,013675214
NCIC
NCC
NCIC/NCC
784
78509
0,009986116
784
78509
0,009986116
LQ
1,391692795
1,369422641
953
Tablica 3. Coecient of location for business Wood processing in NUTS II Panonian Croatia Region and in NUTS
III Brod-Posavina and Poega-Slavonian counties
Wood processing NUTS II Panonian Croatia Region
242
NCIR
11153
NCR
0,021698198
NCIR/NCR
Brod-Posavina and Pozega-Slavonian counties

36
1755
0,020513
NCIC
722
78509
722
78509
0,009196398
0,009196
2,35942356
2,230528
NCC
NCIC/NCC
LQ
For the Panonian Croatian region it is found, based on the LQs, and the industrial identications NACE DJ (metal processing), NACE DN (furniture manufacturing) and NACE DD (wood processing) of primary activities by the Croatian
Chamber of Commerce, that there is a concentration as basis for a cluster in the
wood processing sector. As for the NUTS III Brod-Posavina and Poega-Slavonia
counties two concentrations as basis for clusters in the wood processing as well as
the metal processing sector are found. There is not enough concentration yet to see
immediate clustering for the furniture manufacturing cluster.
Tablica 4. Coecient of location for business Wood processing and Furniture manufacturing in NUTS II
Panonian Croatia Region and in NUTS III Brod-Posavina and Poega-Slavonian counties
Wood processing +
Furniture manufacturing
NCIR
NCR
NCIR/NCR
397
11153
0,035595804
Brod-Posavina and Pozega-Slavonian

counties
60
1755
0,034188034
NCIC
NCC
NCIC/NCC
784
78509
0,009986116
784
78509
0,009986116
LQ
3,564529288
3,423556602
NUTS II Panonian Croatia Region
954
Conclusion
The results of calculation of the locations shown in Table 4, show a distinct

concentration of additive activity of wood processing and furniture production
in the Pannonian Croatia as well as together Brod-Posavina and Pozega-Slavonia
County. Despite presumed logical connection between the activities of wood processing and furniture production, low coecient locations for furniture production
shown in Table 2, shows that the production of quality furniture in these regions
has a good natural base, but that other factors aecting a particular production
(not) activity. Previous theoretical discussion and practice of successful countries
and regions, old and new European Union members states say that competitive
advantage can work in specic circumstances, and this is usually the case when the
cluster was built on well-established natural resource or industrial capability. What
is missing? Is it the appearance of clusters? It seems that the existence of external
eects of specic locations is not enough. In the initial stages it is necessary to include actors of cauterization such as government and local governments, scientic
and educational institutions, business associations, and the presence of a third party
is important as the nancial and no nancial support, to build mutual trust and
business networks.
Concentrated companies, attracting the support of specialized suppliers, labour
force with specialized skills, the new company, which in turn creates a greater specialization of labor. It is an ideal base for further expansion of the cluster. Using
the knowledge, the ow of knowledge and information is easier between participants located in the cluster than those who are away which in turn leads to higher returns for companies that are located in clusters.
The odds are not the only location criteria that should be borne in mind. As the
analysis in this example indicates, despite the natural basis for expansion of certain
activities in an area, some of the casters are missing. Whether to establish the cluster or to create the institutional basis for its establishment?
955
Literature
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Vladimir Cini Nataa Drvenkar
956
ANALYSIS OF REGIONAL NONCOMPETITIVENESS OF

PANNONIAN CROATIA
Vladimir Cini, Associate Professor
J.J. Strossmayer University in Osijek
[email protected]
Nataa Drvenkar, M.A., teacher assistent
J.J. Strossmayer University in Osijek
[email protected]
Abstract
Innovativeness and competitiveness are modern concepts upon which national

and regional policies around the globe are based. Competitiveness depends on the
ability of using up of all available knowledge and entrepreneurial creativity. Regions
play a key role in mobilizing of those resources, since it is easier to understand the
strengths and weaknesses of ones local industry, and thus consequently recognize
the needs and competences of the region.
Croatian joining to the European Union posed the need for regional division
of Croatia within the NUTS regions framework. Pannonian Croatia, as one of the
three Croatian NUTS regions, records numerous economical problems which are,
to the great extent, the result of its non-competiveness. Regional competiveness
can be encouraged intentionally and proactively. That includes new and more dynamic roles of the public sector and expands the economical management system,
in particular through interaction with the private sector. The aim of this paper is to
analyze the key reasons for regional non-competitiveness of Pannonian Croatia and
its slow, and almost impossible catching up process with respect to the other two
regions. Thus, there is a need for formulation of guidelines for the future development based on innovative approach in order to encourage its competitiveness.
JEL classication: O18, R11, R58
Key words: regional competitiveness, regional disparities, constructed advantage, industrial policy
ANALYSIS OF REGIONAL NONCOMPETITIVENESS OF PANNONIAN CROATIA
957
1. Introduction
In new global economies, competitiveness depends on ability to exploit to the

full all resources of knowledge, skill and entrepreneurial creativity. Innovativeness,
ideas and quality of life in a specic area increasingly replaces the cost-eectiveness.
Regions play a vital role in mobilization of these resources since they understand
the strength and weaknesses of their local industry and can best identify the needs
and opportunities. The main goal of regional development is to accomplish full
regional development in terms of complete development across the country. In
this sense the regional development policy has to be oriented towards the eective
development of individual regions by means of ensuring a number of favorable
conditions for transfer of knowledge, technology, entrepreneurship and nancial
resources, and thus achieve the full development of national economy. One needs
regional development management, which would direct, change and control the
economic and social condition, so as to enable a kind of correction of the condition which resulted from the inuence of dynamic market mechanism. According
to Martin (2004 in: Skokan and Rumpel, 2007), the regional competitiveness is
understood as a regional economys ability to optimize its indigenous assets in order to successfully adapt to national and global market conditions. Furthermore,
Borozan (2008) dened the regional competitiveness as a regions ability to ensure
economic growth (over some time), including the ability to attract and retain productive capital and competent human resources, and to be innovative in all areas.
Regional competitiveness, according to European Commission (1999) is dened as
the ability to produce goods and services which meet the test of international markets, while at the same time maintaining high and sustainable levels of income or,
more generally, the ability of regions to generate, while being exposed to external
competition, relatively high income and employment levels and in other words,
for a region to be competitive, it is important to ensure both quality and quantity
of jobs. Each region is unique it is not to expect that each place becomes the
Silicon Valley. The solving of vital issues of a region is encouraged by teaming up
of all interest groups and not by strict individual activity.
Some empirical papers point to the existence of spillover1 eect of research and
development on national and international level. However, the absorption potential
1
Spillover eects refer to the transfer and spillover of innovation, technology, labor, knowledge between dierent regions, and they encourage the growth of production, employment and productivity
in the region. They are frequently the result of foreign direct investment (work, economic restructuring, growth and export competitiveness).
958
of the region is of vital importance to accept the foreign knowledge incorporated in

FDI, which may have a positive eect on regional development (Kuo, Jang, 2008;
Audretsch, Lehman, 2005). Freeman and Louca (2001) conclude that the process
of innovations has extremely changed in a way that they are becoming less the
result of individual entrepreneurs initiative with an uncertain outcome, and more
the result of the activity of specially structured departments created for targeted
research and development of new products, technologies and production processes.
Crucial ideas inherent in this concept on (vertical interaction and innovation as an
interactive process) appear in Porters industrial clusters (Porter, 1990) as well as in
Triple Helix-concept (Etzkowitz, Leydesdor, 2000). Those concepts are based on
interactions between business, universities and governments forming a knowledgebased economy. This idea has been further rened into the sophisticated notion of
constructed advantage (Cooke, Leydesdor, 2006; Best, 2001).
2. The need for eective regional policy
The need for eective regional policy arises if there are regional disparities. Regional disparities cause serious social and political problems which could become
more serious if, over a longer period of time, a certain region records a serious development standstill in comparison with the rest of the national economy. Fostering of
national economy development can not be achieved without solving the problem
of backward regions. There are numerous causes of regional disparities which may
be reected through a lot of dierent states. For example, a region can encounter
numerous development problems if its economic structure is mostly set up out of
traditional agricultural structure or distinct homogenous economic structure. This
also includes areas which are relatively isolated or periphery, and especially those
which encountered certain political problems or war areas. In addition, areas which
used to be industrialized, but there has been a slowdown in economic growth due
to insucient scientic and research potentials or investments made into R&D
and innovation. verko (1995) identies the sources of economic disparity: 1) disparate work productivity, various skills in knowledge; 2) income spillover by means
of economic policy measures; 3) technological progress as dynamic factor; 4) quantity and quality of information; 5) market system that increases the discrepancies
in business success, and reduces inequalities which stem from other conditions; 6)
monopoly behavior of vital activities in regions. Gris and Wall (in: Drui, 2002)
emphasize that a region may record the regional problem if it diers from the
national average by way of recording: 1) high and permanent unemployment; 2)
959
low level of and slow growth of GDP per capita; 3) high level dependence on narrow economic structure; 4) abrupt production decline; 5) inadequate infrastructure
availability; 6) large-scale migrations outside the region and alike. Those types of
economic inequalities can be mitigated by favorable factors such as improvement of
general professional and university education, technological improvement (scientic and research work, innovation, transfer of knowledge) and higher employment
rate through eective encouragement of entrepreneurial development (reduction of
administrative and other social and political barriers). If one or two regions develop
at the expense of other regions, the policy is not good. It is necessary to formulate a
regional policy that would continually adapt to economic and social characteristics
of region, develop the ability to achieve the regions competitiveness, worry about
preserving the region and its adequate use, enable the human resources development and take measures to maintain the population in less developed areas. First of
all, it is necessary to manage regional development in order to achieve comparable
living conditions in all regions and overcome the most obvious dierence in living
standards of the region and encourage the active participation of local and regional
units in the process of creating a coordinated, proactive and eective regional development policy (Frajman-Jaki, Drvenkar, 2010). Deepening of dierences in
regional development is the result of problems and limits the Croatian regional
policy is dealing with (NCC, 2010):
1. approach to regional development has so far been based on sectoral, rather
than integral approach, which has prevented the achievement of synergy;
2. the existing legal framework is not uniform, but disjointed;
3. decentralization the implementation process has been slowed down
which constrains the implementation of regional policy and the principle of
subsidiarity;
4. institutional framework for implementation of regional policy lack of coordinated development planning and insucient connection of central and
county level;
5. public administration low capability on all levels (regional planning and
evaluation of program implementation).
3. Regional (non)competitiveness of Pannonian Croatia
Pannonian Croatia is not a very attractive area for investments and employment
is relatively weak. Its competitiveness of economy is questionable due to relatively
960
low productivity and limited technological content of processing industry. Key factors of regional competitiveness are analyzed hereafter:
1. demographical prole of the region (migrations, young population, insured
persons, unemployed population, salaries, % of doctors of science and masters of science);
2. economic prole of the region (economic relations with foreign countries,
GDP, active legal entities, export industrial production value, investments).
Pannonian Croatia is not a competitive region and thus records serious economic and social problems. The thing that worries the most is that Pannonian Croatia is
not a region which is a bit late in development compared to other regions, but it
seriously falls behind in almost every development areas. Standard of living is much
lower in relation to other two regions, so that younger population is increasingly
migrating toward other regions or foreign countries. Therefore, taking a long-term
view, those problems will reect on serious social-economic structural problems.
The level of GDP per capita, which was, according to last available records, by
2.902 Euros lower than the Croatian average, shows that the standard of living in
Pannonian Croatia is considerably lower than in the rest of Croatia. However, what
concerns the most is that this is 5,498 Euros the amount of in the leading region
(North-West Croatia) in terms of development (Table 1.).
41
31
100
28
16
15
25
11
1.246
-1625
-7.837
618
0
946
-1.472
-4.749 -2.446 -3.664
-1.463 2.216
33
100
29
38
Population, %
31
100
30
39
Age
group
0-14,
%
Tertiary education
33
100
25
42
41
141
29
71
14
100
77
19
100
75
% of active
InstituMasters
persons in
tions
of sciemployment, of higher Doctors of ence and
2009
education, science masters/
2009, % specialtotal
ists, 2009,
number,
%
2009
Source: the authors have adapted the data according to CBS, 2010a, 2010b and CES, 2010
Adriatic Croatia
Total of Croatia
Pannonian Croatia
North-West Croatia
Regions
Demography, 2009
% of total
unemUnemEmigrants
ployed ployment
persons
rate in
in Croatia, 2009, % Natural Into
increase other Abroad
2010
county
Table 1. Selected demographic indicators, NUTS II
961
21
32
Pannonian Croatia
Adriatic Croatia
13.278
(+2.596
of
average)
7.780
(-2.902
of
average)
10.291
(-391 of
average)
Active legal entities, 2009
33
20
47
22
32
30
19003100
28
29
28
31014500
27
20
20
45016000
23
19
22
6001 and
more
The amount of average paid o net earning,

March 2009, %
Source: the authors have adapted the data according to CBS, 2010a, CBS, 2011
**Mining and quarrying (B); Manufacturing (C); Electricity, gas, steam and air conditioning supply (D); Water supply; sewerage, waste management and remediation activities (E)
34
41
20.469
49.362
25
62.055
Total active Agricul- Induslegal entities ture* (%) try**(%)
*Agriculture, forestry and shing (A)
47
North-West Croatia
Regions
GDP GDP per

capita
in 2008, in 2008,
% of
Euro
Croatia
Table 2. Selected economic indicators, NUTS II

962
963
Panonian Croatia GDP makes only 21% of Croatian GDP, which is half the
size than in North-West Croatia (Table 2.). In Panonian Croatia there are 41%
of all Croatian unemployed people (CES, 2010) which is the highest registered
unemployment rate (25% in 2009, CBS, 2010a). This is denitely the reason for
large negative migrations currently in progress both to other counties and foreign
countries. According to the data for the year 2009 Pannonian Croatia is the only
NUTS II region in Croatia that records negative migrations: 2,446 residents have
migrated to other counties, and no fewer than 3,664 to foreign countries (CBS,
2010a).
This region has the lowest number of actively insured people (25%, and NorthWest Croatia 42%). The level of active legal entities is three times lower than in
North-West Croatia, and about 2.5 times lower than in Adriatic Croatia. Apart
from that, the economic structure in Panonian Croatia is extremely poor namely,
out of total number of active legal entities in Croatia, 41% were represented in
agriculture and only 20% in industry. The share in total sale value of industrial
products in Croatias export is 19%, whereas, in North-West Croatia it amounts to
54% and in Adriatic Croatia to 26% (Table 3.).
In Panonian Croatia investment activities are the poorest, in particular those
into new equipment (8% in relation to 76% in North-West Croatia). According to
active legal entities, the total of investments in 2009 has been made in agriculture
sector (61%). This however is not a favorable circumstance for long-term (urgent)
sustainable economic development. OConnor (2008) emphasizes that industrial
development is not the only possible route to a developed country standard of
living, but it is a well-proven one. It is for this reason that industrial development
remains a high policy priority of governments in the developing world. Technology and its mastery are undoubtedly crucial to successful economic development,
but it is clear that technology is not the monopoly of industryespecially at an
early stage of development, there may be other forms of innovation which are more
important e.g., simply being able to identify and seize protable new product
or geographic market opportunities or to serve a new class of customers through
improved marketing. Knowledge and technology intensity is rising across most
economic activities, and not only in industry (modern agriculture is also knowledge-intensive). For this reason, policies that strengthen the knowledge base of an
economy take on ever greater importance.
19,5
26,1
Pannonian Croatia
Adriatic Croatia
24,5
18
57,5
Total
Export,
2009,
% of
Croatia
Investments in 2008
21
70
16
76
35
18
47
23
61
16
29
26
45
Payment for gross xed Equipment, % New capaci- Payment for gross xed capital formation by activities (NKD)
capital formation, % of of total new in ties, % of total
total Payment in Croatia
Croatia
new in Croatia Agriculture (A) Manufacturing (C)
Source: the authors have adapted the data according to CBS, 2010a, 2010c
54,4
North-West Croatia
Regions
Sale Value
of Industrial
Products and
Export
in 2009, % of
Croatia
Table 3. Investments and sale value of industrial products and export, NUTS II
964
965
4. Pannonian Croatia regional development guidelines and nal reections

dustry development guidelines and nal e in Hungary this took 16 days
and Czech Republic 17 daye government can
The constructive question is - how to build the advantage of Pannonian Croatia? The answer lies in serious and urgent reforms. According to Radoevi (2009),
there are two distinct strategies related to the order of reforms. According to the
rst approach, the so called shock therapy(radical or big-bang approach), the
best economic strategy would be the implementation of as many reforms at once.
The other approach opts for gradualism. Due to exceptionally poor investment
climate both at the national (foreign ownership of domestic banks; external and
public debt) and global level (nancial and economic crisis), it is hard to be optimistic with respect to serious investment especially in the region which is not so
attractive for investments. It is of vital importance (as urgently as possible!) to establish eective bureaucratic procedure, in order to make the FDI ow easier, because
inward investment can generate regional competitiveness by importing innovation
and technology. FDI can contribute to the phenomenon called technology leapfrogging, which appears when developing or small countries are not able to perform a
whole range of fundamental research, or do not have sucient means for import of
technologies. Less developed countries do not invest in old technologies, but leap
over them in order to catch up with developed countries (so called catching-up)
(Hobday, 1995 in: Lovrinevi, 2009).
Therefore, in this case, the shock therapy should be as ecient as possible in political, business and scientic areas. Cooke (2001) identies the role of the public
sector in developing regional innovation systems as being one of building systemic
linkages that transfer knowledge and innovation within and beyond the regional
economy. The role of public sector is to develop social capacity, networks, institutional thickness and assist the functioning of untraded interdependencies. In such
a system, the role of the public sector is to be both animator and part-funder. They
play a valuable role in the regional knowledge infrastructure, for example through
business-university linkages to promote the transfer of knowledge and human capital. The development of eective linkages - especially involving technology-based
industries and businesses - has proved to be successful in promoting regional economic development (ECORYS-NEI, 2003).
966
4.1. What Can We Do?
1. Establish, as soon as possible, the eective collaboration of all interest groups

of the region and form Regional development centre (Picture 1.) which shall
control and implement measures of regional policy and coordinate participants in solving development problems by means of the Triple Helix principle; coordinate investment activities (attracting of FDI, nancial and nonnancial instruments for restructuring of economic structure of the region);
lobby on national and European level (Brussels oce);
2. Encourage the development of knowledge region (triple helix); reform of
professional and university programs for the needs of the new industry (engineering, ICT, mechanical engineering); expand the university campus and
encourage public-private-university research projects; encourage young scientists to stay in the region;
3. Strengthen the entrepreneurial capacity of the region; encourage more efcient development of entrepreneurial zones; encourage the joining into industrial and agricultural clusters;
4. Encourage the spreading of positive public opinion on the necessity of joint
collaboration of all interest groups for the development of the region; promote the region as the region I wish, can and will live and work in.
Figure 1. Regional development center in the centre of triple helix coordination
967
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Frajman-Jaki, A., Drvenkar N. (2010) Problems in Croatias Regional Development: how to proceed?, Fifth International Conference (ICES2010) of the School of
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Lovrinevi, . (2009) Tehnoloka sloenost i struktura ponude i potranje industrijskih proizvoda u Hrvatskoj. Ekonomski pregled, 60 (11), str. 541
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Tradicionalno savjetovanje, Zbornik radova. Opatija: Hrvatsko drutvo ekonomista i Inenjerski biro
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MODELS FOR PREDICTING THE USAGE OF IPARD PROGRAM FUNDS IN THE...
969
MODELS FOR PREDICTING THE USAGE OF IPARD PROGRAM

FUNDS IN THE REPUBLIC OF CROATIA
Igor Kralik1, Branimir Markovi2, Zdravko Tolui1
Abstract
The research aimed at developing models for predicting more ecient usage of
nancial means and measures provided by the IPARD program for the agriculture
and rural area development in the Republic of Croatia. The research involved a total of 507 agricultural family farms. The Chi-square test (2) was used for analysis
of original data presented in frequencies. The data obtained by questionnaires were
analyzed and used for creation of prediction models which referred to examinees
education level and average monthly income, as both determinants were identied
as signicant factors for more ecient usage of IPARD program funds. There were
two prediction models developed by means of deliberate changes of frequencies in
contingency tables. By changing of existing frequencies of examinees referring to
their average monthly income and education level, the authors created two prediction models which can serve as a starting point for preparation of measures that will
facilitate more ecient usage of IPRAD program funds by increasing motivation of
potential participants to apply to program calls.
JEL classication: O13, O2, R58
Keywords: agriculture, nancing, development, Republic of Croatia
Introduction
The Republic of Croatia has gained an ocial status of a candidate state for
European Union membership on 18 June 2004. This status entitled Croatia to use
pre-accession funds for the purpose of easier adjustment and preparation for EU
membership. Preaccession assistance is a part of European Union strategy directed
1
2
Poljoprivredni fakultet, Osijek

Ekonomski fakultet, Osijek
970
Igor Kralik Branimir Markovi Zdravko Tolui
towards meeting of specic needs of each country in the pre-accession phase. In

the period 2005-2006, Croatia as a candidate country used preaccession funds
within programs PHARE, ISPA and SAPARD, and in the ongoing period 20072013, Croatia participates in the IPA program, which provides support for realization of reforms and projects with the purpose of more ecient preparation
for EU membership. The program support refers to assistance in setting up of
system which will facilitate future management of European funds. Instrument
for Pre-Accession Assistance (IPA) has been established by the Council Regulation
(EC) No. 1085/2006, laying down general provisions and assistance framework.
Detailed regulations are determined by the Commission Regulation No. 718/2007.
Financial framework of the Program is determined by the EC Multi-Annual Indicative Financial Framework (MIFF) for each participating country within IPA components. IPA objectives are to facilitate harmonization of Croatian legislation with
the European one, to provide instruments for cohesion and agriculture politics and
to facilitate Croatian preparation for EU membership. IPA program consists of ve
components, each referring to one or several areas. The main political objectives
of the IPARD program are determined by the Multi-Annual Indicative Planning
Document (MIPD), and refer to the following: (1) contribution to sustainable
modernization of agriculture sector (including processing) through targeted investments and through improvement of legal basis related to safety of food, and other
veterinary, phytosanitary and ecological standards that need to be assured; (2) contribution to sustainable development of rural areas. The aim of the research was to
develop models for predicting more ecient usage of funds and measures provided
by the IPARD program for the agriculture and rural area development.
Research methodology
The method of eld survey was applied to collect data from agricultural producers by means of questionnaire and to obtain an insight into their opinion about
usage of the IPARD program funds. The research involved a total of 507 agricultural family farms. The survey was carried out in winter of 2009 and 2010. The
Chi-square test (2) was used for analysis of original data presented in frequencies. A module for calculating 2 test was developed for this purpose (Wolfram
Matematica 7.0, Scitovski et al.; 2008). The 2 distribution test was made on random sample of N examinees that present shapes of qualitative and quantitative
variables. Based on the sample distribution, expected frequencies are calculated and
compared with empirical frequencies (oi, 2005). Survey questionnaire provided
971
data which were used for development of prediction models referring to examinees
education level and average monthly income, as both parameters were identied
as signicant factors for more ecient participation in the projects supported by
the IPARD program. There were two prediction models developed by deliberate
change of frequencies in the tables of contingency.
Results
1. Correlation between average monthly income of examinees and their participation in IPARD calls
Hypothesis
H0 no statistically signicant correlation between average monthly income of
examinees and their participation in IPARD calls.
H1 statistically signicant correlation was determined between average
monthly income of examinees and their participation in IPARD calls.
Table of contingency
3000 HRK
3001-6000 HRK
6001-9000 HRK
9001 HRK
Total
%
Applicants
to calls
Applied to calls,
but without
success
Not yet applied,

but intend to
1
1
0
2
4
2
0
1
2
1
4
2
19
41
28
28
116
57
Not interested
to apply for Total
IPARD funding
17
30
23
8
78
38.6
37
73
53
39
202
%
18.3
36.1
26.1
19.3
972
Table of expected frequencies

Applicants to
calls
3000 HRK
3001-6000 HRK
6001-9000 HRK
9001 HRK
0.7326
1.4455
1.0495
0.7722
Applied to calls,
but without
success
0.7326
1.4455
1.0495
0.7722
Not yet applied,

but intend to
Not interested to apply for

IPARD funding
21.2475
41.9208
30.4356
22.396
14.2871
28.1881
20.4653
15.0594
Not yet applied,

but intend to

IPARD funding
0.2377
0.0202
0.1949
0.1402
0.5151
0.1164
0.3139
3.3092
Not yet applied,

but intend to

IPARD funding
-2.2475
-0.9297
-2.4356
5.6039
2.7128
1.8118
2.5346
-7.0594
Table 2
Applicants to
calls
3000 HRK
3001-6000 HRK
6001-9000 HRK
9001 HRK
0.0975
0.1373
1.0495
1.9517
Applied to calls,
but without
success
0.7326
0.1373
0.8608
0.0671
2calc.=11.144
Coecient of contingency = 0.2286
Table of dierences
Applicants to
calls
3000 HRK
3001-6000 HRK
6001-9000 HRK
9001 HRK
0.2673
-0.4455
-1.0495
1.2277
Applied to calls,
but without
success
-0.7326
-0.4455
0.9504
0.2277
Surprising was the data that only 2% of examinees with average monthly incomes being 3000 HRK and 9001 HRK participated in calls for IPA funded
973
projects, and that all were rejected. Around 57% of examinees intend to participate
in calls, and 38.6% of examinees are not interested in such ways of project funding. These data are alarming because they indicate that target group in Croatia
is not prepared and not enough informed about advantages of participation in
IPARD funded projects. Authorized institution in Croatia should intensify actions
referring to promotion and advertising of IPA and inform representatives of agricultural family farms on advantages of using EU funds prior to entering the EU.
There was no statistically signicant correlation determined between examinees
average monthly income and their participation in calls for project proposal within
IPA program (P>0.05) because 2calc.=11.144< 2theor.= 16.919, therefore H0 was
accepted.
2. Correlation between examinees education level and their participation in IPARD
calls
Hypothesis
H0 no statistically signicant correlation between examinees education level
and their participation in IPARD calls.
H1 statistically signicant correlation was determined between examinees
education level and their participation in IPARD calls.
Table of contingency
Primary education
Secondary
education
Higher education
Total
%
194
123
325 64.1
1
8
1.6
2
5
1
54
309
60.9
19
185
36.5
76
507
Not yet applied,

but intend to
61
Not interested
to apply for
%
IPARD funding
43
106 20.9
Total
Applied to calls,
but without
success
1
Applicants
to calls
15
974
Table of expected frequencies
Primary education
Secondary
education
Higher education
Applicants to Applied to calls, but

calls
without success
1.6725
1.0453
Not yet applied,

but intend to
64.6036
Not interested to apply

for IPARD funding
38.6785
5.1282
3.2051
198.077
118.59
1.1992
0.7495
46.3195
27.7318
Frequency analysis of examinees participation in IPARD calls showed that only

1.6% of examinees participated in those calls, and 1% of examinees were not successful with project proposals. These data are worrying if considering future joining of Croatia to EU. Only 60.9% of examinees intend to participate in calls, and
36.5% examinees are not even interested in applying for IPARD funding.
Table 2
Primary education
Secondary
education
Higher education
2calc.=7.9478

calls
without success
0.2704
0.0019
Not yet applied,

but intend to
0.2011

for IPARD funding
0.4828
0.1482
0.4531
0.0839
0.1640
0.0331
2.0863
1.2735
2.7493
Not yet applied,

but intend to
-3.6035

for IPARD funding
4.3215
Table of dierences
Primary education
Secondary
education
Higher education
2theor.=12.5916

calls
without success
-0.6725
-0.0453
0.8717
-1.2051
-4.0769
4.4102
-0.1992
1.2504
7.6804
-8.7317
975
Statistically signicant correlation between examinees education level and their

participation in IPARD calls was not determined in the research (P>0.05), because
2calc.= 7.9478< 2theor.=12.5916, and based on the 2 value the hypothesis H0 was accepted. These data showed that low interest in applying for EU preaccession funds
was not related to education of examinees. Further analyses are needed to elaborate
the reasons of low interest for EU funding and to identify obstacles for more intensive participation in the calls.
3. Model 1: Prediction of correlation between average monthly income of
examinees and their participation in IPARD calls
Hypothesis
H0 no statistically signicant correlation between average monthly income of
examinees and their participation in IPARD calls.
H1 statistically signicant correlation was determined between average
monthly income of examinees and their participation in IPARD calls.
Table of contingency (deliberately changed frequencies)

Applicants
to calls
Applied to calls, Not yet

Not interested to
but without applied, but apply for IPARD
success
intend to
funding
Total
3000 HRK
16
19
10.1 (-8.2)
3001-6000 HRK
14
19
33
17.6 (-18.5)
6001-9000 HRK
56
20
80
42.6 (+16.4)
9001 HRK
54
12
70
34.7 (+15.4)
Total
%
4
2
4
2
127
62.9
67
33.2
202
2calc.= 45.2149
976
Table of dierences
Applicants to
calls
3000 HRK
3001-6000 HRK
6001-9000 HRK
9001 HRK
-0.3762
-0.6534
-0.5841
1.6138
Applied to calls,
but without
success
-0.3762
-0.6534
1.4158
-0.3861
Not yet applied, but Not interested to apply

intend to
for IPARD funding
-8.9455
-6.7475
5.7929
9.9901
9.6980
8.0544
-6.5346
-11.2178
2theor.= 16.919
The model of predicting correlation between average monthly income and participation in calls of EU preaccession funding programs was created by changing
the existing frequencies of examinees related to average monthly income. Percentage shares of examinees with average monthly incomes of 3000 HRK and of
3001-6000 HRK were lowered for 8.2% and 18.5%, respectively, while percentage
shares of examinees with average monthly incomes of 6001-9000 HRK and higher
than 9001 HRK were increased for 16.4% and 15.4%, respectively. By changing
of frequencies, the model showed statistically signicant correlation between education level of examinees and their awareness about advantages of participation in
projects funded through EU preaccession assistance program (P<0.05), because
2calc.= 45.2149>2theor.16.919. By increasing average monthly income of examinees
their interest in EU preaccession funds was also increased.
4. Model 2: Prediction of correlation between education level of examinees

and their participation in IPARD calls
Hypothesis
H0 no statistically signicant correlation between education level of examinees and their participation in IPARD calls.
H1 statistically signicant correlation was determined between education
level of examinees and their participation in IPARD calls.
977
Table of contingency (deliberately changed frequencies)

Applied to
Not interested to
Applicants
Not yet applied,
calls, but withapply for IPARD Total
to calls
but intend to
out success
funding
Primary
education
Secondary
education
28
19
50
9.9 (-11)
194
123
325
64.1
Higher education
107
19
132 26 (+11)
Total
%
10
2
7
1.4
329
64.9
161
31.8
507
2calc.= 29.5488
Table of dierences
Applicants to
calls
Applied to calls,
but without
success
1.0138
0.3096
-4.4457
3.1222
-0.4102
-2.4871
-16.8974
19.7949
-0.6035
2.1775
21.3432
-22.9172
Primary
education
Secondary
education
Higher education
Not yet applied, but Not interested to apply

intend to
for IPARD funding
2theor.= 12.5916
The model of predicting correlation between education level and applying for
EU preaccession funding was created by changing percentage shares of education
level, i.e. by lowering of percentage share of examinees with primary education for
11%, and by increasing percentage share of examinees with higher education for
also 11%. Changing of frequencies resulted in statistically signicant correlation
978
between education level of examinees and their application for EU preaccession

funding (P<0.05), because 2calc.= 29.5488>2theor.12.5916. If having higher level of
education, examinees may be more motivated to apply for EU preaccession funds.
Conclusion
Referring to signicant inuence of education level and average monthly income as key factors for more ecient usage of IPRAD funds, described prediction models represent a starting point for preparation of necessary measures that
should be included in Croatian Agricultural and Rural Development Strategy. The
research proved that education level and average monthly income of farmers were
the most important determinants that currently inhibit more intensive usage of
IPARD program funds in the Republic of Croatia.
References
oi, I. (2005). Primjenjana statistika. kolska knjiga. ISBN: 953-0-30337-8,

Zagreb.
Scitovski, R., Kralik, G., Sabo, K., Jelen, T. (2008). A mathematical model of controlling the growth of tissue in pigs, Applied Mathematics and Computation, 181,
str. 1126-1138.
Council Regulation (ECC) No. 1085/2006.
THE CHALLENGES OF REGIONAL DEVELOPMENT OF POZEGASLAVONIA COUNTY ...
979
THE CHALLENGES OF REGIONAL DEVELOPMENT OF

POZEGASLAVONIA COUNTY BASED ON THE EUROPEAN
UNION FUNDS
Anton Devi dipl. oec.
Pozega Slavonia County
[email protected]
prof. dr. sc. Vladimir Cini
Ekonomski fakultet u Osijeku
Abstract
The European Union funds can make a strong contribution to regional and
local development of Croatia, however, how the funds will be achieved and implemented in the area of specic region, county, town or municipality depends
on many factors. Also the importance of the European Union funds is growing,
because local supporting measures funded by the Croatian Government are reducing, and entering the full European Union membership, most of them will be
abolished. From that moment, the grand structural and cohesion European Union
funds will be available. Criteria and conditions for obtaining of domestic support
are much milder and easier to full, but are less generous nancial support. On
the other hand, criteria and funding conditions of the European Union funds are
dicult to full, but nancially much more generous. Therefore, in the context of
accession to European Union except meeting of administrative requirements and
harmonization of Croatian legislation with the acquis communautaire, it is particularly important to prepare the stakeholders at the regional and local level for using
of the currently available funds of European Union and those funds which will be
available in the future. Through this paper, using a case study of Pozega-Slavonia
County , are showed some of the key challenges with which stakeholder are faced
in the preparation of projects at regional and local level, and it is showed how much
are stakeholders prepared and skilled to use their own capacities and other available
capacities in preparation of project proposals. The paper gives specic guidelines,
on how to successfully overcome the current challenges, and how to take as much
980
Anton Devi Vladimir Cini
as possible advantage of the European Union funds, which would certainly contribute to the higher level of regional development and higher competitiveness of our
regions in conditions of the membership in European Union.
JEL classication: R58
Keywords: Regional development, European Union funds, region, management, project development
I. Introduction
The European Union stands as a unique economic, political, legal and social
experiment in transnational regional integration. The world we live in may still be
one primarily organized by and for territorial nation states, but if one empirical
example is to be sought of how a post-national or cosmopolitan polity and society
might be built, the EU is the only actually existing institutional example. Built on
a regional territorial logic, its complex structures are also the best guide to the way a
progressive and governable political order might be constructed from the economic
free-for-all of globalisation. And in no other part of the world have such institutions
created a form of post-national citizenship within a transnational regional political
order (Recchi & Favell; 2009, 1). Today, Europe is considering as primarily community of regions, and the Croatia is divided in three NUTS II regions; however,
the counties are still main coordinators of development in their area. Therefore, this
paper tries to answer the question, how to improve regional development through
the use of EU funds, but primarily starting from the county aspect. In other words,
using the case method on example of Pozega-Slavonia County (PSC) and using the
research and interpretation of some signicant data related to the municipalities
and towns from the county area, this paper tent to provide concrete guidelines to
all stakeholders who are active participants in development, with aim to achieve
progress in the development of the whole county or NUTS II Region, primarily
through increased use of EU funds or other donors funds. In order to increase the
amount of used available European Union funds, and on that way to improve regional development, it is necessary to prepare and implement projects on all levels,
from local, regional and national level. But for project preparation is necessary
to have the material and nancial capacities, also what is more important, there
are needed people who have the knowledge and skills for planning, preparation,
implementation and monitoring of the projects. This paper discusses the presence
or absence of such capacities, both with some challenges faced by those who are
981
preparing and implementing projects, as well as steps required to be taken to improve the existing situation. Finally, all that bring us to the conclusion in which
are highlighted the main steps that should be done in future, in order to lead the
county or region to a higher level of development, using the signicant support of
the European Union funds.
II. Assessment of the situation in development of Pozega-Slavonia County
with accent on (no)using of the European Union funds as a potential
growth catalyst
According the Nomenclature of Territorial Units for Statistics (NUTS), the Republic of Croatia is divided into three NUTS II regions. Pozega-Slavonia County
as one of the 20 Croatian counties is located in the North and east (Pannonian)
Croatia, which is less developed Croatian region. Namely, in EU countries the
process of decreasing the role of the state in favour of international institutions
is accompanied by an increasingly strong trend towards regionalization (Pachura;
2010, 49). But regardless of the type of administrative organization, when we talk
about the funds from the European Union and other donators funds who can
give a strong contribution to local and regional development, how many of these
funds will be drawn and implemented in a certain area, is depending on many
factors. First of all, it depends on the stakeholders, on their skills and knowledge,
on the coordination and their readiness to cooperate, on the quality of planning,
on the perception of the funds, on the personnel and nancial capacities, on development and diversity of stakeholders and many other factors. On the other
hand, the number of projects also depends on the development of a network of
existing supporting institutions, such as regional development agencies, business
centres, and oces for European integration as well as all other institutions involved in the preparation of projects. The local development system, therefore,
involves both the structure within which development-orientated organisations are
organised and the key relationships between them. These systems are fundamental
to local development success. Local development is a multi-disciplinary and integrated practice which requires expertise, experience and delivery capacity that no
single organisation has. As a result, organisation and collaboration are essential to
deliver eective local development (Clark et al.; 2010, 131). In the area of PSC,
are up to this time funded projects by dierent donators. Since a large part of the
county was aected by direct battles during Homeland war, in the period between
1991 and 2000 the number of projects have been nanced through the programs
982
of the European Commission, ECHO and Renewal (Novota et al.; 2009, 13). In
the period between 2000 and 2010 in Pozega-Slavonia County have occurred various donators. The European Investment Bank (EIB) and its fund nanced dierent
infrastructure projects in all municipalities. World Bank through the Project of socio-economic recovery, known as PSGO nanced various projects, but only those
that are implemented on war-aected areas. However, in this period are the most
important the EU funds, primarily CARDS 2004, in which had included four
major projects that are funded in the period from 2005 to 2008. After CARDS
comes IPA as a unique instrument of pre-accession assistance, which replaced all
previous EU funds. Through IPA up today were funded two business incubators in
the county, in Pakrac and Pleternica. Related to IPA, is worrying at the moment,
that there is only one project prepared and nanced through SAPARD, and non
from IPARD. Generally, the period of the last ve years, includes a large number
of small projects, which were prepared and implemented in the county. Many of
these projects included the so-called soft measures, which are actually related to
informing and educating of stakeholders, mostly with aim to raise awareness about
available funds. This is one of the most important functions that have to be conducted by all the institutions that are engaged in the preparation and implementation of projects. Taking into account the current situation in PSC, and knowing
the system of the projects preparation for many years, the current state we can
evaluate with a passing grade. Number of projects and amount of funds that have
been implemented, and some trends are satisfactory, but what is worrying, is small
number of people involved in the process of project preparation. Essentially, it is
always the same circle of people who are preparing the projects, and therefore we
can talk about failure of the function of education and training of employees and
other stakeholders, and this is only one of many challenges faced by development
institutions and the experts who prepare projects. Consequently, in following parts
of this paper will be identied some important behaviour characteristics of the
stakeholders who are preparing projects and using available funds to nance their
project ideas, beside that, it will be dene what they should changed in conducting
of their activities, in order to successfully overcome some of the challenges in their
business of project preparation.
III. The challenges that appear in the project preparation process
In the process of Croatian accession to the European Union, many shareholders

on the eld are faced with various challenges. The Croatian legislation is synchro-
983
nizing with the EU acquis communitaire, there are appearing the new rules which
are governing the various elds of life and work of people, at the same some old
rules are slowly adjusting to the new rules. All that happens with aim of fullling
the assumptions that are necessary for our full membership in the European Union.
The process of accession to the European Union, makes that various pre-accession
funds are available to the stakeholders in Croatia, and this availability of funds
on the one hand oers opportunities but also brings certain challenges. Followed
challenges are recognized as the most important and the most common: 1. Lack of
nancial resources insolvency; 2. Too complicated and too expensive application
on open call for proposal; 3. Motto until the job is going well, nothing should be
changed; 4. Thinking on the way nobody ever gave me something for free.
3.1. Lack of nancial resources insolvency
In order to be eligible applicant to compete for funding from any of the EU

funds, certain stakeholder must dispose with material, human and nancial capacities. When we talk about the nancial capacity, in formal sense is the necessary
precondition that the bank account of stakeholders was not blocked in the last two
years. Beside that, what is an unwritten rule and it is especially important to have
on mind, is that applicants often expect that their multimillion project is going
to meet the requirements of donators, and as such will be funded, but they at the
same time are ignoring the fact that their annual turnover over the bank account
does not exceed ten or several tens of thousand euros. Donator will not approve
the multimillion project to such applicant, because the capacities of the applicant
are also observed through the size or amount of previous transactions. Also what
put the great challenges in the front of all the applicants is the change in funding
policy of the projects. Namely, at the stage when the Republic of Croatia were
available pre-accession funds, as CARDS, ISPA, PHARE and SAPARD, then the
projects had to be co-nanced by the applicant during the project implementation,
in percent of 15% and up to 50% of the total project, depending on the specic
funds. But since all these funds were replaced by IPA as a unique instrument for
pre-accession assistance, and on the way toward Structural and Cohesion funds,
which will be available to us when we become a member of the European Union,
the policy of nancing projects by the EU is changing. In fact, when we become
a full member of the European Union, the European Commission will continue
to co-nance projects, but on the principle that the applicant nance whole project during implementation and applicant afterwards gets co-nancing from the
984
European Union funds. So it is necessary to dispose with the means for closing
the entire nancial structure in advance, and only after the implementation of the
project, is possible to accomplish nancing of the project. It is a major challenge for
stakeholders and potential applicants who are competing for the European Union
funds. Many of them the observe creditor as a stakeholders with lack of credit capacity, they are often insolvent, with too many debts, or they can get only a smaller
loan arrangement with commercial banks. Beside dierent stakeholders in business (companies, crafts, cooperatives, family farms), local authorities, towns and
municipalities are often faced with such problems. Namely, large infrastructure
projects usually require a lot of assets, and since the towns and municipalities in
Pozega-Slavonia are relatively small, with small budget, they simply do not have the
possibility of application to such funds.
Table 1. Budgets of towns and municipalities of PS County for 2011 (in euros)
Table 1. shows the budgets of all municipalities and cities in the county for
2011. It is obvious that these are relatively small amounts, beside that, only small
percentage of this amount can be used as a co-nancing for EU projects. For example, municipality of Caglin spends 20 % of its annual budget just for preparation of project documentation and related permits for local sewage system. Which
means that there is no funds for following steps of nancing a project implementation, and they have to wait several years to complete this job. Even in the cases of
projects whose implementation required more years, in the municipalities or towns
which budget has available budget line that can be planned for the next 2, 3 years
985
or more, even in that cases these amounts are often too huge, and a municipalities or a towns are not able to nancing it. These challenges have to be overcome
through better cooperation between towns and districts, wherever it is possible. It
is necessary to connect the water systems, sewers and other infrastructure projects,
and the appear as partners in front of donators, thus strengthening the chance to
get co-nancing of a project.
3.2. Too complicated and too expensive application on open call for proposal
The projects preparation is a complicated, complex, nancial and time requested

work. Application on open call for project proposal of the EU funds requires signicant investment in time and in nancial resources. First of all, a necessary condition
for the application to open call for proposal is getting of all necessary permits, and
all necessary technical documentation, at least when we talk about hard projects. Namely in such cases, competing for the funds of the EU is possible only with
submission of the building permit. Exceptionally, in some cases, it is enough to
present the proof that you are in the process of obtaining of the permit, and that
you will obtain it before the beginning of project implementation. The whole situation about these permits makes the whole process of preparing and implementing
the project more expensive, and long, but it is the only correct and legally valid way.
Time is denitely an important variable in the process of project preparation. Local
authorities cannot ignore this fact, and must search the solutions to minimize time
and cost of the applicant; nevertheless, it would contribute to further attracting investment in their region. Also, unless the project application is prepared in English,
it is often necessary to translate the following documentation, which in most cases
means that it is necessary to hire an expert who is experienced in both, the English
language, and specic professional knowledge. But these kinds of experts are very
rare, or they are very busy. This is almost usual situation, in the case of preparing
the documents for the procurement of specialized laboratory equipment, specialized
vehicles, equipment, etc. In the same time it is certainly necessary to develop quality
feasibility study, which includes cost-benet analyse, then there have to be prepared
an environmental impact studies or similar studies. But what also happens very often, particularly in the Pannonian region, is the lack of information for farmers. As
a result of all that circumstances, it is still going on the eld, is rising of various
facilities without proper documentation. Probably because many manufacturers are
not even aware of the fact, that one day it will not be allowed to them, to oer their
products on the market if their facilities are not designed, constructed or raised in
986
a according proper permits. In that sense it is encouraging the fact that the procedure for obtaining the documentation is trying to be simplied, what will denitely
shorten the time required to its obtaining. Nevertheless this procedure could be
much more accelerate, rst of all depending on local oces for construction, which
have to especially take care about permits for projects that are going to be submitted
for EU funds, in order that they can get their permits before deadline.
3.3. Moto until the job is going well, nothing should be changed
How much is some stakeholder interested in project preparation and active participation in project preparation, it is visible primarily through attendance on
trainings, workshops, informative seminars, by participation in various committees and similar bodies. In general, the importance of education and getting a new
knowledge is underrated. In European Union is education and science one of the
highest priorities. Placing a high priority on education and science requires not only
priority access to public resources, whether from local, regional, national or European budgets, but also a priority from the point of view of continuously improving
the system for delivering and using these resources and their outputs (Bienkiowski
et al.; 2008, 83). In the area of Pozega-Slavonia County are operating some companies, which are in its branch of activity relevant representatives, both in Croatia
and in this part of Europe. But almost as a rule, as the company the most successful is, as less attention it is paid to informing, and education of their employees
about the EU funds. They think in a way, that while their main job is going well,
as long as they maintain liquidity of their company, they should not be informed
about alternative sources of income. But situation is changing since the almost
whole world has fallen into recession, so as the markets to which these companies
were placed the most of their goods. There was a situation that warehouses of these
companies became full of unsold goods, that the size of sales is reduced, same as
the number of shifts in production. However, in that situation the management
of these companies decides that they could apply a project to the EU fund. This
result in spontaneous planning, ad-hoc planning of projects, when in rst plan
come some project ideas that are there only because some call for proposal is open.
This is a typical example of lack of information, and as a consequence, the lack of
systematic and strategic planning. Talking about situations when is there a lack of
appropriate funds, what is symptomatic in such situations is more intensive work
on ideas for preparation of the projects, and developing of more project ideas, on
the other hand when there are sucient funds for nancing of projects, than there
987
are less ideas, and projects are not prepared, nor anyone cares about them. At least,
not in number that it could be possible. Related to that in PSC exists situation
that companies, their management is not interested in getting information about
EU funds, nor they are interested in education of their employees. For example,
Regional Development Agency of PSC in period from 2007 to 2009 had 244 clients, and 10 % or only 25 of them were companies representatives. Only 2 out of
25 were representatives of big companies that have large capacities, in material and
human recourses. This is signicant data, which is telling that companies have to
be included in the world of project preparation as soon as possible. The same case is
in some towns and municipalities in the area of Pozega-Slavonia County. But it this
situation, their failure or mistake is larger than in the case of companies, because
they miss to do something to improve the quality of life in their town or municipality, without covering the full project costs by the tax payers, or in worst case with
covering only certain percentage as a co-nancing. Only logical conclusion here, is
that it is necessary to invest in education of own employees, and it is ideal to build
own project design teams. Because, it is in the long term, most economic, most
eective and generally the most ecient way to accomplish the nancing of the
projects from EU funds.
3.4. Thinking on the way nobody ever gave me something for free
The fact suggests that relatively few projects were implemented in the area of
Pozega-Slavonia County. Related to that, only one project through the SAPARD
fund was nanced in Pozega-Slavonia County, and none through the IPARD fund.
Knowing the fact that nearly 50% of the Pozega-Slavonia County is agricultural
land, and it is one of the counties in which agriculture activity is still present, it
is clear that such data is considering. This lack of positive examples has certain
discouraging eect on potential applicants of project proposals. In that way, it is a
signicant number of stakeholders who believe that it is an illusion to prepare the
project and hope that the same will be funded by EU. This is especially signicant
for stakeholders who are engaged in agriculture. Related to funds which are available to farmers, there happened strong slew. In the past the Ministry of agriculture
as part of support to agriculture, among others, carried out and incentives for supporting capital investment in agriculture, and through it farmers could obtain a
grant in the amount up to 50% of their capital investment, or in amount up to the
1,4 millions euros. And here the procedures were less rigorous than it is in IPARD
fund or other funds within the IPA. Through this grants have been purchased most
988
of the new machinery that is now located in the elds of Pozega-Slavonia County
and the entire Pannonian region. However, as an integral part of approaching to
full membership of the European Union, Ministry of Agriculture in November
2009. suspended all operational programs, including this support measure of return of 50% for capital investment. Now the farmers are in a situation, that many
of them still have not realized these incentives through capital investment model
(although they were included in the grant system). When we take into account
this fact, and the fact a small number of funded and implemented projects, it is
clear that much of the stakeholders in Pozega-Slavonia County is thinking, that
they didnt get anything from anyone for free, and they count with that in the
future. Consequently they are still very sceptical about projects nanced by the
European Union, and they all seem them like something unreachable. Certainly
to this fact contributes the approach of our politicians and negotiators, who always speak about the billions of euros waiting for us to pick them up, and at the
same most of the potential applicants does not know where this money is, what is
the purpose of it, where you can spend it and similar. The ultimate consequence
is that, that there exist lacks of awareness, about the European Union in general,
about funds, the purpose of funds, and even areas of activity for which funds are
predicted. This situation is more considering if we know, that the biggest program
in the EU has been the agricultural price supports that were put in place under
the Common Agricultural Policy to keep farmers solvent (Fligstein; 2008, 43).
Therefore, all stakeholders, from regional development agencies, counties, towns,
municipalities, chambers, must work systematically on raising public awareness
about the availability of EU funds, also on promotion of the necessity of developing the project ideas, and on importance of project thinking. Moreover, there
must be constantly develop the awareness that the EU will not give someone the
funds, because he knocked on the right doors, or because it should be funded by a
party, family, or some other principle, just opposite, the EU funds a good idea and
a good project. Our county prefects and mayors must forget the times when funding of their projects were approved by the political party key or lobbying by the
ministries, and thereby they didnt have to give any or almost any serious feedback
on the project in which the fund is spending. Actually, those who begin earlier to
think projective will for sure draw more from available EU funds.
989
IV. Conclusion
The success of a certain region, county, town or municipality in attracting funds

from European Union funds and other funds is usually measured by the number
of projects, and nancial size of projects. But if we are successful today and we
have drawn a lot of funds, there is no guarantee that we will be tomorrow the same
successful. Namely, we can currently be satised with existing results, but we still
have to do more, because call for proposals are changed, the applying procedures
are modifying , more people are writing projects, the number of project applications is higher, and number of funded projects is increasing. Accordingly, the informational and educational role of development institutions is more important.
Namely, in order to achieve the best results in attracting and implementation of
funds, it is necessary to have trained and skilled people. In the short term, it is
possible to achieve good results, but if there is no quality stakeholders who are
thinking projective, who are able to articulate their ideas and actively participate
in the project cycle, it will generate worse results. If nothing else motivates in this
sense, it should motivate the fact that is intensied competition in the bidding for
EU funds, from applicants from other countries, counties, towns and municipalities, who are already investing in their sta. We all should try to follow example of
Poland who is leader in using an EU funds, namely Poland has been awarded with
67 billion euros in structural funds during the 2007-2013 budget cycle, the most
of any EU country (Wagstyl; 2011). Nevertheless, we should manage and organize
our approach to the EU, from aspects of dierent business and social groups in the
society, in order to avoid examples of a number of European countries grappled
with problems of their own design (Stiglitz; 2010, 31). The brightest examples in
attracting the funds of the EU, and in using them in function of development of
certain area, have those subjects who have systematically invest in education of its
stu. Therefore, in order to achieve maximal funds from European Union, and to
use them in order to develop certain area it is necessary to educate stakeholders. It
is only right way, which should bring certainly, the higher development in each of
Croatian counties or regions, and in whole Croatia.
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Clark, G. et al., (2010). Organising local economic development: The role of developement agencies and companies, ISBN 978-92-64-06081-4, Paris
Fligstein, N. (2008). Euroclash: The EU, European identity, and the future of Europe, Oxford University Press, ISBN 9780199542567, New York
Novota, S. et al., (2009). Europski fondovi za hrvatske projekte, Central oce
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Verlag, ISBN 978-3-7908-2363-9, Heidelberg
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THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK,

FACULTY OF ECONOMICS IN OSIJEK CROATIA

Dinko Juki, Boica Dunkovi

Alexander Moheit, Dirk Wentzel

Ivana Barkovi Bojani

Economic Development, Technological Change, and Growth

Prof. Dr. Draen Barkovi

It is our pleasure to introduce the book Interdisziplinre Managementforschung

Prof. Dr. Draen Barkovi

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG

Ein erster Teil-Schritt zur Verbesserung der Planungs- und Kontrollsystematik

Christian P. Runzheimer Bodo Runzheimer

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

1 Bestimmung der Grobstruktur des Planungs- und Kontrollsystems

Zur Bestimmung der Grobstruktur des Planungs- und Kontrollsystems ist es

Christian P. Runzheimer Bodo Runzheimer

(2) Planungs- und Kontrollsubsystem des innovativen Produktes sowie

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

Metaplanung und -kontrolle des

Planung und Kontrolle des

Planung und Kontrolle des

Christian P. Runzheimer Bodo Runzheimer

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

Zeithorizonte der Planung und Kontrolle

Metaplanung und -kontrolle

Beginn des Entsorgungszyklus

Ende des Entsorgungszyklus

Abb. 3: Zeithorizonte der Planungsebenen der Integrativen Produktentwicklung

Christian P. Runzheimer Bodo Runzheimer

Da es sich bei der Planung und Kontrolle einer Produktentwicklung um ein

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

vorgesehene Dauer des Produktlebenszyklus, die geplanten Stckerlse und

Christian P. Runzheimer Bodo Runzheimer

mgliche unternehmensinterne Schnittstellen zu weiteren Entwicklungsprojekten,

Schnittstellen zu unternehmensinternen Planungsund Kontrollsystemen

Planung und Kontrolle von Subsystemen des Produktentwicklungsprojektes

Planung und Kontrolle des

Planung und Kontrolle von Subsystemen des innovativen Produktes

Planung und Kontrolle des

Planung und Kontrolle weiterer

Planung und Kontrolle von Teilprozessen und zugehrigen Produktionsfaktoren

Planung und Kontrolle der

Planung und Kontrolle weiterer

Planung und Kontrolle der unmittelbaren Realisierung

Planung und Kontrolle der

Planung und Kontrolle weiterer

Verkauf, Wartung, EntsorDistribu- Service gung

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

Durch den spontanen und innovativen Charakter einer konkreten Integrativen

Eine Verfeinerung des Planungs- und Kontrollsubsystems der Metaplanung

Christian P. Runzheimer Bodo Runzheimer

Plan der formalzielorientierten Planung und Kontrolle

Abb. 5: Plne der Metaplanung

Als Planungsgrundlagen der Metaplanung kommen Basislsungen im Sinne

KONZEPTIONELLE VORSCHLGE ZUR VERBESSERUNG VON PLANUNG UND ...

Systematik, Methodik und Organisation

Prmissen der Metaplanung des Planungs- und

faktische Aussagen und Begrie